In this article we’ll look into the major money mistakes that frequently push individuals into financial trouble. By avoiding some of these missteps, you can help set yourself up for financial success in the future.

1. Prioritizing Spending Cuts Over Income Growth
Some believe the path to wealth is through cutting expenses. While frugality has its place, remember we all have basic needs

On the other hand, there is no limit on how much you can earn. By proactively taking steps to increase your income, you can create more opportunities for financial security and success.

2. Sweating the Small Stuff
One of the biggest personal finance mistakes people make is obsessing over small financial decisions, while not spending enough time on the most significant money decisions.

People will spend hours looking for the best deal on Prime Day but won’t spend an hour looking into impactful financial decisions. It’s important to focus on big financial concerns like automating your contributions, salary negotiations, and optimizing your savings rate.

3. Borrowing Too Much
Excessive borrowing quickly brings to mind credit card debt. But don’t overlook student loans. Always evaluate the return on investment on your degree – will it earn enough to offset your student loans quickly?

4. Splurging on Major Expenses
Your home and car are likely your most significant investments. These purchases can have a lasting impact on your financial situation, so it’s crucial to make smart decisions.

Overspending on either can lead to unnecessary financial stress and may hinder your ability to achieve your long-term goals.

5. Delaying Retirement Savings
The best time to start saving was yesterday. The next best time is today.

To illustrate this, let’s imagine Ben and Mike both start with $10K and add $500/month to their retirement savings. Ben starts at 25 and Mike at 35. By age 65 Ben ends up with more than double.

The longer you wait to save the harder it is to build up a significant nest egg.

The Benefits of Investing Early

6. Panic Selling During Downturns
Market downturns all have one thing in common, they end.

Our country has navigated World Wars, inflation, deflation, financial crisis, pandemics and much more. Each time we have come out of all these events stronger than ever.

As you can see below, everyone who has ever invested during these declines has ultimately been rewarded.

US Stock Returns Following Declines

7. Putting All Your Eggs in One Basket
Having a large portion of your money in a single stock or investment is one of the largest risks to preserving your wealth. Balancing your portfolio across varied assets reduces exposure to drastic market fluctuations and aids in steady growth.

8. Skimping on Insurance
Choosing to be underinsured is essentially taking a gamble: you risk a potentially devastating cost in exchange for a smaller more manageable one.

Whether it’s homeowners insurance, life, or car insurance, each protects you against unexpected financial setbacks.

9. Investing In Products You Don’t Understand
A simple principle: if you can’t explain an investment in basic terms, you likely don’t grasp it fully. Avoid complex products that may have hidden risks or costs. Stick to what you understand.

10. Never Enough
The hardest financial skill is getting the goalpost to stop moving. The concept of having “enough” doesn’t necessarily mean you don’t want more money.

It means understanding that if you constantly raise your expectations, you’ll never be satisfied.

On average, most current retirees still have 80% of their pre-retirement savings after almost two decades in retirement. Don’t spend your life worrying about not having enough money only to let someone else enjoy it.

Bottom Line
Navigating finances isn’t always a flawless journey. We all make errors now and then. The true challenge is to recognize these mistakes, learn from them, and to make informed decisions moving forward. Aim to grow wiser with each financial step.

George Maroudas, CFP®

George Maroudas, CFP®

Twitter @ChicagoAdvisor

Sources / Disclaimer:

The vast majority of retirees still have at least 80% of their savings after two decades in retirement from Blackrock

The Benefits of Investing Early from George Maroudas

US stocks following declines from George Maroudas. Data from YCharts

To read more on stock market concentration, check out my blog post here.

Stock investing includes risks, including fluctuating prices and loss or principal. This information is not intended to provide specific advice or recommendations about any stock nor is it intended to be a recommendation to buy, sell or hold any stock investment. We suggest speaking with your financial professional about your situation prior to investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice.