Top 5 Most Common Financial Mistakes

April 5, 2023

There are so many things people say we should do in order to become successful. Let’s talk about the things we shouldn’t do. With so many sources all trying to give us advice on how to achieve success, it’s important to consider what to avoid as well.

Here are 5 common financial mistakes you may recognize. And some simple steps to fix them.

Excessive and Irresponsible Spending

This is one of the most common mistakes because it is so easy to become an undisciplined spender. This is because we assume a large vs a medium or 2 drinks instead of 1 does not make a huge difference. However, the brain usually fails to realize the accumulative burden that all of these small impulsive decisions have on a budget. No one should expect to follow their budget perfectly but we should all at least have a budget and also analyze our success in following that budget. Sometimes we have a budget but we just cannot find the strength to follow it because of the instant gratification pull certain purchases have on us. The way to say NO and stick to that budget is to have a greater YES burning inside. When that YES inside is accomplishing your future financial goals, it becomes easier to say NO in those immediate in the moment decisions where it’s easy to say, “why not, tomorrow is not promised”.

Never-Ending Payments

These are expenses such as cable, gym memberships, and other subscriptions. These never-ending payments are forced bills that leave the payee owning nothing after all the money they have spent. Similar to the way rent payments or insurance works, you either use it or lose it, there is no ownership. Rent and Insurance are obviously more important than a music subscription, but it is still under the same umbrella where the payee acquires nothing in return other than the use of whatever they are leasing for that period of time. This is why acquiring assets through ownership is best for the long-term. Also, if you can cut out unused subscriptions you can replace that bill with a savings habit instead!

Using Home Equity as a Piggy Bank

It is easy to access the equity locked in your house by applying for a home equity line of credit or HELOC. This HELOC can be used for good or bad. For example, applying for a HELOC to pay off bad debts with high interest rates could save thousands; but if the HELOC is abused and the money is not used properly it can be detrimental. The key with a HELOC is to understand the plan behind why you got it in the first place and then execute that plan without changes.

Not Investing for Retirement

The most common financial mistake we see is the lack of habits built around saving/investing for retirement. All our lives we receive a paycheck for our work and it’s hard for a lot of us to imagine life any other way. Most say they either won’t live that long so why bother saving, or they say I will work forever so why worry. The truth is most of these people realize they were young and naïve when looking back at their younger selves 20+ years ago. The human brain is just not good at planning 20, 30 or even 40 years which is why retirement planning usually only comes on the radar for pre-retirees around 55-65. The key to beginning young is to treat retirement saving/investing as a bill. Just like 401k contributions are automatically taken out of your paycheck before you receive it, your retirement savings should work in the exact same way. You can set this up by opening an account with automatic reoccurring ACH payments, this capability is available at Greenberg Financial Group and almost all brokerage firms. If you have access to a 401k plan, make sure you are contributing especially if your company offers a match.

Not Having a Plan

Everyone wants to believe that what they are doing is setting themselves up for their future financial goals. However, we find that most individuals and families have never taken the time to analyze what those goals are and when they want to achieve them! Before you can know whether you are doing the right things you have to decide what you want to achieve. Then, you can lay out different pathways that will lead you to those achievements. A financial plan shows you the most efficient pathway to follow to achieve your financial goals. Think of a financial plan as a compass. Could you imagine hiking north through a jungle without a compass, you would be constantly going in circles! The same holds true in our financial lives. You must first pick which direction you would like to travel and then use your compass or financial plan to get you there.

I hope this article outlines some of the common financial mistakes that we all make and ways in which we can fix them. If you would like us to analyze or prepare your financial plan, we offer free planning meetings with no obligations. You can set up your free meeting by going to www.greenbergfinancial.com or giving us a call at 520.544.4909.