10 Most Common Money Mistakes and How To Avoid Them

The thing with money is that it’s very easy to mismanage it. Once one starts to mismanage money, it’s easy for it to spiral out of control. This then leads to people being in financial ruin and not being prepared for their future. So I created this extensive list to show the most common money mistakes and how to avoid them. I’ve personally made nearly every one of these, so trust me — none of this is judgment, it’s experience.

1. Not having health insurance

I’m going to start off with something that most people probably didn’t realize. Do you know what the leading cause of bankruptcy in the United States is? You guessed it! It’s medical expenses.

Statistically, around two-thirds of all bankruptcies are related to medical issues. Now I get it, medical emergencies aren’t something to take lightly. The reason they call it an emergency is because you don’t see it coming. It’s the lack of preparation that gets you into a lot of trouble.

Having health insurance could prevent so many of these bankruptcies. If you were in a car accident and needed surgery costing well over $150,000, chances are you don’t have that much lying around somewhere. This is where health insurance comes in. It helps cover a large portion of that medical expense. Some insurance policies actually cover the entire cost.

If you do nothing else on this list, make sure you do this! Yeah, insurance is not fun, but it’s definitely the responsible thing to do for yourself and your family. This tops the common money mistakes people need to avoid, hands down.

2. Not negotiating for certain items and services

Since I’m already on a roll, let me throw in another item not really talked about often — price negotiating.

There’s a negative connotation given to the idea of haggling prices. It might also be a cultural thing. The reason I say that is because, since I was born and raised in Zimbabwe, haggling for prices of items and services is the norm. When I came to the United States, I still had that in me. I’ve always believed that anything with a price tag can be negotiated. I found that to be true.

There are loads of times I’ve been in a store or working with a plumber or electrician, for example. I would ask for a quote for a particular item or service and try to negotiate the price. The majority of the time, I would get a lower-than-listed price! You lose nothing by asking, but you stand to lose more by not asking. It’s always good to keep in mind and try to negotiate when you can — medical bills, car prices, insurance premiums, and internet plans are all far more negotiable than people think.

3. Not having an emergency fund

You can’t always prevent an emergency, but you can always be prepared for one! It’s human nature to think that bad things only happen to other people. Chances are, those people thought the same thing.

Not having an emergency fund is financial suicide. Since you never know when an emergency might occur, everyone needs to be prepared. Your car might not start tomorrow, or you might hurt yourself and need an ER visit. These are emergencies.

Creating and saving up for any emergency isn’t as hard as it might sound. Financial experts recommend that you have 3 to 6 months of expenses saved up! Sure, that’s easier said than done, so you can start off by saving up just $1,000 to cover any unexpected expenses. Not sure what your real target should be? The emergency fund calculator does the math in a few seconds, and I’ve written an article on exactly how to get started. One tip: keep that money somewhere it actually earns instead of a zero-interest checking account — the where-to-park-cash tool compares the safe, liquid options. This will save your financial future, trust me!

4. Not having a budget

If you’ve read a few articles on this blog, you know how important having a budget is. Having a budget is the absolute pinnacle when it comes to personal finance.

Have you ever gotten a paycheck and a few weeks later all the money is gone? I know I have, and I’m certain that statistically, the majority of you have too. That’s what happens when you don’t have a budget. Having a budget means that you have control over your money. If you don’t have a budget, then the opposite is true — money controls you. Now we don’t want that, do we?

This one is pretty easy to do too. All you have to do is add up all your monthly income and write down all your monthly expenses. Granted, it’s a little bit more complicated than that, but don’t worry. I wrote a full guide on how exactly you can get started budgeting for beginners, and if you want a dead-simple framework, the 50/30/20 rule splits your take-home pay into needs, wants, and savings without any fuss. Once you’ve got your numbers, the free money dashboard keeps them all in one private place so you’re not rebuilding a spreadsheet every month.

5. Spending on credit cards like it’s free money

Here is a wake-up call for some! Credit cards are not free money! Wait, what? Yep, you heard that right. The majority of people out there spend on credit cards like the money is free. Well, unfortunately, it’s not.

I personally love credit cards! Especially premium cards that come with perks such as cashback and travel points. If used wisely, credit cards are a way to get free money from the money you would have spent anyway. When used incorrectly, it can be financially devastating.

If you own a credit card, then under no circumstances are you to carry a balance month over month. The interest rates that come with credit cards are way too high — often north of 20%! If you can’t control your spending or carry a balance month over month, then you might seriously consider cutting up your credit card. No, seriously. If you’re already carrying a balance, our credit card tips can help you dig out.

I have seen and read so many horror stories when it comes to credit cards. These things can be a gift or an absolute curse! So, as I said, if you pay off your credit card every single month, then I have no problem with that. But if you carry a balance month over month and pay interest on your purchases, then get rid of it.

6. Buying a car on a loan

This applies to both new and used cars! Figured I’d get that out of the way first. Buying a car on a loan is not financially smart. I am so certain that I’m not the first one to say this :) Now am I?

Pretend you just bought a new car for around $48,000 — according to Experian and Kelley Blue Book, that’s roughly the average price of a new car these days. Nearly fifty grand for four wheels? That’s absolutely insane! Once you drive that new car off the lot, she immediately loses thousands of dollars. Literally thousands of dollars down the drain.

If that’s not bad enough, every day you keep it loses more and more value. So by the time you finish your 3-to-5-year payments on the car, it’s worth a fraction of what you paid for it. God forbid you trade it in and lose even more money! It is definitely one of the top common money mistakes to avoid at all costs.

If you are going to finance, at least go in with your eyes open — the car payment calculator shows exactly what a loan will cost you in total interest before you ever step on the lot. Better yet, I’ve written an article on how you can buy a car without breaking the bank. You don’t have to get a car loan. Sure, you probably hear people say it’s perfectly normal and everyone does it. I know I have. But that doesn’t make it smart at all, so I avoid it at all costs.

7. Not saving for retirement

Do you know what the saddest thing is? I personally believe that it’s regret. Can you picture yourself at the ripe old age of 70 without a dime in retirement? It’s heartbreaking.

Let’s get one thing straight. Social Security absolutely will not pay you enough to retire on comfortably. The older you get, the more health care you need, and Social Security doesn’t even make a dent in that. Not to mention, you still need to pay for your everyday living expenses, utilities, and so on. This, as a common money mistake, might also have the most devastating effects long term.

The sooner you start saving for retirement, the more you will have — compound growth does the heavy lifting, but only if you give it decades to work. I get it; when you are young, you don’t really think about how far in the future retirement is. But the cold, hard truth is that you are getting older day after day. Don’t put this off! Not sure how much you actually need? Start with how much you should have in your 401k.

Many employers offer a 401(k) plan. If yours does, you definitely need to be contributing to it. If it offers a match, then you 100% need to contribute enough to get the full match. If you don’t, you are throwing free money away! If you don’t have a 401(k) or don’t know if your employer offers one, stop right now and send an email to HR asking. Old future you will thank me!

8. Not being cautious when taking student loans

There is an epidemic happening when it comes to student loans. The cost of tuition has steadily gone up year over year. This means that more and more students can’t afford to pay for college outright. Student loans come to the rescue!

You get money to go to school and get your degree. Yay, graduate! Then, as soon as you start working, you have this huge loan you need to pay back. Ouch. It’s a heavy cloud to carry when you are just starting out your adulthood.

Now, all of a sudden, you can’t afford to get a mortgage or save enough for retirement. These shackles drag you down and slow your progression through life. It’s super important to be cautious when taking out student loans. Education is indeed important, but loans are not to be taken lightly.

Instead, try to apply for federal student aid and find out if you qualify for any grants that would help you pay for your tuition. Also, consider attending an in-state college, or knocking out your first two years at a community college. Look out for all opportunities that would minimize how much you have to borrow. Make sure you research everything and ask questions!

9. Not keeping an eye on your credit score

Do you know what your credit score is? If you do, congratulations! You are one of the few people out there who do, and that’s not an exaggeration either.

The majority of people out there don’t know what their credit score is. Add this one to the important common money mistakes to avoid, as it’s one of the easiest to fix. Since we live in a world where your financial health and responsibility are partly determined by a number called the credit score, then it’s vital that you know what your score is. This helps you know what you qualify for when it comes to credit approval. If you want to understand the number itself, here’s what’s considered a good credit score.

Things like getting a mortgage, setting up a utility account, or even renting an apartment all take your credit score into consideration, just to name a few. So why would you not keep a close eye on something so important?

Services like Credit Karma offer free credit score checks, and most credit cards now show your score right in the app for free. So if you don’t know what your credit score is, then go take a look. Make sure to check regularly.

10. Not having multiple streams of income

I saved the best for last :) Depending on a single income is not a good financial strategy. If your primary and only income is your job, what happens if you lose that job?

As I mentioned earlier, it’s human nature to want to live in the moment and not actively prepare for emergencies and what-if scenarios. Take a moment to think about it. If your employer suddenly decides to lay off employees or goes out of business, then you become stranded. Even if you had a small emergency fund, you’ll probably go through that pretty quickly. Then what?

It’s important to have more than just one source of income. It might sound difficult and intimidating, but anybody can do it! Things like blogging, driving for a delivery app, real estate investing, or even renting out a spare bedroom are just a few examples.

Lucky for you, I’ve written an article on the top creative ways to earn passive income, plus a roundup of side gigs that pay really well. Check them out and see where you can get started.

Final thoughts

I know of so many other ways that people mismanage their finances. These 10 are just the most common money mistakes to avoid, but also the most devastating. Make sure to read this more than once, and return to it to constantly remind yourself.

I have personally done every single one of these items on this list, but I took the time to realize the mistakes and fix them. Anybody can fix their financial picture and get on the path to financial freedom. It’s really not that hard — it just takes courage and determination.

I always say this to my peers, and I’m going to say it to you. If a little boy born and raised in Africa can do it, you can too! I have faith in you. Good luck.