Woulda, coulda, shoulda.
We all have regrets in life, but none sting quite as much as financial mistakes.
I had a friend once tell me:
“Financial regrets are like that ex your friends and family warned you about, but you didn’t see it. Ten years later, you look back and wonder WTF you were thinking.”
Some money mistakes – like paying a bill late or missing a payment – can be swept under the rug.
Others will haunt you.
The worst offenders are the spending mistakes you don’t even realize you’re making. That’s what inspired me to write this post.
As it turns out, people have a lot to say about financial regrets.
In a survey of 2,000 people, here’s what they said their best financial decisions were:
Purchasing a home
Paying off debt
Graduating from college
Those are good to know if you’re facing the same kinds of decisions in your life.
But what can you learn from other people’s mistakes?
Here’s what the same people said they regretted:
Going into consumer debt
Failing to save money
Not focusing on retirement
So let’s dive a little deeper into these topics so you can walk away financially smarter! Here are 13 money mistakes to avoid:
(This post might contain affiliate links. Check out our disclosure policy here!)
1. Treating Your Retirement Like a Distant Cousin
Experience is the best teacher.
And if that’s true, there’s nothing I can share with you that’s more important than this:
There is no pension for our generation, guys. You have to save for your own retirement.
When you reach the point of retirement, either you’ll have enough money saved to live comfortably or you won’t – and you’ll wish you had.
In a recent survey, older people were asked to share one piece of advice with young people.
Can you guess what they said?
The overwhelming majority said, “Save for the future!”
That answer triumphed every single other, including:
Finding work you love
Being responsible for your own life; and
Furthering your education.
Then when asked about the best piece of financial advice they’d give, 93% said:
Start saving early and contribute to your workplace retirement.
Experience has taught these people a hard lesson. Don’t make the same financial mistake.
When you wait, not only do you feel more pressure, but you’re missing out on the power of compound interest.
The sooner you start, the more you can reap the benefits of compounding returns.
Let me give you this example:
Vanessa and Ashley are both 25.
Vanessa decides to invest $202 per month into retirement until she turns 65.
Ashley decides to wait until she’s 35 to start. She says she wants to wait until she earns more money.
Here’s what that looks like:
Vanessa started 10 years earlier, with half the amount of monthly contributions, and came out ahead.
Let’s all agree to be like the Vanessa’s of the world.
Even if it’s a small amount – do it! A small amount is better than no amount.
If you need to know where to start when it comes to retirement, this will be a game changer for you. Do something now that you will thank yourself for later.
“It’s not how much money you make, it’s how much you keep.”
– Robert Kiyosaki
2. Paying the Minimum on Credit Cards
Interest rates are tricky. And in the end, they’re what costs us so much more in the long-run.
And if you only make minimum payments on your credit cards, it can take years and years to pay them off.
Let’s say you only made the minimum payments on a $5,000 credit card.
The interest rate is 12.5%
Do you know how long it’d take to pay it off?
Almost 10 years with $1,700 worth of interest.
So what should you do?
First, stop adding more debt. Step away from the credit cards.
Someone first told me about SoFi in college (when we were talking about student loan debt).
And I’m so glad they did.
Just by lowering your interest rate, you’ll save thousands over the course of your loan.
So just because you can’t afford to pay off the balance completely, don’t settle for a high APR.
3. Buying More House Than You Can Afford
When it comes to buying a home, what the bank says you can afford may not actually be what you can afford.
Wait, they don’t really do that, do they?
Yep, and it was a reason behind the 2008 housing crash.
Here’s the deal:
In 1960, the average house size was 1,289 square feet. Families were also larger back then (baby boomer generation)
Today, the average house size is 2,641 square feet. Families are smaller.
We all want more and more, until “more” becomes something we can’t afford.
Your house payment should be no more than 30% of your income. That includes property taxes and insurance.
The same goes for renters.
Committing too much of your monthly income to your house is risky – and it’s a financial mistake.
Research shows that the average person can pay around 30% of their income towards housing and still enjoy a reasonable standard of living.
But when you’re determining how much house you can afford, make sure to include other important expenses besides bills.
(Think: retirement, emergency fund, and savings)
Give your budget room to grow.
Are you planning on having kids?
Do you want to go back to school?
Will you change careers?
Do you want to save money for your kid’s college?
Are you getting married?
Don’t forget about these things!
“Don’t tell me what you value, show me your budget, and I’ll tell you what you value.”
– Joe Biden
4. Taking On Too Much Financial Aid
The average college student graduates with $29,800 in student loan debt.
That’s more than double what it was 20 years ago.
44% of graduates wish they’d saved more
34% wish they’d worked more to pay for college
22% wish they’d chosen a more affordable school
The worst part about it? So many of us are willfully ignorant about the amount we borrowed.
I mean – it’s all going to be paid off by future us, right?
Here’s what you should do:
Keep your budget in mind – the same way you would if you were shopping for a house.
Also, understand your financial aid package.
Know the difference between scholarships and grants (you DON’T have to pay these back) and loans (you HAVE to pay these back)
Don’t get sucked into thinking it’s all “free money.”
But what do you do when you already have student loan debt?
If that’s you, try starting with these:
I’ve gotten several emails from readers saying those helped their debt-free journeys.
5. Not Tracking Your Everyday Purchases
Little by little, small things add up. And these small things add up to big financial mistakes over time.
If you’re spending $10 a day on anything – your favorite coffee or lunch – those small purchases add up to $300 per month.
Talk about death by a thousand financial cuts.
This is where the power of a good budget comes in.
As John Maxwell says, a budget is telling your money where to go instead of wondering where it went.
A budget not only keeps you on track with your financial goals, but it gives you permission to spend.
Have you ever thought to yourself, “You know what, I’m not sure if I should buy this?”
Never again. When you have a budget, you can spend guilt-free.
Think about all the money you’ll save, the financial goals you’ll reach, and the peace of mind you’ll finally get.
Trust me, it’s worth it.
“The four most expensive words in the English language are, “This time it’s different.”
– Sir John Templeton
6. Giving Into Lifestyle Inflation
I’ve come a long way.
I earn good money, I work hard, so I deserve it.
Or at least, that’s what we tell ourselves.
It’s that “I deserve it” or “I can make the monthly payments” mindset that leads us to lifestyle creep.
Lifestyle creep is when your income goes up and your expenses rise to match it.
For me, this was the realization of, “I worked so hard to earn more money and I’m no better off? Wait, what?”
It’s like putting your financial goals on a treadmill – where you’ll never get any closer to reaching them.
If you want to save money, then start by living within your means
Aka, spend less than you make.
Once you get that down, then try living below your means – THIS is where the magic happens.
Making this a habit early on will teach you the power of financial freedom.
You’ll save more money and make better decisions throughout your life.
You work hard and you should enjoy yourself. But don’t rob your future self by falling into the lifestyle inflation trap.
7. Borrowing From Your 401(k)
When the money is tight, that 401(k) is so tempting.
After all, it’s your money – so why can’t you use it the way you want?
And actually, if you google “401k” one of the most popular searches is:
Should I take out of my 401k for a home down payment?
Yikes. Talk about a financial mistake. That’s what your savings are for.
Here’s the thing:
If you withdraw money from your 401(k) before you’re 59.5, you’ll have to pay an early withdrawal penalty. On top of that, you’ll also pay income tax.
Studies show that half of the people who borrow from their 401(k) end up reducing how much they contribute monthly while repaying the loan.
One-third end up stopping contributions completely during the time they’re paying back the loan.
Bottom line: just don’t do it.
“I’d like to live as a poor man with lots of money.”
– Pablo Picasso
8. “Investing” in a New Car
The average American spends $26,000 on a car.
With a 60 month loan and an average interest rate of 4% – that’s a $479 monthly payment.
But guess what?
The car dealer won’t tell you that your awesome new car will lose 11% of its value as soon as you drive it off the lot.
Maybe they accidentally left that part out.
After four years, that car has lost about 40% of its value.
They left that out too.
After six years, you’ve paid about $29,000 for a $26,000 car – which is now worth less than $12,000. Not good.
Vehicles are important, but they can quickly turn into a discretionary purchase.
Once you tack on the bells and whistles (leather seats, sunroofs, park assist) it can really add up to something you can’t afford.
Spending a ton of money on something that loses 11% of its value instantly, and that sits idle 90% of the time, isn’t the best move.
The realization for many is that cars are one of our most underutilized– but yet most expensive – assets we have.
9. Avoiding Important Money Conversations With Your Partner
The best way to crash and burn financially is to take on all the financial goals yourself.
(And not getting on the same page as your partner).
We’ve all heard the scary statistic that financial issues are a leading cause of divorce.
Talking about money is serious but it doesn’t have to be hard.
It’s not about the dollars and cents – it’s about your lifestyles and goals.
Try to get on the same page about how money should be used, how important it is, and what it represents.
Set aside some time to talk about things like budgets, savings, and retirement.
Learn to compromise. It’ll be worth it in the long-run.
“The quickest way to double your money is to fold it in half and put it in your back pocket.”
– Will Rogers
10. Spending Instead of Building an Emergency Fund
We all have to face a big financial emergency at some point.
I always say: it’s not a matter of if emergencies happen, but when.
Your emergency fund will help protect you from the inevitable.
People lose their jobs.
Medical expenses happen.
In the same year, I had two emergencies pop up that cost me a couple thousand dollars.
That’s what my emergency fund was for.
Except, I didn’t have one.
I don’t even want to tell you how long it took me to pay both of those off. I learned my lesson.
Aim to have at least 3-6 months worth of expenses set aside.
If you have to, start with a goal of $1,000 and work your way up.
You don’t want a single disaster to send you into debt that you have to carry around for months or years.
11. Racking Up Consumer Debt
One in seven people said their worst financial mistake was going into debt for “unnecessary purchases.”
They actually weren’t upset about borrowing money in general – just that they borrowed for stuff they didn’t need.
This is the difference between good debt and bad debt.
Borrowing to buy a home can pay off in the long run, but borrowing to buy Christmas presents, vacations, or the new iPhone – NEVER will.
Debt is easy to get into but hard to get out of.
So before you buy, ask yourself:
Do I need this?
Do I want to store it?
Do I want to clean/maintain it?
And implement the 48-hour rule before making major purchases.
“It is our choices, that show what we truly are, far more than our abilities.”
– J.K Rowling
12. Bankrolling Your Family/Friends
You want your kids, family members, and friends to succeed.
But lending money to family or friends gets complicated – and definitely emotional. Probably even awkward.
And if you’re already struggling, this makes it even worse.
With that said, sometimes it’s hard to say no.
Your best bet is to just consider it a one-time gift and make that clear to the person involved.
Dave Ramsey recently talked about this with someone whose sister kept asking her for money.
The woman was in a hard position because:
A) She had debt she was trying to pay off
B) Her sister would guilt trip her
C) And she actually made LESS money than her sister did.
Dave Ramsey’s advice was spot on:
13. Buying a Timeshare
Timeshares are easy traps to fall into.
I love a good vacation, so I completely understand. Happy vacationers enjoy the thought of seeing their favorite spot each year.
Get bored? Just swap slots for another destination within the timeshare network.
Great deal! Right?
Besides paying thousands upfront – the maintenance fees are expensive. The average maintenance fee is $600 each year.
Plus, good luck if you develop buyer’s remorse.
The real estate market is full of used timeshares. This means you probably won’t get the price you want for yours.
So if you love a certain location, just go visit every year instead. Don’t commit yourself to a timeshare.
Let me know in the comments, what financial mistakes do you regret? As always, thanks for reading.
Share this picture: