Avoid These 5 Financial Mistakes at All Costs

3 min readDec 20, 2022

Everyone makes poor financial choices, but it’s mostly out of habit. And when the debts pile up, we do not even realize where we went wrong.

Not everyone’s needs are the same. Naturally, the spending habits cannot be the same either. Despite the differences, there are some common habits we have. Based on that, here are the 5 biggest financial mistakes people make and how to avoid them.

1. No financial plan

One of the worst money mistakes you can make is not planning your finances. A financially stable future starts by chalking out a solid plan today. Thinking you will spend your money cautiously after you hit a financial crisis is not a plan.

Draft a list of goals with measurable metrics. You should be able to take action against them and track progress. It can be a mix of short-term and long-term goals. And do not forget to treat yourself with a little something every time you check one off the list.

2. Living in constant debt

As more and more financial institutions offer easy access to credit cards and overdraft facilities, we get used to living on borrowed money. We keep spending more than we can pay because paying off the loan seems like tomorrow’s problem.

However, the lenders usually levy double-digit interest rates on every penny they lend us. So, going above the limit creates more problems than it solves. Pay your bills on time and use your credit cards the right way, so it helps you save money.

3. No emergency fund

Most financial advisors agree that living from one paycheck to the next is dangerous. A delay in the transfer, change in the industry, or recession can put you in a sticky situation. And you may accumulate a massive amount of debt before even realizing it.

It is usually recommended to have an emergency fund that can cover your expenses for around 2–3 months. This keeps you prepared for any economic downturn. You will get adequate time to plan your next project without drowning in debt.

4. Spending all on expenses

This financial mistake happens when you start earning more. We usually find ways to spend those additional earnings first. This can seriously harm your financial goals in the long term.

Once you get that promotion or your business starts earning a steady profit, you should definitely celebrate the victory. Treat your family to a nice restaurant or buy that extravagant watch you have been eyeing for a while. But it should be part of a one-time celebration. Do not let this become a habit.

Spending a couple of bucks extra on each product or service may seem very little, but it all adds up. So, whenever you start getting those extra bucks, make it a priority to clear your debts and start saving more.

5. No retirement planning

Retirement seems like a distant event when we are young. So, we refuse to plan for it until it is very late. Do not make this financial mistake.

To take complete advantage of compounding, starting early is crucial. You can start with a small amount. But give your savings the time to rack up the compound interest over the years. Creating a monthly fund of INR 100 at the age of 25 is far more profitable than starting a fund of INR 1000 at 55.

We all have made one or more (or all) of these financial mistakes in our lives. That’s okay because there’s a way to put a hard stop to that. Recognize the pattern. See where you can implement immediate changes and where you need a little more time. Do not beat yourself up for one misstep. Doing something is better than doing nothing.

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