When it comes to financial decisions, such as saving money and building wealth, we can all probably come up with several excuses as to why we haven’t done certain things. And everyone can likely make a long list of bad financial decisions they have made. Though we all have some money regrets, the important thing is that we acknowledge it and take steps to improve our finances!
Regardless of the money choices you’ve made, there is always some room for improvement when it comes to money. And the opportunity to improve can come from learning from other people’s money mistakes!
Especially as women, it is critical for us to get our finances in order. Not only do we earn less than men, but we spend more time out of the workforce having and raising children.
Additionally, we live longer than men on average.
This means we are likely to need more money over the long term to support ourselves, so we have to be smart about our finances.
So, let’s examine the most common bad financial decisions. Then we’ll discuss how to recover and start making better choices going forward!
15 Bad financial decisions to watch out for
Below are some of the most common bad financial decisions people make regarding their finances. Can you relate? Not to worry though! I’m also sharing they key ways in which you can avoid or recover from them.
1. Not saving any of your monthly income
When it comes to saving money, I’ve heard so many people complain that after they’ve paid their bills, they don’t have any money to contribute to their retirement accounts or to add to their emergency fund.
However, some of us still find money to buy non-essential items, go out for drinks and dinner, and so much more! A lot of times, I’ll even hear people say things like, “Well, dinner only costs $20, it doesn’t make a difference.”
However, putting away $20 a week for one year in a savings account with zero interest will give you $1,040 dollars at the end of the year. Imagine if you did that for five years. You’d have over $5,000. And saving $20 on a weekly basis is likely money you wouldn’t miss!
Not putting money into your savings account each month is common but can be harmful to your future self. It often happens when people don’t really have any concrete financial goal setting in place or think they have plenty of time to save in the future.
But by doing this, they end up paying themselves last. It’s definitely a bad financial decision.
What to do if you have not been saving:
One way to easily save is to establish the habit of trying out different budgeting methods and working with a monthly budget. Make it a point to save at least 10% of your monthly income before you spend anything. If 10% seems like a stretch right away, start with 5% and build up to 10% over the next few months.
Consider automating your deposits to your savings account, too—this will make sticking to your savings goals much easier.
2. Living large in your 20s
In your 20’s, you graduate from college, get your first big paycheck, and maybe move out on your own. And now you can do things that you couldn’t do when you didn’t make any money.
Also, you probably don’t have as many financial burdens as someone in their 30s or 40s. So it’s easy to put savings on the back burner while you enjoy those glorious twenties and make poor financial decisions.
Although it’s easy to get carried away when you first start earning money, don’t forget to think about your future.
What to do if you find yourself living large:
Yes, you might be young and yes you might have time to save.
However, nothing can replace lost time, and the power of compounding, so learn how to budget and prioritize your future financial well-being over your wants.
Your financial decision-making in your 20s has a huge impact on your future, and you should start to build wealth in your 20s if possible.
3. Making large purchases and not paying off your credit card
One of the most common bad financial decisions is not paying off a credit card. For many, a lot of credit card debt comes from buying things we don’t really need. From that awesome clothing sale to eating out every day, those small transactions can rack up pretty quickly, and before we know it, we are left with a pretty hefty credit card balance.
Avoid this regret by reminding yourself that credit is actually debt and the available balance on your credit card isn’t real money! It’s money you are borrowing and will have to pay back.
What to do if you have credit card debt:
I like to describe debt as a stumbling block on the path to building wealth. And to get past it, you need to have a plan to roll (or blast) that block out of your way! It can be very difficult to save money when you are paying back debt at high interest.
However, creating and executing a plan to aggressively attack your debt, especially credit card debt, allows you to pay it off as quickly as possible. Then, you can fully focus on saving more money.
If you currently have debt, stop using your credit card and establish a debt repayment plan, like the debt snowball method.
4. Delaying important financial decisions
Putting off important financial decisions, e.g., paying off debt, saving, investing, etc., can be a big financial mistake. Too many people promise themselves to get around to it, but instead of taking action, we waste so much time.
How to stop delaying financial decisions:
To stop delaying important financial decisions, start by breaking down the actions you need to take into smaller, manageable steps. Set specific deadlines for each step to create a sense of urgency.
Educate yourself about the decisions you need to make, whether it’s investing, budgeting, or debt management, so you feel more confident and empowered.
If you need to, seek support from financial professionals or mentors who can provide guidance and accountability. Challenge yourself to take at least one small action every day towards your financial goals, so you can build momentum and reduce procrastination.
Personally, to keep myself motivated I remind myself of the consequences of not taking action (not achieving my goals) and also of the benefits of making timely financial decisions.
5. Not investing
A really bad financial decision is deciding not to invest your money at all. But if you don’t invest, your money will not grow. And you need it to do so to afford the things you want in the future, like retirement.
If you think you must be an expert in the stock market to invest, think again! There are plenty of options, and with technology, learning how to start investing has never been easier.
How to start investing:
You can invest in the stock market, try real estate investing, or invest in a business. Whichever route you choose or if you decide to go with all three, it is critical that you do your research and understand the basics of what you are putting your money into.
The stock market can seem like gambling or a big scary place, but not if you know what you are doing and have investment objectives.
The returns on the stock market average about 10% over the long term and it’s one of the most popular forms of investing out there.
If you’re not confident about investing or don’t understand things like the difference between ETFs and index funds you can always seek help from a financial advisor. Advisors help you set up an investment portfolio based on your risk tolerance and individual situation.
You can also learn a ton about investing by enrolling in our completely free investing course!
Remember that the key to successful investment portfolios is diversification! So, be sure to have a diverse portfolio to ensure you are investing wisely.
6. Not having a backup plan
Not having a backup plan is a pretty bad financial mistake. Having a backup plan protects us from unplanned and expensive life occurrences.
For you to have a positive relationship with money, you need a backup plan—a solid one.
How to establish your back up plan:
Two of the most important aspect of your back up plan are having a fully-funded emergency fund (3 to 6 months of basic living expenses) and ensuring that you have the right types of insurance (health, auto, life, disability, home, renters etc.).
To fund your emergency savings, build it into your budget and put money toward it each time you get paid. Next assess your current life to determine what insurance gaps you have.
For example, do you rent an apartment but don’t have renters insurance? Do you need to increase your health insurance or auto insurance coverage?
Having these things in place will literally save you when life happens and help you maintain your financial plan.
You’ll have money to fall back on rather than having to leverage debt or lose all your savings and investments to cover your situation.
7. Not protecting your personal information
In today’s internet world, identity theft and credit fraud are rampant, and not taking the extra measures to protect your personal and financial information can be a bad financial decision.
So much of our specific information like address, date of birth, and more is information scammers and hackers can easily find due to so many data breaches in recent times.
How to protect your personal information:
Protecting yourself is simple once you get set up. It means staying on top of your credit reports, not entering your data on websites you don’t trust, and putting alerts or freezing your credit cards and credit profile.
Many banks and credit card companies also offer free credit monitoring services. I strongly recommend you take advantage of this.
8. Ignoring the small goals
Think saving $15 a week or paying $20 to your credit card this month isn’t worth noting? As insignificant as those mini goals might seem, they matter.
They can add up a lot over time. In my opinion, our small goals are what help us accomplish the bigger ones because they allow us to get started.
How to focus on your small financial goals:
Some specific examples of small financial goals include things like:
- Establishing a $1,000 emergency fund
- Making an extra payment on your credit card each month
- Finding ways to cut back on certain monthly expenses
- Contributing to your retirement savings account
- Improving your credit
- Exploring side hustles
And remember that having long-term goals is essential to defining your big picture. We all love those yearly goals.
However, if we don’t break these goals down into smaller chunks it’s easy to get overwhelmed. As a result, we’ll feel like we’re making no progress at all.
I like to make long-term goals along with short-term ones. Then, I keep my day-to-day focus on my short-term goals, and I find great progress that way.
9. Lack of accountability
When you have no personal accountability, there is no one to motivate you, remind you, or keep you focused on what you are trying to accomplish.
As a result, you might start getting complacent, putting things off, and finding yourself in the perpetual state of getting things done “later” or, worse still, telling yourself you can’t do it.
How to be accountable:
It’s important to adjust your circle of influence if necessary and get the accountability you need.
For me, this means sharing my financial goals and dreams with a trusted friend who will encourage me and ask about my progress. It stops me from making poor financial decisions.
10. Not checking in on your progress
How do you make progress with what you don’t track? You won’t know when you’ve achieved a goal or hit a milestone.
How to track your progress:
Checking in on your goals is a must. It could be as simple as creating a schedule to check in on your goals, noting both short and long term ones. One great way to do this is to use a planner.
For me, a goal planner can really keep me motivated and focused. It allows me to add a timeline for my goals and record them.
11. Not caring about your credit score
Perhaps you’ve made the mistake of getting into a lot of credit card debt or even missing loan payments. These things can negatively affect your credit.
Your credit can be rebuilt, and while it isn’t everything, it does matter. For instance, you need decent credit to get a mortgage and get a good loan interest rate.
How to stay on top of your credit score:
I like to keep an eye on my credit score and try to improve it as much as possible. Utilizing a free service like Credit Karma to check and monitor your score can be beneficial.
In addition, I recommend avoiding debt as much as possible. Budget and create a plan to pay off anything you spend on a credit card each month so you don’t carry a balance. Doing this will allow you to reach many of your goals more easily.
12. Buying things brand new that you could buy second-hand
Have you ever bought something expensive that is brand new without shopping around? I know I have! The problem is that you could be spending more money unnecessarily when you could have potentially found the same thing for less if you went the second hand route!
What to consider buying secondhand or pre-owned:
For instance, items like furniture, appliances or cars can be cheaper if they’re secondhand in some cases. Or perhaps you want to purchase a designer purse. You may be able to get a good deal on a pre-owned designer handbag and save hundreds!
Although buying used isn’t always the way to go, depending on the item’s condition, it can often be a good choice. When you save money on expensive items by checking for deals, you can use the money you save for other financial goals.
When I shop second-hand, I like to look for items in “like new” or “excellent” condition. This way I know I’m getting value for my money and not just buying something with little value left.
13. Not sticking to a budget
Budgets are a great way to improve our finances, but sometimes, it’s easy to ignore a money plan like this. When we make a budget and don’t follow it, our future selves will pay for it.
Not following a budget can lead to a lack of funds for emergencies, being unable to retire when you want to, feeling overwhelmed by debt, and more. To avoid this, create a budget and promise yourself you’ll stick to it, or start working on better budgeting if you already budget.
How to stick to a budget:
First things first, it’s all about finding a good budgeting method. Finding a budget that works for you might take time, but when you do, you’ll be able to take full control of your money and make real progress.
One you determine your budgeting method, write out your expenses and your income. Then, determine how much your essentials cost each month and what is left over afterward.
Additionally, make a plan for what you’ll do with any money left over. You can make your budget as detailed as you want, but this is a very easy way to begin.
But remember, making a money plan is easy. Sticking to it may not be. So, decide how to handle it when you want to overspend.
You might try using a reward system, getting accountability, or whatever works for you to help you stick to the plan you made.
14. Forgetting to celebrate
It’s easy to think that you should only celebrate the big things or forget to reward yourself for your progress. But it’s what keeps you motivated!
Even if your progress was small it doesn’t mean it’s not worthwhile. Celebrate all victories, no matter how big or small. Not everything you do will result in massive strides, but it all adds up and gets you closer to where you want to be.
And your financial life isn’t going to be just the big moments. There are many smaller things to celebrate, such as paying off a credit card, sticking to your budget for a month, or saving up a few thousand dollars.
How to celebrate your wins!
Celebrate yourself by journaling about your financial victories, cooking a favorite meal, or taking a day or weekend for yourself. It makes everything more worthwhile.
15. Not getting back up after you slip
Don’t settle for a situation because you made a mistake, caught yourself over spending, or bought something you shouldn’t have. Slip-ups will happen. Give yourself the grace to recognize your error or mistake, remember your why, and get back to work!
How to get back up after a slip:
Know that you are not the first or last to make unwise financial decisions, and the important thing is the progress you make over time. One slip-up doesn’t make or break your money goals forever – your daily habits are what matter most.
The worst thing you can do after a mistake is give up. The best thing is to simply try again. So dust yourself off, remember your “why”, review your goals and get back it!
Expert tip: Focus on life beyond your finances
How we handle money is important. But I find that it’s best to keep things in perspective, especially if I feel I’ve made a money mistake. While unwise financial decisions can slow our progress, there’s a healthy way to think about our mistakes.
First, realize what your mistake was, assess the lessons, and then make a plan to recover from it. After that, it’s best not to dwell on your finances all the time or make them overly important.
Remember to enjoy your life and focus on the positive as you work towards a solid financial foundation.
How to recover from bad financial decisions
We have all made mistakes, and sometimes, that includes making bad financial decisions. But don’t beat yourself up over it!
Thankfully, there are plenty of strategies and ways to recover from a past financial mistake. Here are some tips to help you make smart money choices!
Step 1: Acknowledge your bad financial decisions and forgive yourself
To get ahead, you have to forgive yourself for your money mistakes.
So take note of the important life lessons you’ve learned and keep moving. Everyone has made some bad management decisions around their money – even the world’s wealthiest people.
It’s all about acknowledging where you went wrong and figuring out what to do to make things right. Even if you make the same or similar mistake again, you can rinse and repeat (acknowledge, learn, and implement the lessons) until you get past your error. That is how you will succeed with your finances.
Once you’ve committed to forgiving yourself and are ready to move forward, it’s important to recognize where you are with your finances right now. Then, you can determine where you would rather be.
Step 2: Decide it’s time to take action towards changing your financial situation
Once you’ve decided to make good financial choices, put a plan in place. And you don’t have to wait for January. You can start today.
Reduce your spending, expenses & debt load, see if you can boost your income, and make saving money for your future self a priority. All these things will put you on the path to creating a solid financial plan.
Be willing to change and be committed to seizing the moment to start working on revamping your finances.
No more waiting for the perfect moment to sort out your finances. Start now. This means if you can only save $5 a week right now, save that $5.
If it means you can only put $10 towards your debt this week, make that $10 payment. Then, start figuring out how to reduce your expenses and earn more so you can ramp up your savings or debt repayment plans and get back on track with your financial goals.
In addition, identify any spending triggers and devise a game plan to avoid them and minimize the slip-ups!
Your money situation will always change, so look at it as a financial journey. As you save more money, pay off debt, and increase your income, it will be much easier to recover from any past bad financial decisions you made.
If you need help, you could also work with reputable financial advisers or tax professionals depending on your needs. A great attorney for legal advice should also be on your list. Be sure to look into the background of your financial professional to ensure they are a good fit for you beforehand.
Step 3: Get motivated and shift your circle of influence
One of the best ways to begin making smarter money choices is to learn from others. So, start reading personal finance and personal development books and blogs.
Listen to podcasts and watch videos. Surround yourself with people who will motivate you to do better and keep going even when you have bad days.
Make it your mission to shift yourself away from your circle of influence if it is of no benefit to your goal of financial success. Remember, bad financial behaviors from others can affect you, so choose your associations wisely.
4. Define your goals and make them easy to accomplish
My next piece of advice is to define your goals for correcting a financial mistake and then make it very simple to stick with it.
For instance, put your goals where you can see them. A calendar or planner works well!
Next, automate savings, bill payments, debt payoff, etc. It’s one of the simplest ways to ensure success.
Last, find other ways to stay motivated. Talk to your accountability partner, read money books, etc. (Hint: Take our completely free Clever Girl Finance courses), and decide that you will succeed!
5. Be okay with failure and remember to keep trying
It’s completely okay to fail sometimes! The silver lining behind it is the important life lessons you will learn. Take the lessons and apply them to your next steps.
Know that no one is perfect and no one gets everything right with their finances every time.
Most of all, do not give up. Continue to work towards improving your money.
What is considered a bad financial decision?
A bad financial decision is one that throws you off course from your goals or negatively impacts your finances. Some common ones are credit card debt, not saving anything, and overspending.
If you have made poor financial decisions, don’t panic. Simply make a plan to fix them and get back on track. It may require time or financial sacrifice, like a stricter budget or a money savings challenge, but the rewards are worth it!
What is the best financial decision?
One of the best financial choices is to save and invest money for your future self. Saving for our future helps us all to be prepared, and investing allows us to make more money over time.
We all need money to help us with expenses, emergencies, and retirement. Saving and investing allow us to prepare for these life changes and be confident in our ability to thrive with money.
Why do people make poor financial choices?
People may make poor financial decisions for various reasons, including emotions, a lack of financial knowledge, or a lack of planning.
For instance, you might go into debt if you have an emergency expense to pay for and no savings. Or perhaps you don’t know how compound interest works, so you neglect investing in your financial plans.
Knowing financial literacy basics and being ready for expenses are both very important. And anyone can learn how to handle finances and make good money choices, given time and the resources to succeed.
Articles related to making good money choices
Now that you’ve learned how to recover from a financial mistake check out these posts for more information!
You can recover from bad financial decisions!
It might feel like there is no light at the end of the tunnel, your debts are so large, you are so behind in your career, and/or you cannot recover from your mistakes. But remember, the only way change happens is by taking the first step and then the next step.
You can totally do this.
Take stock of your finances, learn how to budget, and start saving and paying off your debt. Before you know it, you’ll be on your way to getting your financial house in order and making better money management decisions!
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