13 Financial Mistakes that Scare the Heck Out of Me (and Should Scare You Too)

financial mistakes can be scary like crossing a rickety bridge

Let’s look at some of the most common financial mistakes that I believe people just starting out tend to make.

I’ve made just about all of these common financial mistakes myself. So I’m not here to judge. But I did something about it once I discovered the error of my ways. What will you choose to do?

1. Having kids and no life insurance. If you die without life insurance, your kids will, at a minimum, be stuck with your funeral bill. Get a simple term life insurance policy, even if it’s just $100,000. It’s so easy to get term life insurance now with companies like Bestow offering online-only and short-term policies (just to ensure you get started with something).

2. Living without any health insurance. There’s a lot of noise about health insurance premiums being unaffordable. Don’t let that sway you from checking rates and looking into a high-deductible plan or one of the medical sharing alternatives (like Medi-Share). Odds are, if you can afford your iPhone and car payment, you can afford health insurance. This could be the difference between a $10,000 medical bill and a $1,000,000 medical bill.

3. Not having any money in savings. Having no cash savings cushion means you’d be relying on credit to help you get by in a bind. As long as you have a half-way decent income, you can live within your means and set some money aside for emergencies.

4. Having more than 10% of my savings in one investment. Having too many of your eggs in one basket leaves your savings at risk. Spread your money out (diversify) into several investments so that your whole world doesn’t crash when that one investment does.

5. Missing the company match on a 401K. If your employer has a 401K match, you’ve just been offered more money. Make sure you take advantage of it by at least contributing enough to your 401K to get the match.

6. Taking a loan from a 401K. 401K loans are a poor choice to fund other needs. Especially if that need is financing a lifestyle you can’t afford. Your 401K money is for retirement. Leave it be. Removing it from the account, even temporarily, puts you at risk for missed market appreciation and an instant payback requirement if you’re let go.

7. Not taking advantage of a Roth IRA. The Roth IRA is a way to save tax dollars on the money you invest for your retirement. Skipping the Roth IRA in lieu of a taxable investing account guarantees you’ll pay too much tax on your investment returns. Roth IRAs are easy to understand and open.

8. Using student loans to fund a worthless, expensive degree. If you’re going to go to college, do your best to pay some along the way, either with a part-time job, scholarship, or other college funding sources. If you do take out student loans, make sure you’re getting a degree with almost guaranteed earning potential (i.e. engineering, accounting). And for goodness sake, skip the private school.

9. Not knowing what’s on the credit report. Your credit report could be filled with all kinds of incorrect (scary) information. Make sure it accurately reflects your financial situation. If something scary is on there, you may get rejected when you apply for insurance or a with a new employer.

10. Not reviewing spending regularly. You do have financial goals, right? Good, well then make sure you inspect what you expect. Regularly look at your spending to make sure it’s accurate, and to check your progress.

11. Carrying a balance on a credit card when unnecessary. If you can pay your credit card balance in full each month, then do it! If you can’t, it means you’re living beyond your means. Stop it. Carrying a balance means you’re paying scary ridiculous interest rates to afford your big lifestyle.

12. Buying a house with no money down. We’ve all learned this lesson recently. If you don’t put any money down, you’re instantly staring at negative equity on your home. You also have to pay private mortgage insurance. There’s a reason a down-payment is a good idea. It’s a sign you’re financially ready for a home.

13. Thinking that one job/career is all that is needed. Seth Godin says we’re in a “forever recession.” Except for a few rare positions, most of us will have to pivot one, two, or several times in our lives to keep our earning stable and growing.

Which of these financial mistakes are you making? What’s your next step?

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  1. You kind of hinted at it in the last one but One stream of income

  2. Paying too much for any type of insurance.

  3. This is nice post that reminds me what preparation I should do if uncertainty will come.  It is really scare, I feel like I am watching Halloween movie.  I think Mr. Philip; the best way to avoid these 13 scary money moves is to be prepared financially at all time.

  4. Great post!  I can’t argue with any of those.

  5. I understand and agree with 12 of your 13 things that scare the bejeezus out of you. I even agree with Carlos Wiener about the Halloween candy. The Roth IRA confuses me, though. It seems to me like a Roth makes sense only if you think you will be in a higher tax bracket after retirement. When I retire, I will need less income.  So suppose I have $100,000 in taxable income now. When I retire I will need to pull only around $50,000 from my retirement savings, thus lowering my tax bracket considerably. Won’t it make more sense to NOT pay taxes today (30+ percent) and instead do pay on my withdrawals when I retire (20% or thereabouts)?

    1. Avatar Philip Taylor says:

      @MarkNeum Good catch, Mark. That should probably say, “Not taking advantage of tax-advantaged retirement savings accounts.” I agree with your assessment that the Roth should be evaluated against your particular situation.

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