Top Money Mistakes and Ways to Avoid Them to Build Financial Security

The likeness of Benjamin Franklin is seen on U.S. $100 bills, in Marple Township, Pa., on July 14, 2022. Matt Slocum/AP Photo

April is Financial Literacy Month, and a number of personal finance experts have shared with The Epoch Times their perspectives on the common mistakes Americans make when managing their hard-earned money—and tips for avoiding them.

The following examples are among the most common financial mistakes that may prevent you from reaching your financial goals this year—and beyond.

Not Having a Budget

Many people mismanage their finances by not having in place a clear budget to track inflows and outflows of money.

Markia Brown, a financial literacy coach and content creator at Money Plug, told The Epoch Times in an emailed statement that not putting a budget together makes it harder for people to identify areas where they can cut back on unnecessary spending.

“To avoid this pitfall, create a detailed monthly budget that outlines your income, expenses, savings, and debt repayment,” Brown said.

Not only does not keeping a budget make it harder to save, but it also makes it easier to overspend and fuels overall financial stress, she added.

Brown advised that, in putting together a budget, people should categorize their expenses and prioritize their financial goals, such as paying off debt, saving for a down payment on a home, or building an emergency fund.

“Adjust your budget as needed and review it regularly to maintain control over your finances,” she said.

Lawrence Sprung, founder and lead wealth adviser at Mitlin Financial, a Long Island-based financial planning firm, told The Epoch Times that research shows that people with written or formal plans for their finances “have greater financial success, feel more confident and live happier lives.”

Not Scrutinizing Expenses

Analyzing and scrutinizing expenses is crucial for effective money management as it helps identify unnecessary spending and opportunities for savings.

“You could be wasting money without realizing it in the form of unnecessary add-ons, unlimited data plans that you hardly use, and missing out on cheaper rates with a competitor provider,” Andrea Woroch, a consumer and money-saving expert who runs a personal finance blog, told The Epoch Times in an emailed statement.

“Spend time scrutinizing your bills for services you don’t need or compare rates with competitors as you may be able to save by switching,” she added.

For example, a study from 2019 showed that 90 percent of U.S. mobile consumers overpaid for unlimited data plans. This presents a significant savings opportunity for users who don’t usually use all the allotted data.

“Most Americans think they need a ton of data because they don’t know how much they actually use,” said Harjot Saluja, CEO of Reach Mobile, which carried out the study.

Carefully tracking data usage can help people pick plans suitable for their needs without overpaying.

Sprung told The Epoch Times that one area of needless expenses people often overlook is subscriptions to services they no longer benefit from.

“We are in a subscription as a service society, and many of us still are paying for things we do not use,” he said.

“Review what you are spending and what is and is not still relevant to your life” and “get rid of those excess expenses.”

Having High-Interest Debt

Another common money mismanagement issue is accruing high-interest debt, such as credit cards. This can spiral out of control and consume a significant part of one’s income, contributing to financial stress.

“Only purchase things on credit you can afford to pay off before the end of the month to avoid paying interest,” Brown advised. “Remember, your credit card should reward the spending you’re already doing, not encourage you to spend more.”

People with high-interest debt should prioritize paying it off, she advised. Other options to consider for those with existing high-interest debt include applying for a balance transfer credit card, which allows people to transfer their balance from a high-interest credit card to a new card with a lower interest rate.

Personal loans at lower interest rates than credit cards can also be a financially attractive option to pay off high-interest credit card debt.

Improving one’s credit score can also help one qualify for lower interest rates on credit cards. People can negotiate with their credit card issuer and, if they have a good credit score and solid payment history, they may be able to secure a lower rate.

Several major U.S. credit cards are seen in New York City on May 20, 2009. Spencer Platt/Getty Images

Not Having an Emergency Fund

Many people lack an emergency fund or have insufficient savings to cover unexpected expenses, experts told The Epoch Times.

Not having an emergency fund often leads to people relying on credit cards or loans during emergencies, which makes their money problems worse.

“It doesn’t matter what you start with or how much you add to it consistently. Every dollar counts!” Brown said.

One tip for building an emergency fund consistently over time is to set up automatic transfers to one’s savings account, she said.

“Make sure you’re setting attainable goals for your emergency savings account, too,” she added.

Jim Wang, founder of Wallet Hacks, a personal finance blog, told The Epoch Times that automating various tasks related to money management can pay dividends.

“Too many people rely on their memory or some other reminder for them to pay their bills, save money, or complete other monthly tasks that are better left to computers that never forget,” he said.

Paying bills, especially ones that don’t change from month to month, is a prime example of where automation can be particularly useful.

“By automating tasks like that, you never forget them. You never pay a late fee, you never skip a contribution to your savings, and that ’set it and forget it' mentality can pay dividends in the long run,” Wang said.

Leaving Savings In a Traditional Account

Keeping your savings in a traditional bank account may seem like a safe option, but it can be detrimental to your long-term financial goals, experts say.

Traditional savings accounts typically offer low-interest rates that don’t keep up with inflation, eroding the purchasing power of your savings over time.

“Traditional brick and mortar banks pay you 0.26 percent interest on your savings,” Andrea Woroch, a consumer and money-saving expert who runs a personal finance blog, told The Epoch Times in an emailed statement.

“With interest rates rising, you could be missing out on a lot of free money by not moving it to a high-yield online savings account,” she said.

A compilation of April’s best high-yield savings accounts put together by Bankrate shows some are paying over 5 percent annual percentage yield.

Not Investing In Income-Generating Assets

Some experts, like Stephen Davis, CEO of Total Wealth Academy, a personal finance education platform, argue that saving money in a bank account is not a good way to save for retirement.

“Trying to save your way to retirement is a huge mistake,” he told The Epoch Times in an emailed statement. “Using the 4 percent rule, you would have to save $3 million to have just $10,000 a month in retirement. This is impossible for most people.”

Speculating on crypto, precious metals, and stocks is fraught with risk and so isn’t for everyone, Davis said.

Instead, he recommends trying to build a second stream of income.

“People should be buying and investing in income-producing assets like real estate,” Davis said.

Not Paying Yourself First

Paying yourself first, or setting aside a portion of your income for savings before paying bills or expenses, is another way to help manage money effectively and build long-term financial stability.

“Pay yourself first! Many of us work simply to pay our bills and then save what is left. To put yourself on a better path to financial success, you need to pay yourself first,” Sprung said.

He advised setting aside a minimum of 10 percent of your monthly take-home pay to save for retirement or other goals.

“Use the remaining 90 percent or less to take care of your bills and expenses. If you find you cannot start at 10 percent, then find a number that works for you and increase it on a regular basis,” he said.

People can take significant steps toward building long-term financial security by avoiding common financial mistakes, such as not having a budget, not scrutinizing expenses, and having high-interest debt.