6 Dumb Mistakes You Keep Making With Your Money

People make dumb mistakes with their money all the time. When asked in 2019, approximately 126 million adults in the United States admitted to Finder.com that they had made at least one money mistake in their lifetime.

What's worse, most of the errors that people make are avoidable.

I achieved financial independence in my mid-30s. I have spent years coaching people about improving their financial health, and most people make the same mistakes.

Here are six of the most common miscalculations people make with money.

Mistake #1: You Have No Rainy Day Fund

More than half of Americans cannot afford a $1,000 emergency without going into debt. And this is because many don’t think to set money aside for unexpected expenses.

An emergency fund is money you earmark for emergencies, such as unexpected car repairs, a leaky roof, or sudden job loss. The best emergency funds are kept separate from your primary checking account to make it more challenging to spend that money on non-emergencies.

Aim to save at least three months of living expenses in your emergency fund. You could lose your job and still fund your lifestyle for at least three months. You’ll have ample opportunity to find a new job.

To make this easy, use automated bank transfers to send money from your checking into your emergency savings account over time.

Mistake #2: You Don’t Use Automation

Automation makes saving and investing money easy. Once set up, you don’t have to lift a finger. It just works.

Everyday things to automate include monthly contributions into 401(k) and other retirement plans, automatic bill pay so you never pay a late fee, and building your emergency fund.

When automating your monthly bills, have enough in your account to avoid overdraft fees. In addition, always check your statements. This is true even if they are automatically paid every month. Mistakes happen, and you never want to pay more than you need to because a service or utility company overcharged you.

Mistake #3: You Miss Your Employer’s 401(K) Match

Numerous employers throughout the country offer 401(k) investment accounts to their employees. These accounts are pre-tax. This means every dollar you contribute will lower your taxable income. In other words, 401(k)s reduce your tax burden.

Many companies will match your contributions to a certain percentage of your salary. This is free money. If you aren’t contributing at least enough into your 401(k) to get the full company match, you are leaving money on the table.

“For example, your employer may pay $0.50 for every $1 you contribute up to 6% of your salary,” writes Fool. “So if you make $50,000 annually, 6% of your salary is $3,000. If you contribute that much to your 401(k), your employer contributes half the amount — $1,500 of free money — as a match.”

Always take advantage of your company’s 401(k) match.

Mistake #4: You Spend More as You Earn More

“Lifestyle inflation” is when spending increases along with income. In other words, the more you make, the more you spend. It is a trap that many people find themselves in.

If left unchecked, lifestyle inflation leaves people with a false sense of financial security.

If you spend most of what you make, building wealth is impossible. Building wealth takes time. With inflation running rampant, I recommend investing at least 20% of your income. Investing is the best way to build wealth over time. Spending is a great way to burn through your wealth.

All you have to do is invest.

Instead of increasing your spending as you make more money, invest at least 20% of it instead. This will help ensure you have a prosperous retirement, not just a “rich” present.

Mistake #5: You Buy New Cars

All new cars depreciate the second you drive them off the lot. According to Lending Tree, new cars can depreciate 20% or more in the first year.

“Say you buy a new car for the average price of $46,085. At the end of the first year, the car may be worth $38,896 after the average depreciation rate. That’s a drop of $7,189 or 15.6%.”

Automotive loans make the numbers look even worse. Not only are you paying full price for a car losing value, but lenders charge an interest rate on the amount borrowed. This means you’re paying even more than the sale price.

Mistake #6: You Spend Too Much on Your House

Never let the mortgage company tell you how much house you can afford. When it comes to homes, bigger is only sometimes better.

When you buy a house that’s more expensive than you can handle, you become “house-poor.” That's a financially-weak position.

Your mortgage is typically your most significant monthly expense. The lower your mortgage, the stronger your financial health. This means spending more money on a 6,500-square-foot house for two people might make little financial sense, even if the mortgage company thinks you can afford it.

Instead, buy the size of house you can afford that works best for your family. Don’t over-buy because your lender thinks you can.

This article was produced and syndicated by Wealth of Geeks.


Steve Adcock is an early retiree who writes about mental toughness, financial independence and how to get the most out of your life and career. As a regular contributor to The Ladders, CBS MarketWatch and CNBC, Adcock maintains a rare and exclusive voice as a career expert, consistently offering actionable counseling to thousands of readers who want to level-up their lives, careers, and freedom. Adcock's main areas of coverage include money, personal finance, lifestyle, and digital nomad advice. Steve lives in a 100% off-grid solar home in the middle of the Arizona desert and writes on his own website at SteveAdcock.us.