13 Big Money Mistakes People Make—and How to Avoid Them

Laura Shin

You pack your lunch, and never buy items at full price. You pay your credit card on time every month, and save up for that much-needed vacation every year.

If you’re doing these things, you’re likely on top of your finances. But a new year is always a good time for a new challenge–and we have one for you: In 2013, vow to take your finances to the next level.

How? By learning from the pros.

The Certified Financial Planners (CFPs®) at LearnVest Planning Services have seen the fiscal situations of a lot of people. They know what mistakes people are likely to make, and they know the best ways to fix them.

So we’ve turned their collective wisdom into a must-read guide for turning 2013 into your best money year yet. Read on to find out what exactly not to do—and how not to do it.

Money Mistake #1: Not saving for retirement when you’re employed

It’s easy to come up with excuses for not saving for retirement. (See The 11 Biggest Retirement Lies You’re Telling Yourself.) But you should be saving for retirement whenever you’re making money because there will be a time when you won’t be making any money—but you’ll still have to support yourself then. This means that part of every dollar that you earn during your working years should go toward funding your non-working years.

RELATED: What a Financial Assessment Is and Why You Might Need One

If your company doesn’t offer a retirement savings program, open an IRA. If your company offers a plan, but doesn’t match, use these flow charts to see how best to allocate your retirement money. Choose the chart according to your tax filing status—either single or married filing jointly.

And if you’re ready to jump aboard the Retirement Express, take our Retiring in Style Bootcamp.

Money Mistake #2: Not having a game plan for getting out of debt

Don’t let that little voice tell you, “My credit card debt isn’t as bad as my friend’s debt.” And slap your wrist when you think, “I’ll just pay whatever I can this month.”

These are the kinds of rationalizations that “enable” people not to get out of debt. So if any of these thoughts have crossed your mind, get yourself a plan to get out of debt immediately. The top three steps to take:

  1. Make sure you aren’t spending more than you earn
  2. Decide how much you’ll put toward your debt payments each month—and stick to it
  3. Figure out your deadline—i.e. the moment when, because you’ve stuck to your plan, you’ll be debt-free

Feeling new resolve? Excellent. One other aid for you: Avoid these debt mistakes.

Money Mistake #3: Not doing the math before you take out student loans

Considering grad school? Have a teenager who’s heading to college? Whether you or someone dear to you is planning to take out student loans, you should beware of one of the biggest pitfalls that CFPs® see: A lot of people take on huge student loan debt without knowing what their monthly payments will be when they graduate. This is especially common among people attending grad school programs that promise graduates high salaries. Be aware: Anyone who takes on a $100,000 loan, and pays 6.8% interest on it, will be paying about $1,100 a month toward that loan–for ten years.

If you’re certain that it’s worth it for you, learn what you need to know about taking out student loans in our Understanding Student Loans 101 and checklist

  • Ana

    In tip #6, “Accumulate six months’ worth of income in your emergency savings.” I’ve always heard “living expenses” not income. If you save a lot of your income off the top, it doesn’t make sense (to me) to factor that into your emergency fund, cause you could do without that money without it impacting your living expenses. 

    • AldenWicker

      Hi Ana, 

      We generally recommend six months of net income or take-home pay–that’s the amount that hits your checking account each month. However this number can vary based on a lot of things: How much you save, if you’re part of a one-income or two-income household, if you have a mortgage, if you are self employed, etc. That’s why a personalized financial plan is so important. This a general guideline, but you can work closely with a planner to find the amount that’s right for you based on your situation. 

      Hope that helps!

  • Sondra

    The link to “Wills and Trusts 101″ is broken.

    • laurashin

      Hi Sondra,

      It should work now. Enjoy! 

      • higarner

        I want to meet with a financial planner that helps me determine the cost of a mortgage I can realistically take on and ideas for how I can best budget. I do not want anyone who has a vested interest in selling me anything. How can I find an impartial , knowledgeable financial planner?

  • http://cagirlindc.blogspot.com/ CutMyTeethOnKleypas

    “After all, if you’re making $100,000 a year” – BAHAHAHAHAHAHA, Oh LearnVest, you kill me. :)

  • Debhayward

    would be great to have check marks next to these numbers for solutions to add to our goals list.

  • www.yoursmartmoneymoves.com

    Not understanding the real power of tax deferral.  Many young Gen X/Y clients simply do not understand this even when college educated.

  • Teddy

    I’d also like to add getting a high-maintenance pet, like a dog, when you can’t afford one.  I’ve seen people nearly ruined financially because of this.

  • Dkayrobinson

    Tip #12 LTD Insurance – you will be required to tap any state provided disability programs first which is fair. However, they will put you through the ringer to actually collect under your LTD contract. After 1 1/2 battle with cancer, where I could not work in any occupation as I was going through stem cell transplant, chemo etc. UNOM wanted me to work as a door to door salesman in order to collect under a plan I had paid $1000′s into over an eight year period. These policies aren’t worth the paper they are printed on. They will harass you and not pay. A little online research shows this is rampant across multiple carriers not just UNOM.

  • Jennifer Underwood

    I think that one of the worst money mistakes is not saving for retirement and not having an emergency fund. You can live the way you want but it’s important to think of the future and try to provide it. It’s easy to judge somebody’s deeds and mistakes but when we do something we not always see that it’s a mistake. I think that overspending is a big a big mistake and try to live within my means. It doesn’t make me rich but at the same time it doesn’t make me problems.