Managing your finances can be overwhelming, and even minor missteps can have long-term consequences. Many people assume that avoiding reckless spending is enough to stay on track. But in reality, poor planning, emotional decision-making, and a lack of guidance often lead to costly financial mistakes. 

Explore the most common money challenges and practical insights to build healthier, more resilient financial habits. 

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What is a financial mistake?

A financial mistake is any action — or inaction — that reduces the value of your investments, limits your earning potential, or exposes you to unnecessary risk without adequate reward. Often, these missteps don’t stem from irresponsibility, but from everyday habits or lack of awareness. Some of the most common reasons for financial mistakes include:

• Limited financial education: Not fully understanding how credit, loans, or investment products work can lead to avoidable setbacks. 
• Short-term thinking: Focusing too narrowly on immediate needs or gains can result in missed long-term opportunities. 
• Emotional spending: Letting fear, impatience, or anxiety guide your financial choices can lead to poor outcomes.
• Overconfidence or misinformation: Early success or unreliable advice may give a false sense of security, leading to risky or misinformed decisions. 

The most common financial mistakes people make

Even with the best intentions, it’s easy to make bad financial decisions. Review these common pitfalls to avoid eroding your financial stability. 

1. Overspending on housing or cars

Many people overspend on homes or vehicles to reach for a particular lifestyle, but high monthly payments can limit your financial flexibility. Aim to keep your mortgage under 28% of your gross income and car expenses around 10–15% of your net income. Choosing more modest options leaves room for saving, investing, and weathering economic shifts. 

2. Living beyond your means via credit cards

Credit cards can be useful, but carrying a balance month to month can actually worsen financial concerns, especially with high interest rates. Use credit cards for convenience and not as a source of long-term borrowing. Try to pay your full balance each month to avoid costly interest charges and reduce the risk of falling into debt. 

3. Misusing home equity

Your home equity is a valuable asset, and using it for non-essential spending like vacations or luxury items can jeopardize your financial security. Treat home equity as a backup for emergencies or part of your broader investment strategy, not a source of easy cash.

4. Not saving

Developing a savings plan is crucial to avoiding financial challenges. Saving helps you cover emergencies, invest for the future, and spend with less stress. Small, regular contributions can build a strong financial cushion over time, separate from your investments or retirement funds.

5. Forgetting to budget or plan

A thoughtful budget lets you stay in control of your finances and aligned with your goals. Your budget should account for income, recurring expenses, and saving. Treat it as a living document, something you update regularly to reflect changes in your circumstances and keep progress on track. 

6. Neglecting retirement savings

If you delay retirement contributions, you may significantly reduce your potential savings due to lost compound growth. Make the most of employer-sponsored plans like 401(k)s, especially when they offer matching contributions, and explore other tax-advantage options, like qualified annuities, to build secure retirement income. Once you’ve set up retirement accounts, regularly review your investments and adjust your strategy as you get closer to retirement. 

7. Not investing in retirement

Just because you’ve stopped working, doesn’t mean your money should. Many retirees become overly conservative with their portfolios, missing out on potentialwhile foregoing growth. While preserving capital is important, continuing to invest manage your portfolio strategically in retirement can may help your savings keep pace with inflation. Consider lower risk options.Consider low-risk options such as fixed annuities or dividend-paying stocks as part of a balanced retirement strategy. 

8. Ignoring emergency funds

An emergency fund acts as a financial safety net, preventing unexpected costs from derailing your budget. Without one, you risk relying on high-interest debt to cover sudden expenses or being charged for early withdrawals from investments. Aim to build a readily accessible savings buffer to handle emergencies without stress. 

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How to avoid bad financial decisions

You don’t need to be an expert in investing or financial planning to steer clear of financial difficulties. By adopting a few straightforward habits and strategies, you can make smarter choices and build a more secure future. Follow these guidelines:

• Create a budget: Start by calculating your net household income, including sources of income like your salary and pension. Next, subtract all essential living expenses, such as mortgage or rent, car payments, and utilities, before tallying your discretionary spending and subtracting that from your remaining income. Use this process to identify areas where you can eliminate wasteful spending. 

• Working with a fiduciaryn advisor: Financial advisors are legally obligated to act in your best interest and provide objective guidance. Subject to a fiduciary standard, which requires advisors to act in their clients' best interests at all times, placing those interests above their own. They can help you avoid emotional or poorly informed decisions and create a comprehensive financial plan focused on your goals. 
• Set financial goals: Define specific, measurable goals to keep yourself accountable and motivated. For example, you might aim to build a $5,000 emergency fund by the end of the year by setting aside a portion of each paycheck. 

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This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes.

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Annuities issued by Gainbridge Life Insurance Company, Zionsville, Indiana.

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