8 Money Mistakes That Can Ruin Your Finances

There are so many ways, subtle ways, that we sabotage our finances and sometimes we don’t even realize we’re doing it. We become conditioned thinking we are on course and then we get blindsided by our poor planning or careless spending habits. Money mistakes have happened to us all, probably more that a few times.

8 Money Mistakes That Can Ruin Your Finances

Here’s my list of some of the big offenders and some solutions you can try if you find yourself too often behind the eight ball.

1. You’re a member of everything

From Netflix to Costco, from the local gym to all kinds of member/fee oriented services, you could be overspending without ever realizing it. Look for ways to eliminate the things you don’t use or don’t really need. Check your credit card bills for recurring charges you might be missing. Also review your mobile phone data plan. Companies are constantly changing criteria and plans, and you may be able to reduce your plan usage and really save because you don’t use all of the data.

2. Your budget is based on your gross income

A fundamental mistake in budgeting is planning to spend your whole salary rather than what you actually bring home. Either budget your net income after deductions such as taxes, 401k contributions, insurance premiums, etc. or account for each of those expenditure categories in your budget. If you make $60,000 per year, you don’t plan to spend $5,000 per month. It will always leave you short if you plan that way.

3. Your W-4 is wrong

You may be a happy camper getting a fat refund check back from Uncle Sam each year, but keep in mind that it’s not free money. It’s your money and you have overpaid your taxes. It makes little sense to be deprived of that extra pay each week while receiving no interest or dividends on that money. You’re essentially giving the government an interest-free loan. If your income is regular, you can easily estimate your tax share and adjust your W-4 form so that you’ll have a bigger paycheck now and have the money you really need.

4. You depend on credit too much

Do you buy everything on credit? I once was taking a home equity loan application for a client and I asked him why he needed $75,000. He told me it was to pay off his credit card debt. I asked him what he bought with his cards, and he said….wait for it…everything! He used his card for everything from dry cleaning to movies to groceries…in fact he never used cash at all and he never paid off his credit balances.

Unless you can pay off the credit bill in full each month, my rule of thumb is to only use credit cards for major purchases with special terms and very low or no interest. This is especially true when you are a real spender on wants rather than just needs. Using cash will make the purchases a bit more difficult and you’ll put a lot more thought into everything you buy. Even using cash for just half of your monthly purchases will have a big effect.

5. You spend your bonuses

Does a bonus check mean a spending spree to you? If so, you’re on a path to problems. That check should be used toward your goals (you do have goals, don’t you?), such as investments, retirement, or a really important need, not to “party all the time” as Eddie Murphy once sang about his girl. There’s nothing wrong with a small splurge once in a while, but the key word is small.

6. You don’t have an emergency fund

In today’s world, it’s important to sock away about 6 months of expenses in case of emergency. What will you do if you lose your job? What if you have an accident with huge damages, serious injuries, and high deductibles? Or what if your house needs emergency repairs? You must save some money every payday and budget so you can build your fund. If you use any of it, you’ll need to build it up again. It’s your protection against a financial disaster.

7. You waste money on bad habits

Do you ever think about how much you spend on cigarettes, liquor, drugs, coffee, and fast food? If you smoke just one pack of cigarettes a day, just one, you’re spending about $2,000 per year. And coffee? A Starbucks latte daily alone will cost you over $1,000 per year. If I throw in the rest of those items on the list, you’re likely to waste another $2,000-$3,000. You can carry a travel mug of coffee, pack your own brown bag lunch, and give up smoking and save a fortune. You’ll be healthier, too, and you’ll have more money to pay your real expenses and meet your goals.

8. You don’t distinguish needs from wants

This is so simple and yet the average person has so little self-control. When you are struggling with your monthly expenses, the last thing you should do is to blindly buy things that you don’t really need. We all have done it. But reality is that a bargain isn’t a bargain if you don’t use it or you can’t afford it (or both!). I try never to buy on impulse. I always think long and hard before I buy whether I really need it or if it is just a temporary desire and later will become a regret. More often than not it’s the latter, so think twice before you do it.


Have you found yourself short of funds month after month? Unable to save or reach your goals? When you track your expenses and have a proper detailed budget, you will have a better chance at covering your needs rather than committing the mistakes listed here.

Are you ready to make some revisions to your money habits? What is your biggest money mistake?

Image courtesy of Stuart Miles at freedigitalphotos.net (with changes)


  1. Rajesh

    having an emergency fund could help one in managing their finances and I would suggest that to anyone who is serious about managing their personal finances, for example considering a situation where one needs to arrange a 10k for an emergency situation, having an emergency fund could help person in either funding it fully or partially but for sure that it won’t turn things upside down.

  2. Prudence Debtfree

    #2 – Until we started our journey out of debt 3.5 years ago, I had only a vague notion of gross income vs. take-home pay. It’s a pretty significant difference!
    #5 – I recently caught myself blowing an unexpected $60 that came my way. “Bonus!” I thought. “Let’s eat take-out!” There has been no more of that.
    #7 – Bad habit: take-out. For October, my resolve has been not to spend a cent on take-out food. So far, so good : )

  3. Jacq

    My bonus goes mostly to savings with a bit set aside for sushi or a nice steak.
    This spring instead of having a set amount go to savings per paycheck, I looked at my spending and had a set amount go to checking, so the variable (positive ) would go to savings without having to think about it!

  4. Sandra

    I used to depend on credit cards, which this habit resulted in great amount of debt, Gary. I am glad that I recognized earlier. I wouldn’t have known how to deal this if I hadn’t done it late. Now, I don’t have credit cards any more.

  5. Lena

    Oh man, I make or have made nearly all of these mistakes! Apart from the taxes because that’s not a thing where I live, but otherwise pretty much that. I’ve got out of credit card debt this year I’ve definitely cut back on my coffees and lunches out but I still have a few here and there. Glad to find this blog!

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