Top 10 Most Common and Bad Financial Decisions That You Should Avoid

February 5, 2025 | 01:54 pm

TEMPO.CO, Jakarta - Achieving financial security in the early stages of adulthood has become a dream of many people. As the world is constantly shaken up by economic hurdles, it’s important to avoid bad financial decisions in pursuit of a hassle-free budget. If you're facing financial constraints, let's take a look at some of the most common bad financial management here. 

10 Bad Financial Decisions to Avoid 

According to Investopedia and Bankrate, overspending and not having saving goals are the bad financial decisions found in many cases. Other mistakes you can dodge also include: 

1. Overspending 

While having room for entertainment clauses on your budget doesn’t always translate to overspending, it has the potential to lead you to impulse purchases. Every little unnecessary item you carry home on a day out can add up, cutting an even bigger portion of your monthly income. 

To avoid this mistake, start jotting down a shopping list that includes all the needed goods before you go out. This simple act can help window shoppers to overspend their fixed budget. 

2. No Saving Goals 

Citing from Investopedia, the U.S. household personal savings rate was recorded at 3.6% in April 2024. If this trend continues, even more people will face budget restraints in the distant future. That’s why, setting a certain saving goal monthly and keeping an emergency fund of three months’ worth of expenses will make a big difference in your financial journeys. 

3. Accumulating Debts 

Amassing large amounts of debts is one of the bad financial decisions for several reasons including its staking interest rates. Heavily relying on your credit card debt will only put you into more precarious economic circumstances in later ages. 

In sorting out which debts need to be prioritized, create the debts list, their interest rates, and their due periods. From here, you can work on your plan to make payments for the highest rates of debt.

4. Never-Ending Payments 

Financial hardship often comes from a never-ending payment cycle. In modern times where every small convenience requires paid memberships, you should keep track of the monthly or yearly budget. Otherwise, you will invite yourself to unnecessary high-end memberships that don’t allow your savings accounts to grow. 

5. No Budget Plan 

See a budget plan as some kind of guidance tool for your expenses. Lacking a personal monetary planning skill is considered a bad financial decision, especially if you continue to live paycheck to paycheck. For a starter, you might want to follow the 50-30-20 budgeting rule where you spend 50% of your income on needs, 30% on wants, and the other 20% on saving accounts.

6. No Retirement Investment 

The age of retirement may seem a little distant for younger generations, but it’s essential to start working on the plan as early as possible. It’s universally known that a thorough budgeting arrangement promises you a comfortable retirement life. So, schedule your monthly income to the designated retirement accounts and understand both the entailing risks and benefits. 

7. No Emergency Fund 

Ignoring emergency funds might be the beginning of your bad financial decision as these savings will become helpful in covering unexpected expenses. According to Bankrate’s report, around 57% of U.S. citizens in 2023 were unsatisfied with the amount of their emergency savings. For people experiencing the same issue, you might consider stashing more budget in an online savings account whose yields are higher than the conventional banks.

8. Buying a New Vehicle 

A vehicle is a depreciating asset that often creates a big difference between its value and the payment. Borrowing money to buy a vehicle will only create a larger financial constraint, with expensive maintenance awaiting. Unless you use the vehicles to earn a living, owning a vehicle debt is likely to be more disadvantageous than it is beneficial. 

9. Spending too Much on Home 

Much like a vehicle, a home needs utility expenses such as taxes and maintenance. The bigger the building is, the larger the amount of costs will be. Prioritizing needs over wants can save you from restraining operating costs beyond the mortgage payments. 

10. Waiting to Save 

Saving negligence is another bad financial decision that won’t guarantee financial freedom. This mistake is easily addressed by depositing a portion of your monthly income as soon as you receive the paycheck. For better planning, you can also use finance apps that allow an automated saving process. 

Avoiding bad financial decisions is key to achieving long-term financial stability and independence. By steering clear of common pitfalls like overspending, neglecting savings, and accumulating unnecessary debt, you can secure a stress-free financial future. For similar coverage, check also some tips to do frugal living here.

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