Financial mistakes I see the most
- Mike Brown
- Apr 30
- 4 min read
For more than three decades, I’ve given advice to thousands of people on the radio and counseled hundreds of private clients. And today I’m proud to say we’re also working with many of their children and grandchildren. Financial success, we tell these new investors, comes from doing a small number of things the right way – for years and years – and avoiding big, easy-to-make mistakes along the way.
Here are the top 10 mistakes I encounter, and the advice I offer:
Spending more than you earn. It’s the cardinal sin of finance and if it becomes a habit, you will simply never be able to achieve financial independence. The fix is as simple: pay yourself a percentage of your income – automatically if possible – and then find a way to live on the rest.
Living paycheck-to-paycheck without a safety net. You’re just getting by, waiting for the next disaster – losing your job, getting sick, etc. – to knock you down. Solution: once you’re living on less than you earn, start building an emergency reserve equivalent to 30% of your income. It will keep you from borrowing to get through the next crisis.
Wasteful spending. A pack of cigarettes, a lottery ticket, a caramel macchiato on the way to work every morning. Some people blow $25 a week or more on things that don’t help them and wonder why they’re living paycheck-to-paycheck. How about rewarding yourself with one little luxury every time you add $100 to your emergency reserve?
Not investing. Unless you plan to work for money forever, you have to learn how to get money to work for you. First: save (see Item #1 above). Second: invest. Third: allow money to compound. Do that for long enough and one day your money could be earning more than you are.
Not getting the full 401(k) match. A no-brainer. If your boss is giving you free money to help you save for retirement, why would you not take it? Once you’ve built your emergency reserve, make this your next savings priority.
Not making Roth contributions while you can. Tax-deferred beats taxable investing, and tax-free returns beat them both. Fund a Roth IRA before your income gets so high that you’re no longer eligible. If you have the option, take advantage of a Roth 401(k) opportunities, which have no income restrictions.
Obsessing over your credit score. You know what hurts your credit score? Borrowing too much money. You know what helps it? Paying your bills on time, whittling down your debt, and letting your credit score recover on its own over time. Don’t fall for gimmicky strategies to game the system. You can’t “hack” your way to wealth.
Paying off debt with savings. Does it make financial sense to pay off a 20% credit card with an investment that’s been earning less than half that much? Of course, it does. But if the rest of your finances aren’t in order, it could be a bad idea, for at least three reasons: 1) you lose the wealth-building power of compounding; 2) until you get your spending under control you’ll probably keep borrowing anyway, but next time you’ll have no savings; and 3) this will only make you discouraged and less likely to do what you need to do. If you want to make progress, you have to pay down debt and save at the same time.
Using your home equity as an ATM. You might be tempted to borrow out your home equity to spend on something else, especially if lending rates are attractive. But even if you use the money for something productive, it’s still leverage, and despite what you might have heard – you can’t borrow your way to wealth.
Not enjoying yourself after mastering Items 1-9. If you’ve done it right, you’ll get to stop working one day with no debt and more than enough money to live on for the rest of your life. So instead of spending your life looking for two nickels to rub together, figure out what you can safely spend each year – and start doing it! Enjoy the wealth you’re creating by being responsible and frugal. Don’t run the risk of one day regretting what you might have done.
Any opinions are those of Mike Brown and not necessarily those of Raymond James. This information is intended to be educational and is not tailored to the investment needs of any specific investor. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification. Past performance is not indicative of future results.
