Avoid These 10 Common Financial Mistakes

Everyone makes financial mistakes. Knowing where and how you've stumbled is the first step toward getting back on track and setting a financial strategy for success.

All you need to do is evaluate your approach and identify the types of financial problems you have. By reviewing these common financial mistakes, you can build better financial habits, keep your goals within reach and lay the groundwork for the future you want.

1 Not creating a budget

One of the most important financial mistakes to avoid is not having—or sticking to—a budget. If you don't know where your money is going each month, it's tough to secure your financial future. Not having a budget can lead to overspending and under-saving. This can make it difficult to pay for even smaller goals, like a weekend getaway.

When you track your income and expenses each month, it's easier to form a plan to save and pay down debt. When you do this, you can set aside funds for the things you want in both the short and long term.

2 Not setting up an emergency savings fund

If you don't have an emergency fund, it can impact many other areas of your finances. Without savings for unexpected expenses, you'll likely rely on credit cards to pay for them. You might even have to pull from your retirement accounts, which may come with penalties that can impact your life in the future. You're also missing out on the peace of mind that comes with having a cushion in the bank.

3 Not optimizing income

It's common not to ask for a raise or negotiate for a higher salary when taking a new position. But leaving this income potential on the table can have major impacts on your financial future. Take advantage of opportunities to earn more now. Doing so can increase your ability to save and invest so your money grows more over time.

A typical, modest raise is around 3% to 5% of your income. If you earn $70,000 per year and earn a 3% raise, that's an extra $2,100 annually, or $175 per month. If you invest that amount each month at an annual percentage yield of 6%, you'll have saved almost $80,000 in 20 years. As you continue to see pay increases and boost the amount you save, these numbers only grow larger.

4 Not taking advantage of HSAs

A health savings account, or HSA, can be an advantageous retirement tool. Based on the investments you choose if you're eligible to participate in an HSA plan, the money you put into the account may grow tax-deferred over time.

If you withdraw funds for qualified medical expenses, you can access them tax free. After you turn 65, you can make withdrawals to cover non-medical expenses, but keep in mind that the money will be taxed as income.

5 Not managing debt

If you haven't already, stop letting interest-bearing balances hold you back. The longer you've had them, the more interest you've likely accumulated.

To better manage debt, make a list of your credit card balances, and order them from the highest to lowest interest rate. Focus on paying more money each month to the one with the highest rate, which technically costs you the most money to carry. Work down the list one by one until each is eliminated.

As you get your debt under control, you'll have more money to put toward building up your savings and retirement.

6 Not saving enough for retirement

While retirement might seem like a long way off, it pays to start saving sooner rather than later. Many experts recommend having three times your annual salary saved for retirement by age 40. If this number seems impossible, break your retirement contributions into smaller steps.

Contribute to a 401(k)

Take advantage of your employer's 401(k) plan if you're eligible. Whether your employer offers a match or not, a 401(k) is a powerful investment vehicle that can significantly add to your future nest egg.

Consider contributing at least enough to get your maximum employer match. If your employer matches 401(k) contributions up to 3% of your salary, investing that 3% each paycheck will take full advantage of the match, which essentially doubles your retirement savings.

Eventually aim to contribute at least 15% of your household income to retirement, and up to the maximum annual 401(k) contribution amount.

Contribute to an IRA

You also may be eligible to contribute to a traditional or Roth individual retirement account, or IRA. Stay-at-home parents who file taxes jointly may also be eligible to contribute to a spousal IRA, even if only one spouse earns income.

If you add the annual maximum IRA contribution of $500 per month starting at age 25 until you retire at age 65, you'll have roughly $1.3 million, assuming an average rate of return of around 7%. If you start doing this when you're 35, that same $500 per month will yield you just over $600,000—less than half what you'd have if you'd started saving earlier.

7 Not rolling over your 401(k)

If you leave a job without taking your 401(k) with you, you could be losing control of your savings and accumulating fees on the account you left behind.

Rolling your 401(k) over to either a new employer's 401(k) or an IRA often offers lower fees, a wider range of investment options and greater control over your savings. The annual fees for your old 401(k) plan may be significantly higher than an IRA. It's worth exploring your options, crunching the numbers and making sure you feel in control of your investments.

8 Not considering student loan repayment options

The number of employers offering student loan repayment assistance programs is on the rise. If your employer offers a plan, fantastic. If not, now's an ideal time to lobby your employer to consider this high-value benefit.

If you have $40,000 in student loan debt and pay $250 per month, it'll take you 323 months to pay off that debt. You'll also pay more than $40,750 in interest, assuming your loans have a 6% interest rate. If you have an employer contributing an extra $100 per month, you'll be debt-free in 170 months—nearly half the time—and pay only $19,500 in interest.

9 Not balancing college savings with your future

Saving for your kids' college education is an important goal, but it shouldn't take precedence over your ability to retire. You can always borrow to pay for college if you must, but you might not be able to borrow to fund your retirement.

Plug the numbers into a retirement calculator to make sure your own retirement savings accounts are on track. If they are, establish a savings account or 529 college savings plan to start building an account for future education costs.

10 Not protecting your wealth

Your earning power and net worth may be quite high if you've been advancing consistently in your career. If that's the case, now is the time to protect yourself, your family and your assets.

Work with a financial advisor to explore whether it makes sense to protect your finances with a living trust or with products like supplemental life and disability insurance. If you have children or have been married or divorced over the past few years, it's also a good idea to confirm that your beneficiaries are current on all financial accounts.

Move forward with your finances

If you've made some of these common financial mistakes, don't worry. There's no time like the present to make a change. With a little education and planning, these financial missteps will be a part of your past, not your future.