When it comes to financial decisions, such as saving money and building wealth, you can probably come up with a number of excuses as to why you haven't done certain things. You can also probably come up with a long list of bad financial decisions you have made.
And perhaps the excuses for the steps you haven't taken are tied to these decisions you regret.
However, as women, it is critical for us to get our finances in order. This is because not only do we earn less than men, we spend more time out of the workforce having and raising children, and we live longer than men on average.
This means we are likely to need more money over the long term to support ourselves. And so we have to be smart about our finances.
Regardless of the financial decisions, you've made and whether you have your finances in order right now or not, there is always some room for improvement when it comes to money. And the opportunity to improve can come from learning from other people's financial mistakes!
So, let's dive into the most common bad financial decisions and how to recover and start making better financial management decisions going forward!
8 Bad financial decisions you may have made
So below are some of the most common bad financial decisions people make when it comes to their finances and the key ways you can avoid or recover from them.
1. Not saving any of your monthly income
When it comes to women and money, so many women say that after they've paid their bills, they don't have any money to contribute to their retirement accounts or their emergency fund.
However, some of these same women still somehow find money to get their nails done, go out for drinks and dinner, and so much more! A lot of times, I'll even hear them say things like, "Well, dinner only costs $20, it doesn't make a difference."
Don't think that $20 matters? Think again. Putting away $20 a week for one year in a savings account with zero interest will give you $1,040 dollars at the end of the year. Imagine if you did that for 5 years? You'd have over $5,000.
Not putting money into your savings account each month often happens when you don't really have any concrete financial goals or think you have plenty of time to save in the future. But by doing this, you end up paying yourself last. This is definitely a bad financial decision.
One way to easily save is to establish the habit of creating and working with a monthly budget and making it a point to save at least 10% of your monthly income before you spend anything.
Consider automating your deposits to your savings account too - this will make sticking to your savings goals so much easier.
2. Living large in your 20s
Your 20s are when you really become an independent adult. You graduate from college, you get your first big paycheck, and maybe you move out on your own. And now you can do things that you really couldn't do back when you really didn't make any money.
Not only that, you probably don't have as many financial burdens as someone in their 30s or 40s. So it's easy to put savings on the back burner while you enjoy those glorious twenties. As a result, it’s not uncommon to make lots of financial mistakes.
It's easy to get carried away when you first start earning money - the new car, the designer handbags, but don't forget to think about your future.
Yes, you might be young and yes you might have time to save but nothing can replace lost time and the power of compounding so learn how to budget and prioritize your future financial well-being over your wants.
Your financial decision-making in your 20's has a huge impact on your future.
3. Making large, unnecessary purchases
A lot of credit card debt comes from buying things you don't really need. From that awesome clothing sale to eating out every day, those small transactions can rack up pretty quickly and before you know it, you are left with a pretty hefty credit card balance.
Avoid this regret by reminding yourself that credit is actually debt and the available balance on your credit card isn't real money! It's money you are borrowing and will have to pay back.
If you currently have debt, stop using your credit card and establish a debt repayment plan. Those store cards, credit cards, and car loans can be very enticing, alluring you with discounts and minimal interest rates.
But once things start to add up and those introductory rates disappear, your debt can become a nightmare.
4. Not paying off your credit card
One of the most common bad financial decisions is not paying off a credit card. If you need to use your credit card for an emergency or end up with some unnecessary debt, the next worst thing you can do is to not pay off your credit card debt.
Not prioritizing paying off those high-interest loans means you'll be paying the maximum amount of interest on your debt over time.
This could be as much as 50% of your debt or even more over time depending on your interest rate if you are only making minimum payments throughout the lifetime of your loan.
Why not save yourself interest payments, get rid of your debt as quickly as you can, and start repurposing that money towards saving and investing?
I like to describe debt as a stumbling block on the path to building wealth. And in order to get past it, you need to have a plan to roll (or blast) that block out of your way! It can be very difficult to save money when you are paying back debt and high interest.
However, creating and executing a plan to aggressively attack your debt, especially credit card debt, allows you to pay it off as quickly as you can. Then, you can fully focus on saving more money.
And if there's one truth for women and money, you can't build wealth by racking up more debt or by allowing interest payments to sap your income.
5. Putting off financial decisions
Putting off important financial decisions e.g. paying off debt, saving, investing, etc, are some of the biggest financial mistakes you can make. Too many women promise themselves to get round to it, but instead of taking action, they waste so much time.
Days, weeks, months, or maybe even years go by and no progress is made because they think they still have time.
Waiting to figure out your finances until you get married is not a solution either. My best advice for women and money is to have a plan for your finances before you get married.
If you do choose to get married, you and your partner should have a plan for your finances jointly as well. If you don't plan, you fail, married or not.
So stop waiting to start and start planning your financial future now.
6. Not investing
A really bad financial decision is deciding not to invest your money at all. If you think you have to be an expert in the stock market to invest, think again! There are plenty of options and with technology, investing has never been easier.
You can either choose to invest in the stock market, real estate, or business - whichever route you choose or if you decide to go with all three, it is critical that you do your research and understand the basics of what you are putting your money into.
The stock market can seem like gambling or a big scary place but not if you know what you are doing and have investment objectives. The returns on the stock market average about 8% over the long term and are one of the most popular forms of investing out there.
If you're not confident about investing or don't understand the things like the difference between ETFs and Index Funds you can always seek help from a financial advisor. Advisors help you set up an investment portfolio based on your risk tolerance and your specific individual situation.
You can also learn a ton about investing by enrolling in our completely free investing course!
Remember that the key to successful investment portfolios is diversification! So, be sure to have a diverse portfolio to ensure you are investing wisely.
7. Not having a backup plan
Not having a backup plan is one of the worst financial mistakes ever. Having a backup plan basically protects you from unplanned and expensive life occurrences.
For you to have a positive relationship with money, you need a backup plan—a solid one.
Having these things in place will literally save you when life happens with unexpected expenses, and help you keep your financial plan intact.
You'll have a plan to fall back on as opposed to having to leverage debt or losing all your savings and investments to cover your situation.
8. Not protecting your personal information
In today's internet world, identity theft and credit fraud are rampant, and not taking the extra measure to ensure your personal and financial information is protected can be a bad financial decision.
So much of our specific information like address, date of birth, and more is information scammers and hackers can easily find due to so many data breaches in recent times.
Protecting yourself is simple once you get set up. It means staying on top of your credit reports, not entering your data on websites you don't trust, and putting alerts or freezes on your credit cards and credit profile.
How to recover from bad financial decisions
We have all made mistakes and sometimes that includes making bad financial decisions. But don’t beat yourself up over it!
Thankfully there are plenty of strategies and ways to recover from your past financial mistakes. Here are some tips to help you make smart financial decisions!
Step 1: Acknowledge your bad financial decisions and forgive yourself
In order to get ahead, you have to forgive yourself for your money mistakes. So take note of the lessons you've learned and keep moving. Everyone has made some bad financial management decisions around their money - even the world's wealthiest people.
It's all about acknowledging where you went wrong and figuring out what to do to make things right. Even if you wind up making the same or similar mistake again, you can rinse and repeat (acknowledge, learn and implement the lessons) until you get past your error. That is how you will succeed with your finances.
Once you've committed to forgiving yourself and are ready to move forward, it's important to recognize where you are right now with your finances. Then, you can determine where you would rather be. '
This means setting crystal clear, tangible, and measurable financial goals and defining your "WHY". What is your reason for wanting to be financially successful?
Step 2: Decide it's time to take action towards changing your financial situation
Once you’ve decided to make good financial decisions, put a plan in place. And you don't have to wait for January. You can start today.
Reduce your spending, expenses & debt load, see if you can increase your income, and make saving money for your future self a priority. All of these things will put you on the path to creating a solid financial plan.
Be willing to change and be committed to seizing the moment to start working on revamping your finances. No more waiting for the perfect moment to get your finances sorted. Start now. It means if you can only save $5 a week right now, save that $5.
If it means you can only put $10 towards your debt this week, make that $10 payment. And then start figuring out how to reduce your expenses and also earn more so you can ramp up your savings or your debt repayment plans and get back on track with your financial goals.
Your money situation will always be changing, so look at it as a financial journey. As you save more money, pay off debt, and increase your income it will be much easier to recover from any past bad financial decisions you made.
If you need help, you could also work with reputable financial advisers, or tax professionals depending on your needs. A great attorney for legal advice should also be on your list. Be sure to look into the background of your financial professional to ensure they are a good fit for you beforehand.
Step 3: Get motivated and shift your circle of influence
One of the best ways to begin making smarter financial management decisions is to learn from others. So start reading personal finance and personal development books and blogs.
Listen to podcasts and watch videos. Surround yourself with people who are going to motivate you to do better and keep going even when you have those bad days.
Make it your mission to shift yourself away from the influences that are of no benefit to your goal of financial success and that are not in line with your WHY. Remember, bad financial behaviors from others can affect you, so choose your association wisely.
You can recover from bad financial decisions!
Yes, it might feel like there is no light at the end of the tunnel, your debts are so large, you are so behind in your career, and/or you cannot recover from your mistakes but remember - the only way change happens is by taking the first step and then the next step.
You can totally do this.
Take stock of your finances, learn how to budget, start saving and paying off your debt, and before you know it, you’ll be on your way to getting your finances in order and making better financial management decisions!