6 Big Money Mistakes to Avoid

As we go through our financial lives, we often make decisions that seem harmless or even good, but which can end up hurting us. The more money mistakes you know about, the more of them you can avoid, saving both dollars and headaches.

There are probably hundreds (or more!) such mistakes. Here are some examples.

Image source: Getty Images.

1. Not having an emergency fund

If you suddenly face a sizable unexpected expense due to a broken-down car, or maybe you lose your job, can you manage? Can you get by for a while? According to a 2026 U.S. News report, fully 43% of Americans surveyed don’t have savings to cover a $1,000 expense.

It’s critical to have an emergency fund ready, with at least three to six months’ worth of living expenses, sufficient to cover housing, food, transportation, taxes, and more.

2. Buying too much house

If and when you’re in the market for a new home, don’t overspend. One guideline is to seek a home priced at around three to five times your annual household income. Another suggests that you spend no more than 28% of your gross monthly income on housing expenses. If you overspend on a home, you’ll likely be on the hook for higher maintenance, insurance, and tax expenses, and should your income suddenly drop, keeping your home may become a challenge.

3. Co-signing a loan

It’s often a natural response to agree to co-sign a loan for a loved one. But think twice or thrice before doing so — because if they can’t repay it at any point, it will become your responsibility. Also, if they make late payments or skip payments, that behavior could appear on your credit report.

4. Living beyond your means

This is a far-reaching mistake that can really hurt you financially, leaving you deep in debt — potentially at astronomic interest rates. For example, the average credit card interest rate in America was recently around 21%. If you accumulate, say, $40,000 in debt on a card charging that much, you’re looking at owing about $8,400 in debt each year — and if you only pay the minimum due each month, that debt could increase, costing you far more in the long run.

Always aim to live below your means — saving and perhaps investing the difference.

5. Investing in things you don’t understand

The Motley Fool is a big fan of investing in stocks in order to build wealth. But there are many ways to invest in stocks. Opting for a simple, low-fee index fund for your long-term dollars is a smart move. If you’ve learned how to study stocks and make rational investment decisions, that can work well, too. But be sure you understand what you’re doing and any risks involved. It’s best for most of us to steer clear of penny stocks, day-trading, or investing on margin, among other things.

6. Delaying planning and saving for retirement

Your earliest invested dollars are your most powerful ones, as they have the most time in which to grow for you. So even if you’re a long way from retiring, it can be smart to come up with a solid retirement plan — and to act on it.

The Motley Fool has a disclosure policy.