In finance, there are all sorts of best practices that can help you build wealth and gain confidence with money. However, for every best practice, there is an equal number of bad practices that can derail your progress or even completely jeopardize your future success.
And while failing to build a budget or letting "lifestyle creep" take hold may not seem like they will have a major effect on your finances, it’s often the small mistakes that can lead to big trouble down the line.
As leaders in the financial industry, the members of Kiplinger Advisor Collective are familiar with the kinds of mistakes that can negatively impact a person’s overall success with money. Here, they each share one financial “don’t” (or mistake) they always advise their clients to avoid, why and the impact it can have on their future.
Don't forget to keep a healthy emergency fund
“The most basic mistake of them all is leaving too little (or nothing at all) in an emergency fund. That is what I consider an unforced error. The market or economy can move swiftly against even the best investors, but there is no excuse for leaving yourself without a cushion of cash to lean on. Life comes at you fast and usually in waves; you need to be prepared to weather tough times.” — Stephen Kates, Annuity.org
Don't let 'FOMO' guide your finances
“Don't let the fear of missing out — or FOMO — influence your investing decisions. Make sure to do your homework on an investment before following the crowd into the latest hot stock or segment of the market.” — Daniel Kern, Nixon Peabody Trust Company
Don't try to time the market
“One major financial mistake I always advise clients to avoid is timing the market. Attempting to predict market highs and lows often leads to missed opportunities and increased risk. Studies show that staying invested consistently outperforms trying to time market movements.” — Manoj Kumar Vandanapu
Don't succumb to 'lifestyle creep'
“It’s very important to be aware of, and avoid, ‘lifestyle creep.’ This is when you spend more as your income increases, such as buying a bigger house or luxury car when you get a raise. Doing this will keep you in a paycheck-to-paycheck rut and can even lead to debt. Setting and following a budget no matter your income is key to financial success!” — Andrea Woroch, Woroch Media Inc. / Andrea Woroch
Don't take on too much debt
“Avoid being overleveraged, especially in these times of high(er) interest rates. Maybe you could have gotten away with it when the interest rates were near zero; these days, try to grow organically with money you already have. Life is too short to be spending your retirement years paying off a debt with interest that has ballooned out of control.” — Zain Jaffer, Zain Ventures
Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >
Don't assume you'll never achieve financial freedom
“Avoid getting into the mindset of believing you’ll never achieve financial freedom simply based on your bank account balance. Once you limit your mindset to this, it can keep you from making the decisions needed to truly grow your wealth and achieve financial freedom. I believe financial freedom begins with a healthy mindset and maximizing the money you do have.” — Justin Donald, Lifestyle Investor
Don't just make passive investments
“While passive investments are attractive, I consistently advise my clients to dig deeper and explore the financial advantages of active investments. Engaging in active investments promotes involvement in local, national and international economies. This hands-on approach can provide additional financial benefits, enhance financial literacy and grant greater control over one’s financial longevity.” — Jean-Francois Harvey, Harvey Law Group
Don't worry about chasing returns
“I always advise my clients to resist the temptation to chase returns. It is important to understand how investments perform in various market conditions. I remind them about the importance of buying low and selling high and the benefits of a diversified portfolio and dollar-cost averaging. These strategies can help clients stay focused on their financial goals and objectives.” — Marguerita Cheng, Blue Ocean Global Wealth
Don't let your emotions make your investment decisions
“One major financial ‘don't’ that is crucial for clients to avoid is making investment decisions based solely on emotions. Emotional investing can lead to reactionary decisions, such as panic selling during market downturns or excessively risky investments during a market high, driven by fear or greed rather than careful analysis and strategic financial planning.” — Greg Welborn, First Financial Consulting
Don't get stuck with high-interest debt
“Avoid high-interest debt, such as credit card debt. It accumulates quickly and can severely impact your financial health. Paying high interest leaves you with less money for savings and investments, hindering your wealth-building. Eliminating or minimizing such debt ensures better cash flow management, financial stability and long-term financial growth.” — Stephen Nalley, Black Briar Advisors
