6 Common Money Mistakes (and How to Avoid Them)

Whether you're a 1099 contractor or W2 employee, managing your money wisely shouldn't feel like rocket science, but even the smartest people can fall into common financial traps.

I'll be the first to admit to being guilty of this. It's easy for any of us to fall into the gap between knowing and doing.

Whether you're just starting your financial journey or consider yourself money-savvy, these six money mistakes might be quietly draining your wallet.

The good news? Once you know what to look for, these pitfalls are surprisingly easy to avoid. From mindless subscription spending to ignoring your emergency fund, I'll help you identify the habits that could be holding back your financial future – and show you exactly how to fix them.

Let's dive into the six money mistakes you might be making right now, and discover the simple solutions that can transform your financial health.

1. Not Setting Aside Taxes

It would be a shame to have a stellar year in your career just to be met with a stiff tax bill and no way to pay it. Unfortunately that's what happens to many 1099 contractors because they haven't been setting aside money for taxes from their earnings. What a buzzkill!

Independent contractors are usually responsible for paying the self employment tax instead of relying on an employer to deduct it from their wages automatically. To be fair many simply aren't aware of this in the beginning because they haven't been told.

With that in mind, it's best practice to set aside about 20-35% of your self-employed income to pay for taxes. That might seem like a pretty wide margin but it'll keep you in a pretty good safe zone.

Remember that this is just a rule of thumb but even if you put away as little as 15% it will still be less of a hassle to come up with the difference when it's time to pay. For a more accurate target use a tax calculator or work with your tax professional to hone it down to a reasonable amount based on your situation.

Be sure to open up a separate bank account and label it "Taxes" so you can have those funds separated from the rest of your money.

It won't be factored in any financial decision making and will not be counted as your emergency money. Essentially treat it as if it doesn't exist or belong to you because it's earmarked for Uncle Sam.

At a glance:

• Independent contractors are responsible for self-employment tax.
• A best practice is to set aside 20-35% of your income for taxes.
• Use a tax calculator or work with a professional to estimate your tax obligations.
• Open a separate bank account labeled “Taxes” to keep funds separate from daily finances.
• Treat tax savings as untouchable—it's money already earmarked for the IRS.

2. Writing Off Too Many Expenses

On the flip side of not having the money for taxes is writing off too many expenses. Depending on how you structure your expense deductions you can drastically reduce your tax bill or pay next to nothing.

This is one of the major perks of being self-employed because you have access to a ton of legal advantages when it comes to managing your tax bill. This can also be a double edged sword in the long run though depending on your goals.

For instance, if you may have trouble getting a loan because your income is now too low to qualify for financing. What originally seemed like clever navigation of the tax code could then end up being the deciding factor when trying to get a mortgage for a dream home.

Access to capital is a real struggle for some so be sensible.

Sure there are alternative ways to gain leverage, such as finding lenders who do manual underwriting, but you may be limited in your options based on what you're trying to purchase and what's available in your market.

Work with a qualified tax professional who also understands your goals so that your being smart in the short term while setting yourself up in the long run.

At a glance:

• While tax write-offs reduce taxable income, they can impact future financial goals.
• Reporting too little income can make securing a mortgage or business loan difficult.
• Work with a tax professional to balance minimizing tax liability while maintaining borrowing power.

3. Not Having Enough Savings

When those speed bumps in life happen you've got to have a cushion ready to manage the impact. Think of your cash reserve as the energy that keeps the machine going.

You'll want enough to cover at least a few months worth of expenses. Start out by listing your typical living expenses for a month. This includes your rent/mortgage, utilities & bills, groceries (not eating out), and gas.

Add up the total amount and multiply by three and this is the minimum you should have on hand.

Replenish your cash reserves as necessary when those unexpected events appear. Open a separate savings account and label this "emergency fund" or something to that effect to give it purpose.

Even better, put it in a high-yield savings account, preferably in a separate financial institution than your everyday banking so it can get a slightly better return and you don't get tempted to use the funds for non-emergency expenses.

At a glance:

• Financial emergencies are inevitable—an emergency fund is essential.
• Calculate your basic monthly expenses and aim for 3-6 months' worth in savings.
• Use a separate high-yield savings account to keep emergency funds untouched.
• Regularly replenish your savings after withdrawals.

4. Not Including Your Spouse in Financial Decisions

Multiple studies have shown that money is one of the major reasons for conflict in a relationships. There are so many variables that could lead to these conflicts although I've found through the years that communication, or lack of, is the number one factor.

Oddly enough, some people think that if they share how much they have on hand then their spouse will want to spend it. If something has to be hidden from the person your supposed to have complete trust in then there are bigger issues at hand.

Other people might feel that their spouse simply isn't interested in money or laying out the numbers. If this is truly the case, that's okay...to a certain extent. Maybe one person is simply not as competent or even interested in managing the money as the other.

That's totally normal which is the beauty of leaning on each other's strengths to create a strong partnership.

Considering this though it is still wise to work together in the planning because even if they one person isn't interested in the numbers they certainly exited about having the future life they desire.

If the daily management falls on one person's shoulder then the other should be aware of at least where everything is such as policies, bank accounts, and investments just in case something happened to the other.

Feeling lost, during a time of loss, is a situation to be avoided at all costs.

Find ways to make it fun, it's your future after all. Set a schedule to review together and this will help strengthen the bond and create a more focused direction in life together.

At a glance:

• Money issues are a leading cause of relationship stress and conflict.
• Transparency and communication prevent misunderstandings and financial surprises.
• Even if one spouse manages the finances, both should be aware of accounts and goals.
• Regular financial check-ins (monthly or quarterly) strengthen partnerships.

5. Lacking Proper Insurance Coverage

What will you do if you're unable to work due to injury or illness that will take you out longer than what you have set aside in savings?

Worker's compensation probably won't be enough to live on. This is when having protection in place to reduce your risk is critical to stay the course on your long term goals.

Having a short or long term disability policy can be the difference maker in surviving while a broken bone heals or dealing with a tough battle with cancer. Of course having a good health insurance policy will help to manage the actual medical expenses but there's bills to pay and mouths to feed that simply won't be covered by those types of policies.

If your employer doesn't offer these benefits then shop them around and find a policy that suits your needs. Premiums can vary depending on how long it takes for the initial payout.

For instance you will pay more if you wait 3 months before the first payout opposed to waiting 6 months for the first payment to kick in. If you can get by having 6 months worth of savings set aside to wait that long then it might make sense to go that route. Otherwise choose a wait period that you are more comfortable with.

Making sure your family is protected in the event of your passing is one of the best things you can do to offset the biggest risk. The last thing anyone wants is their spouse to be worried about putting food on the table and keeping a roof overhead because of a loss in the household.

It's a stressful time already, but not having life insurance in place will make it a financial catastrophe.

Your employer may offer a life policy but most are capped at $50k which is better than nothing but far from enough. Choosing either a term or a universal life policy is typically the way to go.

If you've got a mortgage and young kids then term policies are probably the best bang for your buck to get as much insurance as you can. At the end of the term it will either renew at an adjusted rate or you can let it expire. Lock in a rate for a couple of decades so you don't have to worry about it.

At a glance:

• Without income protection, an injury or illness could devastate your finances.
• Short- and long-term disability insurance can cover lost wages during recovery.
• Life insurance ensures financial stability for loved ones in case of death.
• Term vs. universal life insurance: Understand which is best for your needs.

6. Operating Without a Financial Plan

Believe it or not, some people set financial goals as vague as "make money" or "do as well as last year." Even businesses sometimes operate without revenue targets or proper forecasting!

This approach can lead to making a lot of money but having nothing to show for it.

Having a clear financial plan helps keep you focused, reduces temptations that steer you off track, and provides motivation through milestones. Make sure to specify exactly what it is you're wanting to accomplish.

Whether you're aiming to pay off debt, save for the future, or grow your business, avoiding these six common money mistakes can set you up for long-term success.

Set up milestones along the way to keep you on track towards the larger goals. The more wins you have along the way the better you'll be able to stay consistent and see progress.

Most importantly...be intentional about CELEBRATING your accomplishments!

At a glance:

• Many entrepreneurs operate without revenue targets or growth forecasts.
• Setting clear financial goals helps businesses grow sustainably.
• Regularly reviewing financial statements can prevent cash flow issues.
• A financial plan helps reduce impulsive spending and ensures profitability.

Avoiding these six money mistakes can make the difference maker between financial survival or success.

By planning for taxes, balancing expenses, saving consistently, communicating with your spouse, securing insurance, and having a business strategy, you'll set yourself up for success.

Take control of your finances today—start by reviewing your current money habits and making necessary adjustments.

The more proactive you are, the better your financial future will be.