Avoid These 7 Worst Financial Decisions While You Can―Here’s How

If you haven’t made a wrong financial decision yet, good for you! You can chalk it up to educating yourself about money, including how to best protect and make it work for you.

However, plenty of Filipinos aren’t as fortunate. They’ve made a few of the worst financial decisions and continue to live with the repercussions. To help you avoid a similar fate, here are some of the worst financial decisions that often lead to financial troubles.  

The Worst Financial Decisions You Can Make

Avoid these biggest financial mistakes and keep your finances moving in the right direction.

❌ Having No Financial Plans

Have you ever heard of the saying “failing to plan is planning to fail”? When you don’t have a financial plan, your finances can easily turn upside down when something unexpected happens.  

When you don’t have a financial plan, you don’t have control. Thus, you’re unable to make wise decisions about your financial future. You’ll miss out on essential goals and fail to provide financial stability for yourself and your family. Moreover, you’ll have to work longer and retire later than planned.

So set clear financial goals as early as possible. To achieve these goals, create a monthly budget (and stick to it). Put money away in savings, and pay your debts.

Protect your money and health by investing in life and health insurance. Explore other investment options to secure your future family's life and your retirement.

Read more: Plan Your Future Now: A Guide to Building Your Financial Roadmap

❌ Living Paycheck to Paycheck

The thought of your pay being deposited to your ATM account every two weeks or so is a comforting feeling. It gives you the reassurance that you’ll have money to spend by then.

However, relying heavily on that one income can also be a problem. Can you imagine the havoc it can wreak on your budget if you suddenly lose your job or your paycheck doesn’t come on time? One missed paycheck can leave you flat broke.

Even if you’re paying bills on time and enjoying a comfortable life, living paycheck to paycheck doesn’t do your future financial life any good. You’ll need additional money from another income stream for contingencies and savings.

If you’re wondering how to stop being broke, earn a little extra by exploring side hustles that you’re good at or enjoy doing.

❌ Going Into Business Unprepared

Can you afford to go into business? Do you have enough experience? Is your future venture profitable?

Whether an online store or a neighborhood sari-sari store, it’s essential to set aside your business capital, learn about your industry and its competitors, and learn the risks involved before you go into business.

Weigh the pros and cons first. Do your research to address the needs of your potential customers, perhaps by offering something better or more affordable. Map out your finances to pay for your startup and operating costs.

❌ Lending Money

There’s nothing wrong with lending money, especially to a friend or family member in need. You may be more financially comfortable, or they may lack the credit history and income requirements to be eligible for a loan.

But it’s still a risk because there’s a big chance they won't pay you back. Even if they do, it may take months or even years. Friends and family members often operate on the assumption that you’ll be more lenient and understanding about the repayment because of your personal relationship.

Because it’s an open-ended loan, your expectations as the lender and their obligations as the borrower are not explicitly outlined. If you want to get your money back, be clear about your terms and conditions. Or you can simply say no from the outset.  

Read more: Credit Report in the Philippines: How It Works and Where to Get One

❌ Falling Victim to Lifestyle Creep

Lifestyle creep is when you spend more on luxuries as your disposable income increases.^[1] It usually happens when you get a raise, land a new job with a higher salary, or finish paying off a substantial debt.

Because you’re earning more now, you also spend more. Suddenly, you can’t live without multiple streaming subscriptions, gym memberships, takeout dinners, multiple trips, and other impulsive expenses.  

There’s nothing wrong with rewarding yourself every now and then. But the problem is when your lifestyle spending increases and your income and savings remain stagnant.

To prevent lifestyle creep, stick to a budget, which will help you stay within your spending limits. Spend mindfully.

And before you spend on other unnecessary purchases, put funds into your savings account, emergency fund, and retirement fund. You can automate your fund transfers, so you don't have a chance to spend the extra money when it sits idly in your e-wallets or ATM accounts.

Related: Best and Worst Places to Put Your Emergency Fund in the Philippines

❌ Falling for a Scam

Scams continue to rise worldwide, and scammers employ advanced and old-fashioned methods to hoodwink their victims out of their money. They use psychological ploys to gain people’s trust and persuade them to do something against their best interests.

Watch out for any red flags when shopping online, venturing into a business, or investing your money. Ensure you're transacting with a legit and secure website and dealing with a legitimate business or organization. Read online reviews and double-check and verify permits and licenses.

❌ Not Preparing for Retirement

You may not be a broke person at the moment, but failing to save for retirement can mean a stressful, sad, and worry-filled future. When you're old, grey, and frail, do you really want to scrape by day by day?

Retirement may be decades away, but now’s the perfect time to start preparing. You won’t have to work well into your senior years. Instead, you can enjoy a comfortable retirement.

Make your money work for you by investing it or making monthly contributions to your retirement fund. Talk to a qualified financial advisor about your retirement goals so they can develop a financial plan tailored to your needs and your current income.

The 4 Best Financial Decisions You Should Make Today

Do you want to make better financial decisions? Here are some strategies that can help with your current financial issues and lead to the best financial decisions.

✔️ Saving Up

One of the best ways to protect yourself from the effects of inflation and today’s uncertain economy is to beef up your savings. This way, you’ll have something to fall back on when you experience a significant financial emergency.

With adequate savings, you can enjoy security and peace of mind. In addition, you have some seed money should you decide to go for other investments with a higher yield, like mutual funds, bonds, or stocks.

Read more: Creative 2023 Ipon Challenges to Help You Hit Your Financial Goals

✔️ Getting Life Insurance

A life insurance policy protects your family from financial losses if something happens to you. It offers financial security when you need cash for your financial obligations.  

Aside from the guaranteed protection and income replacement, it also offers cash value growth, dividend potential, and optional riders that can address your individual needs.

Life insurance allows you to afford expensive healthcare when needed, pay off the mortgage or other debts, and cover your children’s tuition.

✔️ Managing Debt Wisely

One of the biggest financial concerns one can have is debt. But credit is okay as long as you know how to manage it. It’s easier to apply for loans if you have a credit history because it’s what financial institutions will look at.

In short, don’t let any debt go bad. Because if you do, it can affect all other aspects of your life.

✔️ Investing in a Business

One of the best decisions you can make is to invest in a business, especially if your product or service is innovative and in demand. Depending on your business's size and financial capacity, you can make it a side hustle or your sole income provider.

You can enjoy an attractive and lucrative investment and source of income. As your own boss, your direct inputs and decisions can create your business’s success.  

Final Thoughts

To avoid making the worst financial decisions of your life, figure out your financial weaknesses or limitations so you can devise a strategy to address them. Practice self-discipline, and be clear on the goals you want to achieve.

Source: ^[1] 6 Telltale Signs of “Lifestyle Creep” (Synchrony Bank, 2023)