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The conditions for money mistakes couldn’t be better: a relentless barrage of horrible headlines and a stock market impersonating an inflatable tube man.
They say millionaires are made in times like these, but what if you just want to survive?
I’ll share three major mistakes I see folks make in tough economic times. First, let’s talk about why you’re more susceptible to making mistakes today.
Why you’ll be tempted to make major money mistakes
Decision-making skills don’t generally get better when we’re under near constant stress. This isn’t a Mission Impossible movie and we aren’t trained to keep calm while defusing a bomb—the constant barrage of headlines (financial and otherwise) will take a toll.
Money management skills rely on delayed gratification, which is easier to prioritize when things are good. Investing is a long-term wealth building tool, and it’s a lot easier to stick to the plan when the market is going up.
While you’ve already seen at least three “once-in-a-lifetime” events (2008 housing crisis and a global pandemic come to mind), this might be the first time you’ve watched your investing account drop by double digits or been directly affected by layoff worries.
The good news is that steering clear of major money mistakes usually comes down to resisting the urge to make a poor decision, rather than lacking knowledge about the right one.
3 Money Mistakes People Are Making Right Now
Mistake 1: Making massive changes to your spending habits.
I see a lot of folks go one of two ways:
- Doom spending. This includes little treats and unnecessary purchases you find while excessively scrolling your phone. You might feel like these purchases are the only “good” things to look forward to in the day.
- Full restriction. This is when you fully tighten the belt, particularly before there is a reason (like a job loss or income change). You might also feel guilty about buying almost anything.
Look, I’m not going to shame you for either reaction. If buying $10 nail art stickers prevents you from losing your mind, go right ahead. And if saving more right now makes you feel better, I support you.
BUT you want to stay aware of these changes and how they’re affecting the quality of your life. If that extra spending translates into consumer debt that you’ll have to figure out how to pay off later, then you’re only creating a headache for Future You. And being super restrictive is difficult to sustain, and it can create big swings in your spending, which can also be harmful.
Mistake 2: Taking drastic, rash action.
The classic example of rash action is selling all of your stock when the market goes down. Remember, investing is always for the long-term, so please avoid making big moves in times of uncertainly.
Drastic actions can include a lot of money moves that you haven’t given intentional thought to. For example:
- Changing your portfolio drastically (like buying a lot of gold)
- Accepting a lowball offer on your house
- Taking a job that doesn’t pay as much as you’re worth
- Investing a lump sum that you didn’t plan to invest and don’t have to lose
When things aren’t going well, you might feel compelled to take action—this is a variation of the fight/flight response—but that doesn’t mean that you should take action.
Mistake 3: Thinking this will last forever.
If there was already a hint of existential apathy in the air, we now have a thick fog to work through. Add that to brain rot and the mental health toll of chronic stress, and you have some tough conditions.
These feelings can manifest in feeling like the “responsible” choices aren’t worth it. Money decisions are especially susceptible to this attitude—who wants to contribute to retirement when the world is burning?!
But I’m going to tell you what I (repeatedly) tell myself: it won’t always be like this. By “it,” I mean the economy, political environment, even the world.
And you have to live your life for a better future.
Whether it’s avoiding spending money on something you really do need (like a new roof, life insurance, etc.) or neglecting your 401(k), the decisions you make today will affect your future. I often tell people that good money advice is really boring, and it’s still true now.
My advice? Stay the course. Keep padding your emergency fund, paying off high-interest debt, and investing for retirement.
Avoiding Money Mistakes When Things Are Rough
While I wish we all weren’t in this situation (for SO many reasons), we are. The best thing you can do is face the challenges head-on.
The bright side is that your best bet in most cases is to stick to the plan. Keep doing what you’ve been doing and try not to get too bogged down by the headlines.
You have everything you need to make good financial decisions. Now you just have to stick to them.
And remember, this won’t last forever.
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