6 Common Financial Planning Mistakes and How to Avoid Them

A financial advisor discussing budgeting and savings strategies with a couple at home.

As a new year begins, it may be a good idea to make some resolutions regarding how we manage our money. According to Pinnacle Wealth Advisor Nik Aamlid, CFP®, CAP®, CKA®, financial planning isn’t just about saving money; it’s about creating the life you want to live. Many people focus on immediate wants rather than long-term goals that can create lasting financial security and freedom. By avoiding a few common mistakes, Nik says you can set yourself up for a more secure present and fulfilling future. Here are his top financial planning mistakes and how to avoid them:

Mistake # 1 – Failing to Make the Plan

“The biggest mistake I see is not making a plan at all,” said Nik. “One of the most common mistakes I see is people putting off financial planning altogether because they believe it’s something only people with a lot of money need to do. Many think their current financial situation—whether it’s due to debts, student loans, or a lack of savings—means that financial planning is not for them. But the truth is, financial planning is for everyone. It’s not about where you are today; it’s about where you want to be tomorrow.”

How to avoid this mistake: Nik says by starting financial planning early—no matter your current financial status—you’re taking proactive steps toward shaping the life you want to live. Financial planning offers you the freedom to make choices now that can benefit you in the future, like going on that family vacation, purchasing the house you’ve always dreamed of, or retiring comfortably.

“I love the quote from the famous baseball player Yogi Berra, ‘If you don’t know where you’re going, you might end up someplace else,’” said Nik. “That certainly applies here. Without a well thought out financial plan, you’re unlikely to reach a place of security and financial freedom.”

Mistake #2 – Not Tracking Your Spending or Budgeting

Another common mistake is not having a clear understanding of how much you’re spending each month. This can quickly lead to overspending and, ultimately, living beyond your means. Nik says many people can tell you their monthly income, but they can’t pinpoint how much they spend on non-essential items like dining out, subscriptions, or entertainment.

How to avoid this mistake: Start by tracking your spending, no matter how uncomfortable it might feel. There are plenty of apps that can make this process easier. Once you have a clear picture of your income versus your expenses and spending, you can adjust accordingly. Prioritize your essential expenses and goals, like retirement savings and debt repayment, and consider cutting back on

non-essentials. Nik points out it’s also important to remember that a budget isn’t just about restriction; it’s about responsible stewardship of your money. You’re working to build the life you envision for yourself and your family, so every dollar should be intentionally allocated toward that goal.

Mistake #3 – Not Setting Clear, Achievable Goals 

Many people make the mistake of not setting specific financial goals or setting unrealistic ones. It’s easy to say, ‘I want to retire with a million dollars,’ but that goal becomes meaningless without breaking it down into actionable steps. Without clear, measurable goals, you’re simply drifting without a destination.

How to avoid this mistake: Nik says when setting financial goals, it’s important to make them both long-term and short-term, breaking them down into monthly or even weekly steps. For instance, if your goal is to save $1 million for retirement, first determine how much you need to save per year and then break that into monthly contributions. The key is to make the goal achievable, even if it requires small, incremental steps. That way, you know exactly what you need to do to stay on track and can adjust your lifestyle as needed.

“This is where we often need to talk about controlling our lifestyle with our clients, especially when we’re setting goals,” said Nik. “Small changes in our lifestyle and our non-essential spending can really support us in achieving these financial goals.”

Mistake #4 – Overlooking the Importance of Emergency Funds

Building an emergency fund is critical, and Nik says most people understand this and can build up a reserve, in time, for emergencies. But many people mistakenly dip into their emergency savings for non-emergencies—like a vacation or an impulse purchase — especially if the fund has gone untouched for a while. An emergency fund should be reserved strictly for unexpected events, such as medical emergencies, car repairs, or job loss.

How to avoid this mistake: Set clear boundaries for your emergency fund and only use it for true emergencies.

“I always suggest placing your emergency funds in a separate account – even one at a different bank – to avoid the temptation of dipping into it for everyday expenses,” said Nik.

Financial confidence is what is desired and achievable through a financial plan. And knowing you have an emergency fund is an important part of achieving that confidence. So don’t let lifestyle choices erode the security that an emergency fund can provide. Using it for planned purchases or luxuries defeats its purpose.

Mistake #5 – Overlooking Retirement Planning 

Many people fail to prioritize their retirement savings, put off setting up a retirement account, skip their monthly contributions, or underestimate how much they’ll need. While you may feel financially comfortable now, retirement can be a shock if you haven’t prepared for it.

How to avoid this mistake: If you’re not yet saving for retirement, start as soon as you can. If your employer offers a retirement plan with a matching contribution, take full advantage of it.

Nik reminds us, “Your money is compounding over time. The earlier you start, the more time your money has to grow.”

And if you’re already contributing, review your strategy periodically to ensure that you’re saving enough to meet your long-term goals. Retirement planning should be a key part of your overall financial strategy.

Mistake #6 – Not Having a Financial Advisor

A lot of people believe that they can handle their finances alone, especially with the rise of online tools and financial apps. But the truth is, having a financial advisor can help you navigate the myriad of long-term planning decisions we’ve just outlined, – as well as other complex financial situations, whether it’s saving for college, understanding the ever-changing tax laws, diversification of investments, and estate planning, in a way an online tool cannot.

How to avoid this mistake: Nik says to look for a relationship-based advisor who will work with you for the long haul and help you adjust and strengthen your financial plan as your life changes. As an experienced and highly accredited Financial Planner, Nik says he understands his clients’ unique situations and guides them through every step of the process. As a Financial Planner, he says to think of him as a kind of wilderness guide.

“A wilderness guide doesn’t just show you a map and say, ‘all right, there you go.’ A guide walks with you the entire trip. They not only chart the course for you, but they’re walking with you every step of the way. They’re pointing out the obstacles and how you can avoid them, guiding you toward your destination. And that’s what we at Pinnacle Wealth do. We build that relationship with our client, we chart a comprehensive financial plan, and we guide our client all the way through their journey toward financial security and freedom.”

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