Avoid these common financial mistakes

Personal finance can be a tricky subject to navigate. There's a lot of conflicting guidance on which savings account to use, how to budget properly and where to invest your money. And it's easy to make a mistake. This episode, financial educator Yanely Espinal shares the common financial mistakes she wish she knew about earlier. This episode originally published August 6, 2024. Sign up for our strength newsletter series here: npr.org/stronger http://npr.org/stronger. Follow us on Instagram: @nprlifekit https://www.instagram.com/nprlifekit/?hl=en Sign up for our newsletter here. https://www.npr.org/newsletter/life-kit Have an episode idea or feedback you want to share? Email us at [email protected] mailto:[email protected] Support the show and listen to it sponsor-free by signing up for Life Kit+ at plus.npr.org/lifekit http://plus.npr.org/lifekit See pcm.adswizz.com https://pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences. NPR Privacy Policy https://www.npr.org/about-npr/179878450/privacy-policy

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• 0:00Speaker 00

  This message comes from Charles Schwab with their original podcast, Choiceology. Choiceology is a show about the psychology and economics behind people's decisions. Download the latest episode and subscribe at schwab.com/podcast.

• 0:16Marielle Segarra?

  Hey, it's Marielle. We made it through to the end of 2025, and it has been quite a year, a pretty wild and challenging one for NPR and local stations. But despite the loss of federal funding for public media, despite attacks on the free press, we are still here for you. NPR will not shy away from our First Amendment right to editorial independence. And with your support, here at Life Kit, we're going to keep bringing you the advice and thoughtful conversations you rely on us for. If you're already an NPR Plus supporter, thank you. We see you and we're grateful for you. If you're not, please join the community of public radio supporters right now, before the end of the

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• 1:23Marielle Segarra?

  You're listening to Life Kit from NPR.

• 1:29Marielle Segarra?

  I want to start this episode by saying, we have all made financial mistakes. Yanelli Espinal is a financial educator. She works at a nonprofit called Next Gen Personal Finance.

• 1:39Speaker 02

  Which is on a mission to try to get every single high school student in America guaranteed access to a semester course about personal finance and financial literacy.

• 1:49Marielle Segarra?

  10 years ago, she was deep in credit card debt and counting down the days until she was going to pay it off.

• 1:54Speaker 02

  In October of 2015, I was going to make my last credit card payment. So like October of 2015 was my mantra every day, right? Like, I would wake up in 2014 to get dressed for work, and I'm like, October 2015, October 2015, because I knew that was my North Star. Like, I was going to be debt-free on that day.

• 2:13Marielle Segarra?

  Yanelli wrote a book called Mind Your Money.

• 2:15Speaker 02

  Being low-income and a daughter of immigrants, I really had to learn the money system in the US, like, by myself. And I wanted to tell that story and help navigate, you know, credit scores and the stock market.

• 2:27Marielle Segarra?

  One thing she's learned, if you make a financial misstep, cut yourself some slack.

• 2:32Speaker 02

  It's okay that I made a bunch of mistakes. It's okay that I thought I was J-Lo when I was 21 and I bought too many clothes and shoes. It's okay. Look, the mistakes were made. I didn't really know how to approach my finances. I never had guidance. We never learn about these things. But now that I know better, I'm doing better.

• 2:47Marielle Segarra?

  On this episode of Life Kit, Yanelli and I are going to talk about some of the common financial mistakes she sees people make. We'll break them up into three categories: borrowing money, making money on your money, and budgeting. And the point of all this is not to shame you, but to give you more information and help you figure out a path forward.

• 3:08Speaker 00

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  This message comes from Google Workspace with Gemini, one subscription that does it all. Personalized AI and premium business versions of Gmail, Google Docs, Drive, and more. Try it free for 14 days at g o o dot g l e slash Workspace with Gemini. This message comes from Rula. World Mental Health Day takes place in October, making it a great time to take that next step in getting support if you need it. Rula makes accessing quality mental health care affordable with sessions costing an average of $15 with insurance. So turn off the talk track that's keeping you from progress and head to rula.com. That's R U L A dot com to find a therapist the easy way.

• 3:57Marielle Segarra?

  So we asked you for some of the most common mistakes that you see. So I think they fall into a few categories. So the first I would say is in the category of taking on debt in general. What are some of the most common mistakes you see for people who are borrowing money?

• 4:14Speaker 02

  Yeah, I mean, they just don't understand the relationship between the borrower and the lender. So they don't realize that this relationship isn't like, they're going to help me and give me free money. Like this relationship is they're running a business and they're going to make profit off of me needing a loan right now. And so I'm going to come in with my business hat on, which means I'm thinking about negotiating. I'm thinking about how can I get the best Deal in this partnership and this business deal. And we don't operate that way. Oftentimes, we operate as like, we're desperate. We just really need this money and we're gonna just take any loan that we can get. Those interest rates are so high, they compound so quickly that it means that the amount that you're paying back is significantly more than the amount that you borrowed.

• 4:57Speaker 02

  And it can really end up leading you to be trapped in a cycle of debt payments that you can't really get out of.

• 5:04Marielle Segarra?

  Okay, so it sounds like the advice or the takeaway there would be to shop around if you're borrowing money?

• 5:10Speaker 02

  Comparison shop, a hundred percent. In my book, I actually say, uh, get in loser, we're going comparison shopping, which is a reference to Mean Girls for those of you who are not, the cult classic fans. Um, it's just like, yeah, getting like, this is what we gotta do. This is what we should all be doing.

• 5:25Marielle Segarra?

  Okay. On the comparison shopping front, are there institutions that you might consider that might have more favorable terms for you?

• 5:35Speaker 02

  Yeah, totally. Credit unions are notoriously known historically for giving better interest rates on loans. And the reason why is because you're not a, just a customer, just a client, like you are actually a member owner. So they're able to take the money that they would typically make in profit and actually divvy it up and give it back to their members by offering much lower interest rates for things like credit card loans or a car loan or a personal loan or even a mortgage loan. So if you are gonna borrow money for any big ticket item like that and you're not a member of a credit union, it's a good idea to establish an account with a credit union a little before you know you're gonna need to borrow money. So that you already have a relationship with that credit union. And then when you need a loan, you could say, hey, you know me, you know, I've been,

• 6:20Speaker 02

  I've been doing my banking here for a little while. We have a relationship. I have an account. And so that's gonna give you the ability to go and get lower interest rate loans through a credit union rather than these big, major banks. And then also online research, there are so many marketplaces nowadays that will show you like fifteen to twenty possible loan options. And then you can compare the loan terms and go ahead and apply once you find one that you think is the best deal for you.

• 6:45Marielle Segarra?

  Another financial mistake that you told us you see commonly is about co-signing loans for someone else. Can you talk about that a little bit?

• 6:53Speaker 02

  Oh, yes. This is particularly when you are maybe raised in a family where the values are very much like community oriented, like we're here for each other. We do everything for our family. And what ends up happening is you see sometimes siblings where one sibling has really poor credit, they can't qualify for a loan, and then they ask their other sibling, hey, can you help me? And then, of course, how am I going to say go to my family? So then they co-sign a loan for their sibling, and the sibling stops making their payments. And then what happens is you are equally responsible, 100% responsible for the payments because you co-signed. And so I've just seen so many people watching their credit score get tanked because both of the borrowers who co-signed together just are not able to pay back that loan.

• 7:39Marielle Segarra?

  Okay, so what's the advice for people who are in that situation, right? Let's say it's your sibling, and they're like, hey, can you co-sign this loan? I really need this. I need to get this car so I can get to work. I need this, I need this loan to keep afloat. Help me out, please.

• 7:55Speaker 02

  Yeah, I mean, I had this happen to me. I had a god sister a few years back who was trying to go back to nursing school, and she texted me and asked me to co-sign a loan for her. And I just said, I love you, girl. I want to help you out. I can sit down with you and try and help you find a loan for people with a lower credit score that can help you qualify for that. I can also spend some time with you looking over your credit report to help you boost your score so that you can then try again and see if you qualify for a loan. I'll sit with you and go through your budget and see if we can squeeze out places where there's a little extra money that you're spending maybe unnecessarily. Like, I offered time, resources, and as much help and support as I could, being honest about my why, like, hey, you know, I want to be able to help you, but it's not something

• 8:40Speaker 02

  that I'm comfortable doing, putting my credit at risk with somebody else's loan for their goals. And I think if you do that from a place of authenticity, love, kindness, wishing the very best, and not a place of like anger or judgment or spite, I think most people will understand.

• 8:57Marielle Segarra?

  So that's one bucket. Another one is mistakes when you're trying to make money on your money, when you're trying to invest or earn interest. What are some of those? What are some of the most common mistakes you see in that bucket?

• 9:11Speaker 02

  Eighty percent of Americans are not using a high-yield savings account. How? Your cash is literally losing value every single year over year because inflation changes every year. Sometimes it's four percent, sometimes it's three percent, sometimes it's seven, eight percent. And your cash sitting in that traditional savings account is barely making any interest at all. Rates are as low as like zero point zero one at major banks, right? So we have to kind of go out and look like, how can I put my money to work? It make me the most money and grow me the most money while it's sitting in an account. And right now, hands down, for any cash that you have, it's going to be a high-yield savings account. One thing I will tell you, the banks that offer these accounts tend to be lesser-known banks,

• 9:55Speaker 02

  like online-only banks or mobile-only banks. And people don't really feel that they're all that familiar with these names and institutions that are not as common as like the big, major banks that we see every time we go outside. But if you make sure that your bank account is FDIC insured, or if you have a credit union savings account, that your credit union is NCUA insured. It's the same thing for credit unions. You're making sure you're protecting yourself and your money, and it's backed by the government. So as long as you do that, there's no reason to think that there's something shady going on.

• 10:24Marielle Segarra?

  And so this is one way to make money on your money is putting it in a high-yield savings account. But another way to make money on your money is to invest it. And I think a lot of people are not so familiar with that. What are some of the financial mistakes that you see around investing?

• 10:40Speaker 02

  Yeah, actually, so I was in a workshop, in one of the teaching workshops I've been doing this summer. And at the end of the workshop, one of the cleaning staff people came in. And he spoke to me and he said, hey, I heard your workshop about how important financial literacy is. I wanted to talk to you because when I first got my job, they offered me a workplace retirement plan. It was called like a 401K. My cousin told me to not do it because he said it was a scam. And now I'm getting very close to retirement age. And I, and like, I feel like you made a mistake. I don't know, like, do you know about that? And I was like, Oh my goodness, like my heart just wanted to break for this man. He was an older man. He was a person of color, like characteristics of the type of person who often is underserved by the financial industry.

• 11:25Speaker 02

  And I was just like, oh my goodness, like your cousin did not serve you well, telling you it's a scam. That is not true. It's not a scam. It is a benefit. It's a workplace benefit. So if I if I make a dollar this year, I'm gonna be taxed, right? I have to pay whatever tax percentage I owe on that dollar. But if I take that dollar and tuck it away into a 401k or another workplace retirement plan, it won't get taxed until I actually take it out at retirement in the future. And all the money that I do put into that account will be able to get used to purchase stock market investments. Like, this is amazing, because if you look at the return of the stock market, for example, in 2023, it was 24%.

• 12:07Speaker 02

  But because there's so much volatility, people I think are afraid of it and they think it's scammy because the market return changes year over year. This year could be, you know, negative even, you know, the market could drop and people could lose money in their accounts. But generally speaking, when you just take the average return of all the companies in the stock market in the United States alone over a 20 or 30 year period of time, it's about 9%. So that will actually grow your money. So by the time it's retirement time and you wanna kick back, relax, enjoy the fruits of your labor, you actually have some fruits.

• 12:39Marielle Segarra?

  Yeah. And there are lots of other benefits to this. It's like the tax part. If you have a 401k, for instance, it's not taxed now, it's taxed in retirement. The hope is that in retirement, your tax rate will be lower than it is right now as you're earning this maybe bigger paycheck. Basically, these are considered a benefit because they offer you some sort of tax savings and because they offer you an opportunity to invest in the stock market and um to do it potentially with the help of your company, because often companies will provide a match. If you put in, let's say,

• 13:20Marielle Segarra?

  3% of your salary, they'll match that and they'll put in 3% of your salary, like the equivalent amount of money you never would have gotten otherwise.

• 13:30Speaker 02

  Yes. If you take $1,500 of your pre-tax income and then you'll put that into your account, but then your company is going to match it. So then they're also going to give you another $1,500. So by you putting $1,500 in, you magically now get $3,000. It's like your money is working more for you because the company matches that $1,500. But if you don't put anything in the account at all, well, then you're basically saying, I don't want $1,500 from my company. The problem is people don't want to lock the money away in a 401k account where they can't access it until their 59 and a half birthday. But the reality is when you're trying to just like close your eyes and imagine yourself at 59 and a half,

• 14:11Speaker 02

  aren't you going to be so happy that your 30-year-old self did get that company match for your 59-year-old self? Like you can't just only think about yourself right now. You really got to think about that girl she deserved, that woman, grown lady, she deserves to be happy and to have money just as much as I want to be happy and have money right now. And trust me, when you're that age, you're going to look back and be so happy. You're going to wish you could go back and like hug yourself in the past because I've watched my parents. You know, they sit and look at their accounts and they go, I wish I was putting more away when I was your age. And I wish they were too, because now I have to give them my, a little piece of my paycheck. Oh, that's not.

• 14:54Marielle Segarra?

  We'll have more financial advice from Yanelli Espinal after the break.

• 15:05Speaker 00

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• 15:09Speaker 03

  This message comes from Google Workspace with Gemini. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Google Docs, Sheets and more. No new tools, no extra logins, just one subscription that gives you personalized AI right inside your actual workflow. Try Google Workspace with Gemini at goo.gle/workspacewithgemini.

• 15:41Speaker 03

  This message comes from Rula. World Mental Health Day takes place in October, making it a great time to take that next step in getting support if you need it. Rula makes accessing quality mental health care affordable, with sessions costing an average of $15 with insurance. So turn off the talk track that's keeping you from progress, and head to rula.com. That's R-U-L-A dot com to find a therapist the easy way. This message comes from Charles Schwab with their original podcast, Choiceology. Hosted by Katie Milkman, an award-winning behavioral scientist and author of the bestselling book, How to Change. Choiceology is a show about the psychology and economics behind people's decisions.

• 16:23Speaker 03

  Hear true stories from Nobel laureates, historians, authors, athletes, and more about how to make better decisions to help avoid costly mistakes. Download the latest episode and subscribe at schwab.com/podcast or wherever you listen.

• 16:38Marielle Segarra?

  Another financial mistake you've talked about is investing based on what causes hype, right? Like what's hot right now, buying a bunch of shares of individual stocks, rather than putting money into something less risky, like an index fund, which is a big bundle of stocks and bonds.

• 16:55Speaker 02

  So when you pick stocks, you're trying really hard to predict the future and say, I think I know how to pick the stocks that are going to be the ones that are going to go to the moon, that are going to be, you know, make a ton of profit. But you don't know, and neither do I. And neither does the person who's screaming on the news. We're all speculating. We're all just trying to make our best guess based on what we see happening. And some of those guesses, luckily, they end up being right. But why would you want to put your entire retirement account or your entire future wealth building result to like chance? And if you want to dabble with individual stocks, what I like to say is you should have a percentage rule. So you say, you know, 80% of my money,

• 17:38Speaker 02

  I invest in the tried and true approach that always works for people. The index funds, the target day funds, the mutual funds, the ETFs that are low cost and really good at tax harvesting tax losses. So making sure it gives you a good tax. Tax strategy, right? The other twenty percent, so one fifth of your money, that I'll use to kind of dabble in things that I think are hot and cool, like maybe some crypto or maybe some individual stocks that I want to buy, and that's fine. But acknowledge that that's stuff that could really go wrong and you could lose that piece of your account. But at least the majority of the rest of your money isn't going to be completely risked in this world of hype that might work out, but it also might not.

• 18:18Marielle Segarra?

  Yeah, that makes a lot of sense. Okay, so the other category I would say that we've talked about is budgeting. And there are a couple of common mistakes people make in this arena. What are those?

• 18:32Speaker 02

  Well, the first one is just not having a budget.

• 18:34Marielle Segarra?

  Yeah.

• 18:35Speaker 02

  Because the reality is when you have no system to track what you're spending relative to what income you're bringing in, you probably will overspend. Um, you'll just, you know, you'll spend here, you'll spend there, and you're not keeping track. So you end up spending more than what you have, and then when you can't pay off your credit cards, everything is going to be more expensive because you weren't keeping track and just having a simple plan. And also, like, there's a few different ways to budget. Like, you don't have to use the same type of budget that everybody else is using. You can kind of give yourself any type of budgeting strategy or method that's going to work for you. You can cash budget, cash stuffing, envelope budgeting, you can do it on an app, you can do it on an Excel spreadsheet or a Google spreadsheet.

• 19:18Speaker 02

  You can do daily budget allowance, whatever works for you. The point is figure out what it is and then stick to it.

• 19:25Marielle Segarra?

  Well, that brings us to our last mistake. You sent us one about lifestyle inflation. When you start making more money, you can often start spending more money and then suddenly you think you're broke. I have had, I won't, I won't call out who, but folks I know who are making hundreds of thousands of dollars a year and somehow they're living paycheck to paycheck. Help, I don't understand it.

• 19:48Speaker 02

  It's wild. So what they do is they immediately look around at the other people making multiple six figures. And they say, oh, this is the level that we're on now. This is the lane that we're in. So we gotta do the things. That people in this lane do. I have to get a bigger house. I have to upgrade my home. We need this, we need that. And so the money that you just started making more, the excess money that you have disappears literally right away into thin air because it's going into new financial obligations that are not necessary. They're not needs. Let's be real. They are wants that you have so that you can keep up with the look of being a six-figure plus earner.

• 20:30Speaker 02

  Maybe it means you have to have a new watch, a new type of car. Um, you have to have a name brand shoes. We all think we deserve it. We, we should have it. But what you, but you also deserve to have a dignified retirement. And you also deserve a lot of other things like being able to pass generational wealth down to your children and their children's children. And it takes a generation to create generational wealth. It's not going to happen today or tomorrow or next month. You, you have to really be in it for the long run and that takes checking yourself psychologically and making sure that your headspace is right. Like I'm not doing this for, you know, for tomorrow, for me to be happy tomorrow. I'm doing this for me to be happy in, in many, many years from now.

• 21:11Marielle Segarra?

  Natalie, thank you so much.

• 21:13Speaker 02

  Of course.

• 21:16Marielle Segarra?

  All right. Time for a recap. If you need a loan, shop around. Don't just go to one bank and accept the terms they give you. You can compare rates online and negotiate with lenders. Also, consider opening up an account with a credit union. They may have better interest rates for loans if you end up needing one. If you co-sign a loan for someone else, you will be on the hook if they stop making payments. If that's not something you're willing to do, say no, and maybe offer a different kind of help. Get a high-yield savings account that'll pay you four or five percent interest on your deposits. And to protect your money, make sure the bank is FDIC insured or the credit union is NCUA, National Credit Union Administration, insured.

• 21:59Marielle Segarra?

  For long-term investments, don't put most of your money in stocks that seem hot right now. Instead, invest in funds that include a whole bunch of stocks and bonds. If your employer offers a 401K or 403B or another retirement account, that is a benefit. Use it. Put money in, especially if your employer offers to match your contributions. Budget, in whatever way works for you. And if you start making more money, that doesn't mean you have to spend it all. Maybe you don't need that bigger house or nicer car. Also, Yanelli says if you need help coming up with a plan to get out of debt or get your finances in order, talk to a financial therapist or counselor. Some government agencies offer these services for free. Are you looking to get stronger this year?

• 22:43Marielle Segarra?

  We have a special newsletter series to help you start your own strength training routine. You can sign up at npr.org/stronger. This episode of Life Kit was produced by Sylvie Douglas. Our visuals editor is Beck Harlan, and our digital editor is Malika Gharib. Megan Cain is our senior supervising editor, and Beth Donovan is our executive producer. Our production team also includes Andy Tagle, Claire Marie Schneider, Lennon Sherburne, and Margaret Sorino. Engineering support comes from Ted Mebane. I'm Marielle Segarra. Thanks for listening.

• 23:26Speaker 00

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