A recent survey from Prosper revealed that 45% of Americans believed the economy had worsened since the pandemic, and that only 42% of respondents felt confident managing a significant financial setback. While 48% of respondents think that the economy will improve over the next five years, the reality is that financial stress is causing consumers to make crucial mistakes right now.
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The survey pointed out that economic pressures were causing major stress issues for Americans in 2024, as people admitted to facing challenges with rising costs, and that debt had become a bigger problem over the years.
Financial stress is causing people to make these three major mistakes, and here’s how to avoid them.
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Mistake 1: Not Investing Any Money
The report showed that 68% of respondents admitted to not having any investments, with 79% of women and 58% of men falling under this category. Not investing is a major financial mistake because you’re missing out on possible returns, and you may not be able to retire when you reach the age to do so. It may be challenging to think about investing when you’re worried about the state of the economy or barely getting by.
Here’s how you can avoid this financial mistake.
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Start With Basic Investments
“Not investing means missing out on one of the most effective tools for long-term wealth building,” said Haiyan Huang, the chief credit officer at Prosper. “Education and access to beginner-friendly platforms are key to turning hesitation and stress into confidence.”
It can be common for people to avoid investing because they don’t feel like they have enough money to start or because they’re nervous about the process. Investing doesn’t have to be intimidating anymore because there are robo-advisors and platforms that let you get started with a small amount of money. These platforms will also offer educational resources like videos and tutorials, so you don’t have to be confused about the process. You don’t have to study stock charts or follow the news because you can have a robo-advisor manage your funds.
Automate Your Savings/Investments
James Francis, a financial expert and CEO of Paradigm Asset Management, noted that your brain craves simplicity when stress peaks. He added, “In this case, automating your savings, even $10 a week, can help build resilience without needing mental bandwidth. Tools like round-up apps or bank auto-saves can also make these investments frictionless.”
You can shift your mindset from struggling to get by to being focused on the future by automating your savings and investments so that you know that you’re planning for the future. Contributing to a retirement account will help you build confidence about your future and your finances. The best part of automating your investments is that you don’t have to do anything else on your end after the initial setup.
Living Paycheck to Paycheck
The survey found that 57% of Americans were living paycheck-to-paycheck by the end of 2024, up from 48% in 2016. Financial stress is causing people to fall behind on their bills and barely have enough money to get by until the next pay period. With prices rising, it’s clear that many consumers are stretching their budgets to the limit.
Here are a few ways you can avoid this mistake moving forward.
Review Your Budget
“Living paycheck to paycheck isn’t always due to poor spending habits, and it’s not a reflection of your character or worth, but it can be a sign that your budget could use a review,” said Huang. You may want to adjust your budget to reflect the current climate so you’re not running numbers based on outdated figures.
Here’s what you can do:
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Track your spending for the next month to identify problem areas.
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Review all of your subscriptions to see if there’s something you can cut.
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Update your budget or spending plan to ensure that it’s accurate.
Try to Increase Your Income
You may not be earning enough money at the moment, which is causing you to live paycheck to paycheck as you struggle to get by. In this situation, you’ll want to explore ways to increase your income to get a better hold of your finances.
Some of the best ways to do this are:
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Look into the gig economy. To earn money, you can list your spare room on Airbnb or walk dogs through Rover.
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Try starting a freelance side hustle. This could be your opportunity to use your skills, such as writing or graphic design, by getting into freelance work.
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Sell some of your stuff. You could make some extra money to build up your savings by selling off stuff you no longer use around the house.
Racking Up Credit Card Debt
The report revealed that 63% of Americans disclosed that they couldn’t pay off their credit card balances in full, up from 45% in 2016. This situation outlines that Americans are turning to credit cards to get by, which is a significant mistake because these come with high interest rates, and it could become challenging to get out of debt.
Here are your best options to avoid this mistake.
Try To Create an Emergency Fund
Francis suggests creating a buffer fund with an accessible stash that can save you from spiralling into debt when life throws unexpected curveballs at you. This emergency fund could reduce your reliance on credit cards. The goal is to do your best to start building this account immediately.
Consider Debt Consolidation
You already know that you should pay your credit card balance in full monthly, but you may be overwhelmed with expenses. In this situation, you may want to look into a debt consolidation loan to help you tackle your credit card balances so that it doesn’t feel like an impossible struggle. Knowing that resources and tools are available so you don’t have to feel alone, is important.
Huang concluded, “Taking small steps, like slowly paying off debt or reviewing your spending, can begin to shift the anxiety into action. Building financial confidence isn’t about having all the answers. It’s about knowing where to start, who to turn to, and being kind to yourself.”
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Sources:
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Prosper, “Financial Wellness Survey 2024“
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James Francis, Paradigm Asset Management,
This article originally appeared on GOBankingRates.com: Money Stress Is Causing You To Make These 3 Mistakes: How To Avoid Them
