Your financial situation is a combination of every financial decision you've made up to this point. If you're like most people, you have had very little or no coaching, and you will learn the most from your mistakes. There are usually good intentions behind the terrible decisions we make, so understanding the thought process might help clarify what you were trying to do and what you could do differently the next time around. (For more, check out 5 Common Mistakes Young Investors Make.)

IN PICTURES: Debunking 10 Budget Myths

  • Paying Off Debt with Your Retirement Fund
    What You Were Thinking
    The debt is costing 19%, the retirement account is making 4%, so by swapping the retirement for the debt you will be pocketing the difference.

    The Mistake
    Withdrawing funds is easy, but it is very hard to pay back those retirement funds. With the right mind set, borrowing from your retirement account can be a viable option, but even the most disciplined planners have a tough time placing money aside monthly to build these accounts. When the debt gets paid off, the urgency to pay it back usually goes away. It will be very tempting to continue at your same pace, which means you could go back into debt again, but this time five years of savings will have been wiped out.

    If you are going to do it, you have to live like you still have a debt to pay. Keep that need-to-pay mentality you had with your credit cards, and create a plan to pay yourself back. (Learn more in 8 Reasons To Never Borrow From Your 401(k).)

  • Not Building an Emergency Fund
    What You Were Thinking
    Emergencies won't happen to you, and if they do, you'll make it through with the cash in the bank or by relying on unused credit cards.

    The Mistake
    Most households are living paycheck to paycheck and an unforeseen problem easily becomes a disaster if you are not prepared. Many financial planners will tell you to keep three months' worth of expenses in an account where you can access it quickly. Employment loss or changes in the economy could drain your savings and place you in a cycle of debt paying for debt. A three-month buffer could be the difference between keeping or losing your house.

IN PICTURES: 8 Steps To Teach Your Partner Household Finances

  • No Budget, No Plan
    What You Were Thinking
    It takes too long to track, it's boring and you don't go into debt anyway.

    The Mistake
    Your financial future depends on what is going on right now. People will spend 20+ hours per week on the computer or watching TV, but setting aside two hours a week for their finances is out of the question. You need to know where you are to know where you are going.

  • No Insurance
    What You Were Thinking
    It won't happen to me and I don't want to be persuaded into buying something I don't need.

    The Mistake
    Medical conditions and deaths are never expected. The point of insurance is taking care of the people that depend on the income earner. If you live alone with no dependents, then you may not need insurance, but if you have a family that depends on your income, then you should consider it. (Check out How are life insurance proceeds taxed?)

  • Not Investing
    What You Were Thinking
    You have a hard time trusting others or the markets are too risky.

    The Mistake
    If you do not get your money working for you in the markets, or other income providing investments, then you cannot stop working. Making monthly contributions to designated retirement accounts is essential to your comfortable retirement. Take advantage of the tax-deferred accounts and your employer's sponsored plan. Understand the time your investments will have to grow and how much risk you can tolerate, then consult a qualified financial advisor to match this with your goals.

  • Ignoring Additional Income Opportunities
    What You Were Thinking
    My current job pays the bills and I don't want to take away from my personal time.

    The Mistake
    Nothing is guaranteed and everything ends. Why wait until it's too late to do something about it? The bad times will eventually turn around, and jobs will be available. When you do have a decent paying job, cash in on your skills and make the money when companies will pay you. It's fine to hold on during the recession, but when the economy is strong, get in there and get earning.

The Bottom Line
The wealth you take a lifetime to build up is much easier to lose. It won't be one dip or one bad decision, but a combination of a good intentions followed by poor execution might make it almost impossible to recover. It boils down to every individual's best intentions: tracking where your money is, planning for problems, making more money, and spending less, but you actually have to do it, rather than intend to. (For more, Top 5 Budgeting Questions Answered.)

For the latest financial news, see Water Cooler Finance: Poverty Rates Increase - And So Do Millionaires.

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