Finance Roll

Taking care of your finances is not an easy task. No matter how smart you are, you are still prone to making money mistakes, some of which may be devastating.

Here are the five biggest money mistakes which American people make:

1. Failure to budget.

If you think that budgeting is a boring and unnecessary task, think again. If you have been living debt-free for years, then you probably don't need to budget, but if you are like most Americans and are in debt, make sure to create one.

It is very difficult to live within your means if you don't know how much money you have and where exactly it goes every month.

Creating a budget is not a difficult task and it should be done as your first step to controlling your finances and reducing your debt.

All you need is a notebook and a pen (or a spreadsheet) and some self-discipline.

2. Cashing out your 401 (k).

Another big money mistake which people make is cashing out their 401 (k). Almost half of the people who change their jobs cash out their 401(k) accounts.

This shouldn't be done due to three main reasons. First of all, you will have to pay income tax on your withdrawals and second of all in many cases there is a 10% penalty which you have to pay to the IRS. By cashing out your 401(k) you are also losing the tax-deferral which you could have kept by rolling your money into another retirement account, or IRA.

3. Maintaining an unhealthy lifestyle.

It is very expensive to be unhealthy in the United States. If you think you are saving money by eating cheap junk food, you are wrong. Eating junk food has many consequences for your health and while it may be cheaper to buy a $1 burger than a $4 salad, it will cost you much more later on.

If you have other bad habits such as smoking, excessive drinking or overeating, you need to get rid of them immediately. Not only you will save tons of money by not buying this stuff, but you will also protect your health and save money on doctors later on.

4. Underestimating small purchases.

Small purchases can be very destructive. A lunch with friends here, Starbucks coffee there, a candy bar at work, a mid-afternoon cappuccino and you didn't even notice how you just lost $25. If you spend roughly $25 a week on small unnecessary purchases, it will add up to $1300 a year.

Write down everything you buy. Nothing is too small to track and write down. While there is no need to say no to every small pleasure, you can reduce this money leak by simply paying attention at what you spend.

5. Not asking for help when you need it.

The biggest mistake that the smartest people make is not asking for debt help when they really need it. Many people are embarrassed to admit that they got themselves in financial trouble, so instead of admitting that they have a problem and asking for help they get depressed and get themselves even into deeper debt.

While with enough determination, the majority of people can get out of debt on their own, in some cases professional debt help is necessary and the sooner you get it, the better the chances that you will be able to pay your debt off without filing for bankruptcy.