When it comes to financial mistakes, there are varying degrees of severity. Some mistakes are relatively minor and easy to recover from, while others have consequences that can be a financial thorn in your side for years, decades, or even the rest of your life. These are the mistakes that are most important to understand because once you’re in some of these financial holes they can be very difficult to get out of.

- Cashing Out Retirement Plans: People sacrifice for their entire working lives to set money aside for retirement and yet an alarming number of savers decide to cash out their retirement accounts. This should be a last resort and only is really appropriate in a financial emergency. Cashing out retirement accounts before the age of 59.5 means that you not only pay taxes at the time of the withdrawal, but you pay a 10% penalty to the IRS, a penalty that is in place simply to discourage early withdrawal.

- Excessive Credit Card Debt: We all want to have nice things and enjoy dining and entertainment that we really can’t afford. Many people, unfortunately, don’t have the discipline to stop spending even when they really don’t have the money, and credit cards make it easy to build a mountain of debt. If you’re in a position where you’re carrying a credit card balance and making only the minimum payment each month, you’re in danger of creating an insurmountable debt situation. Stop swiping the card and develop a system to pay off that debt as quickly as possible. Work with your creditors, who you might find more willing to make flexible payment arrangements now than ever before.

- Inadequate Insurance: Over 1.5 million people file for bankruptcy every year, a number that would be much lower if everyone was properly insured. A major medical event, a natural disaster, or another catastrophic event in your life can literally leave you with no choice but to declare bankruptcy and start over without proper insurance. Even if all you can afford is a catastrophic care policy, at least have that in place.

- Late Payments: A late payment by itself isn’t enough to sink a person financially, but a pattern of late and missed payments can ruin your credit score and create a situation where no lender is willing to even consider you for financing. One of the easiest ways to avoid hurting your credit score is simply to make payments on time.

- Risky Decisions: You probably know someone who found an investment opportunity that “couldn’t fail” who lost a substantial amount of money when they misjudged the risk. There is no such thing as a free lunch, and just about any investment that offers a return above the return on cash at your local bank has at least some risk. Understanding that risk is essential and you should never invest money in anything that you don’t feel absolutely sure about. If it sounds too good to be true, it probably is.

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