5 Financial Pitfalls To Avoid in 2026, According to Economists
Written by
Martin Dasko
Edited by
Amen Oyiboke
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According to a recent survey shared by Yahoo Finance, 45% of Americans considered the cost of living in their area to be unaffordable. The results also found that only 33% of respondents felt that their financial situation had improved over the last year, and 45% admitted that their monthly income just about matches their expenses.
As we head into 2026, it’s evident that the higher cost of living continues to impact Americans. This means that it’s more important than ever that consumers avoid common financial pitfalls so that they can stay on track with their finances.
GOBankingRates spoke with economists who shared financial pitfalls that people should look out for heading into 2026 based on recent economic trends.
1. Succumbing to Lifestyle Creep
“The most common mistake people make is letting their spending increase commensurate with their new salary,” said Robert R. Johnson, CFA and professor of finance at Heider College of Business, Creighton University. “For instance, people move into a bigger apartment or buy a more expensive car or home to reward themselves for receiving the raise.”
As 2026 approaches, Americans should consider the lingering effects of inflation and other financial challenges before taking on new expenses. Johnston noted that many people struggle to improve their finances because they spend any extra income on lifestyle upgrades. With the cost of living still rising, it’s important to avoid falling into this financial trap.
Financial pitfalls to avoid along the lines here include:
- Taking on too many loans to purchase a new vehicle or finance high-ticket items to improve your lifestyle.
- Not utilizing money savers like coupons and deals.
Johnson shared that the best approach is to invest any money you earn from a raise heading into 2026 to ensure that you’re prepared for any possible economic scenario.
2. Buying Too Much House
Johnson pointed out that people often make the mistake of spending too much of their income on a house. In turn, this limits their ability to make other investments, like purchasing stocks or bonds. The goal is to purchase the house that you need for your family and not the most expensive house that you can “afford” based on what you get approved for.
“Many people mistakenly believe that real estate is a good and safe investment,” said Johnson. “They fall prey to stories of values rising dramatically over long periods of time.”
While housing prices can go up, you still have to invest accordingly for your retirement, especially as mortgage rates remain high.
3. Trying to Outsmart the Market
“Many people think that they can avoid market declines by moving in and out of the market,” warned Johnson. “A mistake many investors make is attempting to time the market.”
The recent market swings of 2025 should be enough evidence that trying to time the market isn’t a wise investing strategy, especially as we don’t know what to expect in 2026. If you want to stay prepared financially, Johnson recommends investing consistently in the stock market without stressing about possible fluctuations because there will be many swings in the future.
4. Not Investing Properly
“Many people put such a high priority on paying down debt — mortgage debt and other debt like student loan debt — that they do not participate in their company 401(k) plan,” said Johnson. “People should be lauded for paying down debt. However, making that the only financial priority is misguided.”
Heading into 2026, it makes sense to pay down high-interest debt, but you don’t want to miss out on possible growth in your retirement accounts.
“The first step you need to take is to decide what type of account you want to open,” said Amy Pridemore, a financial wellness instructor at Virginia Commonwealth University. “If you’re just looking to start investing and aren’t worried about tax advantages or retirement, a brokerage may be the best place to start.”
Pridemore suggests that you determine which account suits your situation best, and then find a financial institution to open that account with. She added, “Check for accessibility, ease of use, and fees to determine which financial institution you prefer to invest with.”
You want to ensure that you’re investing properly as 2026 approaches so that you don’t miss out on potential returns. This leads us to the next point.
5. Being Too Risk Averse
Johnson believes that one of the biggest financial pitfalls people make is taking too few risks when they’re young. He said, “Someone with a long time horizon should not have exposure to money market instruments, yet many investors do because they fear the volatility of the stock market. Early in their working lives, people should begin investing in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down, or sideways.”
The experts agreed that dollar-cost averaging into an index mutual fund or ETF is a terrific lifelong strategy. You want to ensure that you’re investing in the stock market and assets that can provide you with a decent return on your money.
“The important thing is that you’re making auto deposits on a consistent basis, also known as dollar cost averaging,” said Pridemore. “The last step is to make sure that the cash you have deposited in the investment account is actually invested in a product.”
Both experts agreed that once you have set up the deposits and ensured the cash is invested, you can be a hands-off investor, letting your money work for you. This is the final financial pitfall to avoid in 2026 because you should prepare for the future.
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