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Wealth & Well-Being

5 Money Mistakes and How to Avoid Them

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Have you ever heard someone say that experience is the best teacher? How about “there are no mistakes, just lessons”?

We’d like to take a slightly different tack on these age-old maxims. Experience isn’t the best teacher, but someone else’s experience can be. Learning from other people’s mistakes can save us a lot of grief.

In that spirit, we’ve compiled a list of the 5 most common financial mistakes along with ways to avoid committing them yourself.

1. Living Paycheck to Paycheck with No Emergency Savings

The number of Americans that lack a sufficient savings is astonishing. According to this survey, 57% of Americans report having less than $1,000 saved. And according to CareerBuilder, nearly 80% of Americans live paycheck to paycheck to make ends meet. And lest you think this only applies to low-wage earners, nearly one in ten workers earning over $100,000 are in the same boat.

This means that a sudden loss of income or unexpected expenses (home repairs, flat tires, broken A/C, etc.) could devastate a large portion of this country. In fact, this is exactly what thousands of federal employees affected by the government shutdown just experienced during the recent government shutdown.

During the closure, there was no shortage of stories from federal employees who were running out of money for essentials like food and electricity after missing only one or two paychecks.  Yes, these employees were guaranteed back pay and offered plenty of assistance from banks and credit unions, but from December 22nd until January 25th, these government workers bore a tremendous mental and emotional burden due to their financial circumstances. They weren’t even sure when they would see another paycheck.

We can’t predict what life with throw our way, but we can try our best to prepare for the unexpected. Don’t wait to start socking money away. Pay yourself by allocating funds to savings with each paycheck. You may even want to consider automating your savings contribution so that you don’t spend it elsewhere.

We recommend having at least three to six months of emergency funds, with six months being ideal. Any more you can manage is even better. Poor financial health is a leading cause of stress for individuals of all income levels. Having a sufficient savings can alleviate the weight of an unforeseen financial blow.

2. Neglecting Retirement Savings

Getting a head start on retirement savings is so important to us, that my husband and I have already broached the subject with our teenage son and daughter. At 15 and 14, they are less than enthusiastic, and who can blame them? Retirement feels light years away for them. But as they mature into adulthood, the seed of wisdom will have been planted. When they enter the workforce, they will have been taught the importance of getting a jumpstart on retirement and (hopefully) start saving for retirement right away.

I have a friend who is in his late 40s. He can probably retire comfortably by 60. Yet, he regrets waiting until 30 to begin putting money into a retirement account. The same holds true for another colleague of mine who is 52. He’s semi-retired today, but wishes he had enrolled in his company plan before he turned 26. What if both of these gentlemen had started saving in their early 20s? They could be sitting on a much larger nest egg today.

The reality is, I bet we all know someone with this same regret. The problem is so common that we hear it almost weekly.

It’s no secret that starting sooner is better–it’s the magic of compounding. Those deposits made in our 20s will have a lifetime to grow. The more time to grow, the more exponential the growth. Don’t waste the chance to increase your savings now. You’ll never get it back.

If you are nearer to retirement and don’t feel adequately prepared, a financial advisor can teach you about options that will allow you to maximize your contributions in the shortest period of time.

 3. No Spending Accountability

Without a spending plan to track expenditures, you may wonder why there is month at the end of your money, and not money at the end of your month.

While it isn’t necessary to be as zealous as my friend from college who can, without a doubt, recall how much he spent on gasoline in March 2001, you should have some idea where your money is going. Keeping an expenses log can decrease your chances of overspending, maximizing the amount you can contribute to saving or investing.

First, focus on the essentials—rent or mortgage, gas, utilities, car insurance, and groceries. These are called non-negotiable expenses because they provide for your basic human needs like food and shelter. Leave room for your financial goals–repaying debts, retirement, emergency funds. And have some fun by budgeting for lifestyle choices–recreation, hobbies, vacation, and so forth. These are your negotiable expenses that aren’t necessarily necessary and could be scaled back to provide for more pressing matters if needed.

If you are unsure where to start, we can help you develop a comprehensive spending plan that will help get your current and future financial affairs in order.

 4. Too Much Debt and No Plan to Recover

Credit cards are a fantastic convenience and most pay some type of reward. If you can use credit cards without becoming bogged down with monthly payments, then using the card for the rewards or to track certain expenses may be well worth it. We recommend paying the total balance off each pay period to avoid steep interest charges.

If you feel like you’re buried under a mountain of credit card debt, an automobile payment, student loans, or personal debt, you’ll need a plan of attack. We can help. We will assist you in crafting a personalized roadmap to debt-free living. And trust me, even having a plan in place can be extremely liberating! Getting out debt is the best financial move you will ever make.

 5. Purchasing Luxury Items without Knowing Maintenance Costs

That new car sure is fast, the ride is exceedingly quiet, and it boasts all the latest gadgets. But the new car smell will eventually wear off. The payments, however, won’t. When looking for a new vehicle, what you don’t know can hurt you. What is the gas mileage? Does is require an expensive grade of gasoline? What will it cost to insure? How much do the tires cost to replace? And what will the annual license renewal run?

If you can answer these questions and the payments comfortably fit into your budget, you’ll sidestep any surprises that could end up crowding out your hobbies or hindering your financial goals.

Financial Stability for Personal Fulfillment

Financial wellness is not mutually exclusive from the rest of our lives. Our financial health goes hand in hand with our overall personal wellness. When we align our finances with the goals we have for our future, we enhance our personal, physical, spiritual, and overall wellness. Having a well-stocked emergency fund, sticking to a budget, planning for retirement, staying out of unnecessary debt, and being knowledgeable about our purchases are ways we can live healthier financial lives, and as a result, more fulfilled personal lives. If you need help getting your financial life in order but are unsure where to start or feel overwhelmed by the process, our team of highly skilled Certified Financial Planners ® is here to help. Schedule a complimentary Get Acquainted meeting with us today. We look forward to meeting you.

Written by Kristina George in collaboration with Lexicon Content Development

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