The Center for Retirement Research at Boston College found that Americans will need to rely on their 401(k) assets to fund 25 to 50 percent of their retirement income. The average income replacement rate will be 73 percent. To meet that average income replacement rate, the average household must save 15 percent of its annual income for retirement. Unfortunately, only about half of workers are saving sufficiently to meet their future needs.
Financial news sites and personal finance bloggers talk ad nauseam about the need to save for emergencies, college, and retirement, yet only half the country is paying attention. This made us wonder why Americans are sabotaging their own futures. We’ve come up with six money mistakes to avoid and how to avoid them.
One of the reasons many Americans aren’t saving properly is due to misguided goals. The goals are numerous but can include trying to get rich quickly through investment and other schemes. It includes sacrificing the long-term for the short-term, i.e., buying a splashy car today for the sake of three years worth of retirement income tomorrow.
This is one of the money mistakes we had to overcome personally. When John moved to Denver, CO, he felt the need to adopt a more mature, adult-like persona. In his mind, the way to achieve this was to spend his life savings and acquired an obscene about of debt to furnish his apartment, buy a new car, and buy top of the line snowboard equipment. This is one of the money mistakes that put him in debt and stole from his retirement because money that should have been put into a retirement account instead went to credit card companies.
To help yourself not shoot for the wrong financial goals, try this free and informative financial personality quiz. With the information you glean from this quiz, you’ll be equipped to establish accurate financial goals.
Some people believe in luck. Some believe that luck is really preparation meeting opportunity. We’re in the latter camp. We’re all given opportunities and obstacles in our lives. Often we view our life as more difficult than others. The truth is we’re given what we can handle.
Missed financial opportunities include not fully or not at all taking advantage of retirement or savings opportunities afforded by an employer, such as a retirement account, 401(k), and stock options. For one reason or another, workers forego these opportunities. Many, in hindsight, revise their history and claim they weren’t fortunate enough.
Because of his own financial mistakes, David spent years funneling money to credit cards rather than fully maxing out his 401(k). This included missing the opportunity to earn a full company match. He left money on the table. That was a missed opportunity and a result of his own actions.
This is one of the most frustrating money mistakes for failing financially. Often people with wrong financial strategies have the best of intentions. They just make the wrong choices. Wrong strategies include “get rich quick” schemes, such as pyramid schemes, loaning to an overzealous start up business, gambling, finding the next hot stock or simply not allocating their investments according to their risk tolerance, time horizon, and financial goals.
It’s easy to dismiss many of the money mistakes for implementing a wrong strategy, but deep inside these folks try to address the same fears and concerns we all try to address. They seek the same security we all seek. Unfortunately, they go about it wrong.
The next two money mistakes are the saddest reasons Americans fail financially. Giving up often follows one of the previously mentioned reasons. For example, when someone realizes they’ve spent years focused on the wrong goal or used the wrong strategy; they may give up because they’re defeated or feel there’s no chance regardless of what they do.
We’re all susceptible to the mistake of giving up. After spending years doing something wrong, it can be hard to muster the motivation to try and try again.
Not trying is another one of the money mistakes, but not trying only guarantees one result. Doing nothing yields nothing. Without planting seeds, a garden won’t grow. Some of the reasons Americans don’t save for financial goals is simply not caring. Some Americans are natural defeatists and figure nothing they do matter. Others don’t try because they’re afraid. They don’t know what to do or how to do it, so they forego it altogether.
John was in financial services for ten years before he finally opened a self-directed 401(k) account in addition to his traditional 401(k). A self-directed 4-1(k) works like a 401(k), but rather than be limited to a handful of mutual funds with high expense ratios, the account lets employees invest in anything a standard brokerage account allows, such as Exchange Traded Funds (ETF) with much lower operating expense ratios. Because of this fear or lack of knowledge, John missed several years of savings from lower operating expenses.
The final reason people fail financially is complacency. This mistake happens with employees who become too comfortable in their jobs and don’t push for a lateral or vertical job changes every two to three years. This results in settling for the measly two to three percent annual cost of living adjustment offered by most companies. With inflation typically within the same range, these Americans aren’t able to incrementally increase their savings and investments to get ahead.
This, also, results in Americans not expanding their skills. Eventually, they become less valuable to their current employer and less marketable to prospective employers. We all must continue to expand what we can offer the company that writes our paycheck. We all must maintain our competitive edge.
Solutions for Money Mistakes
At this point, you may have identified your money mistakes and are asking yourself what you can do to improve. There are multiple reasons why Americans fail financially. There is one remedy for these failures and that’s education.
There is so much valuable information available, much of which is at our fingertips. Libraries, bookstores, and Amazon.com are filled with personal finance books. Our favorite personal finance books include:
- How to Get Rich Without Winning the Lottery by Barbara Friedberg
- The Total Money Makeover by Dave Ramsey
- Complete Personal Finance Guidebook by The Wall Street Journal
- Achieving Debt Freedom by Hayley Jayne
- Charles Schwab’s New Guide to Financial Independence
Between financial news websites and personal finance blogs, the Internet has a plethora of personal finance information. Surely you can find bloggers who suit you. Some of our favorites include:
To help you sift through the chaff, turn to a professional financial advisor or stock broker. Most of these professionals want to honestly help you achieve your financial goals. Unfortunately, we only hear about the bad apples, but the good apples dominate. Our friends at GuideVine can help you find the right advisor for you, including those who specialize in LGBT needs.
Figure out what the reason or reasons are you’re failing financially and create a plan to stop failing, inclusive of personal education. Failure is only an opportunity to improve.
Other articles for you: