Many people routinely make mistakes with their finances on a daily basis – and while we aren’t necessarily talking about anyone in specific, overall, I think that many Americans get too busy with their lives to sit down and really take a look at what their money is doing for them.
Although many people are in a better place now than they were 5-6 years ago… some people are still struggling to make ends meet. Some employers are struggling to retain their businesses and stay IN business, and some are young adults struggling to repay back their student loans perhaps after 4-5 years of college courses.
As a whole, many working Americans are turning away free money … and giving their hard earned money to the government without any compensation back to themselves. Crazy to think that people are doing this .. but in reality, I don’t think many may even realize the mistakes they are making and think they may be on a decent path
Here are some of the most common money mistakes American employees might just be making – some of them may strike a chord with you.
1. Not Taking Advantage of the “Now”
Life gets busy, and people get busy with jobs, families, and their kiddos. Things like college savings, retirement, and even savings accounts go on the back burner in lieu of things that are more important at the time… before you know it, years pass, kids grow and you get older.
By sitting down and starting a plan now, you can alleviate the worry of having to save later. Make an effort to start somewhere – open up an account and set an automatic draft so you don’t have to worry about taking action each month.
I recently sat with a member of our church congregation after church … who was talking about motivational books to help you WIN in the aspect of personal choices. She asked me what my top choices were.. and I said that two came to mind:
Although Dave Ramsey’s Total Money Makeover is right up there, those two were the most recent I have read that challenged me both personally and professionally. Although she had heard of Dave Ramsey, she had not heard of Chris Hogan – I mentioned that he speaks largely about retirement prep – her response was surprising: “Oh. I don’t believe in retirement. I mean, I do, but I don’t believe in putting away for it. I just don’t care about that right now in my life. Maybe before I turn 65 I will change my mind”.
I respect that. But she’s in her late 50’s – they say better late than never, but I’d rather be prepared earlier.
2. Underestimating the Impact of Smaller Purchases
While we all inevitably make smaller purchases each day, over time… they can truly add up to be some rather large savings opportunities.
That Frap at Starbucks can run you $2 – $5… even during Happy Hour. Combined with a pastry, and another Frapp for your spouse, or maybe something for your kids, that’s easily $6 – $7 that you could have deposited into your bank account as a savings opportunity. I have seen some people go to great lengths to talk themselves into needing Starbucks (ie. it’s been a long week, the kids have been such a handful…) but if you can prevent yourself from going, and make yourself something at home, you will truly be better off in the end.
It’s those little purchases that you may not realize you make that can add up to be large sums at the end of the month – if you DO want to indulge every so often, limit your purchase by setting a cash budget for Starbucks each month of $10.. it might not seem to be a lot, but when it seems like a treat, you will ultimately treat it as such.
When you make a purchase a regular occurrence, then it puts you in a different frame of mind – for some, it seems like a necessity to get through the day. And once it’s a necessity then you tend to neglect that expense.
3. Not Taking Advantage of your Employer Match
Approximately 30% of American employees do not contribute enough to the their 401K to capture their employer’s matching contribution. MANY employers offer a match – dollar for dollar on the first 3% or more of your paycheck in 401K retirement plan contributions.
Does that add up? It sure does.
My husband’s employer matches up to 6%… which is great. So if he made $50,000 a year before taxes, they will match the first $3,000 .. which is $6,000 a year for you in your retirement (after your contribution). That’s huge – over time, that can make a huge impact on your retirement savings.
4. Not Minimizing your Tax Implications
A Roth IRA has great tax advantages – just like a 401K does as well. But each are a little different. Roth IRA’s allow you to withdraw both principal and interest tax free in your retirement years. A Roth requires you to pay taxes when you make your contributions, while the 401K allows your investments to grow tax deferred so you can pay tax when you withdraw your money.
5. Giving too Much to Uncle Sam
Many Americans get too much money back at the end of every year – – while many people prefer this and actually look forward to this, what it essentially means is that you gave a HUGE tax-free loan to Uncle Sam.
While that might not bother you too much, it’s not an efficient use of your money that YOU worked hard for all year long. You are getting your money back without any interest.
You can make a few adjustments to your withholdings and take more money home each paycheck, thus turning around and investing that amount, as any amount of money earning interest in a fund is better than no money earning interest. If you are self employed and find that difficult, then it’s important to sit with your accountant (or, if you don’t have one, then it’s time to get one) — a quarterly basis is best to determine where you are at based on your monthly income reports.
If you plan through the year as a business owner it will alleviate the headache of “where am I at?” at the end of the year.