Take a moment to think back and identify one of the poor financial decisions you’ve made in the past. Does this financial decision have an impact on your finances today? Do you think about it often and wish you would have chosen a different path? If you answered “yes,” you’re not alone.
In 2016, Claris Finance surveyed 2,000 individuals around the United States to identify consumer’s top financial regrets. Some of the top regrets consisted of not saving enough money or living beyond their means. Many Americans can relate to these poor financial decisions, but do they understand the impact they have on their financial future?
If you want to ensure you have a secure financial future, here are a few poor financial decisions you should avoid.
Quick Article Guide:
- Not Saving Enough
- Living Beyond Your Means
- Being Too Conservative
- Being Too Risky
- Using Your Future to Pay for Your Past
- Cashing Out Your Retirement Plan
- Not Selecting the Right Amount of Insurance
- The Bottom Line
In a recent study, North Western Mutual found that 1 in 3 Americans have less than $5,000 saved for retirement. Many retirees couldn’t support their lifestyle for very long with $5,000 in savings. If you plan on retiring, you must have a sufficient retirement savings to support your lifestyle throughout your golden years.
Procrastinating saving for retirement can rob you of a secure financial future. The longer you wait, the harder it will be to build your nest egg. Even if you contribute $100 a month to retirement savings (assuming 7% interest) for 30 years, you will accumulate $113,352.94. Imagine the difference an extra $100,000 could make over the course of your retirement.
By not saving enough for your future, you are not only robbing yourself of financial security, but you could be crippling your children as well. If you’re not contributing enough to your retirement, you probably don’t have adequate life insurance to protect your children from future financial stress. If you pass away with debt or don’t have enough money to pay for your funeral, you will pass a financial burden onto your loved ones.
One of the best ways to protect your loved ones is to purchase life insurance. There are plenty of life insurance options based on your time horizon and financial needs. If you find you only need enough life insurance to pay for your final expenses, you can purchase a final expense life insurance policy to cover the cost of your funeral. Protecting your family from financial distress may be one of the best financial decisions you ever make.
If you don’t prioritize saving for retirement, you may let your hard-earned money slip right through your fingertips. It’s easy to spend your money eating out or purchasing that luxurious new car. It feels good in the moment to spend your cash, but after a while you may find yourself coming up short.
Just because you can afford something doesn’t mean you should purchase it. There are a lot of other expenses that you may not be considering. For example, you may be able to afford the payments on a brand new Mercedes, but did you factor in the cost of maintenance, gas, wear and tear, insurance, and depreciation?
If you’re not factoring in the total cost of a purchase, it may be wise to reconsider your decision. This poor financial decision may end up costing you a lot more than you anticipated.
Creating and sticking to a budget is one of the best ways to live within your means. A budget helps you determine the money you have coming in and the money you have going out. By assessing your cash flow, you can develop a plan your expenses and goals. Your budget will help you make better financial decisions by assessing what you can and cannot afford.
As you get closer to retirement, it may be wise to minimize your risk. You may want to move toward a portfolio with more bonds and low-risk investments than riskier investments like stocks. If you’re decades away from retirement, you have plenty of time to ride the volatility of the stock market. Staying away from stocks can rob your portfolio of potential growth.
According to a recent Wells Fargo study, 6 in 10 investors are more concerned with conserving their portfolio than maximizing growth. Many investors are fearful of losing money in the stock market but, with a well-diversified portfolio, they can capitalize on growth opportunities. Take advantage of your working years and utilize investment opportunities that can grow your portfolio. If you’re unsure where to start, you may want to partner with a financial advisor to point you in the right direction.
Conversely, some investors may be way too risky when it comes to investing their money. For example, some investors may build their portfolio entirely from one or two stocks. Betting on one company to help build your retirement could end in a financial disaster.
It’s best to select an asset mix that matches your comfort with risk, your time horizon, and your goals. You don’t want to put all of your eggs in one basket to find the basket breaks along the way.
In 2018, consumer credit increased 5%, while revolving and non-revolving credit card debt increased 2.75%. While credit debt continues to rise, more and more Americans suffer the financial consequences of paying for their past with their future. It’s easy to use credit when you may not have the cash available. However, this pattern could be robbing you of a secure financial future by prolonging the repayment of your purchases.
If you are considering a purchase, try waiting at least 24 to 48 hours to make it. This will give you time to think and weigh out the pros and cons of this financial decision. If you find you don’t have enough money for this item, consider saving over the course of the next few months. This will ensure you don’t use credit and that you are not risking your financial security by making a poor financial decision.
Your retirement plan is a not a piggy bank. Many savers assume they can access their retirement funds at any time for any reason. This is simply not the case. For example, you may consider cashing out an old 401(k) at your previous employer. If you were to take a full distribution, you would have to pay a 10% penalty along with income taxes based on your tax bracket.
On top of the taxes and penalties, you need to consider the opportunity cost of cashing out your 401(k). Let’s say your 401(k) was $5,000. If you left the account invested for 30 years and didn’t touch it (assuming 7%) you would accumulate about $38,061.28.
Before you cash out your retirement savings prior to retirement, consider what you may be giving up.
Insurance is there to protect you when catastrophic life events happen. Having the appropriate coverage can be the difference between bankruptcy and financial security. From healthcare coverage to liability insurance, you need to have the right amount of coverage for your financial situation.
If you’re unsure of the coverage you need, it’s wise to work with an insurance expert like Term Life Advice to help you identify the right insurance for your needs. Working with an expert can help you navigate the intricacies of finding suitable coverage. Their years of experience and knowledge will ensure you find the best policy to protect your most valued assets.
Making poor financial decisions can ruin your chances of financial security. If you’re unsure of the path to take, work with a financial professional to point you in the right direction.
At Term Life Advice, we work with 63 top-rated life insurance companies to help our client’s find the most affordable life insurance coverage. We also offer no exam life insurance if your schedule is too full to meet with a nurse, or if you need insurance in a hurry to collateralize a business loan.
Give us a call today at 855-902-6494 for some accurate rates to help you get started, or you can request an online quote below to instantly compare your options.