All of us can do better when it comes to personal finance. Here are some relatively easy fixes for 12 common financial mistakes that are probably hurting your lifestyle now and will have a negative impact well into your retirement. Most of these problems are shared by at least 50% of all Americans.
Big Financial Mistake #1: You Don’t Know What You Spend Money On Every Month
A Gallup poll found that a whopping 68% of Americans do not maintain a household budget. This can be a big financial mistake — especially as you enter retirement.
When you are working, it is perhaps reasonable that you get by month to month and just do some mental accounting to make sure that bills are paid and accounts are not overdrawn.
However, to have a secure retirement, you need to know how much money you want to spend every month for the rest of your life. You can do an infinitely better job with a retirement budget if you know exactly what you actually spend money on.
Furthermore, it is almost guaranteed that you’ll find some good opportunities for cutting costs. Little things can really add up. For example, some estimates suggest that an average household wastes $1,350 to $2,275 on food each year. You may also find that you are paying too much in hidden fees, errors on your credit card bills, unused subscriptions and more…
Easy Fix: Take one hour this week and write down everything you have spent money on in the last month. Categorize your spending. And then, do this for a few months in a row. Use this knowledge to make a better retirement plan. Additional ideas can be found in the article, “9 tips for Predicting Your Retirement Expenses.”
Big Financial Mistake #2: You Own Too Much House
According to this NPR report, the size of the average American house has more than doubled since the 1950s. What’s worse however are the huge sacrifices we make to afford to live in these homes.
According to a report by the MacArthur Foundation, between 2011 and 2014, more than half of all Americans made at least one major sacrifice in order to cover their rent or mortgage payments. And, when they say sacrifice, they don’t mean skimping on eating out or a weekend away. To afford housing, 52% of households took on a second job, did not save for retirement, avoided medical care and/or ran up credit card debt.
Easy Fix: Retirement is the ideal time to consider relocating and downsizing to a more affordable home. As your biggest expense and most valuable asset, downsizing can have a massively positive effect on your retirement finances. Want to see for yourself? Model downsizing in the NewRetirement retirement planner. After setting up your account, you can run different scenarios and immediately see how big and little changes impact your cash flow, net worth, estate and more.
Big Financial Mistake #3: You Don’t Know What You Don’t Know About Personal Finance
Everyone — rich or poor and young or old — knows less about personal finance than they need to know.
A recent survey suggests that financial literacy is lower than even most people might expect. Fidelity asked more than 2000 people — half who were between the ages of 55 and 65 and not retired — questions in eight different retirement categories. The average that people got right was a mere 30 percent. Absolutely nobody got all the questions correct and the highest overall grade was 79 percent. Can you do better than average?
Easy Fix: Most articles would tell you to hire a financial advisor. However, many people don’t trust advisors — largely because it is impossible to assess whether you are getting good advice or not if you don’t have a good base of financial knowledge.
Perhaps a better way to start learning about personal finance is to take stock of your own situation. You don’t need to read complicated books about municipal bond ladders and commodity futures to achieve a more secure retirement. You just need to understand your own money.
The NewRetirement retirement planning calculator makes it easy to get started. Enter some initial information about your finances, see where you stand and then start making changes and see what is possible — every time you update your data, you’ll get detailed feedback about how your finances change. You will learn through experience with the models. This is proven to be an excellent method for improving your knowledge of personal finance.
Big Financial Mistake #4: You Own Too Much Stuff
You probably have too much stuff. Don’t believe me? Consider this:
- According to professional organizer Regina Lark, the average U.S. household has 300,000 things.
- A widely reported study from the U.S. Department of Energy reports that of the houses with two-car garages, 25% don’t have room to park cars inside them and 32% only have room for one vehicle.
- The Wall Street Journal reports that Americans spend $1.2 trillion annually on nonessential goods—stuff they do not need.
Easy Fix: Retirement is an excellent time to simplify your life and take stock of what you really need and want. Maybe you could even sell some of your unused treasures with the proceeds going toward retirement savings or a fun experience!
Big Financial Mistake #5: You Are Paying for Storage
Still don’t believe that too many Americans have too much stuff? According to self storage industry statistics, nearly one out of every 10 Americans (9.5%) rent offsite storage. Are you paying to store stuff you don’t use?
Easy Fix: If you have a storage unit, seriously consider whether or not it is a necessity in your life. Clearing it out will take an afternoon, a weekend or even a month or two, but getting rid of this burden could be well worth the short term hassle. Here is how one person tackled clearing out their storage unit.
Big Financial Mistake #6: You Are Paying for College but Can’t Afford Retirement
According to a recent survey by T. Rowe Price, about 52% of parents surveyed felt that it was more important to help their child pay for college than to save for their personal retirement. Similarly, 53% of participants said that they would rather take money from their retirement fund if it meant that their children would not have to take out student loans.
Easy Fix: Take a moment to think clearly about the future. Not saving (or spending your retirement savings) now will have a profound impact on both you and your children. Are your children going to be able to take care of you in the future the way you are taking care of them now? Do they want that responsibility as you age? Do you want to give up your own autonomy and be beholden to them? Walk through a retirement calculator with your children for a clear picture of your — and their — financial future.
Big Financial Mistake #7: Taking Social Security Too Early
According to a report by the Center for Retirement Research at Boston College, 90% of Americans begin Social Security retirement benefits at or before their full retirement age. In fact, the most popular age to start is 62, the earliest age possible.
Guaranteed retirement income — income that you will receive every month no matter what and for as long as you live — can be the key to a secure retirement. Social Security is one of the best sources of guaranteed retirement income. This is why maximizing your Social Security income is a good move.
Easy Fix: If you have not yet started your Social Security, the best thing you can do to live more comfortably in retirement, is to wait to claim your benefits. If you have reached normal retirement age, which is 66 for people who were born between 1943 and 1959, you can access 100% of your benefits. Use a Social Security break even calculator to figure out the best way to maximize your benefits.
Big Financial Mistake #8: You Have too Much Debt
If you don’t have debt, you are in the minority.
According to this survey, 8 in 10 middle-income Boomers currently have some debt. Three in 10 devote more than 40% of their monthly income to debt and a quarter have a mortgage with more than 20 years remaining on it. More than half say they intend to enter retirement debt free, but only one-quarter of retired Boomers actually are debt free.
Easy Fix: Here are 13 tips for dealing with debt.
Big Financial Mistake #9: You Don’t Have an Emergency Plan
In addition to saving for college and retirement and just paying the bills, you should also always have an emergency fund. Before you are retired, experts recommend that you have the equivalent of 6 months of income saved and available. When you are retired, you probably don’t need quite as much since you won’t need to replace lost income if you are missing work. However, you do need cash on hand to handle the big and little financial issues that arise.
However, The Atlantic, uncovered shocking analysis from a study by the Federal Reserve Board. They found that nearly half of all Americans — many in the middle class — would have trouble coming up with just $400 to pay for an emergency.
Easy Fix: Set aside an amount of money to be used for emergencies. Be sure to replenish these funds when used up.
Big Financial Mistake #10: Not Taking Care of Your Health
The average out of pocket health care expenditure for a 65 year old today will be a whopping $260,000 — not including long term care costs. Healthcare is the second biggest retirement expense after housing.
Easy Fix: If you are in good health, you’ll spend less on retirement health care costs. Engage in regular exercise and follow a healthy diet to keep the pounds off and keep your blood pressure at a lower level. Cutting out alcohol and cigarettes can also help you avoid possible medical conditions and expenses in the future. Here are 12 ways to save on retirement healthcare.
Big Financial Mistake #11: You Are Stuck in a Rut
Flipping your perspective enables you to see things in a new and different way. This fresh approach can change your attitude and help spark creative ways of approaching a problem — even a problem like how to retire. If you are stressed about retirement, you might just need to change how you think about the problem and what you are doing.
Easy Fix: Here are 8 ways to flip your retirement perspective.
Big Financial Mistake #12: You Don’t Have a Written Retirement Plan and You Don’t Keep it Up to Date
Only 30% of American have a long-term financial plan that includes savings and investment goals.
Furthermore, Americans tend to spend more time on research about vacation than they do on retirement planning even though retirement planning needs to be an ongoing activity.
When you retire, you are no longer living month to month or year to year. When you stop working, you are dealing with a finite set of financial resources that need to be budgeted to fund the rest of your life. You really do need a plan.
Easy Fix: Assess what you have and what you need for retirement. Find ways to improve your situation. Do it right now. The NewRetirement retirement planning calculator is a detailed and reliable system. This tool will save your information so it is easy to make updates and improvements.
Let’s get to work on your retirement plan
RECOMMENDED FOR YOU
