Now is the time of year for slasher flicks, ghosts, scary stories, and haunted houses. This got me thinking about how that ties into finances. How many scary money mistakes are you making?
Not Contributing Enough For the Full Match
In order for employers to add value to their employees and to remain competitive with their competition, they often offer a defined contribution retirement plan. Many employers go a step further and will offer a “matching” contribution benefit to help employees build their retirement savings.
The average matching contribution is 3.5%. Like the name suggests, you’ll need to contribute on your own in order to receive “the match” from the employer. If your employer offers this benefit, you absolutely must contribute enough to receive the full match. Unfortunately, many employees aren’t. This kills me. If you walked into work every day and saw $10 on the floor, would you pick it up? Of course you would! Contribute enough for the full match, there is no good excuse not to. It’s free money.
You’re Vastly Underinsured
There are many different forms of insurance that you should have to protect your family’s financial well-being. The one I will focus on is life insurance. Why do people get life insurance? It protects their family in case of premature death. Everyone has different goals for their life insurance. For some, the priority is making sure bills continue to be paid. For others, fully funding retirement for the surviving spouse or college for the kids. Whatever it is, life insurance can help you protect your family if a wage-earner dies unexpectedly.
Problem is, many families are vastly underinsured. 37% of Americans do not have any life insurance. Of those that are insured, I often find that they rely solely on what they receive as a benefit through work. When you crunch the numbers, however, we often find that these folks’ death benefit simply won’t get the job done. Not having this in place can make a tough time for a family even tougher. Work with a professional to have a “needs analysis” done and make sure that your family has adequate coverage — and at the right price.
Not Having Control Over Cash Flow
It’s important to have a handle on where your money is coming from and going to. Only about ⅓ of Americans maintains a household budget. Look, I know that budgeting sucks. It’s about as fun as stubbing your pinky toe in the morning. However, without positive cash flow and money management habits, no other financial goals are attainable.
I propose a different approach to budgeting. Use a simple, easy solution. Personally, I use PocketGuard. It takes literally 10 minutes to set up and you’re on your way to tracking your spending habits. I’ve also used YNAB. Both are great solutions.
I’m not going to tell you that you should only eat out once a month or that you can’t buy Starbucks coffee. Start tracking your spending categories using an easy to use app. Next, decide what you aren’t willing to cut back on because spending on that item makes you happy. Then find the one or two categories that you are obviously over-spending on. Find a way to cut back bit by bit, month by month, until you have the spending under control. Budgeting doesn’t have to be such a hassle, you just need to be committed to it.
You Have No Financial Plan
Would you go on a week long vacation without having a plan in place? I know I wouldn’t. Where will I stay and for how many days? What will I do there? What should I pack? All questions that need answered. However, many families don’t even put that amount of foresight into planning for a successful financial future.
45% of adults say that they “do not know where to get the help needed as they move through life stages and need different financial solutions.” Shameless plug, I can help. 33% of Americans have no financial plan. In my experience, that number is inaccurate. I believe it’s a much higher percentage. Many of the people I meet with that “have a financial plan” do not. They may invest but that is usually the extent of it.
A goal without a plan is just a wish. It’s time to be intentional with your finances and move forward with a plan in place.
You Pay Minimums but Don’t Make a Dent
Nearly one-third of Americans pay the minimum owed on their credit card each month. This typically amounts to about 2-4% of the amount owed. If you’re doing this, it’s time to reconsider. Let’s look at an example.
Assume that you owe $7,000, have a 19% interest rate, and your minimum is 4% payment. You pay the minimum amount owed every month, nothing more. It would take you 12 years and 7 months to pay off the debt and you’d pay just under $4,500 in interest over the course of your payoff. (use this Bankrate calculator to see how minimums would look with your balance.)
In the above example, the initial minimum payment is $280. It decreases over time because you’re paying 4% on a smaller balance. Instead of doing that, let’s see how it looks if you just keep paying the flat $280/month. How long would it take to pay off the debt? You’d have the debt paid off in 2 years and 9 months. You’d pay $1,982 in interest. It makes a huge difference. (Here is a great credit card payoff calculator from Credit.com)
Stop paying the minimums. If you can pay even $20 more, do it.
Conclusion: How Many Scary Money Mistakes are you Making?
These are just a few of the common mistakes I see people make everyday. Get some guidance. It’s time for you to start living your best financial life. That starts with avoiding common mistakes.