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Whether you want to save up for your first home or establish a solid emergency fund, avoid these common pitfalls to build your savings plan for 2023. Here are common money mistakes to avoid at every age.
Being financially illiterate. By learning as much as you can about saving, budgeting and investing now, you could benefit from it for the rest of your life.
Ignoring your budget. Your friends want to hit happy hour again, but it’s not in your budget. What’s a twenty-something to do? Avoid the temptation to throw your goals out the window and instead build up some spending discipline.
Not saving regularly. Save a portion of every paycheck and then spend what's left over — not the other way around. You can earmark savings for short-, medium- and long-term goals. A variety of mobile apps like Mint, Digit and Goodbudget can help you track your savings progress.
Living beyond your means. This is the corollary of not saving. If you can't manage to stash away some savings each month and pay for most of your expenses out-of-pocket, then you need to rein in your lifestyle. Start by cutting your discretionary expenses, and then look for ways to reduce your fixed costs.
Spending too much on housing. Think twice about buying a house or condo that will stretch your budget to the max, even if a lender says you can afford it. Consider leaving room in your plan for a possible dip in household income that could result from a job change or a leave from the workforce to care for children.
Overlooking the cost of subscriptions and memberships. Keep on top of services you are paying for (e.g., online streaming, phone, cable, gym, food delivery) and assess whether they still make sense on an annual basis.
Not saving for retirement. Saving for retirement might not have been on your radar in your 20s, but you shouldn't put it off in your 30s. Start now and you still have 30 years or more to save. Wait much longer and it can be hard to catch up. Start with whatever amount you can afford and add to it as you're able.
Leaving the finances up to your partner. One partner likely feels more comfortable handling bank accounts, investing and saving. But it’s important to have open communication about your household’s earnings, debt and retirement, alongside sharing all important account information, documentation, etc.
Not protecting yourself with insurance. Consider what would happen if you were unable to work and earn a paycheck. Life insurance and disability income insurance can help protect you and your family.
Not keeping your job skills fresh. Your job is your lifeline to income, employee benefits and financial security. Look for opportunities to keep your skills up-to-date and stay abreast of new workplace developments and job search technologies.
Spending to keep up with others. Avoid spending money you don't have just to keep up with your friends, family, neighbors or colleagues. The only financial life you need to think about is your own.
Funding college over retirement. Don't prioritize saving for college over saving for retirement. If you have limited funds, consider setting aside a portion for college while earmarking the majority for retirement. Closer to college time, have a frank discussion with your child about college options and look for creative ways to help reduce college costs.
Using your home equity like a bank. The goal is to pay off your mortgage by the time you retire— a milestone that will be much harder to achieve if you keep moving the goal posts.
Ignoring your health. By taking steps now to improve your fitness level, diet and overall health, not only will you feel better today, you may also reduce your healthcare costs in the future.
Raiding your retirement funds before retirement. It goes without saying that dipping into your retirement funds will reduce your nest egg, a significant tradeoff for purchases that aren't true emergencies.
Expecting to rely on your Social Security benefit alone. Retired workers can expect $1,544 in Social Security per month — hardly enough for most people’s expenditures.
Not knowing your sources of retirement income. As you near retirement, you should know how much money you (and your partner, if applicable) can expect from three sources: your personal retirement accounts (e.g., 401(k) plans and IRAs); pension income from an employer; and Social Security (at age 62, full retirement age and age 70).
Not having a will or advance medical directive. No one likes to think about death or catastrophic injury, but these documents can help your loved ones immensely if something unexpected should happen to you.
Co-signing loans for adult children. Co-signing means you're 100% on the hook if your child can't pay — a less-than-ideal situation as you approach retirement.
Withdrawing Social Security early. Delaying when you take Social Security benefits can pay off. Though you can withdraw them as early as 62, you’ll cut your monthly payment by about a third for the rest of your life.
Not preparing for taxes. Hopefully you’ve diversified your retirement income sources to help reduce some of your tax liability. You’ll need to pay taxes on any funds you take out of employer-funded and 401(k) plans, plus capital gains.
Avoiding your long-term care plan. Contrary to what many believe, Medicare doesn’t cover nursing homes and assisted-living facilities. Chat with your loved ones about your care, and budget for the high costs — about $7,700 per month for a private room in a nursing home.
Help at Every Age
A Farm Bureau Financial Advisor can help guide you as you navigate the financial decisions in your life. Your situation is unique, and an advisor can help you plan for the future you are working toward.