Saving is important, no matter what your income or age. However, too few Americans save to the extent that they should. Often, people will undermine their savings habits by committing the following five mistakes, according to a recent article in Forbes:
- Forgetting to sign up for an employer’s 401(k). The article’s author calls the 401(k) “the best tax break an employee will get short of having kids and buying a home.” Failing to put money into a 401(k) means missing out on this important tax break. The article reports that most companies sign their workers up to put in 3% of their salary but recommends increasing that figure.
- 2. Procrastinating when it comes to financial planning. Even for those who have it, money is not typically something that people enjoy thinking about. Most people don’t want to consider what will happen if they don’t have enough during retirement, so they may put off thinking about this issue entirely. As early as possible, determine how much money you will need to maintain your desired lifestyle during retirement, and set in place a plan to achieve that goal.
- 3. Spending tax returns. If tax preparation companies are to be believed, a tax return is like free money—but that couldn’t be further from the truth. Your tax return is the money you loaned to the state and federal governments, just returned to you at the end of the tax year. You can either adjust how much is withheld to keep that money for your own use throughout the year, or you can put the tax return into your savings account or IRA.
- 4. Paying more than necessary for financial management. When hiring someone to manage your finances, it’s important to weigh the benefits you are receiving versus the overall cost. Many people enjoy the peace of mind that wealth management can bring; just make sure that if you take this route, you are achieving measurable, meaningful results, so that you do not experience regrets down the road.
- 5. Financing college with your retirement fund. This can be a mistake for a number of reasons, the most important of which is that college can be paid for with loans; retirement can’t. Of course, parents want to help their kids, but they shouldn’t bankrupt themselves in the process. When giving your kids financial assistance, assess how much they need versus the impact that it will have on your retirement.
Find out about other savings and retirement killers—and how to overcome them—here.