6 Financial Mistakes to Avoid When Building Your Future
Everyone makes financial mistakes. Knowing where and how you've stumbled is the first step toward getting back on track.
All you need to do is identify where you went off-course in your financial plan. By reviewing these common areas where people make financial missteps, you can make adjustments to build better financial habits and keep your goals within reach.
If you don't know where your money's going each month, it's tough to secure your financial future. Not having a budget can lead to overspending and under-saving. This can make it difficult to pay for even smaller goals, like a weekend getaway.
When you track your income and expenses each month, it's easier to form a plan to save and pay down debt. Then, you can set aside funds for the things you want in both the short and long term.
2 Emergency savings
Lacking an emergency fund can impact many other areas of your finances. Without savings, you'll likely rely on credit cards to pay for emergency expenses. You might even have to pull from your retirement accounts, which may come with penalties and impact your life in the future. You're also missing out on the peace of mind that comes from a cushion in the bank.
While retirement might seem like a long way off, it pays to start saving sooner rather than later.
For example, if you put away the annual maximum IRA contribution of $500 per month, starting at age 25 until you retire at age 65, you'll have roughly $1.3 million, assuming an average interest rate of around 7%. However, if you wait until you're 35 to start saving, that same $500 per month will only yield you just over $600,000—less than half what you'd have if you started saving earlier.
4 401(k) contributions
If your employer offers a 401(k) plan and you're passing up the opportunity to contribute, you might want to rethink that decision. Whether your employer offers a match or not, a 401(k) is a powerful investment vehicle that can significantly add to your future nest egg.
Consider contributing at least enough to get your maximum employer match. For example, if your employer matches 401(k) contributions up to 3% of your salary, investing that 3% each paycheck will take full advantage of the match, which essentially doubles your retirement savings.
5 401(k) rollover
If you leave a job without taking your 401(k) with you, you could be losing control of your savings and racking up fees on the account you left behind.
Rolling your 401(k) over to either a new employer's 401(k) or an IRA often offers lower fees, a wider range of investment options and greater control over your savings. The annual fees for your old 401(k) plan may be significantly higher than an IRA. It's worth exploring your options, crunching the numbers and making sure you feel in control of your investments.
6 Student loan repayment plans
The number of employers offering student loan repayment assistance programs is on the rise. If you've found an employer that offers a plan, fantastic. If not, now's an ideal time to lobby your employer to consider this high-value benefit.
If you have $40,000 in student loan debt and pay $250 per month, it'll take you 323 months to pay that debt off, and you'll pay over $40,750 in interest, assuming your loans have a 6% interest rate. If you have an employer kicking in an extra $100 per month, you'll be debt-free in 170 months—nearly half the time—and only pay $19,500 in interest.
Moving forward with your finances
If you're making any of the above financial mistakes, today's the day to take steps toward improvement. With a little education and planning, you'll have your finances in order. These common mistakes will be a part of your past, not a part of your future.
A few financial insights for your life
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.