Here are 8 quick mistakes to avoid on your way to being wealthy.
Whether you have just graduated college and have gotten that big time job offer, or you have been in the work force for awhile and are just now starting to get to a point where you have some extra cash after all of the bills have been paid. The temptation to spend spend spend is always an issue. Here are some common mistakes that people make that you should avoid.
1. Racking up Too much debt
According to a recent study by the Federal Reserve Bank of Boston, 65% of credit card users carry a balance. When you are paying interest charges monthly you are just giving money away that could be going into a 401k, Roth IRA, or some other type of investment.
2. Not having an emergency fund
Nearly half (46%) of us would struggle to cover a $400 emergency, according to a 2016 Federal Reserve report but that number is skewed by higher earners making more than $100,000 a year. Those making less than $40,000 would be more negatively impacted by an emergency. The key to averting disaster is to always keep an emergency fund of at least $1,000 on hand so when Murphy shows up you will be ready.
3. Not giving your retirement a raise when you get one
This one is simple, when you get a raise increase your retirement savings by that same amount.
4. Relying entirely on a 401(k) plan
“If you only invest in a pre-tax 401(k) account, you could potentially be creating a future tax headache for yourself,” says Christopher Hammond, financial adviser, “At age 70 ½, under most circumstances you must take distributions from your qualified money — that is, traditional IRA’s and 401(k)’s. This may inadvertently lead you to pay more taxes later.”
To avoid the tax hit later invest in your 401k up to the company match then put the rest into a Roth IRA.
5. Not taking advantage of Health Savings Accounts (HSAs)
If you’re not using a HSA, you are missing out on the discount on your medical expenses that the government has provided by way of tax incentives.
6. Delaying retirement savings
For those just getting out of college, you should start investing in retirement immediately. There are different theories on this but all have one common theme; discipline. The more goofing off you do now the less money you will have later.
7. Forgetting to update beneficiary designations on retirement accounts, life insurance policies, and annuities
This is something that should be reviewed at least annually to make sure you aren’t leaving money someone who is no longer in your life either by choice or otherwise. A mistake here could cost your estate big time as the funds will be tied up in court and left up to a judge to decide.
8. Spending too much on depreciating assets
This one is a killer for the middle class, because the shiny things are what most of us have been chasing after our entire lives. It is the reason why we went to college and sacrificed all of those long miserable nights writing papers on “Epic of Gilgamesh” that we knew good and damn well the professor wasn’t even going to read! Ok, my apologies this point is sensitive to me.
We all know that cars lose value the moment you put the thing in drive but many in the middle class are spending way too much of their income on them. The average car payment in the last quarter of 2016 was $506 per month and 68 months long. That’s $34,408 for an asset that won’t be worth half of that after the last payment has been made. Boats, motorcycles, clothes, and every electronic device you can think of will go down in value just as fast if not faster. Things like jewelry an furniture don’t necessarily go down in value, but you will never get anything close to what you paid retail if you try to sell them.
Long story short, be smart with you money by saving and paying off debt quickly. If you are patient then you will be able to buy whatever you want and it will feel a lot better to you when you know that you own it out right.