A survey that Bankrate conducted last year showed that only 20 percent of American adults have no financial regrets, while more than 70 percent of respondents said there were very specific mistakes that they wish they had not made. Among the respondents’ biggest regrets, the one cited most often was not starting retirement savings early enough. This result will likely not surprise very many people since it is no secret that Americans are particularly bad at saving for retirement. However, respondents also mentioned a number of other specific regrets. Understanding these most common mistakes can help us avoid falling into similar traps.
Some of the most regretted financial decisions include the following:
Paying the minimum due on credit cards.
The average household in the United States has more than $15,000 in credit debt according to NerdWallet.com. Paying off this amount will take many years if individuals pay only the minimum due each month. The problem is that interest continues to accrue over this period, so people end up paying much more than they originally charged. A $5,000 balance on a card with a 12.5 percent interest rate would take 10 years to pay off using the minimum payment with a total of about $1,700 in interest paid. Because households typically continue to charge while paying down debt, it can seem like they will never become financially free of their credit cards. To get out from debt, individuals need to stop charging to the cards and pay as much above the minimum as possible.
Falling victim to financial scams.
People tend to think that they are too smart to fall for scams, yet Americans lose hundreds of millions of dollars each year to financial schemes according to figures from the FTC. Some of the most common scams include easy investments and prizes for contests that individuals never actually entered. These scams may come through e-mail, paper mail, telephone, or even in person. In general, if a deal sounds like it is too good to be true, then it probably is. People should become especially dubious when someone guarantees high returns with low risk in a short timeframe. This sort of situation simply does not exist. In addition, individuals need to do due diligence before giving out their Social Security numbers, bank account information, or other sensitive data, and report any suspected scams to the FTC.
Living it up after graduating from college.
When people finally graduate from college and begin their first real job, they can be tempted into spending much more than they should, especially since those in their 20s tend to have relatively few financial burdens. During this time, savings frequently takes a backseat to having fun. While it is fine and natural to reward oneself after graduating and securing a good job, individuals also need to set a budget that includes a substantial amount of savings. Typically, people should save at least 10 percent of their income.
Forgetting about unseen money.
Too often, people forget about the money that they have set aside for the future. This happens most often with 401k accounts. When people leave a job, they may leave the 401k behind or roll it over into an IRA and then forget that the money exists. While individuals will have access to the money later on, they will miss out on a number of opportunities to invest it properly and have it grow into a nice nest egg. When this occurs, it is particularly devastating since the money is already saved. To avoid this situation, individuals need to take a proactive approach to how they invest their money, especially their retirement savings, and always keep an eye on account performance. A good way to accomplish this is to store all account information in a central place.
Avoiding investing in the stock market.
Because the stock market can seem so overwhelming and scary, people often avoid investing in it at all. While stocks can be a risky investment, they do not have to be, especially when people invest for long-term gains. The stock market has had some rough years, but it continues to have average annual returns around 10 percent. This rate puts them far above bonds, bank accounts, and other options. In reality, not investing in stocks is even more risky than investing in them because there is no guarantee that money growing in other accounts will keep up with inflation. To minimize the risk involved with stocks and become more comfortable with the idea, individuals can consider exchange-traded funds, mutual funds, or hiring a financial adviser.