When we talk about personal finance it’s usually more about what you should be doing now, but too often the mistake has already been made. Many people regret what they didn’t know when they were younger. As a society, we are seeing the impact the lack of financial planning can have on our economy. And this isn’t just a Millennial problem. It’s a problem for all generations.
The only way to break the cycle is through education. Here are four big money mistakes people of all ages are making:
Borrowing Too Much for Higher Education
Oh, student loan debt, you got us the degree we wanted but also into a financial hole. Americans owe over $1.45 trillion in student loan debt. NerdWallet reports that almost half of grads who borrowed for undergraduate degrees say they could have borrowed less (and it gets worse for those with graduate degrees).
When you think about student loans, it’s not just the loan amount itself it’s also the interest. That interest can mean a lot of income lost to payments over the years. And that means less money to put towards the great things in life such as getting married, buying a house or having a family. To top it off, it’s not just Millennials that are facing this issue. Parents who helped put their kids through college are paying the price now too.
Not Checking Your Credit Score
Do you know what your credit score is? You may have a general idea of high versus low, but it’s something you should check. You can get your credit report for free once each year by going to annualcreditreport.com. Make sure that everything is correct on your report before you go to do things like buy a car or apply for a mortgage. You don’t want to be surprised by a higher rate because of an issue with your credit. Some banks even have breakpoints in credit score numbers that can affect pricing.
Also, check your score before making that large purchase so that you have time to take steps to improve your score. Don’t pay more for something when you can correct the issue in advance.
Not Understanding Fees
When you signed up for your 401(k) at work, did you read through all the information they provided you? You may have but probably not as well as you should have. Take another look through that packet and understand the fees you are paying possibly for the plan and each investment. Retirement fees can be complicated and can have a big impact on how much you are saving.
Your 401(k) plan may have a number of fund options with a range of fees which can give you the option to pick what’s best for you including something that may have a lower fee. Unfortunately, a lot depends on what choices are available in the plan itself. If you are having trouble making selections or understanding the plan, talk to whomever administers the plan in your office. Some plans have a financial advisor available that can help explain things to you. And, if you leave that job, make sure you look at your options carefully for what to do with your 401(k).
Cashing Out a 401(k)
Which brings us to the last item on today’s list: cashing out a 401(k). Be careful! You will have several options when you leave a job and it may be tempting to just take the cash and run with it, but there are consequences. If you are under 59 ½ and cash out the money, you will have to pay federal (and possibly state) taxes on that money as well as a 10% penalty. Bye, bye money. You could also lose out on potential, tax-advantaged, growth for the long term. Money saved for retirement should be saved for the long term – not the payment of debt. Remember, all qualified retirement accounts sourced with your own money are fully protected under the law
Don’t sabotage your own future by making a simple mistake today. Avoid burdening yourself with too much student debt, check your credit score, understand investment fees and don’t cash out your retirement plan.