The Five Biggest Financial Regrets (And How To Avoid Them)
We all occasionally suffer from regret — but recent studies show that when it comes to finance, the majority of America is dealing with some pretty heavy remorse.
A recent study by BankRate found that only 20% of Americans were able to avoid financial regrets. This isn’t surprising — I’ve spent over a decade as a financial advisor, and countless individuals have come to me with financial regrets, wishing they had focused on their financial health a little earlier.
There is a silver lining to this gray cloud, however; the source of regret for the remaining 80% of America is avoidable. I can also attest that most of these regrets are fixable if you’re already suffering.
Not Saving For Retirement Early Enough
The biggest financial regret plaguing America is not saving for retirement early. The BankRate study showed that this was the top financial regret for 22% of Americans.
Unfortunately, most people prioritize this later in life, when they having higher earnings and are more stable. While that might appear to be the smart move, these Americans are ignoring the time value of investing. When you invest early, your wealth has decades to grow, so far smaller amounts of capital are needed for your nest egg.
If you’re already suffering from this regret, it’s not too late to use tax-advantaged investments to catch up. Investments like a 401(k) or Roth IRA allow your wealth to grow tax-free. If you’re over age 50, the IRS allows you to contribute even more money to these investments annually in order to bridge the gap.
Not Enough Savings
The biggest regret for 16% of Americans is not having enough in their savings accounts for emergencies, according to the survey. We all like to think that emergencies will only happen to someone else until they arrive at our front doors with a hefty bill. It’s no small wonder that most Americans are left blindsided when slip-ups inevitably happen.
That’s why an emergency fund is so vital. The last thing you want to do is bury yourself financially over something as inconsequential as a leaky roof or flat tire. I recommend you aim for six to eight months’ worth of living expenses, but every dollar put away is useful.
Excessive Credit Card Debt
The average American who has credit card debt carries a whopping $16,061 of it. Unsurprisingly, Bankrate’s study found that 9% of Americans regret credit card debt heavily.
With average credit card interest rates over 15%, even a small amount of debt can put a serious dent in your finances over time. To avoid this regret, I advise an all-cash diet if you’re tempted to overuse plastic. Take out your weekly budgeted amount in cash, and then leave your card at home. That way, you won’t hear the siren song of your card when you’re at the mall.
If you’re already in debt, you should prioritize paying it off above all else (including investing), because it will only snowball over time. Instead of burying your head in the sand, come up with a healthy budget that allows for about 20% of your pay to go toward abolishing debt. Then, aim to make every payment on time and try to start paying back more than the minimum.
Buying More House Than You Can Afford
Another one of the top regrets, according to the survey, was taking on an unaffordable mortgage/home purchase.
For this very reason, I’ll remind clients that there’s a big difference between what a mortgage loan officer says they can afford and what’s actually healthy for them to buy. (Remember the housing crisis?) You should also be aware that a house is an illiquid, concentrated investment, and there’s no guarantee that it will rise in value in the near future.
While it’s a fine goal to buy a home, you should evaluate it in light of your long-term goals and financial roadmap, rather than assuming you can afford it because you’re granted a loan.
Not Saving Enough For Children’s Education
Another top regret for 8% of Americans was not saving enough for their children’s education. Although college costs are continually rising, there’s a fairly easy solution: invest in a 529 plan when your child is a baby. These plans provide handsome tax advantages, and any money put in when your child is born will have nearly two decades to grow tax-free.
It’s also important to note that you shouldn’t sacrifice your financial health for this cost; it will only lead to bigger regrets down the line. I warn clients to not sacrifice their retirement savings for their kids’ college funds. There are numerous grants, loans and scholarships available for education costs. On the other hand, you’ll never be able to get a loan for retirement.
The bottom line: it’s never too late to get on the path to financial success — but it certainly isn’t a bad idea to avoid regrets beforehand.