It takes most people a lifetime to build significant wealth, but a few mistakes can completely derail your progress. Usually, it's not just a single bad decision or a few bad calls that hurt; instead, it's often a pattern of mistakes or mismanagement that, together, can seriously harm your financial prospects. Here are a few of the most common pitfalls that you definitely want to avoid:
Not saving at least 10% of your income (15% would be better)
Too many Americans face the specter of running out of money in retirement. While uncertain markets present challenges, the biggest mistake most people make is failing to save enough while they're working. When is the last time you increased your salary deferral into your workplace retirement plan? If you've never reviewed it, it could be set as low as 3% or even 5%. If your workplace plan offers it, consider auto-escalating your contributions each year so that you don't even have to think about it. If you're not putting at least 10% of your income toward short-term savings (like an emergency fund) and retirement, you could come up short later in life.
Letting other priorities derail retirement savings
Most people have many competing financial priorities. Whether you're contributing to college expenses, supporting adult children at home, prioritizing current spending, or servicing debt, it can be hard to save for retirement. However, as you get closer to retirement, it becomes ever more critical to make sure that your nest egg is on track. We often tell our clients, "there's no financial aid for retirement," because we want to emphasize the importance of putting their own long-term financial success first.
Not knowing where your money is going
People who have trouble controlling debt or prioritizing savings usually don't have a budget. Setting a monthly (or even weekly) budget and tracking your spending allows you to understand exactly where your money goes. It's very common for otherwise-savvy savers to underestimate the amount of money that goes unaccounted for each month. Even small leaks like impulse purchases or excess financial fees can add up to a flood of lost money.