Gen-Xers are making many of the same financial mistakes that the Baby Boomers before them made.
But the Baby Boomers have a couple of built-in advantages that give them more breathing room. For one, they are the chief beneficiaries of the windfall inheritance of the World War II generation.
For another, they got in line for the best available jobs years before the Gen-Xers even entered the labor force.
Since Gen-Xers lack the financial insulation of their predecessors, they’ll have to do a better job of avoiding making the financial mistakes that can sabotage a financial future.
Here’s a list of 21 of those mistakes – you can win by default just by avoiding a few of them.
1. Buying Too Much House
This is one of the less forgiving mistakes. If you buy more house than you can comfortably afford you not only lock yourself into a virtually permanent high monthly payment, but you also create a chain of expenses that will also be at the extreme range of affordability.
For example, a more expensive house means that real estate taxes, insurance, utilities, homeowners association fees and repair and maintenance will also be more expensive. In addition, a more expensive house can set in motion a pattern of a higher cost lifestyle as you are drawn into competition to meet the cost of living in a higher priced neighborhood and community.
Buying a house that’s well below what you can afford by contrast will give you the extra room in your budget to improve your finances.
2. Carrying Credit Card Balances
In a perfect world you would be paying off your entire credit card balance each month, and avoiding using credit as an extension of your paycheck. But once you get used to carrying a balance, it’s very difficult to break the pattern. Then you’re incurring interest costs every month, and likely spending more than you would if you were limited by the cash in your wallet or the size of your bank balance.
Worse still, once you carry a balance on one credit card, it’s all too easy to do it on a second…and a third – and so on.
3. Eating Out Too Often
Another financial vice borne of habit. Until a couple of decades ago, eating out at restaurants was mostly for special occasions; today nearly any excuse is good enough to eat out. The statistics confirm that more meals are being consumed outside the household today than ever before – nearly 50% according to the USDA (Table 10).
As convenient and enjoyable as eating out is, from a financial standpoint it’s a slow bleed. Money is going out in relatively small chunks, but it’s going out constantly.
4. Getting Your Financial Advice From the Popular Media
Jim Cramer and Suze Orman may be quite entertaining, but they’re not your personal financial advisor. They don’t know you, they don’t know your financial situation, your risk tolerance, or your financial goals. The advice they dole out is general advice, and may not be suitable or even relevant to your circumstances.
If you have an amount of financial resources large enough that you need financial advice then you’ll need to hire one to work directly with you. Failing that, you should at least get involved with a peer group where you can bounce ideas and scenarios.
5. Not Paying Off the Mortgage Early
It’s easy to get used to a house payment, not the least of which because mortgages typically last for decades. But that’s the point – you should have a goal to knock one or two of those decades off your loan term.
Once you do you will free up your budget to help fund mega goals, like retirement and your kid’s college education. Trying to deal with those goals while you still have a mortgage payment is a serious handicap.
6. Succumbing to Lifestyle Inflation
It’s too easy to spend a pay increase or bonus. That’s lifestyle inflation – using your increased income to expand your standard of living. And it’s virtually the default setting, especially among Gen-Xers.
Dare to be different.
Saving a pay increase or bonus is much harder, but that’s exactly what you need to do. Reaching financial independence is largely about growing your investments (and shrinking your debts) while keeping your cost of living constant.
7. An Addiction to Convenience
From a financial standpoint, convenience is about paying others to clean your house, cut your lawn, bathe your pets and even to cook your meals (restaurants). While it can be an advantage to free up your time so you can earn more money, that isn’t nearly the case in most instances.
Convenience is an addiction – you’ll choose it even when it’s not entirely necessary. And much like eating out too much, it’s another slow bleed.
8. Being Addicted to Auto Loans
If you get too comfortable with a car payment – and many Gen-Xers do – you’ll have one for the rest of your life. It also opens the door to replacing your car with a new one every four or five years. That might feel good, but it’s an expensive way to drive.
Plan on keeping your car for ten years – most cars built today will last at least that long. Then you’ll have a payment for the first five years, but get the benefit of being payment-free for the next five years. The money that you won’t spend on the car payment will work better in your emergency fund or retirement account anyway.
Speaking of which…
9. Not Having an Emergency Fund
A lot of Gen-Xers forgo having an emergency fund, thinking they can rely on credit cards, bonus checks, or the occasional early withdrawal from a retirement plan instead.
Having a dedicated emergency fund – enough to cover at least 30 days of living expenses – will not only eliminate the need to make the (bad) choices above, but it will also help to even out the ups and downs in your budget. When financial independence is the goal, creating consistency will be a big step in the right direction.
10. Not Moderating Their Kids College Ambitions
A lot of Gen-Xers are now in their 40s, the age when people typically have college bound kids. The same sky’s-the-limit approach you may have taken to college in the 1980s and 1990s is no longer relevant. A college education today can cost as much as buying a typical suburban home.
Families are dealing with that cost dilemma with debt – taken on either by the parents themselves, or by student loans that will financially cripple their kids.
Despite the conventional wisdom on college, you DO have choices when it comes to educating your children. Advise them to attend community college, to commute to school, and to attend an in-state public institution. All will help to keep the cost of their education more affordable.
11. Delaying the Start of Retirement Savings
It can be tempting to put off saving for retirement when you have other priorities. Buying a car, getting married, having children or buying a house can all seem like legitimate reasons not to save for retirement, but hesitating can be one of the most serious financial blunders you can make.
We could get into the very real implications of the time value of money, but even more basic is that one delay justifies the next, and before you know it you’ve lost a decade or more to accumulate a credible retirement portfolio. That will either make funding your retirement more difficult later, or it can result in an impaired retirement.
If you haven’t begun saving for retirement yet, today’s the best day to start.
12. Not Saving Enough for Retirement
Many Gen-Xers take an almost casual attitude toward retirement saving. After all, it’s a few decades away. Some will even concern themselves primarily with the tax deductible aspect of retirement savings, rather than on the actual outcome. Either type of thinking could result in a seriously under-funded retirement plan by the time retirement comes around – and by then it’s too late to fix it.
A good retirement calculator will help you determine if the amount you’re saving for retirement will be sufficient. And if it isn’t, you can and should remedy the situation as soon as you can.
13. Breaking the Bank to Go on Vacations
The annual summer vacation has become a perceived necessity in the 21st Century. It’s also often prohibitively expensive. A single vacation to Europe, the Caribbean or even Disney World, can cost many thousands of dollars – every year.
What else could you do with that kind of money? Payoff a credit card? Build an emergency fund? Increase retirement contributions? It’s amazing how much money you can free up by taking a major vacation every other year, or even every third year, instead of each and every year.
You’ll appreciate the self-denial in just a few years as your financial situation improves.
14. Spending Too Much Time at the Mall
The mall can be a great place to spend idle time. And to part with not so idle cash. If you buy most of your clothing and gifts at the mall you’re almost certainly spending more money than you need to. There are plenty of options that cost a lot less. Walmart and the other big boxes come quickly to mind. But there’s also Amazon.com and even thrift stores.
You don’t have to go cold turkey on the mall, but the less time you spend at the mall the more money you’ll save.
15. Putting Too Much Confidence in the Stock Market
A five year bull market can cause anyone to get complacent about the stock market. But it’s often when confidence is at its highest that you’ll be most vulnerable to a sudden set back. This can manifest itself by buying heavily in a mature market, when it might be more prudent to begin selling some positions.
Warren Buffett – one of the most successful investors of all time – has said, “Be fearful when others are greedy and greedy when others are fearful”. Simplified, this means that you should buy when others are selling, and sell when others are buying. Not easy, but absolutely required if Buffett-like investment returns interest you.
It’s not possible to time the market, but it is possible to observe behavior and attitudes and to adjust your investing tactics accordingly.
16. Having Their Kids in Too Many Activities
Many parents today over-book their kids in extra-curricular activities. While that may be well-intentioned, it can also be a financial black hole. It’s not just the cost of the activities themselves – no small expense by themselves – but it also results in a life on the go, and that means more money being spent.
If you have two children, and you have each involved in two or three extracurricular activities at a time, all the time, you’ll likely be eating out more often (no time to cook) and have higher car expenses (gas and wear-and-tear). And if your kids are too heavily involved, their schoolwork could suffer, and that will add a tutor or two to the mix.
That’s a not-so-slow financial bleed, and one that you can easily control.
17. Spoiling Their Children
We all want to give our children the best, but there’s a fine line between that and spoiling them. Not only is spoiling children an expensive habit – one that only gets progressively more so as they get older and the “toys” cost ever more money – but it also breeds dependent kids. In itself this can be a disservice to your children, but one that can also lead to extended adolescence, an even more expensive extravagance.
It’s OK to say “no” every now and again. It makes for better finances and that can leave you with more money to help them when they are adults and the stakes are even higher.
18. Spending Too Much Money Keeping Up Appearances
You’ve heard the term, “you’ve got to fake it until you can make it.” Sometimes that’s a necessary strategy, but it’s more likely that you’ll get carried away with it. It can become a habit to spend money trying to keep up with others in your community or social circle, and that’s when it gets expensive.
The problem with keeping up appearances is that it’s a perceived need driven by external factors. Even if you do it, and you become quite good at it, it might not ever make you happy, or fill any useful need.
Conformity is a cruel master – and an expensive one. Do what’s right for you, and don’t worry what others think about you. You’ll reach your financial goals faster if you can let go of that burden.
19. “Investing” in Nothing But the Best
It can be easy to convince yourself that you’re somehow investing when you buy the best toys, but usually it’s just a waste of money. If you do this with all or even most of your purchases you’ll be dooming yourself to paying too much for everything you buy.
It’s OK and even necessary to “break the bank” on certain purchases – a top of the line laptop for work comes to mind. But if you feel you need the best clothes, the best wide screen TV, the best sound system and the best car, you’re mostly participating in one of the worst kinds of addictions.
As a rule, money “looks” better sitting in a CD or a mutual fund than it does filling a room in your house, or sitting in your driveway.
20. Spending Too Much Time Being Entertained
Entertainment is a certified stealth expense. Money is spent casually having a good time and you hardly know that it’s happening. That seems harmless, and if done in moderation it actually is. But if you need to be entertained on a 24/7 basis, it’s just another form of addiction.
300 channels of cable TV, a 65 inch flat screen TV, and a high-priced club membership can put gold-plating on your entertainment. It’s important to realize that entertainment is mostly just a way to deal with boredom, and there are a lot of ways you can do that without spending a lot of money.
Spend more time with family and friends, getting your body healthy, researching business ideas, helping a neighbor in need or volunteering for your favorite charity. With all that going on, you’ll come to see high priced entertainment as the extravagance it usually is.
21. Not Starting Their Own Business
One of the fundamental lessons Gen-Xers have been taught throughout their lives has been risk avoidance – there are even computer models that can allegedly reduce or eliminate risk completely. Time will tell if that’s actually true or if we’re being sold a bill of goods.
Previous generations usually understood that taking some forms of risk are just a part of life. But Gen-Xers have been conditioned to avoid it like the plague. Self-employment is an excellent example of this; it’s been trending downward for at least the past 20 years as Gen-Xers began entering the workforce and opting for the perceived safety of employment with corporations or government.
But sometimes not taking risks is the biggest risk of all.
Career obsolescence is a fact of our time, as jobs and entire career classifications are disappearing for good. Self-employment can be the best solution to this dilemma, and if you’re over 40 it may be the only solution.
Not everyone is cut out to have their own business, but if you have a good idea you should give it a try. It probably won’t hurt to start it as a side hustle and see where it goes.
No one will be able to avoid all 21 of these mistakes. But if you can get control over just a few of them, you’ll find yourself reaching financial independence a lot quicker than you ever imagined.
This post originally appeared on DailyFinance.com
Source Good Financial Cents http://ift.tt/1PIKJzn
ليست هناك تعليقات:
إرسال تعليق