If you want to be financially successful and enjoy your retirement, there are a few common financial mistakes that you’ll want to avoid.
Not Creating a Budget
Creating a budget should be the first step towards taking control of your finances. Saving for retirement takes planning, setting a target amount of money that you want to save every month, and then sticking to that target. You may go a little over budget every now and then, but if you don’t have a plan or an idea of how much money is coming in and going out every month then you won’t be able to plan successfully for retirement.
Not Keeping Track of Everyday Purchases
That coffee at Starbucks, the sandwich you buy at lunch, all of those little things add up. Before you know it, you’ve spent a few hundred bucks and broken your budget. Over the course of a year you could easily rack up thousands of dollars just by making trivial purchases. Is that really worth it?
Buying Too Much House
It’s tempting to keep up with the Joneses, but can you really afford that big house? The larger the house, the more expensive the mortgage will be, the more it will cost to heat and cool, and the higher the property taxes will be. Then think about the costs of furnishing each room, not to mention the time, effort, and cost to keep everything clean and well-maintained. You may think you need it now, but will you still need all that space when you retire? Downsizing takes time and effort too, effort you can save by buying a house that only as large as you need it to be.
Not Refinancing When Interest Rates Are Low
Interest rates will fluctuate up and down over the term of your mortgage. If you can lock in a lower interest rate by refinancing when interest rates drop, you could save yourself tens of thousands of dollars over the duration of your mortgage. When the opportunity comes around, it really pays to refinance.
Buying a New Car
A new car starts losing value the minute you drive it off the lot. It’s not an investment, it’s a depreciable asset. And if you’re financing that car rather than paying cash, you’re losing out double because of the interest costs you’ll have to pay. Drive that car for a few years and you won’t be able to get anywhere close to what you paid for it if you try to sell, and that’s just money wasted. You’re better off buying a used car in decent condition and driving it as long as you can. Even with maintenance, a used car will end up costing you less per year than buying new.
Not Saving as Much as You Can
Nobody ever complained about having too much money, but a lot of people wish they had more money, especially when they’re retired. Be as frugal as you need to be to save the amount of money you need for retirement. Take advantage of matching 401(k) contributions and other financial incentives your employer offers. The more money you have when you retire, the more comfortably you’ll be able to live.
Borrowing From Your Retirement Accounts
Not only will you pay penalties and take a tax hit when you borrow money from your retirement accounts, you’re also cheating your future (retired) self. Missing out on the benefits of compounded interest even for short periods of time during your working years can end up costing you thousands of dollars by the time you retire.
Investing in Risky Assets Too Close to Retirement
The older you get and the closer you are to retirement, the safer your assets should be. Stocks and bonds are highly volatile and prone to bubbles. If your portfolio is too aggressive, you could see your retirement savings wiped out when that bubble bursts. Precious metals should form at least a portion of your retirement portfolio, as gold and silver maintain their value over time better than other assets. Investing in precious metals, such as through a gold or silver IRA, will guarantee that your retirement assets are still there when you need them most.