One For The Money

In this episode, I’ll share the top 3 financial regrets of Americans and how to counteract them. No one manages their finances perfectly so we all have regrets, but it’s important to be aware of what the most common ones are so we can take actions to avoid them.

In this episode...

• Emergency Funds [03:15]
• Investing for Growth [08:02]
• Buying a Home [9:57]
• Unconventional emergency fund options [14:25]

Now no one is perfect when it comes to financial decisions. Like everyone else, I’ve certainly made my fair share of financial mistakes which I chronicled in a few different episodes of this podcast. In episode 18 I shared about a time when I sold a stock for a 50% loss because I succumbed to fear during the Great Recession only to see that stock since that time, rocket over 11,000% higher. You heard that right, I missed out on an 11,000% return. In episode 43, I shared the financial mistakes I made as a young adult and what I wished I had known about money sooner. Having financial regrets is a normal part of learning and growing, but it’s important to be aware of the biggest regrets so we can take actions preemptively to avoid them.

So just what are the most common regrets of Americans so we can avoid them. These insights are courtesy of the personal finance software company Quicken, which surveyed about 1,000 Americans and found that a whopping 80% said they have financial regrets. 

The top three regrets were not having a big enough emergency fund (mentioned by 28% of respondents), not investing aggressively enough (25%) and not buying a house when they were younger (22%). A few of the other regrets mentioned were lending money to a friend and family member and not investing in stocks. 

Emergency Fund

As a Certified Financial Planner™, financially speaking I know that few things can provide the peace and security that an emergency fund can provide. An emergency fund is way more than for just emergencies, instead it’s financial insurance allowing you to have way more freedom in how you choose to live your life. For example, having an emergency fund allows you to quit a toxic workplace. I recommend having three months’ worth of expenses in savings if both spouses work and if you are single or only one spouse works, then you will need 4-6 months worth of expenses saved. Sadly, far too many Americans don’t have emergency savings as nearly 6 in 10 Americans could not come up with $1000 in the event of an emergency. Far too many think their credit card is their emergency fund.

How do we prevent this regret and ensure we have an emergency fund. The first step is to have a budget and ensure that you have extra money left over each month. The next step is to set aside these extra funds into an account that you don’t regularly access.

Not Investing For Growth

This had to be tied to the fact to some painful emotional memories. Maybe they succumbed to fear in the moment and sold stocks only to see the stock market soar higher. Here is why it’s so important to invest with a higher allocation to stocks. For nearly a century, stocks have provided returns of nearly three times that of inflation. As an asset class, they have been the greatest generator of effortless wealth in history. Since 1926 stocks returned between 8% – 10%  where as the bonds returned between 4% – 6%. The best way to counteract this fear of not investing aggressively enough, is to ignore the noise and stay invested. 

Buying A Home 

The third biggest regret for American’s was not buying a home when they were younger. This one seems a bit unfair as there can be a lot outside of ones control when it comes to purchasing a home. Prices shot up by 40% in the two years of Covid and inventory is at historic lows leaving too many buyers and too few sellers so these higher prices aren’t decreasing. My recommendations to these clients have been as follows. First of all, be sure your house savings is in a high-yield savings account. There are online accounts paying over 4.5 and in some cases over 5%. You don’t want to lose out to the silent thief of inflation. The next recommendation is to confirm that they plan to live in their home for at least the next 10 years. Given the closing costs, realtor fees, and other expenses associated with the purchase of a home a general rule of thumb is that you should own the home for 10 years. My final recommendation is that they should feel proud that they have worked so hard to have so much saved and that as they exercise patience they will be rewarded when they find the right home for the right price. 

TIPS, TRICKS AND STRATEGIES

Welcome to the tips, tricks, and strategies portion of the podcast where I will share a tip regarding unconventional emergency fund options, these unconventional emergency fund options can help in a pinch.

401k loan - Many 401k plans have a loan provision that allows participants to take out 50% of their account balance or $50,000 - whichever is less. You will need to pay back the loan over time with interest

IRA - Indirect Rollover 60-day rule - Most rollovers happen as direct transfers that go from one retirement account directly to the other. There are also indirect transfers where the individual owner of the retirement account takes the money out of an IRA that they can personally reinvest into another IRA, or they can reinvest back into the same IRA without any taxes or penalties if done within 60 days.

Roth 401k/IRA Contributions - A Roth is a retirement account to which you contribute after-tax funds. What many people don’t realize is that because you have already paid taxes on these contributions, the IRS allows you to withdraw the contributed sums (not the gains) at any time without taxes or penalties.

References

80% of Americans Say They Have Financial Regrets - Here are the Most Common Ones

How to Use Your Roth IRA as an Emergency Fund

A $1,000 Emergency would push many Americans into debt

About Half of Lower-Income Americans Report Household Job or Wage Loss Due to COVID-19

UPS to Offer Employees a Way to Save for Emergencies

• https://BetterPlanningBetterLife.com 
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