We’ve talked about money mistakes here on our blog many times in the past but they’re so important that they bear repeating. The fact is, if you’re not keen on throwing your money away, the mistakes below should definitely be avoided. Enjoy.
The first is to delay saving money. Let’s take a look at a great example. Let’s say that you work for 40 years (which is about average) and you save $250 a month and get a 5% pretax annual return. Let’s also say that you lose 25% year to income taxes. At the end of those 40 years you will have approximately $280,000 to spend during retirement. If you start saving 10 years later and only have 30 years however, you’ll only put aside about $170,000 or approximately 40% less.
One of the best ways to put aside money is with an IRA. What does IRA stand for? Simple, individual retirement account, and it can save you a boat load in taxes if you use them wisely and effectively.
Speaking of your employer, many people leave all sorts of money on the table because they don’t bother to get the 401(k) their employer is offering and, even worse, don’t take advantage of employer matching contributions. If you saved the same $250 a month as our first example and collected the matching savings from your employer, at retirement you’d have over $500,000 even after paying taxes.
Getting away from retirement accounts for a minute, many people make the mistake of carrying a credit card balance and paying the interest on it every month for years. In the second quarter of 2014 the average consumer credit card debt totaled almost $5300. If a person left their balance at that level for 40 years and incurred the approximately 20% in total annual interest costs, they would spend (i.e. lose) an extra $42,000 approximately.
Another big mistake that many people make is getting a new car every three years. Let’s take a look at the numbers, shall we. If you purchased a $30,000 car and, after three years, got back 56% of its cost, you would have to spend another $13,200 to buy another $30,000 new car. On the other hand, if you kept that same car for six years and got back 34% of its value, while you would need to come up with approximately $19,800 to purchase your next $30,000 new car, you’d actually spend $6600 less. Over 40 years that’s a savings of almost $50,000.
Finally, many people make the mistake of pouring thousands of dollars into remodeling their home. Remodeling magazine recently conducted a survey and found that the average major kitchen remodeling cost just under $55,000 but only adds about $41,000 to the resale value of the average home. Their survey also found out that many other home improvement projects lost money rather than gained it. Even worse is that if you don’t sell your house right away, those new renovations will begin to look old as well and the likelihood of being able to recoup your costs will go even lower.