Last week, we discussed the advice Business Insider offers in “8 money mistakes the middle class keeps making” and noted that people at all economic levels could use these suggestions to avoid financial planning errors. Still, the middle class is certainly feeling the crunch because wages haven’t really increased in decades, while the cost of rent or mortgages and healthcare seem to keep rising. We are paying higher percentages of our incomes for necessities and that is before we start trying to treat ourselves. Better financial planning includes not:
Having a 401(k) as your only retirement option. We’ve mentioned before that you cannot entirely rely on a 401(k) as a retirement planning strategy. Such plans are very convenient because you can often have your retirement contributions taken directly from your paycheck. You can get lulled into a false sense of security and feel as if your retirement is all set but you may not consider the taxes you will need to pay on a tax-advantaged account such as a 401(k). A Fee-Only financial advisor can help you figure out other ways to fund your retirement in addition to making contributions to your 401(k).
Spending your raises. If you have heard any of the statistics about how much of our pre-retirement income to spend your golden years comfortably, you know that you’ll need at least 70% (or preferably more) of what you earn now. Business Insider says “not giving your retirement a raise when you get one” is a mistake. If you start to make more money, there is a temptation to just spend the additional money. Rather than spend it, you can put some or all of that money toward your retirement or use it to bolster your emergency fund. For example, “If you save $500 per month and get a 4% raise, for example, you should boost your retirement contributions proportionately.” This is great advice; not only should you save, you should strategically save more when you earn more.