Biggest Financial Troubles, Triumphs

April 23, 2014
Laura Joszt

Along the road to financial security, individuals will make poor decisions-the catch is to learn from those failures and create bigger successes down the line.

Building a financial plan specific to an individual is a road of (hopefully) little failures until success. Everybody makes poor financial decisions; the important part is how well they recover and learn from those mistakes, though.

A recent survey of 1,000 Americans by Money magazine revealed our money highs and lows, including dumbest money moves, biggest financial successes, and what people would do if they won the lottery.

Dumbest money moves

The top answer for biggest money mistake was getting into debt (28%), followed by started saving for retirement too late (13%). However, amazingly, 16% of respondents wouldn’t own up to any financial mistakes.

However, the good news is that people aren’t looking to make the same mistakes over again. If they won the lottery, 22% would put a large amount of the money they won into retirement savings. Only 5% would succumb to temptation and use their lottery money to splurge on a big purchase.

Debt

While 38% would look to pay off debt, they might not be differentiating between good and bad debt: 20% of respondents would pay off their mortgage (good debt) and slightly fewer (18%) would pay off credit card debt (bad debt). Mortgages are considered good debt because they usually have lower interest rates and the debt is deductible. However, credit card debt often has high interest rates and the debt is not deductible.

Just be careful how you pay off that debt. The last thing you want to do is take money from savings accounts allocated for other uses, especially if that money is for retirement. Withdrawing funds is the easy part, getting around to replacing the money is a little more difficult.

If you do use the money from a retirement account to pay off debt, then Investopedia recommends continuing to live like you still have a debt to pay, this time to your retirement fund.

Least concerning

While everyone has financial concerns, there are some that don’t seem to matter as much. More than a third (36%) admitted a decline in the value of their house was one of the least pressing financial concerns, which makes sense. The housing market has been on a tear lately, and real estate has once again become what Americans think of as a good long-term investment.

With the stock market on a 5-year bull run, it’s understandable that losing money in the financial markets is even less of a concern (39%). However, maybe that should be the case. The markets, many experts believe, are due for a downturn since this bull market has already lasted longer than the average.

The typical investor hasn’t always made the best decisions when it comes to the markets, though. Usually, mom-and-pop investors don’t re-enter the stock market until the end of a bull market, and a recent survey from Bankrate found that 76% of Americans are not more inclined to invest in stocks despite record highs in the market and returns exceeding 30% in 2013.

Surprisingly, respondents also said that the ability to pay for their children’s college education was among the least concerning financial issues (22%). Perhaps, graduating with crippling student loan debt is simply something future generations will just have to get used to.

Though dipping in to savings and retirement funds to help children pay for tuition may be tempting, it’s a bad decision. College graduates will have years to pay off that debt (and some might be eligible for loan forgiveness programs), whereas parents will have less time to catch back up on retirement savings and will have lost out on valuable compounding interest after withdrawing money.

Biggest financial successes

There’s nothing wrong with blowing your own horn when you’ve done something right, particularly when it’s as difficult as making good financial decisions. Of the top three greatest financial successes, the answers were surprisingly modest, though.

Nearly a quarter (24%) said “living within my means” was the biggest financial success, followed by living debt free (15%), and having a well-paying job (12%).

While having a well-paying job certainly helps people attain financial security and freedom, the other 2 top answers are really the more important ones. Once you become debt free, you can pay yourself instead of someone else, which will really open up options. Unhappy physicians might be able to leave their hospital job for a solo practice or forgo practicing to teach, or anything else their hearts desire. That’s the beauty of having financial independence.

And people cannot underestimate the importance of living within their means. The truly wealthy spend less than they earn and save the rest, while the wannabes spend without discretion on flashy items to make themselves look richer than they are. Reigning in spending and living within your means is an important step toward becoming truly rich.

What is wealth, really?

Although smart financial decisions and good habits are the best ways to becoming rich, respondents claimed the biggest obstacle in the way of their financial security was that they didn’t earn enough money (31%).

Others were a little wiser and recognized the problem lay within: 16% said having too much debt and 12% said having too many current expenses were the biggest barriers to gaining financial security.

While close to a third (31%) of respondents would be content with less than $500,000 in savings and investments, a quarter of respondents said they would only consider themselves rich if they had between $1 million and $1.99 million. Furthermore, 11% had their sights set much higher and said they would need $5 million.