Financial regrets. We've all had a few. But there's a big difference between making an impulse purchase that you second-guess the morning after and making a major decision about your money that could haunt you for a lifetime.
We reached out to dozens of financial planners and personal-finance experts for their views on some of the most consequential mistakes people can make with their money. We also offer advice on fixing these mistakes -- or avoiding them altogether -- so you're not left ruing the day when you blew your budget, wiped out your savings or otherwise sabotaged your financial future. Take a look.
1. Borrowing from your 401(k)
Taking a loan from your 401(k) can be tempting. After all, it's your money. As long as your plan sponsor permits borrowing, you'll usually have five years to pay it back with interest.
But short of an emergency, tapping your 401(k) is a bad idea for many reasons. According to
Keep in mind, too, that you'll be paying the interest on that 401(k) loan with after-tax dollars -- then paying taxes on those funds again when retirement rolls around. And if you leave your job, the loan usually must be paid back within 60 days. Otherwise, it's considered a distribution and taxed as income.
Before borrowing from a 401(k), explore other loan options. College tuition, for instance, can be covered with student loans and PLUS loans for parents. Major home repairs can be financed with a home-equity line of credit.
2. Claiming Social Security early
You're entitled to start taking benefits at 62, but you probably shouldn't. Most financial planners recommend waiting at least until your full retirement age - currently 66 and gradually rising to 67 for those born after 1959 - before tapping
Let's say your full retirement age, the point at which you would receive 100% of your benefit amount, is 66. If you claim at 62, your monthly check will be reduced by 25% for the rest of your life. But hold off until age 70 and you'll get a 32% boost in benefits - 8% a year for four years - thanks to delayed retirement credits. (Claiming strategies can differ for couples, widows and divorced spouses.)
"If you can live off your portfolio for a few years to delay claiming, do so," says
3. Paying the minimum on credit cards
Americans' plastic addiction is taking a toll on their bottom lines. The average household with debt owes
"It can take years and years and years to potentially pay off that credit card debt with the amount of mounting interest costs," says
Consider this example: You have a
What to do? First, stop making new charges. Second, if possible transfer the balance to a lower-rate card. Third, pay more than the minimum. Even a small boost to your monthly payment can result in significant savings on interest. Above all, advises Baker: Live within your means. (Kiplinger's Household Budget Worksheet can help you get back on track.)
See Also: 10 Reasons You Will Never Get Out of Debt
4. Putting off saving for retirement
Financial professionals have heard the refrain before: "I'll start saving for retirement when I make more money." But that fiddling while
"Many people do not start to aggressively save for retirement until they reach their 40 or 50s,'' says Ajay Kaisth, a certified financial planner with
Uncle Sam offers incentives to procrastinators. Once you turn 50, you can start making catch-up contributions to your retirement accounts. In 2016, that means older savers can contribute an extra
5. Bankrolling your kids
Sure, you want your children to have the best -- best education, best wedding, best everything. And if you can afford it, by all means open your wallet. But footing the bill for private tuition and lavish nuptials at the expense of your own retirement savings could come back to haunt all of you.
"You cannot borrow for your retirement living,'' says
No one plans to go broke in retirement, but it can happen for many reasons. One of the biggest reasons, of course, is not saving enough to begin with. If you're not prudent now, you might end up being the one moving into your kid's basement later.
6. Passing up professional advice when you need it
We all can use a hand once in a while, especially when it comes to tricky aspects of our financial lives. For example, some of the financial professionals we talked to pointed to the panic brought about by the sharp economic downturn in 2008 and 2009. Many individuals poorly timed when to get out of the stock market and when to get back in.
"Investors who aren't very experienced tend to buy high and sell low, when you're supposed to buy low and sell high in the stock market," says
Advice isn't limited to investments. The right financial pros can assist with everything from taxes and insurance to retirement savings and estate planning. And good advice can pay off for you and your loved ones. Common but avoidable mistakes such as dying without a valid will or failing to designate the correct beneficiaries for your retirement accounts could leave your heirs in limbo and even see your wealth go to the wrong people.
"Not carefully choosing your financial adviser can be a huge mistake," says
7. Avoiding the stock market
Shying away from stocks because they seem too risky is one of the biggest mistakes investors make. True, the market has plenty of ups and downs, but since 1926 stocks have returned an average of about 10% a year. Bonds, CDs, bank accounts and mattresses don't come close.
"Conventional wisdom may indicate the stock market is 'risky' and therefore should be avoided if your goal is to keep your money safe," says
While there are no guarantees when it comes to stocks, you can lessen the likelihood of taking a big hit. Diversification is the key. Keep your money in a mix of large, small, domestic and foreign stocks. We favor low-cost mutual funds and exchange-traded funds because they offer an affordable way to own a piece of hundreds or even thousands of companies without having to buy individual stocks. If you aren't comfortable picking your own funds, hire a financial adviser to help.
And don't even think about retiring your stock portfolio once you reach retirement age, says Sweeney, of
8. Quitting school
Rarely is the student who skips school going to soar in life, financial planners and experts warn. Sure, you'll dodge the albatross of student loans by not going to college, but the short-term savings could eventually be offset by smaller paychecks and missed promotions.
"All the income studies have shown that college graduates earn two to three times more [on average] than high school graduates," says Shenoy, of the
Based on
Remember that what you study can have a big influence on your prospects. Some of the best college majors for your career in terms of future pay and employment opportunities are in the areas of health care, technology and finance. Conversely, majoring in, say, fine arts or design tends to have the poorest financial payoff.
9. Buying into a time-share
It's easy to see why people fall for time-shares. Happy vacationers revel in the thought of visiting a favorite spot year after year. Get bored? Simply swap for slots at other destinations within the time-share network. Great deal, right? Not always.
Buyers who don't grasp the full financial implications of a time-share can quickly come to regret the purchase. In addition to thousands paid upfront, maintenance fees average upward of
And good luck if you develop buyer's remorse. The real estate market is flush with used time-shares, which means you probably won't get the price you want for yours - if you can sell it at all, says
Experts advise owners first to contact their time-share management company about resale options. If that leads nowhere, list your time-share for sale or rent on established websites such as www.redweek.com and www.tug2.net. Alternatively, hire a reputable broker.
for the tax write-off.
10. Falling for too-good-to-be-true offers
We all like to pretend we're too savvy to become victims of such offers. Yet, in 2015 Americans lost
The
What do you do if you suspect a scam? The FTC advises running the company or product name, along with "review," "complaint" or "scam," through
Bob Niedt is an editor at Kiplinger.