If you’re like most Americans, you are probably regretting some of your financial decisions.
But first, the good news: Making money mistakes is not the end of one’s journey to financial freedom, Emmanuel K. Eliason, president and CEO of Eliason Wealth Management based in Centennial, Colo., told MarketWatch. It’s more like a detour to the final destination, he said.
In fact, financial advisers said that having regrets — or making mistakes — is normal. “This is what life is,” said Erika Safran, financial planner and founder of Safran Wealth Advisors based in New York City. “Just because it didn’t work out, doesn’t mean it wasn’t worth pursuing.”
Now for the bad news: Nearly 75% of Americans say they have some sort of financial regrets, according to a survey released Wednesday from Bankrate. Only one in five Americans said they didn’t have any financial regret at all.
“Nearly 75% of Americans say they have at least one financial regret.”
Of those asked by Bankrate, 21% said not starting to save for retirement early enough is their top financial regret. That was followed by taking on too much credit-card debt (15%); not saving enough for emergency expenses (14%); taking on too much student-loan debt (5%); and not saving enough for their children’s education (3%). A significant number of respondents — 18% — said they didn’t know what their biggest financial regret was, or that it was something else not listed above.
“Despite rising debt levels and higher interest rates, regrets over lack of savings continue to outpace regrets related to debt,” Bankrate chief financial analyst Greg McBride said in a statement. The power of compounding interest rates has the potential to “magnify regrets” about foregone savings over time, he added.
Here are three of people’s biggest financial regrets, as identified by financial advisers.
1. Not saving early enough for retirement
Most financial advisers said their clients’ most common regret is not starting to save for retirement early enough. “I tell them that it is never too late, but they must start now,” said Angela Dorsey, founder and financial planner of Dorsey Wealth Management based in Torrance, Calif.
For many, the reason may be not knowing when or how to start saving for retirement — especially for those not making a lot of money to start with, said Josh St. Laurent, founder and CEO of Wealth In Yourself based in South Lake Tahoe, Calif. The stigma surrounding financial literacy education or lack thereof is powerful, he added.
For those who just entered the workforce, Dorsey stresses the importance of “saving even just a small amount” in a 401(k) from each paycheck. If the annual return is at 6.5%, every dollar put in a 401(k) in your 20s becomes $17 by the time the person retires, McBride said.
The “I should have saved more” excuse is “a catch-all to cover several ill-advised, regrettable decisions,” said Jim White, a financial adviser at Great Oak Wealth Management, which has offices in Pennsylvania.
And people withdrawing from a 401(k) before reaching the age of 59½ are “savings killers,” he added. Pulling money out early can incur a 10% penalty fee. So keep that in mind before deciding to pull from your 401(k) to purchase your dream home, White added.
2. Making black-and-white money decisions
People are most likely to make mistakes when they make “binary” or black-and-white decisions about money — that they want to go all-in or all-out, said Scott A. Bishop, partner and managing director at Presidio Wealth Partners in Houston. This is especially true when it comes to buying and selling stocks, he said. When people try to time the stock market, they often have FOMO (fear of missing out).
Instead of going all-in for a specific investment and selling everything, take another look at your allocation and rebalance the portfolio for less risk, he said.
“In my experience when someone goes ‘all to cash’, they get out late,” Bishop said. And the end result? “They sell low and buy high, exactly the opposite of what you want to make money in the markets.
3. Signing a loan on behalf of a friend
Of course, financial advisers make mistakes too. Not doing proper due diligence before signing a rental lease on behalf of a friend is one of the biggest financial regrets of Eliason, the Colorado-based financial planner, said. He did just that, but did not do enough research into his friend’s financial behavior. The “friend” eventually disappeared in the middle of the lease, and Eliason was left to pick up the tab.
People should be extra mindful about signing a loan — whether it’s a student loan or a personal loan — on behalf of friends or loved ones, Eliason said. Before taking the risk, consider the worst-case scenario and, if that happened, how that would impact your finances.
Questions Eliason recommends asking before cosigning a loan: What’s your employment history? What’s your credit score? Do you have any other outstanding loans?
In the end, taking a little time before making a big decision could be the difference between having big financial regrets — or not. “I should have been more vigilant and done a proper check instead of simply leading with my heart and emotion out of misplaced compassion without financial wisdom,” Eliason said.
Emotion and finance, after all, too often go hand-in-hand.
What’s a financial mistake you’ve made or regret you had in the past? We’d like to hear from you. Tell us at readerstories@marketwatch.com and a reporter might get in touch.
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‘She’s currently waiting tables on nights and weekends’: My sister asked me to cosign her $11,000 student loan. Do I say yes?
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