Are These 5 Bad Financial Habits Sabotaging Your Retirement Savings?

It’s no secret that many Americans struggle to save for retirement.

The hard truth is that this is often due to bad financial habits.

Consider the fact that Americans’ credit card balances have gone up 40% over the last 2 years with overall card balances totaling $1.08 trillion.¹

Now, some of this debt is understandable, given inflation and all the other craziness Americans have faced over the past few years.

But it’s hurting them when it comes to saving.

A 2023 Bankrate study found, “Nearly half (49 percent) of U.S. adults have less savings (39 percent) or no savings (10 percent) compared to a year ago.”²

In the previous 2022 Bankrate study, they found, “Some 56% of Americans are unable to cover an unexpected $1,000 bill with savings.”³

Emergencies happen. And they can be costly.

Recently, a friend had to take her daughter to the ER for a kidney infection and dehydration. The surprise emergency room visit ended up costing $4,000, and she had to pay $1,000 after insurance. 

If you don’t have money set aside for emergencies, it is likely you will end up in debt as a result.

Americans are also struggling to save for retirement.

A Bankrate study found, “In September 2022, 55% of American workers said they felt behind and 35% felt ‘significantly behind.’ Around one-quarter of workers haven’t made retirement contributions in at least a year. 22% of American workers said they weren’t making retirement contributions in 2023 or 2022.”⁴

Saving for the future is just as important as saving for emergencies.

The good news is that it is possible to change bad financial habits and save more.

The first step is being honest: Are these 5 bad financial habits sabotaging your financial future? 

#1 Lifestyle Creep

One of the easiest bad financial habits to fall into is lifestyle creep.

As the name implies, it creeps up slowly so that you aren’t aware you’re doing it.

Essentially, lifestyle creep refers to boosting your lifestyle as you earn more.

You start earning more, and you feel a little more comfortable spending more.

The house gets bigger, the car more luxurious, the vacations more expensive, the closets get fuller, and so on.

Not only are you losing out on potential savings by spending more, but you are also setting yourself up for a retirement lifestyle you may not be able to afford. 

Instead of falling into this bad financial habit, make a point of saving this extra income rather than spending it.

This way, you will continue to live the same today (within your means) while also saving for a nice retirement.

#2 Mindless Spending

The second on our list of bad financial habits is mindless spending.

Someone once confessed to me that she spent every Saturday going to T.J. Maxx just for the fun of it.

There wasn’t anything she needed or wanted. She just enjoyed shopping.

The problem is that she spent mindlessly. If she saw it and liked it, she bought it. There was no thinking about her financial future or where the item would go in her house.

Even if she could afford this accumulation of “stuff,” imagine how much more money she would have in her emergency fund or her 401(k) if she’d chosen to save the money instead.

Think before you buy. 

#3 Not Saving Early Enough

Ask retirees what they wish they’d done differently, and “more than 20 percent of U.S. adults [will say] not saving for retirement early enough was their biggest financial regret.”⁵

Unfortunately, many Americans (especially Gen Z) are not taking heed of this advice. 

A 2023 NerdWallet study found, “11% of Americans haven’t started saving for retirement; more than a quarter of Generation Z (27%) — ages 18-26 — say this.”⁶

At the same time, many worry that they will not have enough money to retire.

A study by Allianz Life also found that “Nearly three in four (72%) [Gen-Xers] worry that if they don’t increase their retirement savings soon, it will be too late to have a comfortable retirement.”⁷

A Northwestern Mutual Study found, “More than four in ten (43%) people say they do not expect to be financially ready for retirement when the time comes. […] Meanwhile, one-third (33%) of Americans expect to live to 100, with an equal third (33%) predicting there is a better than 50% chance they may outlive their savings. At the same time, more than one in three (36%) report that they have not proactively taken any steps to address this concern.”⁸

Think of it this way: The earlier you start saving, the longer your money has to grow over the years. 

Compound growth makes a substantial difference over time.

#4 Carrying Too Much High-Interest Debt

As of 2023, 56 million cardholders have been in debt for at least a year and carry debt from month to month.⁹

Keep in mind that carrying debt from month to month is more likely now that the average credit card rate is more than 20% (highest percentage ever). And the average credit card balance is $6,088.¹⁰

Let’s say that this is your credit card balance. If you have a 20.74% interest rate and make minimum payments towards the balance, you will be paying off that credit card debt for more than 17 years!

It will wind up costing you more than $9,072 in interest!

Do whatever you can to avoid high-interest debt.

See if you can find a balance transfer credit card with a lower interest rate. Even better, see if you can find one that offers a 0% APR.

Once you pay down this high-interest debt, you can save more easily.

#5 Not Setting Clear Retirement and Financial Goals

One of the other bad financial habits that holds people back is not setting clear retirement and financial goals.

A study by Go Banking Rates found that 33% of American workers do not have any real retirement savings plan.¹¹

Unfortunately, this is hard to do considering that “more than 1 in 5 Americans (22%) say they don’t know how much money they’ll need to retire comfortably, with younger Americans more likely to say this.”¹²

That’s not the only reason for a lack of financial planning.

Recent studies suggest that younger generations are not prioritizing retirement savings. Instead, they focus on feeling “more fulfilled in the now.”¹³

According to CNBC, “Roughly three-quarters of Gen Z Americans said today’s economy makes them hesitant to set up long-term financial goals and two-thirds said they might never have enough money to retire anyway, according to Intuit. Rather than cut expenses to boost savings, 73% of Gen Zers say they would rather have a better quality of life than extra money in the bank.”¹⁴

We worry they may live to regret living for the moment instead of saving for the future.

Everyone should sit down, review their financial situation, and come up with a plan.

Have questions or concerns about your 401(k) performance? Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisors today.

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Sources

1. https://www.cnbc.com/2024/01/08/56-million-americans-have-been-in-credit-card-debt-for-at-least-a-year.html
2. https://www.bankrate.com/banking/savings/emergency-savings-report/#over-1-in-3
3. https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-cover-a-1000-emergency-expense-with-savings.html
4. https://www.bankrate.com/retirement/retirement-savings-survey/
5. https://www.bankrate.com/retirement/americans-not-contributing-to-retirement-savings/
6. https://www.nerdwallet.com/article/investing/investing-data/survey-some-americans-who-plan-to-retire-say-theyll-leave-the-workforce-early
7. https://www.allianzlife.com/about/newsroom/2022-press-releases/inflation-causing-majority-of-americans-to-stop-or-reduce-retirement-savings
8. https://news.northwesternmutual.com/2022-10-25-Northwestern-Mutual-Study-Finds-Americans-Now-Believe-They-Will-Need-1-25-Million-for-Comfortable-Retirement
9. https://www.cnbc.com/2024/01/08/56-million-americans-have-been-in-credit-card-debt-for-at-least-a-year.html
10. https://www.cnbc.com/2024/01/08/56-million-americans-have-been-in-credit-card-debt-for-at-least-a-year.html
11. https://www.gobankingrates.com/retirement/planning/jaw-dropping-stats-state-retirement-america/

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