Sometimes, to get a better perspective on our personal finances, it's good to stop and listen to what older generations have to say. Their wisdom can come in the form of ideas that they've used to build their wealth, and other times it can be warnings of pitfalls to avoid. A recent survey conducted by LendEDU offers some advice that falls into the latter category.
The company surveyed 1,000 senior citizens and found that 55% of them said they hadn't saved enough for retirement. Unsurprisingly, when asked what the biggest financial regret they had from their 20s was, the largest group of survey respondents -- 21% -- said that not saving enough money for retirement was at the top of the list.
Unfortunately, the financial regrets didn't stop there. After "not saving enough money," senior citizens named spending money on nonessential things and not investing their money when they were younger as the next financial decisions for which they felt the most remorse.
Even if you're well out of your 20s, there are still financial moves you can make right now that will help put your retirement on track. Here are some suggestions for how to steer clear of the two biggest financial regrets seniors have.
Get on a retirement savings plan now
Here's a sobering statistic for you: About one in three Americans has less than $5,000 in retirement savings. If you can relate to that figure, now is the time to get started on a savings plan. This might be a 401(k) plan through your employer or an individual retirement account (IRA).
There are pros and cons to different retirement accounts, with various tax deduction benefits and tax deferral options. For example, an employee-sponsored 401(k) may offer a contribution matching plan that will allow you to build up your retirement savings a whole lot faster, and with less money out of your own pocket. Or, if you choose a Roth IRA, you'll pay taxes on your contributions up front, but they'll grow tax-free for years to come.
Whichever type of account you use, make sure to automate your contributions, whether from your bank account or right out of your paycheck. Saving 10% of your pre-tax income is a good goal to aim for, but if that's too much, then start with a percentage you can afford and make regular percentage increases as you're able.
Cut out unnecessary spending
The second biggest financial regret by senior citizens was spending too much money on things they didn't need while they were in their 20s. If you can relate, then there are a few simple things you can do to save the most money while keeping everyday luxuries, like coffee from your favorite coffee shop.
Two ways to save the most money in your budget is to take a close look at your housing and transportation costs. Americans spend about 33% of their money on rent or a mortgage, and nearly 16% on car payments or transportation-related expenses. Not only are these big-ticket items, but they're categories in your budget that are the most likely to have wriggle room as well.
That's because Americans are buying bigger and more expensive houses than ever before. In 1973, the average size of a new home was about 1,660 square feet, but by 2010 it had climbed to nearly 2,400 square feet, according to the Census Bureau. The kicker is that average family size actually decreased from 3.48 people in 1973 to 3.16 in 2010. So Americans are buying bigger homes for fewer people.
Second, the average transaction cost for a new car right now is $35,359, while for used cars it's $19,657. These are high costs for things that quickly depreciate, and much of the time Americans are simply spending far more money on a vehicle than they need to.
So what's the solution? If you're serious about cutting back on your spending to get your retirement savings into shape, then consider altering how much money you shell out each month on housing and transportation, perhaps by looking at whether renting or buying would be cheaper or refinancing a mortgage. If that sounds too extreme for you, then consider these five easy ways to trim your monthly budget.
Start now, benefit later
Of course, cutting back on some spending now might be a little painful at first. And diverting some of your salary into a retirement savings account might result in a few fewer nights out on the town. But taking both of these steps as soon as possible will help ensure that you don't spend your retirement years looking back and wondering why you wasted all of your hard-earned money on things you didn't really need. Take it from the seniors in the survey -- you likely won't regret cutting back your spending now to have more money later.