Everyone makes financial decisions they regret from time to time. Usually, it's a small thing, like buying something you really didn't need. It doesn't seem like that big of a deal. The bigger regrets usually don't come until later in your life, when you start thinking seriously about planning for your future, including retirement. You might feel ready to leave the workforce, but if you haven't planned financially, it probably isn't an option.
You'd think everyone would have unique financial regrets, but a TD Ameritrade survey found a few that consistently rose to the top. When asked what advice they'd give to their younger selves, the following three answers came up most often among Americans aged 40 to 79. If you don't want to look back in regret someday, you may want to start working on them now.
1. Saving and investing earlier in life
The top two answers in the survey were saving and investing earlier in life. While not exactly the same, the two often go hand in hand because you invest your savings in order to generate more money for yourself in the future.
Saving can be a challenge when you're young because you're probably not making that much money yet -- and you might have student debt to pay off -- but it's best to develop the habit as young as you can, even if you can only spare $50 or less every month. If you plan to buy a home or make another large purchase, this savings can help reduce how much you must borrow and, consequently, how much you have to pay in interest over the lifetime of your loan.
Retirement is another goal that should be on your radar. The earlier you begin saving, the easier your job is because your earlier contributions have more time to grow before you begin drawing upon them. That means more of your retirement savings come from investment earnings as opposed to money that you set aside from every paycheck.
Let's say you wanted to save $1 million, just for the sake of round numbers. If you started saving at 25 and planned to retire at 65, you'd only need to save about $381 per month to reach your goal, if you earned a 7% annual rate of return. If you waited until 30 to start saving, you'd now have to save $552 per month. Over your lifetime, you'd only pay in about $183,000 of your own money if you began saving at 25, but if you waited until 30 to start, you'd end up setting aside about $232,000 of your own money.
Open a retirement account if you don't already have one, and start making regular contributions. You might have to cut back your discretionary spending in order to free up money for this. You're allowed to contribute up to $19,500 to a 401(k) in 2020 or $26,000 if you're 50 or older. You can also stash $6,000 in an IRA or $7,000 if you're 50 or older.
2. Paying off debt as soon as possible
Approximately 60% of survey respondents said they would tell their younger selves to work on paying down their debt more quickly. The logic here is obvious. When you pay down your debt faster, you pay less in interest, and you get to hold onto more of your own money. But actually paying down your debt quickly isn't always the easiest thing to do.
Start with any high-interest debt you have, such as credit card debt or payday loans. Cut back your spending as much as possible to free up cash for debt repayment. Make the minimum payment on all of your debts to avoid late fees, and then put all of the extra you have toward your debt with the highest interest rate first. When that's paid off, move onto the debt with the next-highest interest rate, and so on.
For installment loans, such as student loans, mortgages, or auto loans, keep an eye on interest rates, and refinance if you can get a more affordable rate. This will also reduce how much you pay overall, assuming you're not extending your loan term any further. You should always check into prepayment penalties before you agree to a new loan as this could affect how much you actually save by paying your loan off early.
You can try a balance transfer card to get rid of credit card debt, but be mindful of the balance transfer fee, and do your best to pay your balance off before the 0% APR period expires. You could also try a personal loan for your credit card debt if you want predictable monthly payments. This will prevent your balance from swelling any further as long as you aren't running up new debts on your credit cards.
3. Always have an emergency fund
About 57% of respondents said they wished they'd had an emergency fund when they were younger to help them pay for unexpected expenses such as medical emergencies, job loss, home repairs, and insurance claims. If you don't have one of these already, you should begin building one now.
Your emergency fund should contain at least three months of living expenses at minimum. This includes food, housing, utilities, insurance, and transportation costs. It could also include entertainment costs such as streaming services if you want it to. However, if you decide to leave these costs out, and you end up out of a job for several months, you might have to sacrifice these extras. Once you have this basic foundation, you can build up your emergency fund to six months of living expenses if you'd like.
Figure out how much you need to set aside, then decide how much you can afford to save per month. Once you've built up your emergency fund, you can start using your extra cash for other goals, but it's important to create your emergency fund first, because this will help keep you out of debt should an emergency arise. Whenever you draw upon your emergency fund, you must replenish it. You should also review your emergency fund at least once per year and after you experience a major life event to decide if you need to set aside a little more.
We might all have different goals for our lives, but we all want to live comfortably and have as few regrets as possible. If you haven't done any of the three things listed above, start them right now. In a few years, if not sooner, you'll be glad you did.