Reader Beware! Spooky Financial Mistakes to Avoid

Oct 2022

Halloween is just around the corner and the spooky season is here! More than pumpkins, costumes, and copious amounts of candy, in the financial world, October is known for some of the scariest events financial markets have ever experienced. You may recall the Bank Panic of 1907, Stock Market Crash of 1929, or Black Monday on October 19, 1987, when the market fell more than 20% in one single day. Pretty scary stuff, right?

But if that isn’t enough to make your blood run cold, there are plenty of other frightening financial statistics to share. If you are brave enough to read on, here are three spooky, scary facts to be aware of and how you can avoid being a victim.

56% of Americans can’t afford a $1,000 emergency expense from their savings account.

Only 4 in 10 Americans have enough savings to cover an unplanned emergency expense. This means more than half of Americans would rely on borrowing from credit cards, personal loans or family and friends. This statistic underscores the importance of having an emergency fund. An emergency fund creates a safety net for managing unexpected expenses and can help avoid incurring high-interest credit card debt or dipping into long-term assets that may be impacted by market volatility. As they say, stuff happens! Job loss, a health crisis, car repairs or other unanticipated expenses are just part of life. Most financial professionals recommend that your emergency savings cover six months of current living expenses, but don’t get overwhelmed by the overall goal. The important thing is to make savings more of a habit and commit to putting something aside each month with this purpose in mind.

Americans owe $887 billion on credit cards. $8,942 is the average credit card balance for US households.

After a COVID-era reprieve, Americans are borrowing heavily again to keep up with soaring inflation. In one survey, 49% of respondents said they depend on credit cards to cover essential living expenses. Overall, Americans owe $887 billion on their credit cards, which is a 13% increase from just a year ago. With the Federal Reserve raising rates, borrowing is much more expensive and will continue to impact consumers in a major way. So, what can you do? Maintain a budget! Budgeting is one of the most effective ways to reduce spending to allow for savings. Even if you can only find an extra $5 a day, that adds up to $1,825 over the course of a year!

1 in 4 Americans have zero retirement savings.

An uncomfortably large percentage of U.S. adults haven’t begun putting aside money for their retirement. Many people don’t save for their senior years because they believe Social Security will provide enough income for them to live comfortably. Others don’t save because their income is monopolized by near-term expenses- things like rent, food and healthcare. But if you don’t push yourself to save consistently for retirement, you will more likely than not have a hard time paying bills when you’re older. Especially, because life is generally more expensive as we age. In fact, 44% of retirees said their expenses are higher in retirement than they expected. Saving for retirement needs to be a priority for all working people and the earlier you start, the better off you will be. Time is your ally thanks to tax-deferred compounding on qualified retirement plans such as 401(k), 403(b) or an individual retirement account (IRA). Retirement accounts have the potential to grow faster than taxable investments since earnings are not subject to taxes until they are distributed, which is usually in retirement. Ideally, you want to maximize your savings potential by contributing as much as you can to these accounts and make aggressive retirement savings a habit.

Hopefully you are spooked enough to revisit your financial habits and make saving and investing a priority. Happy Halloween!

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