If youre trying to spend less so you can save more, there might be some obvious mistakes youre making with your money. For example, youre likely losing a lot more than youre making if youre gambling at the casino every week. And youre certainly not doing your finances any favors if youre dining out for lunch and dinner every day.
But there are plenty of other ways you might be losing money that arent so obvious. Here are a number of mistakes youre making that you might not realize are costing you a lot.
BEING FINANCIALLY DISORGANIZED
One of the biggest money mistakes people make is being financially disorganized, said Kathleen Grace, a financial planner and managing director at United Capital. This can end up costing you a lot of money, she said.
For example, if youre not keeping tabs on your accounts, you could end up paying bills late and getting hit with late fees. If youre not tracking your spending and trying to get by without a budget, youll end up overspending.
Fortunately, there are plenty of financial apps such as Mint and Prosper Daily that can help you keep tabs on your accounts and spending, and send you alerts when bills are due or youve exceeded your budget.
LEAVING MONEY FROM YOUR EMPLOYER ON THE TABLE
If your employer offers a workplace retirement plan such as a 401(k) and will match employee contributions, youre making a mistake if youre not contributing enough to the plan to get the full match. Its free money, Grace said.
Typically, employers will match 50 cents to every $1 contributed by an employee up to a certain percentage of pay usually 6 percent, according to 401kHelpCenter.com. However, one in four plan participants miss out on receiving a full match by not saving enough, leaving an estimated $1,366 of free money on the table, according to research by Financial Engines, an independent financial advising company that provides investment advice for workplace retirement plans.
LETTING INVESTMENT FEES EAT INTO YOUR SAVINGS
One of the most costly mistakes you can make is not understanding the true cost of your investment portfolio, said Elliot Weissbluth, CEO of HighTower. Thats because there are fees on your workplace retirement savings account that eat into your returns and reduce the amount of money youll have for retirement.
Weissbluth offers this example: If you have $25,000 invested and are earning 8 percent annually but are being hit with a 1 percent fee on assets, that fee will leave you with $73,624 less in your account after 30 years. He recommends visiting AmericasBest401k.com to check the fees on your workplace retirement plan to see whether its cost effective. You can talk to your human resources department if youre not happy with the fees your plan charges.
If youre saving outside a workplace plan through an advisor, make sure the person youre working with is a fiduciary a professional who is legally bound to work in your interest, Weissbluth said. Otherwise, youll pay more fees with a non-fiduciary who is more focused on selling you products.
TAKING A LOAN FROM YOUR 401(k)
If you need cash, borrowing from your 401(k) might seem like a good option because it is your money, after all. However, it can be a costly option, said Andrew Meadows, vice president of brand and culture at Ubiquity Retirement + Savings.
Youll have to pay the loan back with interest and fees, according to Ubiquity. If you dont pay your loan back by the deadline, you could face penalties and an income tax liability in the thousands of dollars, Meadows said. Plus, by taking out a chunk of your nest egg, youve lost out on tax-deferred earnings.
LOSING FLEXIBLE SPENDING ACCOUNT MONEY
Taking advantage of a flexible spending account offered by your employer is a great way to set aside pre-tax dollars into an account to cover out-of-pocket medical costs. However, you have to use all of the money in your account by a certain date each year or lose it.
Brandon Hayes, a financial planner and vice president of Oxygen Financial, sees people forgo FSA funds because they dont spend them in time. If you contribute the maximum of $2,550 but only spend half of it, you lose up to $1,275.
Youll want to check your company-provided FSA rules to be certain you dont lose money youve saved for health care purposes, he said.