By Stephen Fournier – KeyBank Central New York Market President
Impulse buying, missing a credit card payment, and not contributing enough to retirement, oh my! Everyone is guilty of financial missteps now and again, but not everyone is willing to talk about them. Recovering from a financial faux pas isn’t always easy, but anyone can get back on track with the right support and resources. This month happens to be Financial Wellness Month, which is the perfect time to practice money mindfulness and set yourself up for success in the year ahead. Here are a few tips to get you started:
- Stay Humble: Findings from KeyBank’s 2020 Financial Wellness Survey show that 3 in 4 (75%) Americans consider themselves financially savvy, with 4 in 10 (41%) stating they’re savvier than most or consider themselves a personal finance expert. Despite this, more than half (54%) admit they have made a financial faux pas in the past year. Younger consumers are exceedingly more confident than their more senior peers, with 1 in 5 Millennials considering themselves a financial expert, compared to fewer than 1 in 10 Baby Boomers. But financial confidence does not mean Millennials are left unscathed. One in 3 Millennials who committed budgeting faux pas reported feeling afraid to check their bank account, compared to 1 in 5 Gen-Xers and 1 in 10 Baby Boomers. This shows that nobody—even the most financially assured—are immune to mistakes, and that’s ok!
- Financially Fess Up: Everyone makes financial mistakes, but it can be difficult to admit it. Even though most people admit to making a financial faux pas, 22% of people don’t talk to anyone when they make a financial faux pas because they’re either too embarrassed or aren’t sure who to talk to. However, there is nothing beneficial about stewing over your financial burdens alone. Talking it out—especially with a financial advisor—is an effective way to confront your mistakes and recalibrate your financial habits.
- Budget Better: Budgeting faux pas are the most frequent type of money misstep, with 18% of consumers in the Northeast admitting to impulse buying within the past 12 months. Due to budgeting errors, nearly a third (28%) of respondents in the Northeast didn’t save for an emergency, and even more—32%—mismanaged debt. Mismanaging your budget can have long term consequences, with 27% of Northeastern respondents saying they didn’t save enough or waited too long to save for retirement. Mapping out your financial situation—whether in a mobile app, spreadsheet, or with a financial expert—can help you identify financial gaps to close before it’s too late.
- Ready for recovery? Avoid Spending Triggers: The good news is that those who have committed financial faux pas are optimistic about getting back on track. 90% of respondents who committed a financial faux pas feel they can recover within five years. Those in financial recovery should be mindful of their spending triggers, such as targeted ads that lead to impulse buying. The majority of people (30%) say they intend to get back on track by identifying and prioritizing “needs” vs. “wants.” This is a good way to plan ahead and steer clear of spending triggers that lead to financial faux pas.
It is important to remember that you are not alone on your financial journey, and that there are plenty of options to help you confront, address, and recover from financial missteps. Make sure to harness the resources available to you through your bank, for example—especially digital tools, budgeting frameworks and personalized advice from experienced financial planners—to help get you back on your feet.
About the author: Stephen Fournier is President of KeyBank’s Central New York Market. He may be reached at either 315-470-5096 or [email protected]. KeyBank is Member FDIC © 2020. KeyCorp. CFMA #200115-724238
Determining How Much You Should Have in Savings
Everyone has different needs, wants, and goals. That said, the amount you should have in savings might look a little different from your friend or your neighbor. But in general, you can get started by using a few rules of thumb.
- Save for Emergencies: Everyone should have cash set aside to cover emergencies or unexpected expenses that don’t fit into your normal budget. What would you do if you lost your job, or landed in the hospital? An emergency fund can help keep your finances in order while you get back on your feet. At a bare minimum, aim to keep $1,000 in a savings account you can use for emergencies. Then, work on building that up to approximately six months of your take-home pay. The more unstable your income, the more you’ll want to save in cash to protect you from potential gaps in earnings.
- Build a Cash Buffer: In addition to keeping money in a savings account, you probably want to keep a little extra cash in your checking account. The point of this money is to make sure there’s a little more than what you know you’ll spend each month so that you can avoid an accidental overdraft to your account.
- Set Aside 10 Percent of Your Income: When it comes to growing your savings, most experts suggest saving at least 10 percent of your income, and earmarking that money for your future. If you can save more, that’s even better; more savings equates to more financial security.
- Set up Automatic Savings: Look into tools which transfer money to your savings every time you use your debit card. Those small amounts can make a big impact over time.
Why is this so important? Eventually, you won’t be able to work in order to earn an income. But you’ll still have expenses you need to pay. Saving 10 to 20 percent of your income today means having the money you’ll need to fund your lifestyle in the future, when you may not be able to rely on a paycheck.
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