Everyone makes mistakes, and hindsight is 20/20, but being in my late 30s, I have a few regrets when it comes to my finances. While I can’t go back in time and convince myself to make some changes to how I handle my money, I may be able to help those looking for advice. Read on to learn about the steps I should have taken sooner to avoid financial mishaps.
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When I was young and just entering the workforce, retirement felt like an eternity away. While it’s still a ways off, I look back and think about how much better prepared I would be now if I’d maxed out my funds sooner.
I opened a Roth IRA when I was in my early 20s, but I only contributed to it when I remembered I had one. Roth IRAs are retirement funds you can contribute to with already-taxed money. This money can then grow within the account tax-free for years. When you withdraw your funds in retirement, you don’t have to pay any taxes.
The catch with a Roth IRA is that you can’t put as much money in as you may want. The government limits your contributions to $7,000 per year if you’re under 50 years old and $8,000 if you’re 50 or older. I think back at how much tax-free savings I missed out on because I didn’t max out my annual contributions.
I also wish I had maxed out my 401(k) retirement funds, or at least contributed as much as my employer would match. A 401(k) is another type of tax-advantaged retirement account, but it works a bit differently than a Roth IRA. With a 401(k), your contributions come straight from your paycheck before taxes. Then, when you withdraw money in retirement, it’s taxed as regular income.
One of the biggest advantages of a 401(k) is the employer match. Depending on your employer, when you contribute a certain monthly amount to your 401(k), they will match what you put in, effectively doubling it.
Ramit Sethi, author of the New York Times bestselling book “I Will Teach You to Be Rich,” says it best: “That is free money!”
Because my 401(k) was money I wouldn’t be able to touch for years, it didn’t seem as important at the time. Now I realize I missed out on a lot of retirement savings by not maxing out my employer matches.
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Like many students entering college, I didn’t put much thought into what having student loans actually meant. I figured I would graduate from college and get a high-paying job, and my loans would magically disappear over a year or two. This wasn’t the case, and once I began working and paying down my debts, I realized it would take me a very long time.
