5 Mistakes People Make In Their Financial Wellness Planning

Jenn Underwood
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A Medifast survey indicated that the top New Year’s resolution for 2022 is to focus on improving financial health. However, that same survey estimates only 10% of resolution makers will stick to their goal throughout the year. In fact, most will throw in the towel during the month of January.

With such bleak stats, it’s worth taking a look at some key mistakes people make in their financial wellness plans.

Not Putting It In Writing

It’s hard to overestimate the value of tracking your expenses. Whether you’re forgetting the small one-off purchases or you’re rounding down on your daily cup of coffee, recording your spending is crucial. Humans are not designed to remember intricate details on an ongoing basis.

The issues with mental accounting are demonstrated clearly in the rise of subscription services. According to a June 2021 West Monroe poll, the average American spent $273 monthly in subscription services. And while that number is staggering, the real surprise is that 100% of respondents were wrong when estimating their monthly spending. Additionally, consumers believe they were spending less on subscriptions than they did in 2018, despite increased spending. What’s more, many underestimate their spending by more than $200 per month.

The first step to making healthy financial decisions is to get a realistic picture of your entire spending in one place. By collecting accurate data, you can evaluate your comfort with the amount spent in each category. Thankfully, there are some wonderful spending tracker apps out there like Mint, You Need A Budget (YNAB), and Goodbudget. It’s important to find a method that works for you, so trying out a few different options is probably wise.

Saving Only What’s Left

Investopedia defines savings as, “the money that a person has left over after they subtract out their consumer spending.” However, the concept of saving only what’s leftover, has been a primary issue in Americans’ inability to save. A Bankrate survey found that 25% of Americans have no emergency savings. And while 17% of respondents reported increased savings from before the pandemic, 34% are reporting having less money set aside.

Saving only what remains in a world of low wages and high inflation, is unfortunately a recipe to ensure savings don’t increase in 2022 either. ‘Pay Yourself First’ is a strategy that was first coined in the 1920’s and repopularized by Robert Kiyosaki’s book Rich Dad, Poor Dad. The idea is to prioritize savings and investment contributions by setting that money aside before paying your monthly bills. It’s a counterintuitive approach and requires significant self-discipline. Thankfully, there are several options to automate savings and 401K contributions.

For those looking to further spice up self-payment, check out Qapitol and Earnin. Both Fintechs allow you to tie savings to your behavior. You can set up unique rules to save when you work out or add to your rainy day fund on the days it actually rains. You can even soothe your conscience for those periodic splurges by adding to your savings when you treat yourself.

Assuming Financial Wellness Is One Size Fits All

Financial Wellness is as unique as the people who strive for it. It’s easy to create cookie cutter programs prescribing actions everyone should take, but quality financial plans begin with each individual's personal definition of wellness. Does your idea of financial independence mean paying off your house or having the freedom to travel and not feel tied down? Do you want a high paying job or a job that lets you prioritize a work/life balance? Are you saving for college or intentionally kid-free?

The needs of consumers are vast and each person needs a plan that fits their needs. Neobanks like Daylight and First Boulevard are redefining community banks. Instead of defining customer needs geographically, they serve specific identity groups and tailor service to meet the needs of their clientele.

Underestimating Compound Interest

Whether or not Einstein ever spoke those famous words about compounding interest, there are those who do not understand it and therefore pay it.  And because many do not understand, they undervalue the impact that small changes can make.

“Compound interest is the eighth wonder of the world.  He who understands it, earns it … he who doesn't … pays it.”

On Debt

APR is a confusing concept and causes people to underestimate the interest they pay on credit cards and car loans. In fact, it’s so misleading that the federal government requires credit cards to issue a Minimum Payment Warning. Credit card statements must indicate how much interest will be charged if only the minimum payment is made.

Interest on debt can increase so quickly that people often feel buried. As a result, Utah State University launched a website to help consumers calculate the money and time they can save by increasing their monthly payments. Paying as little as $10 more than the minimum payment on a credit card balance of $3,500 (assuming a 18.99% APR) could save over $978 in interest and pay off the debt 2 years sooner.

This one hits home here at FinGoal. Our Find Money product was created with the intention of helping consumers find that extra $10 per month. While it doesn't seem like much, that discounted lunch special or gas station savings could be the difference between years of debt!

On Investing

On the other hand, there’s often uncertainty about how to begin investing. Fintech companies have jumped into this space with both feet, striving to reduce the friction and build confidence for the average American investor. Robinhood, Cashapp, and Acorns have all achieved wide brand recognition and produced some interesting educational tools.

According to the Department of Labor, women are likely to live longer, but often have less in retirement savings and fewer full time earning years than their male counterparts. Ellevest looks at the unique needs of women investors. This company is a great example of prioritizing savings, creating individualized wellness plans and focusing on the power of compounding interest.

Neglecting to Plan for the Unexpected

Idealism in goal setting is a fairly popular trap. Whether you’re making too many changes at once or have an unattainable standard, forgetting to prepare for the bumps along the way can lead to disaster.  

Life happens. And the biggest financial wellness mistake you can make is expecting all to go smoothly. You may have more emergency costs than anticipated or your income may change. Planning for the unexpected can keep you focused on problem solving when challenges arise.

It’s also crucial to treat your financial wellness plan like a living document. Know that your budget will need to adjust as costs rise or family needs change. Aim to revisit your financial plan every 3-6 months to evaluate your goals and check your progress. Don’t try to do it alone. Your banking app and the fintech tools mentioned above can keep you more engaged and identify any needed course corrections sooner than later.