One Of The Worst Financial Mistakes You Can Make -- And How To Avoid It
There are no shortage of mistakes we can make to negatively affect our finances.
Yet there's one error that's perhaps most prominent of all. It's a major financial blunder. It's also depressingly widespread.
I'm talking about failing to maximize your employer match.
If you're trying to build wealth, this is one mistake that's almost unpardonable. You're essentially giving money away.
If you think this is relatively rare, think again. A new report by Vanguard shows just how common it is. One-third of those participating in employer-based retirement accounts do not take the full match. Essentially, every third employee is passing on free money.
That extra cash won't make a difference to your employer's bottom line. Yet it could have long-lasting effects on your own wealth creation efforts.
The numbers from Vanguard actually get worse. In automatic enrollment plans, more than half of participants neglect to take the full match.
Given the increasing popularity of such plans, that figure is fairly distressing. There is, however, a logical explanation. Many people with automatic plans choose the default option. That option is typically not set at the maximum contribution level. By virtue of inertia, many of us forego free money.
If you're in that group -- you need to change things today. If it's just a matter of inertia, that's easily fixed. If you're afraid you don't have the money -- you almost assuredly do. You may have to make lifestyle sacrifices. Yet there is nothing more important to your future happiness than making sound financial decisions today. An extra few percent may not seem significant today. Over ten or twenty years, however, those contributions will grow significantly.
Your next step
If your employer match is not maxed out, here's what you need to do. First thoroughly investigate the features of your plan. You can request a summary plan description from your account's administrator. You may also sometimes find this information online. Do you want to get the most from your plan? Then you need to be familiar with every benefit, fee and rule.
Once you're armed with this information, act on it. Take the full employer match. You may have to cut costs. Skip a vacation. Cut the cable bill. It might hurt at the moment, but the long-term benefit will be substantial.
It's also vital to make sure you stay current with any changes in your plan. Terms change frequently, so you need to be aware of any new opportunity.
There's no more fundamental mistake than passing on free money. If you're one of the millions of Americans who are receiving less than your full employer match, take this opportunity to make a change.
There are few things more important to your long-term wealth, health and happiness.