Are you a Jack or a Jill?

Last updated: 5/25/2010 3:45:07 PM

Don't be Jack!

Learn how to:

Avoid the most common financial mistakes made by new members.
Set and achieve your financial goals.
Adopt a savings strategy that is right for you.
Use available resources to help you make sound financial decisions.

Start your career on the right financial foot. Don’t be Jack! Be Jill!

Don't be Jack, be Jill Have you heard the story of Jack and Jill? They started out on equal footing—same school, same job, same salary…but very quickly their financial situations parted ways. Jack made choices that negatively impacted his financial position and future, while Jill avoided common financial mistakes and got on the fast track to a secure future.

Making wise financial decisions early in your career can have a significant impact on your future financial security. But it doesn’t matter whether you’re just starting out or preparing to retire, adhering to sound financial practices can make all the difference in your financial well-being.

Here are seven financial mistakes that put a damper on Jack’s finances:

Mistake 1: Spending more than you earn
It’s not about how much money you make, it’s about how much you spend. Jack consistently spent more than he earned and he often used credit cards to cover the gap. You can’t increase your savings, make investments, reduce debt, or even make wise spending decisions without first getting a handle on your spending. Start by evaluating what is coming in and what is going out each month.

Mistake 2: No budget
Budgets are the only practical way to get a grip on your spending. Jill used a free budgeting tool she found online to track and reduce her expenses, set financial goals and create a plan to help her achieve those goals. Creating a budget allowed Jill to take control of her personal finances.

Mistake 3: No emergency fund
Most experts agree that you should keep three to six months worth of your living expenses in an emergency fund. Jack found out the hard way the importance of an emergency fund when his car needed $700 worth of repairs. Jack paid for the repairs with a credit card that charges 18% interest. If it takes Jack one year to pay off the $700, he will have paid up to an additional $126 for the repairs.

Mistake 4: Not saving for the future…now
Jill started contributing $20 per pay check to her retirement savings account soon after starting her first job. Jack didn’t think he could afford it. Because she started early—even with a small amount—Jill will reap the benefits of compounding. Compounding is when earnings on your investments are reinvested in your account. The reinvested earnings may also have earnings, and then those earnings are reinvested and … It’s said that Albert Einstein called compound interest the "eighth wonder of the world." Any small amount you can start contributing now could benefit you more than larger amounts you contribute later on because of compounding.

Mistake 5: No insurance/not enough insurance
Not being properly insured exposes you and your family to financial risks. Review the coverages of your insurance policies—do you have the right amount of insurance for your auto and home? Those who rent should purchase renters insurance. Even if you feel your possessions are fairly modest, losing even one big-ticket item or many smaller possessions at once could be financially devastating.

Mistake 6: Little understanding of benefits available
Take time to understand your employee benefits and how they fit into your financial situation. Jack didn’t attend the new employee orientation and so he missed the discussion about what each benefit is and how to use it. Jill attended an orientation and learned about the group insurance plans offered by her employer. She also heard about the Wisconsin Retirement System, the districts 403(b) plan, and flex spending accounts which is available to help offset out of pocket medical and childcare expenses. Just as importantly, Jill learned about resources that are available to help her manage her finances.

Mistake 7: Paying too much in fees
Understanding costs associated with financial services can significantly improve your bottom line. Jack carries a balance on a credit card that charges him 18%, when there may be less costly options that could measurably reduce what he pays in interest on his card balance. After learning about fees in a financial seminar, Jill evaluated the fees charged by the 403(b) providers in her districts plans and chose a low-cost provider. Reducing fees by even 1 percentage point will positively impact your account balance. Make sure to reduce what you pay out in fees by eliminating additional expenses that you have control over, like late fees, finance charges, and over-limit fees.

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