Whether you’re aspiring to get rich or just have a comfortable retirement fund, focusing on your investments this year is a good financial step. While doing so, you don’t want to fall for investing mistakes that hurt your progress or even damage other areas of your finances.
Rachel Cruze, daughter of Dave Ramsey, is widely known for her personal finance books and online show. In a recent YouTube video, she shared these seven investing mistakes that you should avoid in 2024.
1. Investing Before You’re Financially Ready
Following her father’s Baby Steps plan, Cruze cautioned against investing until you’ve paid off all your non-mortgage debt and established an emergency fund of three to six months of usual expenses. This will give you a safety net and relieve the burden of potentially high-interest debt payments.
2. Using a Regular Savings Account for Your Emergency Fund
Since your emergency savings won’t generate much of a return in a regular savings account, Cruze suggested looking into higher-paying but still accessible alternatives. Rather than moving funds to less flexible certificates of deposits, research the best high-yield savings accounts and money market accounts for a competitive return and easy cash access.
3. Avoiding Real Estate Investments
Although high purchase prices and mortgage rates might seem discouraging, Cruze explained that a home purchase is still worth considering once you’re financially ready. By making a 5% minimum down payment and choosing a 15-year fixed mortgage, you can lower your borrowing costs on this investment. She just cautioned against additional properties until you’re mortgage-free with cash saved to fund the purchase.
4. Not Contributing 15% or More Toward Your Retirement
Cruze suggested a minimum retirement contribution of 15% of your take-home pay, and that’s excluding employer matches. While this is a starting point, you could go higher after you’ve saved for your children’s college and tackled your mortgage. Both individual retirement accounts and 401(k) plans are worth considering.
5. Skipping Special Education Savings Accounts
When saving for your kids’ education costs alongside your retirement, consider special education accounts with tax advantages. Cruze explained that Coverdell accounts have a low $2,000 annual contribution limit along with income limits. However, a 529 plan is a more flexible alternative you can even have alongside a Coverdell account.
6. Not Investing More Over Time
As your financial situation changes and you become mortgage-free, you should revisit how much you’re saving toward retirement. Cruze discussed how you could save beyond 15% and potentially max out tax-advantaged accounts. Researching other investment options, such as health savings accounts, also helps.
7. Not Hiring Investment Professionals
You can improve your chances of investment success if you hire professionals rather than attempt to figure out everything yourself. Cruze highlighted how advisors could guide you on tax strategies, advise you on your goals and help you pick appropriate investments.
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