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Everyone’s life is inseparable from financial management, especially as people who work from 9 to 5. Good financial management can help us live a more prosperous life. This article is from compilation and I hope it can inspire you.
Money is the number one source of stress, more so than work, health, and relationships combined. In the current economic climate, where people face financial challenges not seen in generations, this pressure becomes even more severe. For employees, managing debt, paying off credit cards, and saving for retirement or tuition has become an overwhelming task; the reality is that 63% of employees say they are making a living wage as inflation outpaces income. Inflation has reached record levels not seen since the 1980s, which can have a snowball effect on households that are not diligent about saving, investing for the long term and managing their debt burdens. In fact, as of 2022, the average consumer’s total debt balance has increased by 5.8%, reaching $101,915.
As personal financial stress increases, financial wellness has become a high-profile employee benefit. Until now, financial guidance has been out of reach for many. After all, the net worth requirement to work with a wealth management firm is $500,000 or more, and the average annual fee to work with a financial planner is thousands of dollars per year. This has left tens of millions of people blindsided when it comes to financial management, spending unnecessary expenses, missing out on investment and tax opportunities, and potentially losing thousands of dollars every year.
Here are the top 10 financial mistakes we’ve found employees make:
1. Insufficient emergency fund savings
Personal savings rates are once again near new lows, with only about 5% of Americans reportedly saving more than $10,000. Regardless of your financial situation, having a buffer for the inevitable unknowns is one of the smartest things you can do, and it will set the stage for you to achieve your other financial goals.
2. Too much cash savings
While building an emergency fund is crucial, holding too much cash can hinder the growth of your overall wealth, especially in the current high-inflation environment. Our data shows that employees under the age of 25 hold an average of 62% of their assets in cash. While cash is important for an emergency fund, investing in the stock market is one of the best ways to build long-term wealth.
3. Single investment strategy
Employees tend to overinvest in industries they are familiar with. For example, employees of technology companies may focus their investments solely on technology stocks. By limiting a portfolio to a single industry, individuals expose themselves to greater vulnerability. Any downturn or volatility in that particular industry can have a significant impact on their overall financial stability.
4. Underestimating the importance of estate planning
A well-designed estate plan can allow you to determine how your assets will be distributed after your death and provide your loved ones with peace of mind in times of crisis. Additionally, estate planning is critical to minimizing the burden of estate taxes, which can significantly reduce the wealth you are able to pass on to your beneficiaries.
5. Lack of preparation for tax obligations
As technology develops and it becomes easier to buy and sell securities, we are seeing an increasing number of individual retail investors who are unprepared for the tax liability associated with their trading activities. Additionally, employees who receive equity as part of their compensation do not understand how this income is taxed or how to minimize their tax liability on equity. Understanding equity compensation has been a hot topic in our Financial Wellness webinars.
6. Not taking full advantage of your 401(k)
401(k) plans are essentially free money for employees and a great way to increase overall retirement savings without any additional cost to employees, yet 1 in 4 employees don’t take full advantage of them Welfare.
7. Overpaying financial managers
A typical investor may pay percentage-based fees, hourly fees, and/or flat fees to various service providers to implement and track their investment strategies. Investors pay too much due to lack of transparency. Failure to pay attention to these issues can result in approximately 30% of a person’s career balance being spent on expenses.
8. Rely on social media for financial advice
A 2022 survey found that Gen Z is more likely to seek financial advice from TikTok (34%) and YouTube (33%) than from a financial advisor (24%).
9. Not understanding the value of total compensation
Employee compensation has evolved over the years and now includes multiple components, such as base salary, equity and benefits. There is a significant knowledge gap between employees and HR when it comes to understanding the value of entitlements and total compensation.
10. Improper student loan repayment plan
When a borrower chooses a repayment plan based on his or her income, there is no guarantee that the monthly payment will cover the accrued interest. As a result, over time, individuals may realize that their student loan balances have actually increased because payments are primarily used to pay interest rather than reducing principal.
The role of the employer and financial planning and education
For many people, their employer is the de facto broker of their financial interests and benefits. Most people invest for retirement through their employer, and nearly 55% of Americans purchase health insurance through their employer. That being the case, it is the employer’s responsibility to administer these benefits and provide guidance in the process.
Because our education system fails to educate adults about personal finance, they enter the workforce unprepared. Finance starts with the payroll, so financial knowledge naturally starts in the workplace. While companies invest in training employees to do their jobs well, a lack of financial stability in employees’ personal lives undermines the potential for long-term wealth accumulation.
In addition, employers also have DEI programs, and bringing financial literacy into the workplace is an important way to support employees.
Everyone is unique, and our personal experiences greatly impact our relationship with money and how we save or spend it. Employers need to implement a financial wellness strategy that adapts to all employees so they feel comfortable asking for help or accessing available financial literacy resources.
Improve employee engagement
Although 93% of employees say they want more access to financial planning, only 28% of companies currently offer such resources. A recent survey by the Society for Human Resource Management showed that 82% of employees believe employers should play a role in supporting their financial health. When employees feel truly cared about and believe their employer is actively improving their financial well-being, it has a positive impact on both personal and company morale. Additionally, companies that actively care about their employees’ well-being are more attractive when recruiting than companies that don’t prioritize their employees’ well-being.
Providing financial planning and wealth management tools is critical to cultivating an engaged workforce and providing employees with the most popular benefits. Since personal finance is so closely tied to salary and benefits, it makes sense to offer financial services in the workplace, making it easier for everyone to access affordable, high-quality financial solutions.
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