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topicnews · September 30, 2024

The cost of unmet financial goals every new year

The cost of unmet financial goals every new year


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Many people make financial goals as part of their New Year’s resolutions, but not everyone achieves these goals. According to the Ohio State University Fisher College of Business, 43% of Americans who make New Year’s resolutions give up on them by the end of January, while only 9% of people actually follow through on them.

There are many reasons why these goals fail – whether they are officially part of your resolutions or not. Sometimes they are too high or too complicated. In other cases, personal responsibility is simply not enough to continue.

Whatever the case, it’s great to set financial goals—and failing to achieve them can be costly. These are some common unfulfilled financial goals that people set each new year and examples of what they can cost if abandoned.

The cost of not paying off your debts

A 2023 Experian report found that the average consumer debt per capita is $104,215. This includes all types of debt – mortgages, credit cards, car loans, student loans and more.

Each type of debt has its own interest rate and therefore the cost of maintaining it will naturally vary. Take credit cards as an example.

The average credit card balance in 2023 was $6,501. The typical APR was 22.8%. Assuming a 30-day billing cycle, the average consumer will accrue $122.94 in interest on their credit card each month. That’s $1,475 in interest costs per year, assuming the balance doesn’t change.

If your goal is to pay off your credit cards, but you carry a balance every month or only pay the minimum amounts due, you could be wasting over $1,000 in interest each year.

When you add up other debts you owe, such as a student loan or mortgage, you could be losing tens of thousands of dollars every year – all because of interest.

The cost of not budgeting

Creating a budget is one thing; Sticking with it is another matter. If you make one but no longer use it, you could end up spending several hundred or thousand dollars more per year, depending on your purchases and spending habits.

“Failure to create and stick to a monthly budget is a leading reason why people of all ages fail to achieve their financial goals,” said Curt Scott, president and investment advisor representative of Scott Financial Group.

Part of budgeting is setting financial goals with a clear “why.” These goals should also include the means to achieve them.

Let’s say you want to save a certain amount of money every month. You need a goal and a budget. But if you don’t have a clear idea of ​​how you want to do it – or where your money is going – you might not be able to do it at all. And that can lead to overspending.

“[Every day]People are faced with the convenience and easy access to consuming life. “Small, frequent purchases that seem insignificant at the time add up to massive, missed savings opportunities that can result in failure to achieve financial goals,” Scott said.

To illustrate this point, Scott provided the following examples of what everyday purchases can cost over a month and how much that money could have made someone if invested at an 8% interest rate:

Coffee per day $5:

  • 1 month savings: $150
  • 1-year balance sheet: $1,879
  • 10-year balance sheet: $27,624
  • 20-year balance sheet: $88,942

$12 Daily Fast Food Order:

  • 1 month savings: $360
  • 1-year balance sheet: $4,511
  • 10-year balance sheet: $66,299
  • 20-year balance sheet: $213,461

$35 Daily Online Purchases:

  • 1 month savings: $1,050
  • 1-year balance sheet: $13,159
  • 10-year balance sheet: $193,373
  • 20-year balance sheet: $622,594

If you combine all three of these, that’s about $1,560 saved in a month. As for the return if invested – at an interest rate of 8% – it would look something like this:

  • 1 month savings: $1,560
  • 1-year balance sheet: $19,551
  • 10-year balance sheet: $287,298
  • 20-year balance sheet: $924,977

Of course, your spending habits could be much lower or higher. Or they could include different things. This is just to give you an idea of ​​how much money you could be wasting if you don’t budget, save, or invest instead.

The cost of not investing

Speaking of which, many people plan to invest but never do. Or they wait a long time before starting. However, this can result in the loss of significant financial gains.

“Inaction is action when it comes to investing, and starting now… can support your goals of accumulating wealth over time,” said Jared Hubbard, Plynk App FinTech product manager and registered partner of Digital Brokerage Services.

Hubbard gave an example to illustrate how much you could earn if you benefit from average growth over time.

“If you have $100 invested and it grows 7% over the course of a year, you will have $107 at the end of the year – a growth of $7,” he said. “If your $107 grows at the same rate of 7% next year, you’ll have an additional $7.49 this time, for a total of $114.49. Another year at 7% and the price will rise $8.01 to $122.50.”

On the other hand, not investing that money means losing that growth potential.

Hubbard pointed out that this is just an example as the market changes every year. In some years it may be higher and in others it may be lower.

The cost of a lack of diversification

Portfolio diversification is an effective way to minimize risks and maximize returns. Even though the costs of not diversifying are very subjective, there is still generally a higher risk of losing money if you don’t.

“For example, someone might only invest in a single stock. However, investing in different stocks or funds – or both – can help reduce risk if a single investment performs poorly – although diversification does not guarantee a profit or protect against loss,” Hubbard said.

Suppose you invest $5,000 in a single stock and the company goes bankrupt. You run the risk of losing all or most of your investment. But if you divided that $5,000 evenly across five different stocks, you would only lose up to $1,000. The other $4,000 could theoretically provide regular income and eventually offset the loss.

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