Written by Hi, it’s Dre Griggs with Obsidian Wisdom. Today, we’re discussing bad financial habits that could derail your retirement. I’ll walk you through these habits and explain how to handle them.
1. Believing That Spending Equals Happiness
When it comes to overspending, most of us know what we should be doing. There are only three relationships you can have with money: spending more than you have, spending all that you have, or spending less than you have. To retire comfortably, we need to spend less than we have now.
The idea is to purchase your freedom. Ideally, by the time we’re halfway to retirement, half of our monthly income should be generated from our investments. By full retirement, we want 100% of our income from investments so that we no longer need to spend our time earning money.
I know this firsthand. When I left corporate America to start my own company, I quickly realized the bills were still coming, but my income was not. I wasn’t fully sure how to generate the necessary income without actively working.
Most of us need to make a few early decisions. If you’re spending more than you have or spending it all, there’s nothing left to invest toward financial freedom. If you can’t invest, you’ll always be dependent on a paycheck.
Content, Not Complacent
Many people misunderstand that if they’re in a job they dislike or their life feels unfulfilling, they deserve to reward themselves for their suffering. Often, we reward ourselves by spending money. But we’re constantly recalibrating our happiness. That job we once prayed for, or the car we dreamed of, eventually loses its thrill. It’s okay to want more or to adjust your goals. Aim to be content but not complacent. Appreciate what you have while aspiring for more.
The mistake many make is overspending, making impulsive decisions that have long-term financial consequences. That fleeting happiness from short-term decisions fades quickly. True happiness often comes from controlling our time and filling it with purpose and pleasure. Lack of control over your time often leads to overspending to chase happiness, which digs us into a deeper hole. That’s why many Americans today retire broke or live paycheck to paycheck, even in six-figure households.
2. Procrastinating on Savings
We often feel the immediate pressure of daily problems and push future goals aside. In corporate America, every day has a “fire” to put out, and tomorrow will bring a new one. Life is similar; there are always new challenges. We think of the future as a perfect world, free from today’s problems. But that’s rarely the case.
Waiting for “the perfect time” to save is unrealistic. To fund retirement, we need to make saving a habit now. That includes setting aside money for an emergency fund, investments, and paying down debt, which we’ll discuss later. The life we have now reflects choices we made years ago. To create a better future, we must start making better choices today.
3. Ignoring Debt
Debt—especially credit card debt—is a clear example of past decisions impacting us today. Sometimes, decisions made years ago are still affecting us financially. Ideally, we should invest 15-30% of our income toward retirement, but debt limits this.
When unexpected expenses arise, if we haven’t saved enough, we end up using credit again, resetting our debt and negating years of progress. Paying off debt efficiently is crucial to building retirement savings. High levels of debt mean we’re mortgaging our future. Unlike the government, we can’t print money to pay our bills. Just like the government’s deficit issues, high-interest debt consumes a significant portion of income, limiting what’s available for future savings and investments.
Credit card debt, often with compounding interest, is particularly hard to eliminate. While some people prioritize paying high-interest debt first, others start with the smallest debt to feel a quick win and stay motivated. Both methods have merit, depending on what works best for you.
4. Not Investing Enough
Living below your means, saving, and paying off debt are foundational steps. However, without investments, you’ll always have to work for money. I’m a big advocate of allocating investments in ways that align with the habits of self-made millionaires. Statistics show that 65% of self-made millionaires have at least three streams of income, typically found in real estate, the stock market, or a business.
Investing in these asset classes allows us to build wealth faster than simply saving. The government encourages investments that provide housing or jobs by offering favorable tax treatments, making real estate and business investments especially appealing.
Personally, I favor the stock market because it offers access to all seven streams of income, including dividends, interest, royalties, and real estate (via REITs). Statistics show that 89% of the stock market is owned by the top 10% of wealth holders in the U.S., while the bottom 50% own less than 1%. These numbers emphasize the need to invest to outpace inflation and avoid running out of money.
Inflation is often higher than 3%, and investing in appreciating assets like real estate or stocks that perform well during inflationary periods can safeguard your retirement funds. Simply saving won’t achieve this; investments are necessary.
5. Not Planning for Healthcare Costs
According to Fidelity, a single individual can expect to spend around $160,000-$170,000 on healthcare during retirement. For a married couple, that figure doubles to about $350,000-$400,000. Additionally, 7 out of 10 people aged 65 and older will experience at least one long-term care episode, with costs averaging $50,000-$60,000 per year.
Long-term care costs aren’t covered by Medicare, and Medicaid has strict eligibility criteria, making proactive healthcare planning essential. Decisions about Medicare Advantage, supplemental plans, and where to receive care all impact your retirement finances. If healthcare expenses are underestimated, they can easily derail retirement plans.
Preventative health measures—like daily exercise, a balanced diet, and stress management—can help minimize future healthcare costs, but the financial aspect must also be addressed.
Final Thoughts
Making wise financial decisions boils down to our beliefs about money. Ask yourself: What beliefs drive my financial choices, and are these beliefs helping or hurting me?
CNBC: The wealthiest 10% of Americans own a record 89% of all U.S. stocks
How Much: Visualizing the Purchasing Power of the Dollar Over the Last Century
Image from: Freepik.com