The end of November has been true to form with several examples of directional movement despite an absence of motivation. Last Friday was perhaps the most notable with serendipitous weakness erasing a week’s worth of modest improvement. The counterpoint is that a majority of that improvement could also be seen as a product of the holiday week trading conditions. Yields popped just a bit higher to start the new week but have been rallying throughout the overnight session and into US trading hours.
Even amid the weaker moments, the late November range was never threatened. If anything, it was the excess paradoxical strength last Tuesday and Wednesday that stretched the range in a good way. Viewed in that context, Friday’s weakness brought yields back to what we view as the logical sideways range until bigger-ticket data has its say.
To be fair to the bond bulls, one could also easily make a case for a bullish trend channel in yields.
Bulls might also keep in mind the market’s slightly better than average tendency to cool off after big reversals somewhere around the 6 month (126 day) moving average.
Without anything too interesting on the calendar, today’s focus is on the condensed Treasury auction cycles with both 2s and 5s at 11:30am and 1pm ET respectively.
And yet Sweeney is praised not just for her institutional knowledge but for her abilities to assess the industry and fire up a crowd. Since she took the helm of the Association of Independent Mortgage Experts three years ago, she has focused the membership on its mission as a group supporting independent mortgage brokers after … [Read more…]
With record low unemployment and a reasonable cost of living, Ohio packs plenty of amenities for residents. But if you live in Ohio, the large number of FDIC-insured banks can make it tough to choose just one. To help, we’ve pulled together a list of local, national, online, and regional banks operating in the state.
10 Best Banks in Ohio
The best checking accounts in Ohio offer the amenities you need, while also reducing fees. Most banks offer features like mobile check deposits and ATM access, but in-person customer service and access to branches can also make a difference. All the banks listed below are worth considering for their low-fee banking services, whether you’re in Cleveland, Columbus, or one of the many other great Ohio cities.
1. KeyBank
If you’re looking for an Ohio bank that provides a personal banking experience, KeyBank might have everything you need. The standard checking account comes without fees or balance requirements.
The best APY comes with its money market savings account option, which pays up to 5.00% APY. The bank operates branches and ATMs throughout Ohio, and you’ll get expanded ATM access at Allpoint ATMs nationwide.
Fees:
No monthly fees
$20 fee for overdrafts
Balance requirements:
$10 opening deposit required
No minimum daily balance
ATMs:
Fee-free at KeyBank ATMs
Fee-free at Allpoint ATMs nationwide
$3 fee for out-of-network ATM transactions
Interest on balance:
Up to 5.00% APY on money market savings accounts
Up to 4.74% APY on CDs
Additional perks:
2. Huntington National Bank
Huntington National Bank has branches throughout the Midwest, but its headquarters is in Columbus. That gives the bank a strong presence throughout the state, with a bank branch in Columbus, Cleveland, and the Akron areas.
Huntington Bank has a fee-free checking account that even waives fees on overdrafts up to $50. But one of the biggest selling points for Huntington Bank is its interest rates. The 0.06% APY on savings accounts and 5.13% APY on CDs is better than average, particularly for traditional banks.
Fees:
No monthly fees
$15 (waived up to $50)
Balance requirements:
No minimum deposit to open
No minimum balance requirement
ATMs:
Fee-free at more than 1,700 ATMs nationwide
$3.50 out-of-network ATM fee
Interest on balance:
Up to 0.06% APY on savings accounts
Up to 5.13% APY on CDs
Up to 4.18% APY on money market accounts
Additional perks:
Standby Cash serves as an automatic line of credit
Early access to paycheck with direct deposit
3. Chime
Chime is an online banking platform open to consumers throughout the U.S. Ohio residents looking for banking services will get all the basic amenities through Chime’s app. You get mobile check deposit, funds transfers, and a Visa debit card. Like many other online banking options, Chime also gives you cash access through partnerships with ATM providers and retailers nationwide.
Fees:
No fees
No fees for overdrafts
Balance requirements:
No opening deposit required
No minimum daily balance
ATMs:
Fee-free at 60,000+ ATMs nationwide
$2.50 fee for out-of-network ATM transactions
Interest on balance:
2.00% APY on savings accounts
Additional perks:
4. Wright Patt Credit Union
Credit unions have competitive rates and perks, but they also come with membership requirements. Wright Patt Credit Union is open to anyone who lives, works, worships, or attends school in 20 Ohio counties.
You’ll have fee-free ATM access at WPCU ATMs throughout Southwest and Central Ohio, as well as through CO-OP ATMs nationwide. But one of the biggest selling points is WPCU’s interest rates. Currently, they’re paying 7.00% APY on the first $1,000 in your savings account.
Fees:
No monthly service fees
$9 fees for overdrafts
Balance requirements:
No opening deposit required
No minimum daily balance
ATMs:
Fee-free at WPCU ATMs
Fee-free at CO-OP ATMs nationwide
No fee for out-of-network ATM transactions
Interest on balance:
Up to 7.00% APY on savings accounts
Up to 4.85% APY on CDs
3.30% APY on money market accounts
Additional perks:
WPCU Sunshine Community Fund supports local nonprofits
Competitive rates on personal loans
5. Chase Bank
Chase is a national bank with locations across Ohio. The Chase Total Checking Account comes with a $12 monthly fee. However, Chase waives it if you have direct deposits of $500 or more each month, keep at least a $1,500 daily balance, or maintain a $5,000 minimum balance across all your Chase accounts.
For younger costumers, take a look at the Chase Student Checking Account, which is designed for students between the ages of 18 and 24.
Fees:
$12 monthly fee (waived with requirements)
$34 overdraft fee
Balance requirements:
No minimum deposit to open
No minimum daily balance
ATMs:
Fee-free at 16,000+ Chase Bank ATMs
$3-$5 out-of-network ATM fee
Interest on balance:
0.01% APY on savings accounts
Up to 3.75% APY on CDs
Additional perks:
$100 checking account bonus
Credit cards offer bonuses and general rewards
6. Woodforest National Bank
Woodforest National Bank is a community bank with branches in Ohio, Alabama, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Mississippi, New York, North Carolina, Pennsylvania, South Carolina, Texas, Virginia, and West Virginia.
The basic checking account comes with a $6.95 fee, but Woodforest waives it with monthly direct deposit or a daily balance of at least $100.
Fees:
$6.95 monthly maintenance fee (waived with requirements)
$32 overdraft fee
Balance requirements:
$25 deposit to open
No minimum daily balance
ATMs:
Fee-free at Woodforest National Bank ATMs
$2.50 out-of-network ATM fee
Interest on balance:
Up to 0.50% APY on savings account balances
Up to 4.60% APY on CDs
Additional perks:
7. Fifth Third Bank
Headquartered in Cincinnati, Fifth Third Bank is one of the top regional banks in Ohio. You’ll get fee-free ATM access not only at Fifth Third ATMs but also at more than 40,000 partner ATMs nationwide. Fifth Third Momentum Checking comes with no monthly maintenance fees, and you can avoid overdraft fees by depositing enough money to cover the overage by midnight the next business day.
Fees:
No monthly service fees
$37 overdraft fee
Balance requirements:
No deposit to open
No minimum daily balance
ATMs:
Fee-free at 1,500+ Fifth Third Bank ATMs
Fee-free at 40,000+ partner ATMs nationwide
$3 out-of-network ATM fee
Interest on balance:
0.01% APY on savings account balances
Up to 4.75% APY on CDs
Additional perks:
Early access to your paycheck
Extra business day to resolve overdrafts
8. GO2bank
If you haven’t checked into online banks lately, you might have missed how far they’ve come. Not only are their interest rates and fees competitive with most traditional banks, they also offer features that make it easy to skip the bank branch experience. GO2bank offers nationwide access to cash at Allpoint ATMs, as well as cash deposits at more than 90,000 retailers.
Fees:
$5 monthly maintenance fee (waived with requirements)
$15 overdraft fee
Balance requirements:
No deposit to open
No minimum daily balance
ATMs:
Fee-free at Allpoint ATMs nationwide
$3 out-of-network ATM fee
Interest on balance:
4.50% APY on savings account balances
Additional perks:
Up to 7% cash back on gift card purchases
Deposit cash at 90,000+ retailers nationwide
9. Quontic Bank
Another online banking option is Quontic Bank, which began as a community bank in New York City in 2009. Quontic has a wider range of cash withdrawal options than most banks, thanks to partnerships with Allpoint, MoneyPass, and Citibank. But one feature that sets this bank apart is its mortgage loan program.
Quontic has been designated by the U.S. Treasury as a Community Development Financial Institution (CDFI), which allows it to issue loans to borrowers who fall outside the requirements for a conventional home loan.
Fees:
No monthly fee
No fees for overdrafts
Balance requirements:
$100 opening deposit
No minimum daily balance
ATMs:
Fee-free at Allpoint ATMs nationwide
Fee-free at MoneyPass ATMs
Fee-free at SUM Program ATMs
Fee-free at select Citibank ATMs
Interest on balance:
Up to 1.10% APY on checking account balances
4.25% APY on savings accounts
Up to 5.15% APY on CDs
Up to 4.75% APY on money markets
Additional perks:
CDFI lending makes mortgage loans available to a wider range of applicants
Free contactless Quontic ring wearable with new checking account
10. Civista Bank
Local banks have plenty to offer, including a competitive annual percentage yield and personalized customer service. Civista Bank has branches in Northern, Northwestern, Central, and Southwestern Ohio, as well as Southeastern Indiana and Northern Kentucky. If you travel often, though, be aware that fee-free ATM transactions are limited to the service area.
Fees:
No monthly fee
$37 overdraft fee
Balance requirements:
$50 opening deposit
No minimum daily balance
ATMs:
Fee-free at Civista ATMs nationwide
$4.50 fee for out-of-network ATM transactions
Interest on balance:
Rates not publicly disclosed
Additional perks:
Bottom Line
With so many Ohio banks, the options can be overwhelming. It can help to narrow down the features you need. From personalized banking services to help with investment accounts, choosing a bank account is a personal decision. Compare rates and features between financial institutions until you find the right bank to meet your needs.
Open a BMO Harris Premier™ Account online and get a $500 cash bonus when you have a total of at least $7,500 in qualifying direct deposits within the first 90 days of account opening. Expires 9/15. Conditions Apply.
Most checking accounts pay no interest on balances. They cede that perk to savings accounts, which are designed to hold funds you don’t need to pay this month’s bills.
Interest checking accounts are different. Though they rarely yield as much as high-yield savings accounts, they make it worth your while to keep a checking cushion.
Ally Interest Checking is one such account. It has a bunch of other notable perks that make it more than suitable for everyday use as your primary checking account too. Read on to see if those outweigh its downsides.
What Is Ally Interest Checking?
Also known as the Ally Spending account, Ally Interest Checking is a free checking account that yields 0.10% APY on balances up to $15,000 and 0.25% APY on balances above that amount.
Ally Bank is an online-only bank with no branches, but Ally Interest Checking has more than 43,000 fee-free ATMs in its network and a robust mobile app that can replace the in-person banking experience for the vast majority of users. Other notable account features include built-in spending buckets that can help with budgeting, two layers of overdraft protection with no out-of-pocket fees, and an early direct deposit feature that can get you paid up to two days early.
Ally Interest Checking is one of several Ally Bank deposit accounts. The bank also has a high-yield savings account, money market account, and several different CDs. Other Ally financial accounts and services include a commission-free online brokerage, an auto lending department, and a home loan department that makes primary and secondary home loans.
What Sets Ally Interest Checking Apart?
Ally Interest Checking stands out from similar checking accounts for several reasons:
Overdraft protection with no fees. Ally Bank offers two layers of overdraft protection. Neither charge any fees; the bank eliminated overdraft fees entirely in 2021. That’s quite rare in the banking industry.
Big fee-free ATM network for an online bank. Ally Interest Checking has more than 40,000 fee-free ATMs in its network. You can find them all over the United States, so it shouldn’t matter too much where you live or travel.
Spending buckets for easy budgeting. You can create up to 30 spending buckets to categorize your monthly expenses. All bucketed funds remain in your checking account, but the buckets help you budget and see where you’re spending too much.
Powerful mobile app. The Ally Bank app is better than the average mobile banking app. With a fast, easy-to-use interface and clutch features like mobile check deposit and rapid person-to-person payments, it easily stands in for Ally’s standard online banking dashboard when you’re on the go.
Key Features of Ally Interest Checking
Ally Interest Checking has all the features you’d expect from a full-service online bank, plus some legitimately notable perks not found everywhere else.
Account Fees & Minimums
This account has no monthly or annual maintenance fee. There’s no minimum opening deposit and no ongoing minimum balance requirement either.
Account Yield
Ally Interest Checking has a two-tiered yield system. The yield is 0.10% APY on balances up to $15,000 and 0.25% APY on balances above that amount.
ATM Access
Ally Interest Checking has more than 43,000 fee-free ATMs in its network. You can withdraw cash without a surcharge anywhere you see the Allpoint logo.
Spending Buckets
Ally Interest Checking allows you to create up to 30 individual spending buckets to manage distinct pools of cash within your account. You can use the buckets for anything you want (and customize their names accordingly), but Ally really emphasizes how useful they can be for budgeting.
You can move cash into and between buckets instantly with the Ally mobile app or online account dashboard. All bucketed funds remain in your checking account, but you can choose which buckets to pull from for external transfers or bill payments.
Overdraft Protection
Ally Interest Checking has two overlapping layers of overdraft protection. Neither has any fees:
Overdraft Transfer Service: This feature pulls from a linked Ally Bank savings account to cover negative-balance transactions. Ally rounds up the transferred amount to the nearest $100, so a $75 overdraft would trigger a $100 savings transfer.
CoverDraft: This feature provides up to $250 in coverage for negative balances. Your account can remain overdrawn until the next deposit hits.
Even with complimentary overdraft protection, Ally reserves the right to decline specific transactions that would result in a negative balance and may revoke overdraft privileges if you frequently overdraw your account.
Early Direct Deposit
If your employer or government benefits provider qualifies, and most do, you can get your paycheck up to two days early with Ally Interest Checking. If your paycheck normally arrives on Friday, the money hits your account on Wednesday.
Paper Checks
You can order standard paper checks for your Ally Interest Checking account as often as you’d like with no order fees. Personalized checks may carry a design fee.
Mobile Features
Ally Bank has a comprehensive, user-friendly mobile app that can do just about anything the standard online banking interface can. It’s well-reviewed and has relatively few complaints from verified users, most centering on apparent glitches that may be user error.
Notable capabilities include:
Mobile check deposit
One-time and recurring bill payments
Person-to-person transfers through Zelle
Spending bucket management
Check reorders
Deposit Insurance
Ally Interest Checking comes with federal deposit insurance up to the standard FDIC limit of $250,000.
Pros & Cons
Ally Interest Checking has more advantages than disadvantages overall.
No maintenance fees or minimum balance requirements
No overdraft fees
Spending buckets to help with budgeting
Big fee-free ATM network
Below-average interest rate
No account opening bonus or spending rewards
No physical branches
Pros
Ally Interest Checking is almost entirely fee-free and has lots of user-friendly features.
No maintenance fees. This account has no monthly or annual maintenance fee. You pay nothing to keep your account active, no matter how much or how little you use it.
No minimums. This account has no minimum opening deposit or ongoing balance requirement. Since you don’t have to worry about keeping a certain amount in it, it’s useful as a low-balance secondary checking account.
No overdraft fees. Ally Bank charges no overdraft fees on this account. You have access to two overlapping overdraft protection plans, one that draws from your linked savings account and one that draws from deposits to the account.
Large network of fee-free ATMs. Ally Bank’s ATM network has more than 40,000 fee-free machines located in every state and major metropolitan area.
Comprehensive mobile app. Ally Bank has one of the best mobile apps of any online bank, which is pretty high praise. It’s easy to use and can replicate all the functionality of the standard online interface.
Spending buckets make it easy to manage your budget. You can set up as many as 30 spending buckets to manage recurring expenses, short-term goals, and other aspects of your household budget. It’s much easier than using a spreadsheet or third-party budgeting software.
Get paid up to two days early. Most employers and benefits providers qualify for early payday. If you normally get paid on Friday, you’ll get your paycheck on Wednesday instead.
Cons
Ally Interest Checking isn’t as generous as some competing interest checking accounts and isn’t appropriate for people who prefer in-person banking.
Lower interest than some comparable accounts. This account’s yield tops out at 0.25% APY, and you need to have at least $15,000 in the account to earn at that rate. Otherwise, your yield is just 0.10% APY. Both rates are less generous than some otherwise similar interest checking accounts.
No account opening bonus. This account has no account opening bonus for new users. Some competitors offer bonuses worth hundreds of dollars when you complete qualifying activities after sign-up.
No debit card rewards. Ally Interest Checking has no spending rewards program. You can’t earn cash back on debit card purchases with this account, as you can with many other bank accounts.
No physical branches. Ally Bank is an online-only bank with no physical branches. Its desktop and mobile interfaces are robust enough that you’ll probably never feel the need to visit a branch, but it’s not appropriate if you like having a branch network as a fallback.
How Ally Interest Checking Stacks Up
Ally Interest Checking competes against quite a few interest-bearing checking accounts. One of its closest cousins is Quontic High Interest Checking. Before applying for either, see how they compare.
Ally Interest Checking
Quontic High Interest Checking
Maintenance Fee
$0
$0
Minimum to Open
$0
$100
Minimum Ongoing
$0
$50
Maximum Yield
0.25% APY
1.10% APY
Qualifying Activities?
Not, but maximum yield requires $15,000 daily balance
Yes, 10 debit card transactions per month
Debit Card Rewards?
No
No
ATM Network
43,000+ locations
90,000+ locations
Ally Interest Checking is a better fit for occasional users and users with low account balances, thanks to its total lack of minimum balance requirements and transaction requirements to earn interest. But Quontic High Interest Checking has a higher maximum interest rate if you’re able to clear the monthly transaction hurdle.
Final Word
Ally Interest Checking is a straightforward checking account with a decent but not really notable yield and tons of user-friendly features. If you’ve struggled to get a handle on your budget in the past, occasionally overdraw your account, or silently curse your current bank every time you open its mobile app, give it a closer look.
Just don’t expect any miracles. Ally Interest Checking is less generous than some competing accounts, so you need to decide whether the perks and usability justify the below-average return on your balances and spending.
The Verdict
Our rating
Ally Interest Checking
Ally Interest Checking is a simple checking account that’s refreshingly user-friendly. Its spending bucket feature makes it easy to get (and keep) control over your budget, and it has a relatively large fee-free ATM network for an online bank. Its mobile app is better than average too. But with a low yield and no spending rewards, it’s not as generous as it could be.
Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
If you have been trading for a while, then there is a good chance that you have made some trading mistakes along the way.
Unfortunately, it is part of learning how to trade.
After all, trading is a skill that takes time to learn.
Trading mistakes are part of the learning process. I know that sucks to hear, but it is the truth.
The outcome goal is to learn from those trading mistakes.
Then, you can realize what you did wrong so you do not repeat those same mistakes.
However, more than not, it is more common to repeat the same mistake over and over again.
If you are ready to recognize trading errors and learn how to overcome them, then keep digging in. Take notes and adjust your trading plan accordingly.
We will cover emotional trading mistakes, technical trading errors, and option trading mistakes.
What Are Trading Mistakes?
Trading mistakes are errors made by traders when you enter trades, either to purchase stocks or options.
More than likely, you will see the same type of trading error happening over and over again.
Trading mistakes are very common, but they do not have to lead to complete panic.
In order to minimize the chances of making a costly mistake, traders should adhere to their trading strategy. Additionally, traders should always trade with a clear head and stay disciplined.
There are plenty of trading mistakes you can avoid by being smart and adjusting your trading plan where needed.
Why Understanding Trading Mistakes Is Important for Long-term Success
Trading mistakes are the result of traders taking losing trades, which can result in poor overall performance.
Mistakes that occur during trading often include not paying attention to the market, not understanding risk, not having a well-thought out trading strategy, and being bad at managing the trade.
Whatever the reason, trading errors occur and it is how we react to them that matters.
Long-term success in trading is not a goal that can be accomplished overnight.
Achieving long-term success with active trading requires patience, discipline, and practice.
It is easy to get caught up in day-to-day successes and forget to commit to a long-term plan. As traders, it is important to be able to recognize our mistakes so that we can learn from them and move forward.
Top 5 Trading Mistakes
As you will see, we compiled a long list of trading mistakes. Each trader will see some of those trading errors in themselves. Some are small trading mistakes while others are detrimental.
First, we are going to focus on the top five trading mistakes first. This will make or break your success as a trader.
The following are five common trading mistakes that traders make and how to avoid them.
#1 – No Trading Plan
Trading without a plan means you enter a trade without knowing your next step.
No trading plan means that traders are not able to set clear goals, establish risk-reward ratios, and avoid common pitfalls that can occur during a trade. This makes it difficult for traders to know when they should be buying, selling, or holding.
Trading without a plan is risky because it can lead to losses that are much higher than they need to be.
When starting out in trading, it is important to remember that we can only focus on what we can control. This means that we should not worry about things we cannot change, such as the past or the behavior of other traders. Instead, we should form a trading plan and stick to it so that we can succeed in the long run.
Creating your trading plan will happen with many revisions. The goal of the trading plan is to set your overall strategy for trading.
Also, you need to have a specific trading strategy for each trade you enter.
Avoid by: Spending time to develop a trading plan. Revise as needed. Stick to it.
#2 – Risk Management Plan is Missing
A risk management plan is essential for traders and it should be included in any trading plan.
Without a risk management plan, traders are more likely to make emotional decisions that can lead to costly mistakes. For many traders, this is the hardest thing for them to manage.
It is possible to create a risk management plan as your overall trading plan.
In your risk management plan, you must decide (in advance) how much money you are willing to lose based on the amount of profit you perceive to make. For instance, you are willing to risk $300 in order to make $1000.
Many day traders focus on a 2:1 reward-to-risk ratio. Personally, I look for stronger reward-to-risk ratios greater than 3:1.
Avoid by: Understand how risk is a part of making a profit. Set your risk tolerance and do not deviate from it.
#3 – Not Keeping a Trading Journal
One of the most important aspects of successful trading is keeping a journal.
This not only helps you keep track of your trades and performance, but it can also help you remember what worked and what did not. Journaling is so helpful and such an overlooked task.
Your trading journal is the perfect place to take notes, keep track of your wins and losses, and record market movements so that you can learn from past mistakes.
At the end of every trading session, you should take some time to analyze your trades.
What went well?
What didn’t go well?
Why did you make that particular trade?
What was your entry strategy?
What was your exit strategy?
Where was the overall market momentum?
Did you control your emotions?
What grade would you give yourself?
This analysis is important so that you can learn from your mistakes and improve your trading skills. Stay motivated to continue learning about trading and keep more profit.
Avoid by: Start journaling. Spend time after exiting a trade and the market day to understand what happen and why you did a certain trade.
#4 – Watching Too Many Stocks
Watching too many stocks can lead to a decrease in returns and overall confusion on what is happening with your watchlist.
As a result, it is important to be selective.
The same can be said of stock scanners. If you are watching too many variables and possibilities, you can quickly become overwhelmed.
When you develop your trading plan, you need to decide how you find stocks.
Personally, I prefer to focus on a handful of stocks and a few key metrics. Then, watch them closely and trade accordingly.
As a new trader, I would pick about 5-10 stocks to analyze.
Avoid by: Revise your watchlist to half what you are currently watching.
#5 – Actually Exiting Trade as Planned
Above we talked about creating a trading plan and having a trading strategy for each trade taken.
But, the trading mistake happens when you do not exit the trade as planned.
This could be because of “hopemium” that the stock price will recover and you will get back your loss.
Our “hopemium” is that the stock price keeps rising and you will make more money.
Either one can be damaging to your trading account.
You created a plan. As a disciplined trader, you must follow your plan either to maximize your current profit or protect your risk against further losses.
Avoid by: Exiting at your set targets. Period.
12 Typical Emotional Trading Errors
Trading is 80% mental and 20% execution. Okay, I am not sure that there is an official study to back it up. But, I do know as a trader that emotions play heavily into your overall profit.
The typical emotional trading errors that traders make when they are in a trade are overconfidence, jumping into trades before the proper analysis is completed, and inability to take losses.
This is where most of the trading mistakes are made.
When first starting out in trading, it is easy to get caught up in the prospect of making a lot of money quickly. However, most traders find that trading is not easy to do and make common emotional trading errors.
Let’s dig into these emotional mistakes first and then we will follow up on the technical trading mistakes.
1. Letting emotions impair decision making
Emotions are an important part of decision-making, but it can be dangerous to allow them to influence our decisions. We should also take into account that emotions can often lead us astray.
It is clear that emotional trading can lead to bad decision making and, ultimately, financial losses.
When investors let their emotions take over, they are not thinking logically and may make impulsive decisions. For example, they may sell stocks when the market is down in order to avoid further losses, even though the stock may rebound soon after.
In order to be successful traders, it is important to stay calm and rational when making decisions.
Overcome by: Stick to your trading plan and take emotion out of the equation.
2. Unrealistic Profit Expectations
You go into every single trade expecting a home run! Enough money to achieve your dreams overnight!
These types of profit expectations will have you throwing your risk management plan out of the window and set you up for failure with greed, overconfidence, and impatience.
Be realistic about your expectations with trading activity.
Overcome by: Go for base hits. Small consistent wins.
3. Greed
Greed is a deep-seated need for more profit without regard to the chart or market conditions.
The common rationale is hopefully the stock will go up. Typically, you hold your position too long and end up losing some of your gains.
Greed can manifest in many different ways, and people with greed often neglect their own needs in order to attain more.
Overcome by: Set an OCO bracket to exit the trade at your specified level. Take you out of the equation.
4. Fear of Missing Out (FOMO)
You fear that you missed out on a trade, so you decide to jump in. As a result, you are risking more than you should.
This trading mistake is common, especially with online trading communities.
As a result, you may buy at the high and watch the stock reverse.
Overcome by: Realize that there will be missed opportunities. That is part of the game. There will always be another chance.
5. Fear
In many cases, fear is a reaction to why or why not we enter a trade.
For any trader, they may become frozen unable able to make a decision as their mind is wrapped in fear. At the same time, they are either missing out on potential profits or unable to exit a trade due to mounting losses.
Overcome by: This is a real emotion that you must overcome. Take the time and read resources to help you overcome being paralyzed by fear.
6. Overconfidence after a profitable trade
The overconfidence that comes with success can lead to a loss of profits.
When a trader has a winning position, they may become overconfident and make bad decisions because of the previously profitable trade.
For example, they may not take their profits off the table when there is an opportunity to do so or increase their position size when they should be taking profits. This could lead to them losing all of their winnings and more.
Overcome by: Take a break from trading for a few days or a week after a big win.
7. Entering a Trade Based on Your Gut
The process of entering a trade based on your gut is, essentially, following your “gut feeling” and buying or selling shares after the market opens. This is seen as a more risky and less profitable strategy than following a more traditional market timing approach.
Trading is all about making calculated decisions and sticking to a plan.
Trading based on your gut feeling or emotions will only lead to costly mistakes.
Overcome by: Before entering into any trade, make sure you have a solid strategy in place and know all the rules. Only then should you start trading.
8. Not reviewing trades
Not reviewing trades is a common problem for many traders. Traders who don’t review their trades tend to be more likely to make mistakes in their trading and over-trade, which can result in losses.
You will make the same mistake over and over again until you realize the root of the problem.
This is how you move from a losing average to a winning percentage.
Overcome by: Let your journal be your friend. Document everything including your emotions.
9. Following the Herd
Many people enjoy following the herd with stock trading, especially online platforms on Reddit, Discord, or Twitter.
You may decide to follow a certain group of people in order to be fed stock picks or updates.
This can be risky because there is no sound foundation to base your trade upon.
Overcome by: Trade your style and let that fit you.
10. The Danger of Over-Confidence
The “beginner’s luck” experienced by some novice traders may lead them to believe that trading is the proverbial road to quick riches.
Over-confidence is the belief that one’s abilities, knowledge, or qualities are better than average.
This over-confidence is a risk factor for certain types of mistakes and other negative outcomes as it leads to complacency, a lack of preparation, and an overestimation of one’s abilities.
Overcome by: Realize your limitations and watch for overconfidence to appear.
11. The Importance of Accepting Losses
Losses are always a part of trading life, but they can be overwhelming when they occur.
It is important to recognize that losses are in fact an inevitable part of growth and development as a trader.
Overcome by: Journal all of your losses. Look for patterns to appear. Adjust your trading strategy as appropriate.
12. Quit Your Job Too Fast
Quitting your job too fast is not a good idea, as it will force you to place trades that may not be the best set-ups.
Day trading can be a very risky venture, and it is possible to lose everything you have invested.
It is important to be aware of the risks before getting started. More importantly, do not quit your job too fast. This can lead to losses in your investments and could potentially put you in a worse financial situation than you were before.
Overcome by: Keep trading as a side hustle. Hone your trading skills and build up a reserve fund that will cover your monthly expenses. You will know when you are prepared to leave your 9-5.
Common Mistakes in Stock Trading
According to a study by the U.S. Securities and Exchange Commission, technical trading mistakes are actually fairly common among individual investors.
Mistakes in technical trading can be two-fold, either due to lack of knowledge or poor execution.
The most common mistakes are buying at the top and selling at the bottom, overtrading, and not taking the time to properly understand how trading works.
Now, let’s dig into all of the common trading mistakes I see.
1. Overtrading
Let’s start by talking about overtrading. This is a mistake that I see many people make. It is also a mistake that could have been easily prevented if you had just done your research before placing the trade.
Overtrading or placing more orders than you should do is the most common mistake.
Many new traders will simply open up their platform, look at the market, and place a trade. They are often chasing after the last couple of candles or they see an opportunity to get in “on the cheap”.
The problem with this approach is that you have no idea if this is a good trade or not. You are simply taking a shot in the dark and hoping for the best.
Overcome by: Only place the A+ setups that you like. Once you have traded so many times per day or week, stop trading.
2. Buying High and Selling Low
We all have heard the saying, “buy high and sell low.” However, too many novice traders do the complete opposite.
This trend happens with one of the emotional mistakes of FOMO; we already dived into that concept earlier.
Overcome by: Follow your trading plan on when to enter and exit the trade. Practice your strategy in a simulated account and master it.
3. Lack of Trading Knowledge
The lack of trading knowledge is a problem for many traders who are not familiar with how the stock market works. This can cause them to make mistakes when buying and selling stocks, which could result in losing a lot of money.
Just because you made a profit once on one stock does not mean that is a repeatable action.
In order to be successful in trading, it is important to have a good understanding of the markets and the strategies involved.
Without proper training, you are likely to make costly mistakes that can cost you money. Trading courses and tutorials are available online and through other resources to help you gain this knowledge and become a successful trader.
Overcome by: Take an investing course. Spend money on your education and not your losses. Here is a review of my favorite day trading course.
4. Following Too Many Strategies
Following too many strategies is a common problem in the investing world, which can lead to poor performance and more costly mistakes.
There are a million and one different approaches on how to trade the stock market, which indicators to use, whose advice you should follow, so on and so forth.
And then, many traders try and couple the strategies together only to quickly learn they may cause more losses than profits.
One way to avoid following too many strategies is by using a set of rules to decide which strategies are appropriate for investing.
Overcome by: Develop your trading plan. Outline the investing strategies you will use. Test any new strategies in SIM first.
5. Do Your Research
The solution to this problem is simple: do your research!
Before you enter a trade, take the time to do some analysis on the asset you are looking at. Look at past price action, news events, and any other relevant information that you can find.
Understand why the market might move in your favor and be able to build a case for it. The more data points you have supporting your position, the better off you will be.
If you are able to build a strong case for why the asset will move in your favor, then you can enter with confidence. This is because if the market does not move in your favor, you will know that it isn’t because of a lack of research on your part.
When you enter with confidence, this will make it easier to hold through the inevitable volatility and price swings.
Overcome by: If you enter without knowing why something is likely to move in your favor, then you are setting yourself up for failure. Do your research.
6. Not Using Stop-Loss Orders
Stop orders come in several varieties and can limit losses due to adverse movement in a stock or the market as a whole.
Tight stop losses generally mean that losses are capped before they become sizeable. However, you may have your stop loss too tight and get stopped out before your stock has room to move.
A corollary to this common trading mistake is when a trader cancels a stop order on a losing trade just before it can be triggered because they believe that the price trend will reverse.
Overcome by: Plan your stop loss in advance. Stick to it as it is part of an overall risk management strategy.
7. Letting Losses Grow
Active traders can be harmed by refusing to take quick action to close a losing trade.
It is important to take small losses quickly and limit your risk in order to stay profitable.
Stop losses can help you avoid larger losses.
While the stock may come back to your buy price, you have increased your risk far beyond what you planned. If your planned loss was $300 and now you are down over $500, it will take that much longer to overcome that growing loss.
Cut your losses. Review the chart. See what a better entry point may be.
Overcome by: If the stock moves past your pre-determined stop, then exit the trade. Don’t trade on hope.
8. Chasing After Performance
Many day traders are tempted to chase stocks, which is a bad reputation in the day trading world.
This happens when they see a stock that has had a large price increase and they think that it will continue to go up. In reality, this is not usually the case, and chasing stocks can lead to big losses.
What goes up must come down, right?
Overcome by: Wait for a better time to enter the trade according to your trading plan.
9. Avoiding Your Homework
It is important to do your homework. If you avoid doing your homework, then don’t expect fast results
Many new traders often do not do their homework before making any investment decisions.
This can lead to costly mistakes that can be avoided by doing some basic research. Trading is a complex process and should not be taken lightly – make sure you are fully prepared before risking your hard-earned money.
Overcome by: If you have not enrolled in an investing course, do that. Set daily goals on how to improve your trading performance that is not based on profit or loss.
10. Trading Difficult and Unclear Patterns
It is important to stick with the patterns and indicators that are clear and unmistakable so you don’t get caught up in any ambiguous or unclear trading signals.
With a little bit of research and understanding, these market patterns can become quite clear.
By forcing a chart to fit in what you want, then you are putting your trading capital at risk.
Overcome by: If you cannot read a clear chart or pattern, then quickly move to the next stock.
11. Poor Reward to Risk ratios
The most common mistake made by traders is poor risk management. This usually means taking on too much risk in relation to the potential rewards, which can lead to heavy losses if the trade goes wrong.
It is important to always have a solid plan for how much you are willing to lose on any given trade and never deviate from it.
What is the Reward to Risk ratio you look for:
1:1 Reward to Risk
2:1 Reward to Risk
3:1 Reward to Risk
Many beginner traders do not want to take on as much risk because their appetite for potential rewards may be lower. It is important for beginners to consider their trading strategies and risk management plans so that they can make the most informed decisions possible.
Risk-to-reward ratios are an important part of trading, and experienced traders are typically more open to risk in order to maximize their potential rewards. This means that they may be more likely to make high-risk, high-reward trades.
Overcome by: Stick to Risk to reward ratios that fit your trading plan.
12. Ignoring volatility
Volatility is the fear and unknown in the market.
The most important thing to remember about investing is that the stock market can be volatile.
A measure of volatility is from the VIX.
Overcome by: Decide how you will trade when the VIX is high and the news is negative.
13. Too Many Open Positions
Entering too many positions is one of the most common mistakes investors make. A portfolio should consist of a handful of top-performing investments that have proven to be good bets over time.
It is unwise to open too many positions in a short amount of time because it could lead to confusion.
This can be risky because if one or two of the positions go south, the entire portfolio can suffer. For this reason, it is important to carefully consider each position before opening it and make sure that all positions are contributing positively to the overall goal.
Overcome by: As an active trader, stick to under 5 open positions. As a long-term investor, look to build a portfolio of 25 stocks over time.
14. Buying With Too Much Margin
Most brokers offer 2:1 or 4:1 margin to cash. While this is tempting to use, it can also give you a margin call.
Margin can help you make more money by increasing your position size, but it can also exaggerate your losses.
Exaggerated gains and losses that accompany small movements in price can spell disaster for a new trader using margin excessively.
Overcome by: Use your cash only. Stay away from using margin.
15. Following Meme Stocks
These are the stocks made popular by many Reddit personal finance groups.
You have probably heard of Gamestop, Blackberry, AMC, or Bed Bath and Beyond as a meme stock.
While these stocks have risen to crazy highs, they have also fallen just as fast. Chasing the high may leave you with a big and painful loss.
Overcome by: Stick to your stock watchlist.
16. Buying Stocks With No Volume
Buying stocks with no volume is a risky idea that involves placing an order on a stock without knowing how much interest there will be in the shares. This can result in losing money if there are no buyers for the shares.
It is important to validate the price of a stock by looking at volume. The volume shows how much interest there is in a stock and can be indicative of future price movement.
When volume is low, it’s best to stay away from buying stocks as it could be a sign that the stock price is not stable.
Overcome by: Trade stocks with a volume of at least 500,000 or higher.
17. Ignoring Indicators
Indicators are things that tell us the market is going up or down. Examples of indicators would be the stock market at a particular point in time, a company’s performance with regards to earnings, the price of a product or service.
Every trader has their own set of indicators they use.
If you have outlined indicators you use in your trading, make sure to follow them regardless if it is against the way you want the stock to move.
Overcome by: Stick to your trading plan for each stock individually.
18. Trading Too Large Position Sizes
Trading too large position sizes is a risk that traders may run into when they hold positions in their portfolios for extended periods of time.
Position size is the amount of money placed on a trade, and the risk is that a trader may lose more than their capital on the trade if it does not go well.
Overcome by: Base your position size on the amount you are willing to lose. Not how much you want to make.
19. Inexperienced Day Trading
In order to be successful in trading, it is important to have a good understanding of the markets and the strategies you are using. Without proper training, it is easy to make costly mistakes.
Too many day traders turn trading into an unnecessary risky game.
To be successful, a day trader must have a solid foundation in how to invest in stocks for beginners.
Overcome by: Practice in a simulated account and make all of your mistakes there before moving to live money.
20. Inconsistent trading size
Inconsistent trading size is when traders are unable to predict what their position size should be in order to meet the trader’s desired profit goal.
Trading size is one of the most crucial aspects of a trading strategy and should be considered carefully. Larger trade sizes come with an increased risk, so it’s important to be aware of your position size when making trades.
Overcome by: Don’t risk too much on one trade. Stick to your risk management plan.
21. Trading on numerous markets
Trading on numerous markets is when a trader invests in stocks, bonds, commodities, crypto, and other securities.
Every type of market moves differently and takes time to understand how to be profitable.
Overcome by: Find your niche and stick to it.
22. Over-leveraging
Leverage is a powerful tool that can be used to magnify gains and losses in a trade. It is important to be aware of the amount of leverage being used in order to effectively manage risk.
Brokers play an important role in protecting their customers by providing margin calls and other risk management tools.
Overcome by: If you feel over-leveraged, sell some positions before your broker gets involved.
23. Overexposing a position
Overexposure is a term used in the investment world to describe the risk that comes with exposing your position too much in the market. When you have overexposed your position, you are putting yourself at risk of losing money if the stock or security you are invested in falls in value.
You are taking on too much risk.
Overcome by: Stick to your risk management plan. Always have cash reverse on hand in case the market reverses.
24. Lack of time horizon
There are different time horizons for various types of trading strategies. It is important to think about the time horizon you are comfortable with before investing in any type of investment.
If you are a day trader, you plan to close your trades before the end of the trading session. As a swing trader, you typically hold trades for a couple of days maybe up to a month. As a long-term investor, you plan to hold your stocks for longer than a year.
Overcome by: Match the time horizon of that investment purchase with your investing goals.
25. Over-reliance on software
Although some trading software can be highly beneficial to traders, it is important not to over-rely on it.
Automated trading systems are becoming so advanced that they could revolutionize the markets. As a result, human traders need to be aware of the potential for these systems to make mistakes and use them in conjunction with their own judgment.
Overcome by: Set alerts before you want to enter or exit a trade. Then, review if the move still follows your trading strategy.
Top Options Trading Mistakes Beginner Traders Make
These options trading mistakes are specific to option trading.
Trading options is an advanced strategy. If you have losses trading stocks, wait before you start trading options.
1. Not having a Trading Plan
Every trader needs a trading plan that outlines strategies, game plans, and trade metrics.
When you are trading without a plan, you are essentially gambling and hoping for the best.
This is not a recipe for success in the world of stock trading and is especially true for options traders.
A good trading plan should include chart analysis so that you can make informed decisions about when to buy and sell stocks. If you are using HOPE instead of a trading plan, then you need to find out the right way to interpret the chart because that will give you a better idea of what is happening in the market and how likely it is that your investment will succeed.
Overcome by: Create a specific trading plan based on your option strategy.
2. Not properly Researching Option Contracts
Learning to trade options is like going to school for a whole different trade.
There are way too many technical aspects to discuss in this mistake.
Spend time learning what criteria you want from an options contract to be successful.
Overcome by: Learn how options work and practice trading options in the simulator before going live.
3. Trading without an understanding of the underlying asset
Before you start trading options, trade with stocks.
Every stock moves at its own beat. You need to learn how it moves.
Jumping into options prior to knowing the stock can cause extreme losses. Learn how the underlying asset moves first. Be successful in trading stocks before moving to options.
Overcome by: Learn to trade the stock with shares first. Then, practice in a simulator. Once familiar, then trade live with options.
4. Buying Out-of-the-Money (OTM) Call Options
Options trading is a risk-based strategy. It’s important to know which strategies are right for you and what the risks of each option type are before putting on an option trade.
One common mistake that many traders make when it comes to option trades is buying out-of-the-money (OTM) call options.
This is because OTM call options are inexpensive and have a range of around 100,000 to 1 million. To avoid this mistake, it’s important to know what the risks of buying OTM call options are and which option strategies are appropriate for you.
Overcome by: Focus on trading In-the-money (ITM) call contracts. Know your strategy.
5. Not Knowing What to Do When Assigned
When you enter into an options contract, you are essentially agreeing to buy or sell the underlying asset at a specific price on or before a certain date.
If the market moves in a way that benefits the buyer of the option (the person who contracts to buy the asset), they can choose to exercise their option and purchase the asset at the agreed-upon price. However, if the market moves in a way that benefits the seller of the option (the person who contracts to sell), then they may “assign” their contract to someone else – meaning that they no longer want to buy/sell the asset, but would like someone else to take on that responsibility.
This can be jarring if you haven’t factored it into your decision-making when trading options, so it is important to be aware of the possibility.
This is why traders need a higher trading level to sell options contracts or verticals.
Overcome by: Be okay with buying the shares if you are assigned. That is a part of your trading plan.
6. Legging Into Spreads
It is a common mistake for traders to get legged into spreads by entering positions when the market price has moved away from their position. They may have gotten caught up in the belief that they are being a “smart” trader by trying to profit from the spread.
The problem is that they are not taking into account that their cost basis must go up in order to maintain the position. If the market price of the underlying goes up, their cost basis must go up as well.
Overcome by: If you are not comfortable with this advanced strategy, then exit your options contract and place a new one.
7. Trading Illiquid Options
Trading illiquid options is a mistake because traders are taking on too much risk, with potentially disastrous consequences.
Illiquid means that the option cannot be bought or sold at the given time.
In other words, the option is not tradable. When traders trade illiquid options, they are taking a risk that their trades will not be executed because there is no liquidity in the market at that time. They have to hope that the market will become liquid again, and they can then sell their position or buy back their option at a lower price.
Overcome by: Check option volume and open interest at your strike place. Verify you have interest in moving your contract.
8. No Exit Plan
It is important to have a plan in case your trading strategy doesn’t pan out as planned.
This will give you the peace of mind that you won’t be left high and dry without an exit strategy.
With options is it more difficult to limit your risk to reward. As a result, you must decide your exit plan in advance.
Overcome by: Develop your trading strategy and include how and when you will exit the option contract.
Ready to Avoid these Trading Mistakes?
Investors are often their own worst enemy when it comes to trading.
They make emotional decisions instead of logical ones, and this leads to them making costly mistakes. Plus there are many technical errors new and seasoned traders are still making.
In order to be successful in the markets, investors must first learn to accept their losses and move on. Only then can they put that mistake behind them and focus on making profitable trades in the future.
In this post, I shared some of the more common trading mistakes that people make and how to avoid them.
Now, you have to work to avoid these trading mistakes and be profitable.
Know someone else that needs this, too? Then, please share!!
The average millennial is 35 years old, earns $54,000 per year, and has a net worth (including any home equity) of around $130,000
45% of millennials have student loan debt, with an average balance of $40,600
52% of millennials are homeowners, with a majority of those home purchases occurring over the past 5 years
55% of millennials have children, with a total U.S. birthrate in 2021 of 1.66 children per woman (it takes 2.00 children per woman for the population to replace itself, so we might be in trouble there…)
There are simple steps you can take to become better-than-average financially, including focusing on increased income, measuring your monthly cashflows, using tax-advantages investing vehicles, and more.
The Stats
I’m a Millennial. Many of you reading this are too. Millennials – also called Gen Y – are people born between 1981 and 1996. The average millennial is currently 35 years old.
Let’s walk through some vital financial statistics for American millennials. Then we’ll talk about how we can improve our own financial life to become above average.
Using income data and net worth data from the website DQYDJ, we can see that the average 35-year-old earns $55,000 per year and has a net worth (including home equity) of $130,000.
If we add in data from this Business Insider article, we also learn:
Just under half of American millennials have student loan debt. Roughly 45% of millennials have loans, with an average remaining balance of $40,600.
I’m sure this data skews younger. The oldest millennials are 42 years old, while the youngest are 27. Not only have college costs continued to rise in the past 20 years (affecting younger Millennials more than older), but there’s also the plain fact that older millennials have had more time to pay their loans off.
According to a RentCafe study, 52% of millennials own a home.
18.2 million Millennials now own, or share ownership in, a home, vs. 17.2 million millennial renters (note: this data looks at the 110 largest American metro areas, thus does not include all millennials)
Again, this data likely has an age skew. The chart below shows how millennial homeownership first increased in the early 2000s – when the youngest millennials were still in elementary school. The oldest millennials have had a long time to buy.
That said, 7.1 million millennials became homeowners in the past 5 years (including yours truly). More and more younger millennials are looking to purchase homes.
An important caveat…home ownership might be the so-called “American Dream,” but it’s not mathematically optimal for all people, nor a great investment in general. I’m a huge proponent that your primary home is “a home first, an investment second.” You need a place to raise a family. You don’t need a 7% real return on investment.
According to an older (2019) Pew Research study, fewer millennials are starting families than previous generations. Pew found that 55% of millennial women had had a live birth, compared to 62% of Gen X women and 64% of Baby Boomer women in the same age range.
What does this have to do with personal finance?
First, kids are expensive. Having kids is financially challenging. And not having kids can be a symptom of an already-challenging financial life e.g. “I’m not having kids because I couldn’t afford to give them a good life,” or, “My goddamn student loans were so high we delayed having kids by 5 years.”
Second, birthrates drive economies. Children grow into adults – who work, consume, and oil the economic machine. Personal finance is tied to that economy.
How to Be a Better-Than-Average Millennial…At Least Financially
What can you do to rise above the average?
First, adopt a stoic mindset. If you’re “worse” than average, you’re not a bad person. And whatever happened in the past – those events that brought you to this moment – is immutable. You can’t change it. All you can do is forge on and blaze a better trail ahead.
So let’s blaze that trail.
Salary and net worth are easy-to-measure metrics, so let’s start there.
Improving Your Salary
One of the worst pieces of financial advice I see all too often is, “Did you consider increasing your income?” …as if there are raises hiding in your office cabinets if only you’d look for them!
The better advice, instead, is encouragement that you can increase your income. You just need the right approaches and tactics. What are some examples?
Talk to your manager. Is there a path for increased pay in your role or at your company? Ask them: what does that path look like? Get them to agree that if you follow the path, a pay raise will follow.
More education. Maybe there isn’t a positive path at your current job. It’s a dead end. You need to find ways to get on a better path, and further education is highly effective. BUT! You need start with the end in mind. Get a degree or certification that will truly further your career and your income. Computer science? Yes. Underwater basketweaving? Not so much.
Look outside your current role, too. One of the fastest ways to higher pay is by switching jobs. Or using a potential job switch to negotiate a raise.
Side hustles can work. But choose carefully. I know too many Uber drivers who, if they ran the numbers, would realize their side hustle barely pays them minimum wage.
Increasing Your Net Worth
Salary is a one-trick pony. All it measures is incoming cashflow in. Net worth is far more comprehensive, as it’s a function of:
inbound cashflow
outbound cashflow
changes in asset values (e.g. investment growth)
There are many ways to increase your net worth, most of which are within your control today (unlike increasing your salary, which might take years to successfully execute).
Learn from the #1 lesson I’ve found from the various financial experts I’ve interviewed on my podcast:
Measure your cashflow – a.k.a. budgeting. You can’t manage what you don’t measure. The only way you’ll ever decrease your spending is if you measure your spending. You need a budget – it can be detailed, or simple. But you can’t not have a budget.
Follow the financial order of operations. Learn how to prioritize your financial to-do list.
Put in more “work” to combat financial disorder. You’ll need to read this article for context.
Remove the negatives. Personal finance is a “negative art.” Increasing your net worth is more about avoiding mistakes than taking huge steps forward.
Bucket your money, then put it to work. Determine the timeline for the various expenditures in your life, then invest the money you don’t need in the short term.
Take advantage of tax advantages and “free money,” like 401(k) or Roth IRA accounts.
Housing and Kids
How can you be “better-than-average” in terms of housing and children?
If you’re thinking, “Homeowner plus 3 kids is better than renter with zero kids,” I think you’re doing it wrong. Instead, consider the financial (and more importantly, non-financial) acumen that goes into making those decisions.
For example, I think rent vs. buy calculators – like this one from Nerdwallet – are fantastic tools. If the math points you toward renting, then rent. There’s no race to be a homeowner, nor do I think homeownership is intrinsically good. “Better than average” doesn’t apply here.
But I think it’s more important to look yourself in the mirror and be honest with answers like:
How many years do I plan on living here?
Do I love this house? This neighborhood? This school district?
If this home never appreciates in value, am I ok with that?
Or the alternative: Since rent doesn’t build equity, am I ok “throwing my money away” in exchange for flexibility and less responsibility?
Children are even more personal and less financial. The only major financial question, in my opinion, is: do we have the financial means to provide for this child? Every other important question is personal.
Again, there’s no such thing as “better than average.” Instead, I see child-rearing in a binary way: are you giving your children a good home? Or not?
If you are, then you’re doing it right. Whether you have 10 kids or 1, you need to give them a good home. What’s a “good home” vs. a “bad home?” Everyone’s opinion will differ. But you know it when you see it.
Millennials are getting their financial life in order. It’s a wonderful thing. And through smart, patient personal finance decisions, you can carry on to become a “better-than-average” financial millennial. Investing in knowledge is a great place to start.
Thank you for reading! If you enjoyed this article, join 6000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
Want to learn more about The Best Interest’s back story? Read here.
If you prefer to listen, check out The Best Interest Podcast.
The average millennial is 35 years old, earns $54,000 per year, and has a net worth (including any home equity) of around $130,000
45% of millennials have student loan debt, with an average balance of $40,600
52% of millennials are homeowners, with a majority of those home purchases occurring over the past 5 years
55% of millennials have children, with a total U.S. birthrate in 2021 of 1.66 children per woman (it takes 2.00 children per woman for the population to replace itself, so we might be in trouble there…)
There are simple steps you can take to become better-than-average financially, including focusing on increased income, measuring your monthly cashflows, using tax-advantages investing vehicles, and more.
The Stats
I’m a Millennial. Many of you reading this are too. Millennials – also called Gen Y – are people born between 1981 and 1996. The average millennial is currently 35 years old.
Let’s walk through some vital financial statistics for American millennials. Then we’ll talk about how we can improve our own financial life to become above average.
Using income data and net worth data from the website DQYDJ, we can see that the average 35-year-old earns $55,000 per year and has a net worth (including home equity) of $130,000.
If we add in data from this Business Insider article, we also learn:
Just under half of American millennials have student loan debt. Roughly 45% of millennials have loans, with an average remaining balance of $40,600.
I’m sure this data skews younger. The oldest millennials are 42 years old, while the youngest are 27. Not only have college costs continued to rise in the past 20 years (affecting younger Millennials more than older), but there’s also the plain fact that older millennials have had more time to pay their loans off.
According to a RentCafe study, 52% of millennials own a home.
18.2 million Millennials now own, or share ownership in, a home, vs. 17.2 million millennial renters (note: this data looks at the 110 largest American metro areas, thus does not include all millennials)
Again, this data likely has an age skew. The chart below shows how millennial homeownership first increased in the early 2000s – when the youngest millennials were still in elementary school. The oldest millennials have had a long time to buy.
That said, 7.1 million millennials became homeowners in the past 5 years (including yours truly). More and more younger millennials are looking to purchase homes.
An important caveat…home ownership might be the so-called “American Dream,” but it’s not mathematically optimal for all people, nor a great investment in general. I’m a huge proponent that your primary home is “a home first, an investment second.” You need a place to raise a family. You don’t need a 7% real return on investment.
According to an older (2019) Pew Research study, fewer millennials are starting families than previous generations. Pew found that 55% of millennial women had had a live birth, compared to 62% of Gen X women and 64% of Baby Boomer women in the same age range.
What does this have to do with personal finance?
First, kids are expensive. Having kids is financially challenging. And not having kids can be a symptom of an already-challenging financial life e.g. “I’m not having kids because I couldn’t afford to give them a good life,” or, “My goddamn student loans were so high we delayed having kids by 5 years.”
Second, birthrates drive economies. Children grow into adults – who work, consume, and oil the economic machine. Personal finance is tied to that economy.
How to Be a Better-Than-Average Millennial…At Least Financially
What can you do to rise above the average?
First, adopt a stoic mindset. If you’re “worse” than average, you’re not a bad person. And whatever happened in the past – those events that brought you to this moment – is immutable. You can’t change it. All you can do is forge on and blaze a better trail ahead.
So let’s blaze that trail.
Salary and net worth are easy-to-measure metrics, so let’s start there.
Improving Your Salary
One of the worst pieces of financial advice I see all too often is, “Did you consider increasing your income?” …as if there are raises hiding in your office cabinets if only you’d look for them!
The better advice, instead, is encouragement that you can increase your income. You just need the right approaches and tactics. What are some examples?
Talk to your manager. Is there a path for increased pay in your role or at your company? Ask them: what does that path look like? Get them to agree that if you follow the path, a pay raise will follow.
More education. Maybe there isn’t a positive path at your current job. It’s a dead end. You need to find ways to get on a better path, and further education is highly effective. BUT! You need start with the end in mind. Get a degree or certification that will truly further your career and your income. Computer science? Yes. Underwater basketweaving? Not so much.
Look outside your current role, too. One of the fastest ways to higher pay is by switching jobs. Or using a potential job switch to negotiate a raise.
Side hustles can work. But choose carefully. I know too many Uber drivers who, if they ran the numbers, would realize their side hustle barely pays them minimum wage.
Increasing Your Net Worth
Salary is a one-trick pony. All it measures is incoming cashflow in. Net worth is far more comprehensive, as it’s a function of:
inbound cashflow
outbound cashflow
changes in asset values (e.g. investment growth)
There are many ways to increase your net worth, most of which are within your control today (unlike increasing your salary, which might take years to successfully execute).
Learn from the #1 lesson I’ve found from the various financial experts I’ve interviewed on my podcast:
Measure your cashflow – a.k.a. budgeting. You can’t manage what you don’t measure. The only way you’ll ever decrease your spending is if you measure your spending. You need a budget – it can be detailed, or simple. But you can’t not have a budget.
Follow the financial order of operations. Learn how to prioritize your financial to-do list.
Put in more “work” to combat financial disorder. You’ll need to read this article for context.
Remove the negatives. Personal finance is a “negative art.” Increasing your net worth is more about avoiding mistakes than taking huge steps forward.
Bucket your money, then put it to work. Determine the timeline for the various expenditures in your life, then invest the money you don’t need in the short term.
Take advantage of tax advantages and “free money,” like 401(k) or Roth IRA accounts.
Housing and Kids
How can you be “better-than-average” in terms of housing and children?
If you’re thinking, “Homeowner plus 3 kids is better than renter with zero kids,” I think you’re doing it wrong. Instead, consider the financial (and more importantly, non-financial) acumen that goes into making those decisions.
For example, I think rent vs. buy calculators – like this one from Nerdwallet – are fantastic tools. If the math points you toward renting, then rent. There’s no race to be a homeowner, nor do I think homeownership is intrinsically good. “Better than average” doesn’t apply here.
But I think it’s more important to look yourself in the mirror and be honest with answers like:
How many years do I plan on living here?
Do I love this house? This neighborhood? This school district?
If this home never appreciates in value, am I ok with that?
Or the alternative: Since rent doesn’t build equity, am I ok “throwing my money away” in exchange for flexibility and less responsibility?
Children are even more personal and less financial. The only major financial question, in my opinion, is: do we have the financial means to provide for this child? Every other important question is personal.
Again, there’s no such thing as “better than average.” Instead, I see child-rearing in a binary way: are you giving your children a good home? Or not?
If you are, then you’re doing it right. Whether you have 10 kids or 1, you need to give them a good home. What’s a “good home” vs. a “bad home?” Everyone’s opinion will differ. But you know it when you see it.
Millennials are getting their financial life in order. It’s a wonderful thing. And through smart, patient personal finance decisions, you can carry on to become a “better-than-average” financial millennial. Investing in knowledge is a great place to start.
Thank you for reading! If you enjoyed this article, join 6000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
Want to learn more about The Best Interest’s back story? Read here.
If you prefer to listen, check out The Best Interest Podcast.
The average person probably wants to learn how to get rich.
While many think figuring how to get rich may be impossible, I’m here to tell you that it isn’t. And no, you don’t need to win the lottery or become a professional athlete.
The meaning of wealth and being rich means something different to everyone. For some, it means having lots of money, for others it may mean having a positive net worth, and for others it may be to retire one day.
Whatever your definition of “rich” is, everyone has the potential to build and improve their financial situation.
If you want to be rich one day, then you’ll have to form good financial habits now, work hard, and reach outside of the norm.
Learning how to get rich won’t be easy – but what good things come easy anyways?
For many people, learning how to get rich may seem impossible and completely unattainable, but that’s simply not true.
Building wealth and learning how to get rich is about your mindset, and figuring out how to get rich now is better than waiting any longer.
Related posts about how to get rich:
Here’s how to get rich– for anyone and at any age.
Don’t wait until tomorrow to learn how to get rich.
Instead of thinking that you’re invincible and that you have all the time in the world to improve your finances, you should stop procrastinating and learn how to build your wealth now.
Many people push things off and/or spend their money carelessly because they think they can start tomorrow, start next month, and so on. However, for everyday that you push off improving your finances the further away and harder you’ll have to work towards your goal.
Stop wasting time and take control of your financial situation now.
Related tip: I recommend looking into Digit if you want to trick yourself into saving more money. Digit is a service that looks at your spending and transfers money to a savings account for you. Digit makes everything easy so that you can start saving money with very little effort.
Be better than average if you want to learn how to get rich.
If you want to build your wealth, whatever that might mean to you, then you’re going to have to go outside the norm, be better than the average, and do new things.
When learning how to get rich, you should always strive to do your best as sometimes “average” is not good enough for you to build wealth. Keep in mind that the average person is not the greatest with money, and many are wrecked with stress and hardship due to their unfortunate financial situation.
68% of people live paycheck to paycheck.
26% have no emergency savings.
The median amount saved for retirement is less than $60,000.
The average household has $7,283 in credit card debt.
The average student loan debt is $32,264.
To be better than average, you’ll have to work hard, learn how to manage your money better, and perhaps take some risks (such as starting a business or applying for your dream job) as well.
Give yourself great goals.
Those who set goals are much more likely to be successful than those who do not. Due to that, if you want to be rich, you’ll want to start setting goals for yourself.
Setting goals is important because without a goal, how do you know where you’re heading? Goals can keep you motivated and striving for your best.
When building your wealth, you should always make sure that any goal you set is SMART.
A SMART goal is:
Specific – What is your goal? Is it specific enough or is it too broad? What needs to be done for you to achieve your goal? Why do you want to reach your goal?
Measurable – How can you measure your progress? How will you know if you’re on track?
Attainable – Is this a goal that can be achieved?
Realistic/relevant – Can you achieve your goal? Is the goal worth it?
Time – What’s your time frame for reaching your goal?
To reach your financial goals and learn how to get rich, you’ll want to:
Write down your goals and objectives.
Create a plan to reach your life goals.
Break your goal apart into smaller goals.
Keep track of your goal setting progress and make changes (if needed).
Find small ways to stick to your goal.
Find ways to motivate yourself when setting goals.
Make reaching your goal a friendly competition.
Read further at The Best Way To Set Goals And Reach Success in 2017.
Create a realistic budget.
To learn how to get rich, you’ll want to create a budget. Yes, even the rich have budgets!
The average person has a lot of financial stress and may be dealing with student loans, credit card debt, a mortgage, car loans, and sometimes even other forms of debt.
However, not many people have a budget. In fact, more than 60% of households in the U.S. do not have a budget.
Budgets are great, because they keep you mindful of your income and expenses. With a monthly budget, you will know exactly how much you can spend in a category each month, how much you have to work with, what spending areas need to be evaluated, among other things.
Remember, even those with high incomes have a budget. The rich stay rich because they have learned how to manage their money better than the average person, which includes being aware of your spending and saving.
When creating your budget, be sure to include all of your income and expenses.
Here are some expenses you may want to include when creating a budget, but don’t forget any expenses you have that aren’t listed:
Home – House payment, rent, maintenance, utilities, insurance, property taxes, etc.
Car – Monthly car payment, gas, maintenance, insurance, license plate fees, and so on.
Television, cable, Netflix, Hulu, etc.
Cell phone.
Internet.
Food – Groceries, restaurant spending, snacks, etc.
Clothing.
Entertainment – Entertainment can include many things, such as going to the movies, going out for drinks, concert tickets, sports, and so on.
Charity – If you regularly donate to charity, then this should be an area you budget for.
Savings funds – This can be for your retirement fund, wedding, travel, etc.
Taxes – If you are self-employed, then taxes may consist of a large part of your budget.
Health insurance.
Miscellaneous – Pet expenses, fees, childcare, school, gifts, etc.
You can get a free budget printable by signing up below.
Realize that a good life can be affordable.
As you all know, I really dislike the myth that people who save money are boring. That’s not true at all.
I believe that you can balance living a good life along with saving a comfortable amount of money.
There are plenty of ways to live an awesome life while saving money. Yes, you can still see your friends, have fun with your loved ones, go on vacations, and more, all while staying on a realistic budget.
Here’s a list of some great early retirees who are leading great lives. I definitely recommend reading about them:
If you want to learn how to get rich, then learning how to be happy with yourself and figuring out affordable ways to enjoy life are key.
Related: How To Become Rich – It’s More Than Millions In The Bank
Pay off your debt if you want to learn how to get rich.
If you want to learn how to get rich, then you’ll most likely want to figure out how to eliminate any debt that is preventing you from reaching your financial goals. For the average person, this probably means any high interest debt, any debt that’s causing you stress, and so on.
Paying off your debt can lessen your stress levels, allow you to have more money to put towards something else (such as retirement), stop paying interest fees, and more.
The first step to eliminating debt is to realize why you have debt in the first place. I believe that if you don’t understand where your problem with debt stems from, then it would be hard to make a positive change.
Yes, it is great to just start attacking your debt, but you also don’t want to fall into the same cycle of going into debt over and over again.
After you realize why you are in debt (or why you keep going back into debt), the next step is to figure out how you will eliminate it. There are many different ways to attack your debt, and I prefer a mixture of everything.
To pay off your debt and learn how to get rich, you should:
Quit adding more debt to your life. You may want to cancel or freeze your credit card, think harder before your next purchase, and avoid spending temptations like the mall.
Be realistic with your income and spending. If you have debt, then you either have an income or spending problem. You may need to start earning more money and/or start spending less if you want to learn how to become wealthy.
Decrease your spending and expenses. Depending on how quickly you want to get rid of your debt, there are different things that you may want to cut out. You could cut out Starbucks (I know, I know), lower your restaurant spending, find a cheaper way to workout, sell your car for something cheaper/more affordable, cook from scratch, and so on.
Make more money. The extra money that you earn can be put towards your debt to help you pay it off more quickly.
Pay more than the minimum. If you have debt, you should always be paying more than the minimum so that you can lower the amount you are paying towards interest.
Put little amounts toward your debt. For example, whenever you get an extra $25 (such as by selling something), then you should just throw that extra money (that you won’t even miss!) towards your debt.
Related: How To Take A 10 Day Trip To Hawaii For $22.40 – Flights & Accommodations Included
Start investing as one of the ways to get rich.
One of the best ways to figure out how to get rich is to start investing. After all, you need to have your money work for you!
The sooner you start saving, the more it becomes a habit and the easier it becomes. By investing money now, you will learn good investing habits that will help you well into the future.
I always say that the first thing you need to do if you want to start investing is to just jump in. However, what if you don’t even know how to start investing?
If you are like many out there, you may not know how to start investing your money.
Investing your money can be a scary, stressful, and overwhelming topic to tackle. You want to invest so that you can:
Retire one day.
Prepare for unexpected events in the future.
Allow your money to grow over time.
Learn how to get rich.
Remember, time is on your side, and due to the powerful impact of compound interest it can change your life. This means the sooner you invest, the more you will earn.
Compound interest is when your interest is earning interest. This can turn the amount of money you have saved into a much larger amount years later.
This is important to note because $100 today will not be worth $100 in the future if you just let it sit under a mattress or in a checking account. However, if you invest, then you can actually turn your $100 into something more. When you invest, your money is working for you and hopefully earning you income.
For example: If you put $1,000 into a retirement account that has an annual 8% return, 40 years later that would turn into $21,724. If you started with that same $1,000 and put an extra $1,000 in it for the next 40 years at an annual 8% return, that would then turn into $301,505. If you started with $10,000 and put an extra $10,000 in it for the next 40 years at an annual 8% return, that would then turn into $3,015,055.
A great article that explains the power of compound interest is Mr. Money Mustache’s The Shockingly Simple Math Behind Early Retirement.
Here are the easy steps to take so that you can start investing your money:
Start saving your money. In order to invest your money, you need to start setting aside money specifically for it. The amount of money you save for investing is entirely up to you, but in general, the more the better.
Do your research. Before you start dumping your money into the stock market and other investments, it’s a good idea to know what you’re putting your money towards. Reading about various investment-related tips and research will help you become more informed about your investing decisions, which will then help you make better decisions well into the future.
Find an online brokerage or someone to manage your investments. There are two main ways to invest your money. You can either invest your money yourself through a brokerage or you can find someone to manage your investment portfolio for you. You will need to take part in one of these options to actually start investing your money. Personally, I like to do everything myself through Vanguard.
Decide how you will invest. Now that you’ve opened an investment account, you will want to decide where you will put your investments. How you invest depends on your risk tolerance, the time period for which you are investing (when will you retire?), and more. Generally, the sooner you need your funds the less risk you will take on, whereas the longer your time period is, then the more risk you may be willing to take on.
Track your investment portfolio. The next step when learning how to get rich by investing is to regularly track the things you have invested in. This is important because you may eventually have to change what you are invested in, put more money towards your investments, and so on.
Continue the steps above over and over again. To invest for years and years to come, you will want to continue the steps above over and over again. Now that you know the steps it takes to invest your money, it only gets easier.
Related tip: I recommend using Motif Investing if you are looking to invest your money. Motif Investing allows individuals to invest affordably. This approachable investing platform makes it easy to buy a portfolio of up to 30 stocks, bonds or ETFs for just $9.95 total commission.
Start making more money.
Figuring out how to get rich usually means that you’ll have to find ways to make more money than you currently do.
On Making Sense of Cents, I talk a lot about how to make extra income because I believe that earning extra income can completely change your life. You can stop living paycheck to paycheck, you can pay off your debt, and more- all by learning about the many different ways to make money.
Trust me when I say that making more money is important. I was able to pay off $38,000 in student loans within 7 months, I was able to leave my day job in order to pursue my passion, travel full-time, and more!
The great thing about finding ways to make more money is that your income potential is unlimited. There’s no cap on how much money you can make- it all depends on what you decide to do and how much time you plan on devoting to it.
Making more money can change your life in great ways, such as:
You can pay off your debt.
Save for big purchases, such as a vacation.
Stop living paycheck to paycheck.
Reach retirement sooner.
Become more diversified with your income sources.
Whether you have just one free hour a day or if you are willing to work 40 to 50 hours a week on top of your full-time job, there are many options when it comes to earning more money. Finding ways to make more money will only help you as you learn how to become rich.
Some ways to make more money include:
Find a part-time job.
Make money online such as creating a blog, becoming a virtual assistant, etc.
Become an Uber or Lyft driver – Spending your spare time driving others around can be a great money maker. Read more about this in my post How To Become An Uber Or Lyft Driver. Click here to join Uber and start making money ASAP.
Maintain and clean yards. You can make money by mowing lawns, killing/removing weeds, cleaning gutters, raking leaves, and so on.
Answer surveys. Survey companies I recommend include Swagbucks, Survey Junkie, Clear Voice Surveys, VIP Voice, Pinecone Research, Opinion Outpost, Survey Spot, and Harris Poll Online. They’re free to join and free to use! You get paid to answer surveys and to test products. It’s best to sign up for as many as you can as that way you can receive the most surveys and make the most money.
Move furniture and find jobs on Craigslist. Movers can earn a broad range when it comes to hourly pay, but it’s usually somewhere around $50 an hour if you run your own business.
If you love animals, then you may want to look into how to make extra money by walking dogs or pet sitting. With this side hustle, you may be going over to your client’s home to check in a few times a day, you may be staying at their house, or the animals may be staying with you. Rover is a great company to sign up with in order to become a dog walker and pet sitter. Learn more about this at Rover – A Great Way To Make Money And Play With Animals.
Babysit and/or nanny children.
Sell your stuff.
Rent a spare room in your home to someone else.
As you can see, the list is endless when it comes to making more money.
Related posts on how to make extra money:
Diversify your income streams to learn how to be rich.
One thing that separates the rich from those who aren’t is that the rich and successful tend to have many different forms of income streams.
They may have a day job, a business, rental properties, dividend income, and more. This allows them to bring in more money.
They also do this because the rich know that one source of income may not last forever, and they are also able to lessen their risk by having multiple income streams.
So, if you want to learn how to get rich, then you may want to add more income streams to your life.
If you ever feel too reliant on one source of income, then you know how important this is. Maybe you are afraid that one day you will lose your job or that something will happen to your main source of income.
If you work towards building up multiple income streams and diversifying your income, then you won’t have to worry as much if something happens to one of your income streams.
By diversifying your income with multiple income streams you will have a backup plan, you may be able to retire easier, you will learn how to get rich, and so on.
Note: I recommend that you check out Personal Capital (a free service) if you are interested in gaining control of your financial situation. Personal Capital is very similar to Mint.com, but 100 times better as it allows you to gain control of your investment and retirement accounts, whereas Mint.com does not. Personal Capital allows you to aggregate your financial accounts so that you can easily see your financial situation, your cash flow, detailed graphs, and more. You can connect accounts such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more, and it’s FREE.
Even the rich find ways to save money.
Finding ways to save more money may allow you to pay off your debt a little faster, improve your financial habits, help you reach your dream sooner, and more.
And yes, even the rich find ways to save money.
Sure, there are stories about rich people who spend their money like crazy and end up in bankruptcy. But surprisingly, the average millionaire is frugal, and they know how to manage their money well.
Don’t believe me? Here are some examples of millionaires and billionaires who still find ways to save money:
Warren Buffett lives in a house that he bought in 1958 for around $30,000.
Mark Zuckerberg drives an Acura.
John Caudwell (worth $2.7 billion) rides his bike 14 miles to work every day and even cuts his own hair.
Jim C. Walton (son of Walmart founder) drives an old truck with no air conditioning.
Another interesting statistic is that the average couponer is someone who earns over $100,000 a year. Surprisingly, those who earn less than $100,000 a year rarely use coupons compared to those with high incomes!
By finding ways to save money, you’ll be able to keep more of your money, learn how to get rich, add more to your investments, and so on. You worked hard for your money, so you may as well find ways to keep more of it!
Find ways to save money at 30+ Ways To Save Money Each Month.
Stop trying to impress others.
When was the last time you bought something that was mainly purchased to impress someone else?
Sadly, this is something that the average person does quite often.
If you want to start building wealth and understand how to get rich, then you’ll want to stop trying to impress others and start living your own life.
The rich tend to live below their means. Yes, many of them still spend money extravagantly, but many aren’t living paycheck to paycheck in order to do so. Many millionaires buy items used, they drive “normal” cars like Toyotas, and they aren’t buying things with the sole purpose of impressing others.
This is drastically different from those who aren’t rich.
Many people try to keep up with others and fall for lifestyle inflation, which can prevent a person from being a good money manager.
When trying to keep up with the Joneses, you might spend money you do not have. You might put expenses on credit cards so that you can (in a pretend world) “afford” things. You might buy things that you do not care about. The problems can go on and on.
Instead, you should focus on what you want and need. This will help you to save more money, be more realistic with your income and spending, and to build wealth.
Do you want to learn how to get rich? What does “rich” mean to you?
Last Updated: May 26, 2023 BY Michelle Schroeder-Gardner – 51 Comments
Disclosure: This post may contain affiliate links, meaning I get a commission if you decide to make a purchase through my links, at no cost to you. Please read my disclosure for more info.
Over one year ago, I published the blog post Money Statistics That May Scare You. In case you missed it, here is a refresher:
68% of people live paycheck to paycheck.
26% have no emergency savings.
The median amount saved for retirement is less than $60,000.
The average household has $7,283 in credit card debt.
The average student loan debt is $32,264.
Since then, I have come across other money statistics that have surprised me.
I do a lot of research as a personal finance writer. I come across money statistics that surprise me, make me sad, and some that make me worried.
The money statistics in this blog post might surprise you, but I want you to be aware of them so that you can be better than “normal.”
However, I do want to note that even if you are doing better than the average person, you can still improve even more.
You should always strive to do your best as sometimes “average” is not good enough for you to live a financially successful life. Keep in mind that the average person is not the greatest with money, and many are wrecked with stress and hardship due to their unfortunate financial situation.
Below are some other money statistics that will hopefully whip you into financial shape. Enjoy!
Annually, an average of $220 per person is spent on the lottery.
In 2014, more than $70 BILLION was spent on the lottery. That’s around $220 per person, including children!
However, in states such as Rhode Island, it’s way above $220, at nearly $800 per person spent on the lottery on an annual basis.
That is a ton of money spent on the lottery.
40% of food is wasted.
This is a crazy statistic.
Just think about it: What if you spent $100 on food each time you went to the grocery store, but when you got home from the grocery store you immediately threw away $40 of it.
That’s pretty much what is happening here.
The average person who takes out a new car loan takes out $27,000.
Plus, the average used car loan is almost $18,000.
To add to all of this, the people with the largest car loans actually had the worst credit scores.
One last car loan statistic, the average monthly payment for a new car loan is $471 and $352 for a used car loan.
The average person wastes their gym membership.
If you have a gym membership, I highly recommend that you figure out whether or not it is worthwhile. According to Statistic Brain, the average monthly cost of a gym membership is $58. Yet, 67% of people never use their gym memberships.
That is a ton of wasted money.
The average student loan debt is approximately $30,000.
Plus, according to US News:
Only 41% of college students graduate in four years.
The three-year student loan default rate is 15% for recent graduates.
Borrowers older than 60 owe $43 billion in student loan debt.
These are some crazy money statistics.
Learn more about how I paid off my student loan debt at How I Paid Off $40,000 In Student Loan Debt.
Women are 27% more likely than men to have no retirement savings.
I found this statistic on Go Banking Rates.
To change this money statistic, please read The Smart Woman’s Guide To Investing Success. Here’s a quick snippet from that blog post:
“Women face different obstacles than men do when it comes to investing in the stock market. Right off the bat, they tend to have less in savings because women often take time off to raise children. With years of not earning a salary, there is no money being saved and compounded upon.
In addition to this, women typically outlive men by close to 10 years on average. Therefore, it is important as a woman to invest in the stock market.”
What money statistics surprised you? How do you compare?
Everybody likes to talk about how much they’re contributing to their 401(k) plans, or about how much they should be contributing to their 401(k) plans.
That’s important, no doubt.
But the bigger question should be the end game. That’s how much you should have in your 401(k).
That’s the real measure of success or failure of any retirement plan which involves the 401(k) as the main piece.
It’s a tough proposition. Everybody’s in a different situation, as far as age, income, immediate financial condition, and risk tolerance.
There’s no scientific way to determine how much you should have in your 401(k), but we’re going to take a stab at it, by approaching it from several different angles.
We’ll break it down this way…
Table of Contents – What We’ll Cover in this Post:
The State of American Retirement – It Needs Improvement!
Contributing Just Enough to Max-Out the Employer Match Will Fail
You Need to Contribute at Least 20% of Your Income for Retirement
Don’t Randomly Pick Investments for Your 401(k)
And Don’t Let Your Co-workers Tell You What Investments to Pick Either!
While You’re At It – Stay Away From Target Date Funds
If You Have a Roth 401(k) Take Advantage of It
Don’t Forget About the Roth IRA, Too
How Much Should YOU Have in Your 401(k)?
Let’s start with the bad news first…
The State of American Retirement – It Needs Improvement!
According to an article released by CNBC, which looked at data from Northwestern Mutual and Gallup’s 2018 surveys, 21% of Americans have no retirement savings, and the average amount that Americans have saved is $84,821.
A wide majority of those surveyed, 78%, expressed concern that they will not have a substantial amount of retirement money to live on, meaning they will continue to work past retirement age.
Many people do not realize what an advantageous opportunity a 401(k) plan offers. It is the most generous of all retirement plans, one that could alleviate much of the concern Americans are expressing over their financial future.
Contributing Just Enough to Max-out the Employer Match will Fail
I often recommend contributing at least enough to a 401(k) plan to get the maximum employer match.
If an employer matches 50% up to 3%, then you contribute 6%. That will give you a combined contribution of 9% per year.
But there’s a problem with this recommendation.
It’s not that it’s bad advice – it certainly makes sense for someone who is struggling with financial limits, and needs a minimum contribution level.
The problem is when the minimum contribution becomes the maximum contribution. There’s no question, 9% is way better than nothing. But if you intend to retire, it won’t get the job done!
The other problem is that the employer match typically comes with a vesting period. That could be up to five years.
If you stay on the job substantially less, you’ll lose some or all of the match. That will drop you down to only your 6% contribution.
An example of contributing just enough to max out the employer match
Let’s assume you’re 35 years old, and earn $50,000 per year.
You contribute 6% of your salary to your 401(k) plan, and your employer matches that at 50%, or 3%.
Over the next 30 years, you earn an average annual rate of return on your investments of 7%.
By the time you’re 65 years old, you’ll have $441,032.
That may seem like a lot of money from where you’re at right now. But when retirement rolls around, it will probably be inadequate.
Here’s why: it’s called the safe withdrawal rate.
It holds that if you limit your withdrawals from your retirement plan to about 4% per year, you will never outlive your money. You can see the wisdom of that, can’t you?
But a retirement portfolio of $441,032 with withdrawals at 4%, is just $17,641 per year, and that’s just $1,470 per month.
Since most employers no longer provide traditionally defined benefit pension plans, you’ll have to live on that, plus your Social Security benefit.
Let’s say that your Social Security benefit is $1,500 per month.
What kind of retirement will you have with an income of $2,970 per month?
You won’t do much better than just getting by on that kind of retirement income. My guess is that you won’t even be retired at all.
You Need to Contribute at Least 20% of Your Income for Retirement
Most people expect that retirement will be more than just getting by.
Retirement isn’t just a number – it’s the sum total of what you will take out of a lifetime of hard work. It should provide you with an income that will give you more than just basic survival.
For that reason, you need to contribute at least 20% of your income to your retirement plan. The only way for most people to do that is through a 401(k) plan at work.
Let’s look at another example. Let’s the same financial profile from the last example, but instead of making a 6% contribution, you instead contribute 20% of your salary. The employer match will remain a 3%, giving you a combined annual contribution of 23% of your income.
What will your retirement look like by age 65?
How about $1,127,066???
4% of $1,127,066 will be $45,083, or $3,756 per month. Adding in $1,500 for Social Security, and you’re up to $5,256, which is more than you earn on your job!
Are you getting excited? You should be.
Don’t Randomly Pick Investments for Your 401(k)
Next to low contribution rates, the biggest problem with most 401(k) plans is poor investment selection.
Sometimes that’s inevitable, because some 401(k) plans just have very limited investment selection. But in other cases, the owner of the plan just makes bad choices.
What makes investment choices bad?
Investing too conservatively, by favoring fixed-income investments for safety
Holding too much company stock, which is a classic case of “putting too many eggs in one basket”
Not having adequate diversification
Adding random investments to your plan, like “hot tip” stocks
Trading too frequently, which causes high transaction fees, and usually doesn’t work anyway
Designing your portfolio in a way that’s inconsistent with your long-term goals
Let’s face it, most people are not investment professionals. That means you can’t rely on your own resources in creating and managing what will eventually become your largest incoming-producing asset.
And that means you need to get help.
One source is Personal Capital. That’s an investment service that doesn’t manage your 401(k) plan directly, but it does provide guidance on how to invest the plan.
They do that through their Retirement Planner and 401(k) Fund Allocation tools.
Another service that’s growing rapidly is Blooom. It’s an investment service that will provide you with investment management for your 401(k) plan.
The service cost just $10 per month, which is a small price to pay to get professional investment advice for your largest asset.
And Don’t let Your Co-workers Tell You What Investments to Pick Either!
One of the complications with 401(k) plan management is the herd mentality.
It happens in most companies and departments. Someone says go to the right, and everyone turns to the right without giving it much thought. We’re virtually programmed to operate that way in an organizational environment.
But it’s financial suicide when it comes to investing for retirement.
We should never presume that a coworker, or even a boss, has some sort of superior knowledge when it comes to investments. That person might be bragging about what he is investing in, maybe to get moral support for his decision.
You, and you alone, will one day need to live on your retirement portfolio. You shouldn’t trust that outcome to what amounts to water cooler gossip.
While You’re at it – Stay Away from Target Date Funds
There’s one type of investment that’s gaining in popularity, and I don’t think it’s a healthy development.
It’s target date funds.
I don’t have a good feeling about them, and that’s why I don’t recommend them.
In fact, I hate target date funds. Does that sound too strong?
Target date funds are one of those innovations that work better in theory than they do in reality.
They start with your retirement date, which is why they’re called “target date funds”. If you plan to retire at age 65, they’ll have tiered plans (which are actually mutual funds).
They have one when you’re 40 years from retirement, another when you’re 30 years out, then 20 years, and 10 years. That may not be exactly how they all work, but that’s the basic idea.
The target dates mostly adjust your portfolio allocation. That is, the closer that you are to retirement, the higher the bond allocation is, and the less that’s invested in stocks.
The concept is to reduce portfolio risk as you move closer to retirement.
That all sounds reasonable on paper.
But it has two problems.
One is target date funds have unusually high fees. That reduces the return on your investment.
The other is they arbitrarily reduce growth in your portfolio as you move closer to retirement.
That generally makes sense, but not for people who either have a higher risk tolerance, or those who need healthier returns as they move closer to retirement.
Avoid these funds, no matter how hard the pitch is for them.
If You Have a Roth 401(k) Take Advantage of it
A growing twist on the basic 401(k) plan is the Roth 401(k).
It works just like a Roth IRA. Your contributions to the plan are not tax-deductible, but your withdrawals can be taken tax-free.
That’s as long as you are at least 59 ½, and have been in the plan for at least five years.
The Roth 401(k) has two major differences from a Roth IRA.
The first is that the Roth 401(k) is subject to required minimum distributions (RMDs) beginning at age 70 1/2. A Roth IRA is not. (You can get around this problem by rolling your Roth 401(k) plan into a Roth IRA.)
The second is the amount of your contribution.
While a Roth IRA is limited to $5,500 per year (or $6,500 if you are 50 or older), contributions to a Roth 401(k) are the same as they are for a traditional 401(k). That’s $18,000 per year, or $24,000 if you are 50 or older.
This doesn’t mean that you can put $18,000 in a traditional 401(k), and another $18,000 into a Roth 401(k). You must allocate between the two.
It makes a lot of sense to do this. You will lose tax deductibility on the amount of your contribution that goes to the Roth 401(k).
But by making the allocation, you ensure that at least some of your retirement income will be free from income tax.
If your 401(k) plan offers the Roth option, you should absolutely take advantage of it. It’s a form of income tax diversification for your retirement.
Don’t Forget About the Roth IRA, Too
If your employer doesn’t offer a Roth 401(k), then you should contribute at least some of your retirement money to a Roth IRA.
There are income limits beyond which you cannot contribute to a Roth IRA (those limits don’t apply to Roth 401(k) contributions).
For 2019, your income cannot exceed $122,000 per year if you are single, or $193,000 if you’re married filing jointly. Both of those amounts have increased since last year, meaning those whose earnings were on the fringe of the income limit can now contribute to this rewarding retirement account.
Having a Roth IRA, in addition to your 401(k), has several advantages:
It increases your total retirement contributions. If you are contributing $18,000 to your 401(k), plus $5,500 to a Roth IRA, that raises your annual contribution to $23,500.
Roth IRAs are self-directed accounts. That means that you can hold the account with a large investment brokerage firm that offers virtually unlimited investment options.
You will have complete control over how the plan is managed. The account could even invest the account with a robo advisor, which will provide you with low-cost professional investment management. (Two popular choices are Betterment and Wealthsimple.)
You’ll have an account ready and waiting, in case you want to do a Roth IRA conversion. It’s a popular way to convert taxable retirement income into tax-free retirement income.
Set up and contribute to a self-directed Roth IRA account, if you qualify. It’s become a retirement must-have.
How Much Should You Have in Your 401(k)?
With all the above information in mind, how much should you have in your 401(k)?
The answer is: as much as you think you’ll need to retire.
Does that sound too vague?
Let’s start with this…make sure that you have more in your 401(k) than the average person does. Based on the information presented in the chart at the beginning of this article, the average person won’t be able to retire.
You don’t want to be average. You want to be above average. And you need to be.
And don’t be one of those people who pokes along throughout their career, making the minimum 401(k) contribution to get the maximum employer match.
As I showed earlier, that won’t get you there either.
Let’s go through some steps that can help you determine how much money you’ll need when you retire:
Determine how much annual income you’ll need when you retire. The rule of thumb is that you use 80% of your pre-retirement income. That’s a good start, but you should make adjustments for variations. This can include higher healthcare and travel expenses, but lower housing and debt payments.
Subtract pension and Social Security income. You can get a pension estimate from your employee benefits department. For Social Security, you can use the Retirement Estimator tool that will give you an approximate benefit.
Divide the remaining amount by .04. That’s the 4% safe withdrawal rate. It will tell you how large of a retirement portfolio you’ll need to produce the necessary income.
Determine how much you will need to reach that portfolio size. Project how much you will need to contribute to your 401(k) plan and other retirement plans in order to reach the needed portfolio size. Just make sure that your return on investment calculations are reasonable.
Working a Retirement Plan Example
You can get as complicated as you want with this exercise, but let’s keep it simple.
Let’s assume that you earn $100,000 per year. You estimate needed retirement income at 80% of that number, or $80,000 per year.
You expect to receive $30,000 in Social Security income, but are not eligible for a pension. That means that your retirement portfolio will need to provide the remaining $50,000 in income.
Dividing $50,000 by .04 (4%), shows that you will need a retirement portfolio of $1.25 million.
In order to reach $1.25 million by age 65 (you’re currently 40), will require that you contribute 20% of your annual income, or $20,000 per year to your 401(k) plan. This assumes a 3% employer match, and a 7% annual rate of return on your investment.
You can also take the easy route by using an online retirement calculator, like the Bankrate Retirement Calculator.
In order to make his retirement goal, the 40-year-old in our example would need to hit (roughly) the following 401(k) balances at various ages in order to reach $1.25 million by age 65:
At age 45, $110,000
Age 50, $260,000
Age 55, $490,000
By age 60, $800,000
However you calculate how much you should have in your 401(k), what I want you to take away from this article is that the amount that you actually need is way above what you probably have.
At least that’s the case if you’re the average person.
That’s why I recommend that you decide that you’re not going to be average when it comes to your 401(k) plan. If you want a better-than-average retirement, you’ll need to have a better than average plan.