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Many people set financial goals as part of their New Year’s resolutions, but not everyone is able to achieve them. According to the Ohio State University Fisher College of Business, 43% of Americans who make New Year’s resolutions end them by the end of January, but only 9% actually accomplish them.
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There are many reasons why these goals fail, whether or not they are officially part of a resolution. Sometimes it’s too fancy or too complex. In other cases, personal responsibility may not be sufficient to continue.
Either way, setting financial goals is great, but not achieving them can be costly. These are examples of commonly unmet financial goals that people set each new year and what it would cost them if they were to abandon them.
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the cost of not paying back debts
According to the 2023 Experian report, the average consumer debt per person is $104,215. This includes all types of debt, including mortgages, credit cards, car loans, student loans, and more.
Each type of debt has its own interest rate, so naturally the carrying costs will vary as well. Let’s take credit cards as an example.
The average credit card balance in 2023 was $6,501. Typical APR was 22.8%. Assuming a 30-day billing cycle, the average consumer pays $122.94 in interest each month on their credit card. Assuming your balance remains unchanged, you’ll pay $1,475 in interest each year.
Even if your goal is to pay off your credit card, if you consistently carry a balance each month or only make minimum payments, you could be wasting more than $1,000 each year in interest.
Add in other debts like student loans and a mortgage, and you can end up losing tens of thousands of dollars each year, all in interest.
Learn more: I’m a financial advisor: 5 things the middle class is wasting their money on
The cost of not budgeting
Creating a budget is another thing. Sticking to it is another. If you stop using what you create, you could end up spending hundreds or thousands of dollars more each year, depending on your purchases and spending habits.
“The inability to create and adhere to a monthly budget is a major contributing factor to people of all ages not achieving their financial goals,” said Kurt Scott, president and investment advisor at Scott Financial Group. said.
Part of budgeting involves setting financial goals with a clear “why.” These goals should also include the means to achieve them.
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Let’s say you want to save a certain amount of money every month. You need a goal and a budget. But without a clear idea of how to do it or where the money will go, it may not be achieved at all. And that can lead to overspending.
“(Every day) people are faced with the convenience of life and easy access to consumption. Small, frequent purchases that seem unimportant at the time can accumulate, resulting in missed savings opportunities and You may not be able to meet your financial goals,” Scott said.
To illustrate this point, Scott gave an example of how much everyday shopping costs over a month and how much someone would earn if they invested that money at 8% interest.
Daily $5 coffee:
Monthly savings: $150
1 year balance: $1,879
Balance for 10 years: $27,624
Balance for 20 years: $88,942
Fast food orders of $12 per day:
Everyday $35 online purchase:
Monthly savings: $1,050
1 year balance: $13,159
Balance for 10 years: $193,373
Balance for 20 years: $622,594
Combine all three and you’ll save about $1,560 a month. If you invest at an interest rate of 8%, your return will be:
Monthly savings: $1,560
1 year balance: $19,551
Balance for 10 years: $287,298
Balance for 20 years: $924,977
Of course, your spending habits may be much lower or higher than that. Or you can include something else. This is simply to give you an idea of how much money you could be throwing away by not budgeting, saving, or investing.
The cost of not investing
Come to think of it, there are many people who plan to invest but don’t do it. Or wait a long time before starting. However, this can result in the loss of significant economic benefits.
“When it comes to investing, inaction is action. If you start now, you may be able to achieve your goal of accumulating wealth over the long term,” says Plynk App FinTech Product Manager and Registered Associate at Digital Brokerage Services. said one Jared Hubbard.
Mr. Hubbard gave an example to illustrate how much money can be made by taking advantage of compound growth over time.
“If you invest $100 and it grows 7% in a year, you’ll end up with $107 at the end of the year. That’s a $7 increase,” he said. “Next year, if your $107 increases at the same 7% rate, you’ll now add $7.49, for a total of $114.49. If you continue at 7% for one more year, it will increase by $8.01, up to $122.50. .”
On the other hand, not investing that money means missing out on growth potential.
Hubbard pointed out that this is just one example, as the market changes every year. Depending on the year, it may be higher or lower than this.
The cost of not diversifying
Portfolio diversification is an effective way to minimize risk and maximize returns. The cost of not diversifying is highly subjective, but in general, not diversifying increases the risk of loss.
“For example, a person may be investing in just one stock, but investing in a variety of stocks and/or funds increases the level of risk if a single investment goes wrong. “However, diversification does not guarantee a profit or protect against loss,” Hubbard said.
Let’s say you invest $5,000 in a stock and the company goes bankrupt. There is a risk of losing all or a substantial portion of your investment. But if you spread that $5,000 evenly across five different stocks, your loss will only be at most $1,000. The remaining $4,000 could theoretically provide regular income that could eventually cover your losses.
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This article originally appeared on GOBankingRates.com: The cost of financial goals not met each new year
