Top 10 Financial Mistakes Employees Make

Financial wellness touches every aspect of our lives: mental health, physical health, relationships, career, and more. It’s incredibly important, but it’s a common struggle. Roughly 63% of employees report that they’re living paycheck to paycheck, and financial stress is at an all-time high. 

One way to improve our financial wellness is to both identify and correct our financial mistakes. From having an insufficient emergency fund to not diversifying your investment strategy, these common mistakes range from small to big matters. 

Let’s explore the top money mistakes we see among employees and how to best avoid them. Get ready to dive in. 

Financial issues and money mistakes for employees to avoid

1. Insufficient savings in an emergency fund is a common financial pitfall. 

Personal savings rates are nearing another low again, and it’s reported that only about 5% of Americans have savings from $10,000 to $20,000. No matter your financial situation, having a buffer against the inevitable unknown is incredibly important. After all, life is unpredictable. 

Why should you have an emergency fund in the first place? It covers unexpected expenses, such as unemployment, an emergency car repair, sudden medical charges, house issues, etc. Plus, it gives you peace of mind. Knowing that you have a financial cushion can help you sleep better at night and set you on the right path to hitting your major financial goals. 

2. Too much savings in cash is a typical financial mistake. 

Saving money is essential, but it needs to be done with purpose and moderation. Becoming an Olympic champion mattress stuffer is not a realistic and sustainable way to grow your wealth or prepare for retirement. 

A good rule of thumb is to save 3-6 months of expenses. What if that doesn’t feel like enough? You might consider 6 months for dual-income households or one year for singles. Regardless of the number in your savings account, check to see if you’re over-stacking Benjamins. The key here is that your saving habits should not rob you of investing in your future. 

If you’ve filled your emergency fund to the brim and you’re not saving for retirement or investments, it’s time to pivot your financial plan and start investing those savings. Investing in your retirement is equally as important as saving and a vital step towards preparing for the next stage of life no matter how far out it seems. And it’s not just retirement investing either. Investing in the stock market or buying bonds is a great way to multiply your money over time. It’s a much preferable alternative to mattress stuffing once you’ve reached a certain level of security. 

3. Financial problems can stem from an undiversified investment strategy. 

As stoic philosopher Seneca once said, “Excess in anything becomes a fault.” 

This idea applies to investments. You want to create a diverse portfolio, featuring a mix of assets that make sense for you and your goals. Our top tip is to avoid an undiversified investment strategy. 

We all have our favorite kinds of investments and inherent biases (i.e., a tech worker might subconsciously show some favoritism toward tech stocks). Taken too far though, this bias can leave you overexposed to certain risks if your portfolio isn’t balanced out across various categories. With every industry, there are always downturns and fluctuations. Our recommendation: Start diversifying. 

4. Underestimating the importance of estate planning as a financial issue. 

46% of U.S. adults currently have a will that spells out how they’d like their assets handled in the event of passing, per a Gallup poll. 

Why is that percentage not closer to 100%? Well, let’s be honest, no one likes to spend too much time dwelling on the imminent future. Whether we like it or not, this is an inevitable reality that we all face. What can we do right now? Start estate planning to lessen the future financial burden for families. 

Avoidance can only take you so far. Procrastinating this very important process can end up costing a family thousands of dollars in taxes as well as the stress and chaos that comes with the lack of planning.  

5. Finance issues stem from a lack of preparedness for tax liabilities. 

We get it. Taxes can be daunting and complicated. It’s easy to rack up tax obligations via buying/selling securities, crypto, and equity. Today’s easy access to these assets leaves many new investors unprepared for upcoming tax liabilities. The net result is confusion, chaos, and maybe some unexpected bills come tax time. Be sure to review these liabilities not just when tax season comes around but on a regular basis. 

Employers can help provide clarity around equity. Employees typically don’t understand how this income is taxed or how they should best prepare for what’s to come. This is an opportunity for employers to provide tools such as Origin. 

6. Employee financial struggles stem from not taking advantage of a 401(k) match. 

A whopping 98% of employers that offer 401(k) plans also provide a full or partial match. Not taking advantage of a 401(k) is missing out on free money. 

For example, let’s say you make $50K per year. If your employer offers a 50% match on contributions of up to 6% of your salary, that means you would be missing out on half the match aka $1,500 per year plus the capital gains and compounding associated with that. 

If you’re unsure of whether or not a match is available to you, ask HR. It’s definitely worth the ask. You can also go back and review your benefits documents.  

7. Guide employees away from overpaying fees to financial advisors and money managers

It’s always good to have an advisor of some kind on deck to help you keep track of your finances. They’re the real experts. However, it’s important to ensure that the pros outweigh the cons of the relationship. 

You might find yourself in a situation where you’re paying percentage-based or hourly “fees”. Many consumers don’t know what they’re being charged, why, and if it’s worth it. 

To avoid a situation like this, get a detailed report on any fees. Review them carefully and maybe even be skeptical at first. Compare your fees to the services provided, your net worth, and your budget. 

8. Money problems can be tied to relying on social media for financial advice.

Thanks to social media, we can get access to anyone and everyone’s financial opinions and advice in a mere instant. While there are benefits to that, we can’t take every piece of financial advice to heart. Instead, we need to carefully sift through advice. 

Tips for employees on avoiding money problems stemming from social media:  

• Be an objective skeptic: You’ve heard it often before — take everything with a grain of salt. This is to say, don’t exactly write off every piece of advice. 
• Do your due diligence: If you find yourself presented with some financial advice that seems like it could be valid or beneficial to you, don’t take it at face value. Be sure to take the time to research, dig, and verify all claims. 
• Don’t be afraid of the professionals: Free information is great, but sometimes you need professionals. They have the education and experience to help you hit your financial goals and answer all your questions. 

9. Employee financial issues can come from not understanding the value of total compensation. 

If you're job hunting, look beyond the base salary. While cash compensation is certainly important, there are other aspects to total compensation that are often overlooked.

Some examples include health and dental insurance, wellness benefits, retirement plans, commuter benefits, and equity. When weighing offers, you want to look at the full picture, not just your base salary. 

For employers, highlight the full total compensation package with candidates. It’s a great selling point! 

10. Improper planning for student loan repayments is a very common cause of money problems for employees. 

Stay up to date with student loan repayments and interest accruals. Without a proper plan in place, you can be in over your head or lose track of your budgeting. 

Tips for handling student loans for employees:

• Budget for it: Debt repayments should always be included in your monthly budget like any other expense. Student loans are no longer an exception to the rule.
• Select the right income-driven repayment plan: Re-evaluate your repayment plans. With repayments resuming this fall, make sure you’re enrolled in an income-driven payment plan that makes sense for your financial situation. 

Final Thoughts on Financial Problems for Employees

Finances start with a paycheck, so it makes sense for financial literacy to start with the workplace. Employers can help employees avoid these common mistakes by offering financial planning and wealth management tools. They help engage and retain employees as well as improve overall financial wellness. 

Overall, financial wellness isn’t just about having enough money. It's also about having the knowledge and skills to make sound financial decisions and not make these common mistakes moving forward.

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