12 Common Mistakes Gen X Makes With Their Money (And How To Fix Them)

Sandwiched between two media-worthy generations, millennials and baby boomers, it’s easy to see how Gen X can be considered the “Forgotten Generation.”

Gen X takes middle-child syndrome to the next level, and unfortunately, that’s often left them out of pertinent, customized financial advice. 

As a Gen X investor, you have a unique set of financial goals, circumstances, and problems to solve. Here at Bienvenue Wealth, we specialize in wealth management and accumulation for Gen X families, and we’ve noticed a few habits amongst this cohort of investors that tend to hold them back from financial success. 

Today, we created a list of the 12 most common mistakes Gen X families make with their money.

Let’s get problem-solving!

1. You Don’t Have Clear, Motivating Goals

Think about your financial goals as the “true north” of your financial plan; no matter where you are in your life, you always know where you’re going. Setting concrete goals provides direction and clarity for the path ahead, and it’s also imperative for customizing your plan. 

How can you set more meaningful goals?

Start by setting SMART goals, meaning your goals should be specific, measurable, achievable, realistic, and timely. Using this method is an excellent way of bringing thoughtfulness and intention to your goal-setting process. 

Now, your goals won’t be random or arbitrary. Instead, they’ll be more complete and add value to your life.

Here’s an example. You have a goal of saving $200,000 over the next 18 years to help your daughter pay for a 4-year college education.

  • Specific: Your objective is clear and tangible.
  • Measurable: Using savings calculators and projections, you’ll be able to see your progress over time. Regularly checking in on your goals will also alert you if you need to make any changes, like saving more each month.  
  • Achievable: Say you start saving as soon as you have your child. If you plan to contribute $510 a month for 18 years, you can expect a bounty of about $224,000 (assuming a 6% return)—just over your goal! 
  • Realistic: Based on your household income, retirement savings, other debts, and cash flow, you feel that saving this amount over 18 years is sensible.
  • Timely: There is a set timeline of 18 years.

2. You Don’t Have A Plan For Executive Level Income

As you progress through your career, you will likely have different types of compensation outside of a typical salary and bonus structure. Your company may offer benefits like deferred compensation, restricted stock units, or company stock options. Many employees are confused by these alternative modes of payment and don’t have a plan in place.

Step 1 is understanding the type of compensation you have. Here are some questions to walk through with your financial team. 

  • What type of compensation do you have? (RSUs, ISOs, etc.)
  • When will you get paid?
  • What are the tax consequences/benefits?
  • What performance benchmarks do you need to hit?
  • Are there specific years of service required?
  • What strategies will maximize your offerings?

We love helping people make the most out of their equity compensation. 

3.  Your Portfolio Is Cluttered, Not Comprehensive

It’s so easy to let FOMO or break-room discussions influence your portfolio, but that’s not the recipe for success. Don’t be fooled by shiny new investments or get rich quick schemes.

Instead, make a plan and stick with it. Here’s how. 

  • Let your goals influence your strategy.
  • Create a well-diversified portfolio that aligns with your risk tolerance, time horizon, and unique goals.
  • Think long-term. 
  • Keep a solid head on your shoulders, and don’t let your emotions derail your plan. 

History has given us a tremendous amount of data that we can use to develop an investment strategy that sifts through the noise and gets you from where you are to where you want to be. Rather than spending years collecting random investments every time you hear a hot tip, plan with a purpose. 

4. You Aren’t Maxing Out Your Retirement Accounts

In 2022, the maximum contribution to a company 401(k) plan for investors under 50 is $20,500. As soon as you turn 50, you can stash away an extra $6,500 per year. 

The IRS limits you to $6,000 per year for IRAs, and you can put in an extra $1,000 when you turn 50. 

For many Gen X investors, these accounts are the most effective way to save for retirement tax-efficiently. How can you make the most of them?

Be sure to systematically increase your retirement contributions. Make retirement savings a top priority and automatically increase the contributions to your company’s retirement plan. For example, you may want to increase contributions by 5% every year until you reach the annual max. Raises are another great opportunity to stash more money away. Pretend like you didn’t get your new raise, keep your lifestyle the same, and save the difference.  

Many employers’ plans also have a future increase feature on their platform. You will do your future self a big favor by enrolling in this function, as it takes the manual work and emotions out of the equation.

5. Your Money Is Pulled In Too Many Directions

The sandwich generation has several financial commitments, to put it mildly. Between taking care of your personal finances, supporting children, and caring for aging parents, the money seems to go out quicker than it came in.

How can you fulfill your financial commitments while still caring for yourself?

Set healthy money boundaries.

Decide what you will and won’t pay for, and don’t be afraid to communicate those guidelines to your family. When can your child use your credit card? How much can you pay for your parent’s long-term care needs?

Consider the short and long-term impact of these decisions, and prioritize your goals first so that you can help those around you.

6. You Don’t Have A Tax Planning Strategy

Too often, Gen X investors think about their annual tax bill instead of their lifelong tax bill. You should be asking yourself how you plan to reduce your taxes now AND in the future.

One thing you can do is diversify where and how you’re investing. We see countless couples come in with 100% of their wealth in tax-deferred accounts. It seems like a great idea now but when retirement comes and every dollar is taxed at a higher marginal tax rate, you’ll be clamoring for flexibility and it will be too late. Having multiple types of accounts will help your tax situation in the long term. 

For example, actively investing in a Traditional 401k, Roth IRA, and Taxable Brokerage Account while you accumulate wealth will give you several advantages in your distribution phase. It will also grant you more flexibility in the short term to fund goals outside of retirement.

7. You’re Leaving Your Health To Chance

Many Gen X families are not taking full advantage of their employee benefits package. In particular, they often have the wrong medical plan for their situation.

Start by evaluating your options. During open enrollment, this year, take a hard look at your medical plan. 

  • What is the cost? 
  • How much are the deductible and out-of-pocket maximums? 
  • What do the co-pays look like? 
  • What medical services is your family using most often?
  • Are there services you’re paying for but never use?

While many families tend to shy away from high deductible plans because of the potentially more substantial out-of-pocket requirements, these plans do allow you to invest in a health savings account (HSA). 

For young and healthy families utilizing a high deductible health plan, health savings accounts (HSAs) are a great way to reduce your tax burden and save for future medical expenses. For 2022, the combined contribution limit to a Family HSA is $7,300. These “never taxed” dollars and their earnings can be rolled over from one year to another. This investment is a great way to save up for future medical expenses including long-term care needs.

8. You Carry Way Too Much Debt

Gen X families tend to have a considerable amount of household debt

In fact, Gen X carries the most debt among any generation, and it’s not too difficult to see why. From mortgages and student loans to credit cards and auto loans, the liability payments seem never-ending.

How can you get a handle on your debt?

Start by creating a comprehensive debt repayment plan. Simply making the minimum payment on your outstanding debt is a recipe for disaster. If you find yourself overwhelmed with various liabilities, it’s time to set a specific plan to get yourself out of it. 

How can you do that? 

First, know what debt you have (mortgage, student loans, auto loan, medical bills, etc.). 

Next, understand the repayment terms and interest rate. Is there an opportunity to consolidate your debt into a simple monthly payment? Can you refinance for a more competitive interest rate? Can you contribute more to the principal each month?

Finally, allocate an appropriate amount of money to your debt each month. Maybe you forego the kitchen remodel when interest rates are climbing, and construction costs are through the roof and focus on paying off a costly medical bill, for example. 

Another great way to avoid carrying more debt than you need is to prevent “bad” debt. Bad debt is financing items that you don’t even remember purchasing. The best way to prevent a buildup of bad debt is to save up for large ticket items in advance. This will keep you from taking on debt that robs your future income streams. It’s hard to build wealth when you’re financing a slew of depreciating assets with high or variable interest rates. Watch out for debt that doesn’t serve you well, like a fancy sports car or a vacation home that’s vacant 10 months out of the year.

9. Your Legacy Planning Has Been Put On The Back Burner

A proper estate plan that outlines your wishes for your assets is a unique and essential gift to give your family and loved ones. Creating a comprehensive estate plan expedites the wealth transfer process and ensures your wishes are followed.

Be sure you have the basic documents in place, such as a living will, power of attorney, healthcare directive, trustee, guardian, executor, etc. 

Download our free guide about building an estate plan that honors your legacy. 

10. Your Wealth’s Safety Net Has A Few Holes

An essential part of growing your wealth is protecting it along the way. Are your insurance policies up to date?

It’s time to take inventory!

Which types of insurance do you have, and which types should you consider? Here are a few ideas.

  • Medical, Dental, and Vision Insurance
  • Life Insurance
  • Short and Long Term Disability Insurance
  • Property and Casualty Insurance
  • Personal Liability Insurance
  • Umbrella Insurance

Once you’re confident you have the policies you need to protect your income and family, review the beneficiaries you set on the policies, especially your life insurance policy. Ensure your primary and contingent beneficiaries align with your legal documents and estate planning strategy.

11. Your Emergency Fund is at $0

While you don’t want too much cash in your portfolio, not enough can open you up to potential issues. In many ways, an adequate emergency fund gives you the breathing room to invest and take on additional risks because you know you have something to fall back on.

How can you build the right cash cushion?

Concentrate on building a cash emergency fund that houses roughly 3-6 months of fixed expenses. Store this money in a safe, accessible, and liquid place such as a high-yield savings account or money market account, so you can easily access the money when you need it. 

The sole purpose of this money is to protect you against unexpected expenses, like medical expenses, major car or home repairs, a lapse in work, etc. 

According to bankrate.com, 6 in 10 Americans could not afford an unexpected expense of $1,000. So, more than half of adults in the US would go into debt if faced with this unexpected expense.

A fully-funded emergency account can help keep you out of debt when something unexpected occurs. 

12. You Aren’t Saving Enough Outside of Retirement

Saving for retirement is fantastic, but there are several other financial goals you may want to support before you retire, like putting your kids through college, building a dream house, or going on family vacations. 

It’s important to find the proper balance between these competing goals, so you feel comfortable now and in the future.

An excellent account to consider is a brokerage account. Brokerage accounts bring additional flexibility to your plan as there are no rules for when or how you can use the money. Additional flexibility can be paramount for short to intermediate-term goals like paying for your child’s wedding. Not to mention, your brokerage account also has favorable tax treatment and beneficial estate planning value.

Find Financial Confidence

Whew, that was a long list! 

Whether you felt yourself nodding along to one or all twelve, there’s always room for improvement. As a bonus, April is financial literacy month, and perhaps you’ll focus on improving a few of the most critical areas throughout this month. 

We’d be happy to help you create a plan that addresses these and other common money mistakes. Schedule some time with our team today and see how we can help craft a strategy that brings confidence and clarity to your life.