4 mistakes most employees make with their finances
Published by: LifeWorks,
On her way into work every morning, Sara stops at her favorite coffee shop for a latte. At lunch, she orders take-out from local restaurants. Her weekends usually consist of shopping at the mall or taking her children to the movies or local sporting events. And at the end of every month, she feels the pressure of making ends meet before her next payday.
Fortunately, people like Sara who struggle with a poor sense of financial well-being have the power to make changes to their lifestyle.
You, too, can help your employees better manage their financial stress so they can live happier, healthier lives. By managing their financial well-being, employees will also improve upon their overall health and well-being.
Let’s take a look at some of the most common financial mistakes your employees are making — and what you can do:
Ignoring a Budget
Many people fail to set personal budgets for themselves. Why?
For one, budgets can be very intimidating. It seems like a daunting project to count all your pennies and look at all of your expenses in a month or throughout the year.
Another reason is that a lot of budget advice tends to be misguided. People don’t have to forgo their lattes every day to start saving.
Solution: Educate your employees on the importance of a personal budget and how they can benefit from just a little bit of planning. They can gain a sense of control, prepare for unexpected emergencies, and most importantly, greatly reduce their level of stress.
Refer them to several personal finance apps that can help with basic tracking and categorization, and emphasize the simplicity of budgeting. It’s not as complex as it seems. In the end, your employees can take the stressful guesswork out of what they can and can’t afford.
Employees like Sara are stuck in the paycheck-to-paycheck cycle. They’re forced to think in the short-term and get stuck in a survival mode because they fear running out of money.
This prevents them from building a savings account, which is not uncommon. A 2015 survey from GOBankingRates found that 62 percent of Americans have less than $1,000 in their savings accounts.
How do you help employees get out of this mindset?
Solution: Encourage employees to look forward — past the immediate future — and set an annual budget. They can look at what monthly expenses to cut, foresee upcoming events, like holiday gift shopping, and maintain a lifestyle they’re comfortable with.
Thinking in terms of month-to-month is not a bad thing, but it can be shortsighted. You don’t want employees to forget about major expenses that come irregularly, like the eventuality of having to repair a vehicle. Also, you want them to feel motivated at the thought of how much money they can save in 12 months or even a few years.
A majority of employees carry debt, many of whom are unable to manage it. The 2016 Financial Education for Today’s Workforce survey from the International Foundation of Employee Benefit Plans (IFEBP) found that 66 percent agreed their employees are struggling.
Your employees may be abusing credit cards, ignoring their student loan debt, or living beyond their means. No matter what the cause is, they need to learn how to properly manage their finances.
Solution: You can’t help employees improve their financial well-being if they’re allowing debts to rule their lives. Help them get a full perspective of who they owe and how much.
From there, they can plan with a monthly bill payment calendar and prioritize what debts to pay off first. They should be targeting those accounts with the highest interest rates.
Some may find it hard to pay bills on time, which can lead to late fees. Encourage them to automate their bills so the minimum amount is transferred automatically.
Not Setting Goals
To achieve good financial well-being, your employees need to set financial goals and stick to them. Unfortunately, if they’re ignoring their debt or not setting a budget, they probably aren’t forward-thinking. Financial goals force employees to create a vision for themselves — a vision of stability and comfort they can achieve in the future.
Solution: Start an accountability group in the office and encourage participation. When they share goals with their peers, they are creating a support system where they can cheer each other on.
Educate your staff on methods to help them stay accountable. For example, a recent study published in the New England Journal of Medicine showed that when people risk money, they are more likely to accomplish their goals.
Participants risked $150 to win a $650 bonus prize during their smoking cessation program. The group that bet money on themselves was dramatically more likely to quit smoking than those who used traditional smoking cessation methods. Surprisingly, this group also beat out those who were offered an $800 reward with no deposit for staying smoke-free.
This is called loss aversion. People tend to strongly prefer avoiding losses than earning gains. Therefore, consider encouraging employees to bet money on their ability to stick to their spending plan. This way, they are far more likely to stay accountable and make changes to their habits and routines.
How are you rescuing your employees from poor financial well-being?