Personal Finance

Here Are the 4 Money Mistakes Gen Xers Must Avoid

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The Lost Generation: Struggling to Save for Retirement

Over 66 million Americans are classified as members of Generation X – those born between 1965 and the early-to-mid 1980s. Despite the large number of people comprising this age group, they are often referred to as the “lost” or “forgotten” generation, living under the shadow of baby boomers and ceding their spending power to millennials.

Even so, Gen Xers have important roles to play in the economy as they look ahead to retirement.

As a Gen Xer, you may have been rocked by the Great Recession in 2008. Perhaps you’re still trying to recover your finances over a decade later. According to a recent article published by Forbes Magazine, many Gen Xers continue to live with increasing debt and a lack of retirement savings – two issues which many don’t seem overly worried about.

However, carrying too much debt and not saving for retirement are causes for alarm – a warning that Gen Xers by and large are failing to heed.

The Wealthiest Generation?

According to an article in Financial Advisor’s online magazine, Generation X will become the wealthiest generation over the next 25 years, rising above the baby boomers as $68 trillion in wealth is passed down from one generation to the next. However, this great wealth transfer may not pan out to be the “retirement plan” on which many Gen Xers are relying.

This is due in large part to the spending habits of Generation X.

Forbes recently brought to light the fact that, annually, Gen Xers spend 11% more money than baby boomers and a whopping 33% more than millennials. These spending habits leave little income for other areas, giving rise to the obscene amount of debt and the lack of retirement funds that have become trademarks of Gen Xers.

However, it must also be noted that roughly half of the members of Generation X are also financially supporting at least one parent and child at the same time. This, of course, further strains an already fragile financial position.

So, what can Gen Xers do?

There is a proverbial "light at the end of the tunnel" – some advantages this generation has over their older and younger counterparts. The fact that many Gen Xers make financial decisions that affect three generations makes them powerful – a strong influence on the other generations. In addition, as was reported by Business Insider, they also make significantly more money than millennials. In California, it’s a difference of $18,000 per year. Furthermore, Gen Xers are poised to become the dominant generation in charge of politics and business.

Gen Xers must avoid the following critical mistakes to stave off future financial despair and rise as "The Wealthiest Generation."

Mistake #1: Tapping Your 401k Without Careful Consideration

Maybe you recently changed jobs or you’re having trouble making your mortgage payments, so you decide to withdraw from your 401k to make ends meet. Unexpected bills, overspending, and too much volatility in your career can easily lead you to tap into your 401k before the age of retirement, but this isn’t always a good idea.

Here's why: 

1. Early withdrawal penalties

When you withdraw from your 401k before you reach the age of 59½ years, the IRS may charge you a 10% penalty. That means 10% of your earnings are essentially going down the tubes. You may also be taxed on the money you borrow, depending on the type of account you have.

Depending on your employer’s 401k plan, you may qualify for a 401k hardship distribution – a loan, if you will – which means you can use your 401k funds for certain expenses without paying the 10% early deduction penalty if you fall on hard times. You would essentially be borrowing money from your future retired self and then paying yourself back. Be cautious, though. This isn’t always ideal for or available to everyone.

2. Defaults are common among certain borrowers

While nine out of ten 401k loans are repaid, according to, defaults are alarmingly common among borrowers who terminate employment with outstanding loans. Specifically, almost 90% of these 401k loans default. While borrowers remain employed, payments to replace the borrowed 401k funds are most often automatically deducted from their paychecks. Once those paychecks cease, however, 86% of people never make other plans to replace the borrowed funds. The aggregate outflow from defaulting on 401k loans is around $6 billion annually, putting Gen Xers in a precarious position as they come closer to retirement.

3. Loan repayment means smaller paychecks

People elect to borrow against their 401k savings because they find themselves short on funds they need for any number of reasons; when they tap into their 401k and payments on the loan are automatically deducted from their paychecks, it leaves them with less take-home pay than they’re used to. This often exacerbates the already fragile financial state that caused the borrower to tap into the 401k in the first place, sparking a dangerous "catch 22" that can last for years.

Here’s what to do instead:

Replacing these funds is of paramount importance. If you absolutely must borrow against your 401k, make it a top priority to repay the loan, and stick to an actionable plan to do so. Before you complete the withdrawal, be sure you also have a plan in place for repaying the loan in the event that your employment terminates in the future. Remember: You are essentially paying yourself back when you repay a 401k loan.

Create a budget and set aside some of your earnings for situations like extensive medical treatment, car repairs, home appliance replacement, and similar events that are likely to hit your pocketbook at one point or another. As you get older, it becomes increasingly important to have cash in your financial portfolio. Get in the habit of expecting the unexpected and grow your savings for that purpose – and leave your 401k untouched until you retire.

Mistake #2: Overspending on Everything

Many Gen Xers are renting or still making payments on mortgages for their homes in addition to paying credit card debt, auto loans, insurance premiums, utility bills, and more. While these expenses are common, Gen Xers should reduce their financial outflow wherever possible to increase their accessible pool of funds. Overspending can compromise your long-term financial health.

So, how can you change your spending habits?

Live minimally. The idea of minimalism is to live life with as little as possible – no extravagant, unnecessary purchases or lavish, over-the-top expenditures. Get in the habit of asking yourself an important question before you purchase anything:

"Do I really need this?"

Whether it’s a pizza on the 8th Friday night in a row or a new car (even though you just bought your current car two years ago), being mindful about each expense will help you to curb overspending.

A good rule of thumb for purchases is that if you’re "on the fence" regarding its necessity, walk away. Be confident that every purchase you make will actually contribute to your well-being and if it doesn’t – if it really only would satisfy a "want" of yours – put it away. Revisit the possible purchase in a few days, or in a week, and reevaluate the situation. You may find yourself glad that you avoided an "impulse buy" and still have that money available to you.

Looking to buy a new home? Don’t automatically reach for the top tier of your approved loan amount. Choose a home that is comfortable for you as well as your bank account – not one that will impress your family and friends with its plethora of extraneous (and expensive) features. Thinking of buying a new car? Consider shopping for a used one, not one that is brand new just off the line. Want to order pizza on that Friday night? Consider running to the grocery store and picking up a higher-end frozen pizza to cook at home at a fraction of the cost of delivery. All these changes quickly add up to savings, savings, and more savings.

Take the no-spend challenge to save more money each month – you might be happily surprised at the outcome.

Mistake #3: Under-Saving for Retirement

According to a recent article published in Business Insider, almost half of Gen Xers surveyed said they have no money saved in a retirement account. In addition, Gen X is the least likely generation to say they would save or invest an extra $1,000, instead using it to pay outstanding debt.

Many Gen Xers assume they won’t have need for "inflated" retirement savings because they will still be working past the age of 59½. While it’s true that many will be able to continue earning a paycheck past that age, the reality is that nothing is guaranteed. From unforeseen health issues to accidental injuries, there are many events that can end a person’s ability to continue working. Gen Xers must not make the mistake of assuming that eating healthy and exercising regularly means they won’t run into costly medical issues down the road. The likelihood of suffering a debilitating illness or injury increases as our bodies gradually become more susceptible to the effects of aging – a process to which no one is immune.

Add to this the fact that Americans are now living longer on average than they had in the past, and you have a recipe for potential financial disaster. To illustrate, the life expectancy for Americans in 1918 was just 47.2 years. In 2018, it was 78.7 years. That means that Americans, on average, are going to need sustainable income for 31.5 years longer than Americans 100 years ago.

Here’s how to increase your retirement savings:

Set clear goals for yourself when saving your money. Ideally, you should be saving at least 15% of your income for retirement. Starting this process early will help you take advantage of compound interest and allow you to make the most of your saved funds. Setting up an individual retirement account (IRA) is a great tool to help you build retirement savings on top of the 401K plan that your company offers.

Mistake #4: Carrying Too Much Debt

Gen Xers carry more debt than any other generation, thanks to heavy credit dependence, auto loans, student debt, and mortgages. According to a recent study by, Gen Xers have an average debt balance of $134,323, surpassing the national average of $93,446.

Carrying all of this debt is expensive, as you must pay interest on these loans. Credit comes at a hefty price. At the time of this article’s writing, the average credit card interest rate for new accounts is 19.4% and 14.14% for existing accounts. This means that, by the time you are finished paying off a credit card, you will have paid a much higher amount of money than you originally borrowed. Mortgage loan interest and auto loan interest works the same way – if you secure a 30-year fixed rate mortgage for $100,000 with an interest rate of 5%, by the time the mortgage is paid over 30 years, you will have paid back almost double that amount – $193,255.78, to be exact – thanks to interest.

If that’s the story with a $100k loan at just 5% interest, can you imagine the total amount that would be repaid for that average debt balance of $134,323 at 19.4% over 30 years?

(It’s $792,792, by the way.)

Here’s how to get rid of your debt:

If you want to reverse these trends, focus on paying off your debt as if it were an emergency, because it will be exactly that – an emergency – by the time you reach retirement age if your debt continues to accumulate. Make your annual 7-day vacation a 5-day vacation, and put the money you would have spent on the other two days toward paying down debt. Skip the daily coffee shop visit every morning. Make coffee at home instead and tuck away the savings. Instead of going out to the movie theater every Saturday night, go once a month and rent a movie the other Saturdays, once again using the savings to chip away at your outstanding balances.

Find a strategy that works and stick to it. Write out a budget and keep track of how much money you will save by changing your spending habits – you may be shocked at how quickly little amounts here and there add up. A cup of coffee each morning for just $3.00 is harmless, right? Over the period of a month, that adds up to $90.00. Over the course of just one year, that adds up to almost $1,100!

Better Late Than Never

If you’ve been making some of these financial mistakes, know that right now is the best time to start shifting your priorities. Overhauling your spending habits should include small changes that can make a dramatic difference in your financial health over time. Don’t let your hard work through the years go to waste by not planning for your future; save for retirement, live a less expensive lifestyle, chip away at your debt, and leave your 401k alone. If you follow these simple steps, you’ll be on your way toward a long, happy retirement in no time – and your future self with thank your present self for it.

 Here Are the 4 Money Mistakes Gen Xers Must Avoid

This blog post was published by Axos Bank on September 4, 2019 and last updated on May 26, 2021.

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