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72% of Consumers Don’t Always Factor Savings Into Their Budget

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Spending money is easy and saving money is hard. We get it. That being said, there are concerning savings habits that more than 7 in 10 consumers share.

A MagnifyMoney survey of more than 1,000 Americans looked at how consumers prefer to save money, finding that 72% don’t have a preset monthly savings amount in their budget. Only 28% of consumers said their favorite savings strategy is setting automatic monthly transfers to their savings account each month.

We asked two of our experts — DepositAccounts founder Ken Tumin and MagnifyMoney millennial finance columnist Sarah Berger — to weigh in on these discoveries and how consumers can make better savings choices.

Key findings

  • 72% of consumers don’t factor a set savings target into their monthly budget, including 84% of Generation Zers. About 40% of respondents put whatever they can afford into savings, which varies.
  • Consumers’ favorite savings strategy is setting automatic monthly transfers to their savings account every month (28%), followed by keeping separate accounts for funds (20%), such as education or vacation.
  • A quarter of consumers prioritize discretionary spending before putting money into savings accounts, though experts generally recommend saving first and then spending what’s left over.
  • 60% of consumers save less than $500 a month, not including retirement savings. And, according to our latest monthly savings index, 21% of Americans don’t save any money at all.

Men more likely to have set savings targets than women

Only 28% of consumers set savings targets in their budget, with men doing so more often than women.

By gender, 35% of men have a preset amount they budget for, versus 21% of women.

“Time after time, we have found that the effects of the gender wage gap are very real — and they often put women at a financial disadvantage,” Berger said. “In many cases, you can only afford to save money if you are able to pay all of your bills and meet your basic living needs.”

If men are earning more money, Berger said, they’re less likely to be living paycheck to paycheck and therefore are more likely to save. Berger commented that eliminating the gender wage gap is a crucial step in putting women on an even playing field when it comes to setting — and reaching — savings targets.

As expected, income affects whether consumers set savings targets. In fact, 46% of those who make more than $100,000 a year have a preset savings amount they budget for each month, compared with just 16% of those who make less than $25,000.

Nearly 3 in 10 cite automatic transfers as favorite saving strategy

Consumers have their preferences when it comes to how they like to save money, with the most favored method being setting up automatic transfers each month (28%).

Consumers with higher incomes are more likely than those who earn less to prefer automatic monthly transfers to their savings account, possibly because lower earners may be at risk of overdrafting their account. This may explain why men (31%) enact this method more than women (26%), if you consider the gender wage gap.

Berger said she’s a fan of the automatic transfer method. “Personally, I like having 20% of my paycheck — after retirement contributions are taken out — automatically rerouted to a separate savings account on payday,” she said. “It makes me feel accomplished and like I am paying myself first, as opposed to just saving whatever is left over from my monthly budget.”

That being said, she doesn’t believe the method of saving is as important as the act of saving itself. “As long as you are saving, that’s what counts,” Berger said. “So, you should feel confident in taking whichever approach is best for you.”

Tumin sided with the 28% of consumers who said automatic transfers are their favorite way to save. “Everyone is busy, and if you have to manually add to your savings, the odds are high that you’ll put it off,” Tumin said. “When the transfers are scheduled to take place automatically on a regular basis, the savings will build even when you’re busy.”

Another popular savings method that respondents mentioned was the envelope method. Just about 1 in 7 Americans rely most on this method to save money, which involves setting aside cash in envelopes marked for different categories. This means people aren’t earning any interest on their savings, but the tangible experience can help some feel less tempted to spend.

Having a savings strategy in place isn’t a guarantee, though, as 22% of consumers reported not having a favorite approach. Again, there’s a noticeable gap between the savings habits of men and women. Nearly twice as many women (28%) said they don’t have a go-to savings strategy, compared with 16% of men.

36% start saving after paying for living expenses

There are various savings methods for consumers, and how they get there can vary greatly.

The most respondents (36%) save the amount of money left over after paying for living expenses. Those who earn less are more likely to save what’s left after discretionary spending than those who make more.

One smart path toward savings that only 16% chose was to create a monthly budget to understand how much they can afford to save each month. This is a great step to take before setting monthly savings goals or setting up an automatic transfer to a savings account.

Deciding to save based on what’s left over suggests that there is little planning and budgeting involved, Tumin said. Creating a monthly budget that includes savings is the best approach to take if you want to prioritize saving, he said.

48% of Gen Xers are saving for something specific

The majority of savers are doing so without any specific goals in mind. Other than saving for retirement or emergencies, only 40% of consumers are saving for something specific.

While baby boomers are the least likely to be saving for something specific (27%), Generation Xers are most likely to have a specific saving goal in mind.

Almost half of Gen Xers (48%) are saving for something specific. Gen Xers are still pre-retirement age and likely have more income coming in and expenses coming up (think college and weddings for children) than baby boomers.

According to the latest edition of MagnifyMoney’s monthly savings index, 21% of Americans don’t save any money at all. Other than general savings, emergencies or retirement, the highest percentage of consumers in December were saving up for vacation or a new car.

60% of Americans save less than $500 a month

When it comes to how much is put in savings, 6 in 10 Americans save less than $500 a month.

Breaking it down by education, 13% of those with a bachelor’s degree or higher put $2,000 toward non-retirement savings each month, compared with 5% of those with some college and 1% with only a high school education.

Once again, men come ahead in how much they save compared to women. While 71% of women save less than $500 a month outside of retirement contributions, only 49% of men reported doing the same.

Understandably, household income also plays a role. The group most likely to save less than $500 a month earns less than $25,000 a year. On the flip side, the group most likely to save $2,000 or more each month earns $100,000 or more annually.

“Most Americans aren’t saving enough,” Tumin said. “Generally, it should be more than $500 a month.”

He explained that the amount Americans should save depends on their emergency and “sinking” funds. The latter is a small amount of money set aside every month. Having a well-funded emergency fund will help if you lose your job or face unexpected expenses, while having a well-funded sinking fund will help you afford planned expenses such as car maintenance or vacation.

Understandably, the COVID-19 pandemic is likely hindering savings efforts. “Those who have lost jobs during the pandemic will likely have to draw on their savings rather than add to their savings until they’re able to find a new job,” Tumin said.

He believes that in times of uncertainty — like during a pandemic — it’s especially important to have a well-funded emergency savings fund.

“Any additional savings, such as from the government economic impact payments, should be used to build up your emergency fund,” Tumin said.

Methodology

MagnifyMoney commissioned Qualtrics to conduct an online survey of 1,038 Americans, with the sample base proportioned to represent the overall population. We defined generations as the following ages in 2020:

  • Generation Z: 18 to 23
  • Millennial: 24 to 39
  • Generation X: 40 to 54
  • Baby boomer: 55 to 74

The survey also included responses from the silent generation (ages 75 and older). However, their responses weren’t included in the generational breakdowns due to low sample size among that age group.

The survey was fielded Oct. 19 to 21, 2020.

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51% of Americans Will Set a 2021 Money Resolution, and Getting Rid of Debt Tops the List

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Despite the general chaos of 2020, more than half of Americans will make a money resolution for 2021, and another 16% are undecided, according to the latest MagnifyMoney survey. Among those planning a 2021 money resolution, about half said they want to reduce debt or become debt-free.

In light of the COVID-19 pandemic, we also looked at how people did with their 2020 money resolutions. According to our survey of more than 1,000 Americans, 53% of those who set a money resolution for 2020 achieved it, and another 36% have made progress.

Here’s what else we discovered.

Key findings

  • 51% of Americans will make a money resolution for 2021, up from 47% this year. Those most likely to set a financial goal include six-figure earners (67%), college graduates (64%), millennials (62%) and men (55%).
  • The top three 2021 money resolutions are reducing debt and/or becoming debt-free (50%), raising credit scores (46%) and increasing savings (45%).
  • About 59% of those who will set a resolution said the pandemic’s continued economic impact may prevent them from achieving that goal. In all, 97% of resolution setters named at least one barrier they may face.
  • 53% of those who set a 2020 financial resolution have achieved that goal, and an additional 36% have made progress. Men (62%) and Gen Zers (58%) were most likely to achieve their resolution.
  • 62% of those who set a 2020 financial goal changed it because of the crisis. That number jumps to 83% for those who were laid off or furloughed and 76% for those whose salary or hours were cut, compared with just 40% who didn’t lose income.

62% of millennials will make a 2021 money resolution

More than half (51%) of Americans will make a money resolution for 2021, while 21% say they won’t make any resolutions at all.

Among the generation groups, millennials have the highest percentage (62%) of Americans planning to set a financial resolution for the upcoming year.

“Many millennials are reaching the point in their lives where major milestones are on the horizon, such as marriage, buying a home or starting a family,” said Sarah Berger, MagnifyMoney’s millennial finance columnist. “Setting financial goals is a critical component to being able to pay for those milestones, even if they are still a few years away.”

Gen Zers and Gen Xers followed close behind at 58% and 55%, respectively, compared with just 21% of baby boomers.

Financial goals seem to be more popular among those who earn more and have more education. For example, 64% of those with at least a four-year college degree said they intended to set a money goal, versus 45% of those with some college and 43% with no college.

Reducing debt, boosting credit score top of mind for 2021 resolution setters

Resolution-setting is popular in the U.S., and Americans will have various resolutions for 2021.

“New Year’s resolutions are all about improving and feeling better about yourself,” said Matt Schulz, LendingTree chief credit analyst. “The truth is that little makes people feel better about themselves than getting out of debt. That’s why it is always one of the most common resolutions each year, along with improving your health.”

Half of Gen Zers said their main goal is to get a higher-paying job, while about half of millennials and Gen Xers (as well as 58% of baby boomers) cited reducing debt or becoming debt-free as their top financial goal for 2021. Younger generations have had less time to take on debt — and a higher income could be their answer to getting out of any debt they do have. Older generations may be retired and living on a fixed income, making debt more difficult to overcome.

Among those who said they wanted to save for a specific purpose, the most common goals were:

  • Vacation (48%)
  • New car (44%)
  • Down payment for a home (44%)

9 in 10 think they’re at least somewhat likely to achieve their resolution, but pandemic worries abound

In general, people are optimistic about their upcoming resolutions. A little less than half (48%) of Americans think they’re extremely likely to achieve their 2021 resolution, and 42% think they’re somewhat likely. There is, however, a rather wide gender split here, as 60% of men said they’re extremely likely, while only 37% of women said the same.

Of course, optimism and achieving a goal are two separate things, so it pays to plan for the worst, as 97% of resolution setters acknowledged. And the top obstacle cited was continued economic impact from the coronavirus pandemic (59%).

While the pandemic remains the chief concern across generations, 49% of baby boomers cited potential emergency expenses as an obstacle. To combat potential obstacles, many consumers said they’ll take action to stay accountable.

“Apps can be useful, but there are privacy and security concerns with apps that have your financial information,” said Ken Tumin, founder of DepositAccounts.

One alternative, Tumin said, is to choose a digital bank — such as Simple or Empower — that offers budgeting features in their mobile banking apps.

Check out MagnifyMoney’s list of best online banks

53% who set 2020 money resolution achieved it

Of the 47% of consumers who made a financial resolution at the beginning of 2020, 53% achieved the resolution. And an additional 36% have made progress but haven’t reached their end goal.

Millennials (56%) had the best luck achieving their financial goals in 2020, while baby boomers (23%) had the least luck. (This is perhaps unsurprising as baby boomers were also less likely to set financial goals in 2021.)

The most common financial resolutions in 2020 were:

  • Reducing debt and/or becoming debt-free (39%)
  • Increasing credit score (37%)

Unlike 2021, Gen Xers (48%) were the most likely generation in 2020 to cite reducing debt or becoming debt-free as their financial resolution. In 2020, millennials (42%) were most focused on increasing their credit score.

Of those who achieved their 2020 money resolution, the majority (70%) did so by the summer, despite the impact of the COVID-19 crisis. And among those who haven’t yet achieved their 2020 resolution, 83% said they will continue to work on it in 2021.

62% who set 2020 financial resolution changed it because of coronavirus crisis

The pandemic’s impact has been widespread. Unfortunately, that also means it’s impacted people’s resolutions. In fact, 62% of those who set a 2020 resolution changed it because of the crisis. The way that plays out can vary widely based on individual circumstances.

One respondent wrote that they had originally resolved to stop living paycheck to paycheck, but ended up changing the resolution to simply survive. Another respondent initially hoped to increase their income, but later resolved to just keeping their income stable.

Job status is closely tied to how the pandemic impacted finances and resolutions. For instance, the following segments said they changed their money resolutions because of the pandemic:

  • 83% of those who were laid off or furloughed
  • 76% of those whose salary or hours were cut
  • 40% of those who didn’t lose income

Despite this, 43% said the pandemic helped their ability to achieve their 2020 resolutions as they were able to save more money through reduced spending, economic impact payments and enhanced unemployment benefits. But 40% said the pandemic has hurt them, resolution-wise, because of a loss of income.

While those with a higher income tended to be impacted less severely by the pandemic in general, 23% of those earning less than $25,000 said the pandemic didn’t have any impact on their financial resolutions — the highest among any group.

Of course, whether you lost your job or had medical issues will dictate how the pandemic impacted your overall resolutions, as well as your finances.

“Those who were able to keep their jobs and avoid contracting the virus may have found that the pandemic helped their resolutions,” said Tumin, noting that reduced travel and entertainment expenses could also be a helpful factor. “The low-interest rate environment that took hold when the pandemic began has made it possible for people to save money by refinancing mortgages and other loans. All of these may have made it easier to accomplish money resolutions this year.”

Check out MagnifyMoney’s list of best savings account rates

Methodology

MagnifyMoney commissioned Qualtrics to conduct an online survey of 1,052 Americans, with the sample base proportioned to represent the overall population. The survey was fielded Nov. 19-24, 2020.

We defined generations as the following ages in 2020:

  • Generation Z: 18 to 23
  • Millennial: 24 to 39
  • Generation X: 40 to 54
  • Baby boomer: 55 to 74

While the survey also included consumers from the silent generation (defined as those 75 and older), the sample size for that group was so small that findings related to that group weren’t included in the generational breakdowns.

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4 in 10 Investors Definitely Think They Can Beat the Stock Market

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

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Think you can beat the stock market? According to the latest MagnifyMoney survey of more than 1,000 Americans with at least one investment account, 40% definitely think they can get a better return on their own investments than what they’d get from a broad index fund such as the S&P 500.

That percentage varies greatly, however, among men and women; Democrats and Republicans; and millennials, Generation Xers and baby boomers.

Some see investing as a game and are ready to play to win. Others tend to want to spend more time sitting on the bench. Here’s what we learned from our survey.

Key findings

  • 40% of investors definitely think they can beat the stock market. That figure jumps to 53% of men (versus 19% of women), 54% of Republicans (versus 31% of Democrats) and 55% of millennials (versus 47% of Gen Xers and 16% of baby boomers).
  • Millennial investors favor an active investing approach, meaning they’d rather hand-pick their investments and/or time stock purchases on their own. More than 3 in 10 (31%) millennials with investment accounts take this approach, compared with nearly 2 in 10 Gen Xers (19%) and baby boomers (19%).
  • Men estimate their investing as “very competitive” at a rate triple that of women (46% versus 15%). On the other hand, 55% of women don’t think they’re very competitive when investing, while only 24% of men said the same.
  • Men (40%) are more likely than women (17%) to treat investing in stocks as a game, while women (49%) treat it as a safer way to save money than men (33%).
  • Just under a third of investors (32%) said they predominantly focus on maximizing long-term gains, even if it means short-term losses. However, a similar number (29%) instead focus on avoiding immediate losses at the expense of long-term gains.

Trying to beat the market is a gamble, our experts say

Investors believe there’s potential to get more out of the stock market than they put into it — or they wouldn’t invest. However, some believe they can “beat” the market, which — for our purposes — means getting a better return on your own investments than that of a broad index fund.

Since 1928, the S&P 500 has had an annual average return of 7.7%

Broad index funds are traditionally popular because they’re easy to understand, offer a simple way to diversify assets and come with lower costs and risks. What they don’t come with, though, is the potentially big payoffs that can occasionally accompany individual stock purchases.

Trying to beat the market is a gamble, and some are more inclined to take their chances than others. At least 40% of respondents said they definitely think it’s possible to beat the stock market, and another 36% think it’s somewhat possible. That’s more than three-fourths of investors who share either sentiment, combined.

While that confidence is admiral, in general, experts said trying to beat the market isn’t the best move.

“It is certainly interesting, and a bit disheartening, to hear that so many investors think they can beat the stock market,” said Sarah Berger, millennial personal finance columnist at MagnifyMoney. “Even actively managed investment funds tend to historically underperform when compared to popular market benchmarks. If the investment pros can’t even outperform the market, that should be a strong sign that you shouldn’t try to beat it, either.”

So, why do some think their choices are better than those in an index fund? “People who think they can beat the stock market can be acting on feelings of overconfidence or on self-attribution bias, which is when you chalk up your successful outcomes to your own actions and your negative outcomes to external factors,” Berger said.

Those feelings seem to be driven in part by life experience, personal circumstances and personality. Breaking down respondents further:

  • Men (53%) are much more likely to definitely believe they can beat the stock market than women (19%).
  • The same percentage of women (41%) believe it’s somewhat possible to beat the market and not possible to beat it, while 33% of men think it’s somewhat possible, and only 14% don’t believe it’s possible.

Younger generations are more likely to believe in their abilities than older generations. In fact, 55% of millennials think they can beat the stock market, versus 47% of Gen Xers and 16% of baby boomers.

Baby boomers are the most likely to think it’s somewhat possible to beat the market (44%), followed by:

  • 34% of millennials
  • 27% of Gen Xers

Baby boomers are also the biggest doubters, with 40% stating they don’t think it’s possible to beat the market. Only 26% of Gen Xers and 11% of millennials reported the same.

Meanwhile, Republicans are most likely to believe their risks can pay off, with 54% stating they think it’s definitely possible to beat the market. Democrats (31%) are less likely to hold this belief.

More than 3 in 10 (31%) Democrats and nearly 2 in 10 (18%) Republicans said they don’t think it can be beat.

More prefer passive investing over active investing

Even though they may believe they can beat the stock market, most people (40%) still prefer to invest in proven index funds, which is known as passive investing. Just a quarter of people (25%) said they prefer to hand-pick their own stocks (active investing), and 35% prefer a combination of both passive and active investing.

More men than women prefer both passive investing (44% versus 34%) and active investing (28% versus 21%). Meanwhile, 46% of women prefer a combination of both types of investing, while only 29% of men do.

Millennials (31%) are the most likely to prefer active investing, compared with:

  • 19% of baby boomers
  • 19% of Gen Xers

Baby boomers (46%) are the most likely to favor a combined approach of both passive and active investing, compared with:

  • 32% of Gen Xers
  • 28% of millenials

Republicans (47%) are the most likely to prefer passive investing, compared with 39% of Democrats. The percentage of those who prefer active investing is similar across party lines: 25% of Democrats and 23% of Republicans.

Looking for help? Check out MagnifyMoney’s list of the the best robo-advisors of 2020

More than 1 in 3 definitely agree they’re very competitive with investing

Men, millennials and Republicans were the most likely to agree that they’re very competitive when it comes to investing. Those who somewhat agreed with it were split fairly evenly across gender, age and political affiliation, while higher percentages of women, baby boomers and Democrats disagreed with the statement.

Noteworthy:

  • 34% of investors definitely agree that they’re very competitive when it comes to investing. An additional 30% somewhat agree with that statement.
  • 47% of millennials and 43% of Gen Xers definitely agree that they’re very competitive about investing, while only 12% of baby boomers said the same. In fact, 62% of baby boomer investors said they’re not at all competitive.
  • Republicans self-reported themselves as competitive investors at higher rates than those who identify as Democrats: 50% versus 26%. On the other hand, 42% of Democrats said they’re not at all competitive, versus 25% of Republicans.

About 3 in 10 treat investing as a game

Is investing a game or a safe way to save money? In general, most believe it’s a safe way to save money (39%), though nearly a third of people (31%) see it as a game. Another 30% see it as a little of both.

Men are more than twice as likely to see investing as a game than women (40% versus 17%), and millennials were more than three times as likely to see it that way than baby boomers (42% versus 13%). As for political affiliation, Republicans (41%) are more likely to see it as a game than Democrats (24%).

It also seems that those with more education are more likely to treat stocks as a game, with 38% of those with a bachelor’s degree or higher stating they do so, while only 29% of those who have no college education and 14% of those with some reported the same. The survey also found that those with no college education (47%) and those with some (44%) are more likely to treat it as a safe way to save money than those with a bachelor’s degree or higher (36%).

Slightly more investors focus on maximizing long-term gains

While more investors said they’re willing to focus on maximizing their long-term gains even if it means short-term losses, the percentage (32%) isn’t overwhelming. Meanwhile, 29% said they’re willing to avoid immediate losses, even if it means sacrificing long-term gains.

Of note:

  • Men are twice as likely as women to focus on avoiding immediate losses (36% versus 18%) while far more women (22% versus 9%) said they don’t think about either avoiding immediate losses or maximizing long-term gains at the expense of the other.
  • Nearly a quarter of baby boomer investors (24%) said they don’t really think about avoiding immediate losses or maximizing long-term gains. Only 12% of Gen X and 7% of millennial investors said the same.
  • Republicans (38%) are more likely to focus on avoiding immediate losses than Democrats (25%).

In general, Berger said that while there are no guarantees when it comes to the stock market, investors should have confidence that the stock market, historically, has always recovered from downturns.

September: 42% of Investors Sold Stock at Start of Pandemic — And Nearly All Regret Doing So

“Having confidence that the stock market will eventually generate decent returns is critical,” she said. “If you have no confidence in the market, you may be tempted to pull out your money when you see your portfolio balance dip. If you do that, you are missing out on compounding returns and not giving your portfolio time to rebound. It’s all about striking the balance between feeling confident enough that the stock market will eventually generate returns, without getting too cocky and thinking you’re able to beat it.”

Methodology

MagnifyMoney commissioned Qualtrics to conduct an online survey of 1,066 Americans with at least one investment account. The survey was fielded Oct. 9-13, 2020.

Generations are defined as the following ages:

  • Millennial: 24 to 39
  • Generation X: 40 to 54
  • Baby boomer: 55 to 74

The survey also included responses from members of Generation Z (ages 18 to 23) and the silent generation (ages 75 and older). Due to the low sample size among both age groups, their responses were factored into the overall percentages but excluded from the generational breakdowns.

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