We don’t have a crystal ball but if you tell us your generation, we’ll tell you the mistakes that you’ve made or are most likely to make. That’s right, there are some mistakes that every generation makes.
People in their 20s have a number of things in common besides their age. Most have just either left home or finished college and are starting out on their real lives. They also tend to make the same mistakes. For example, one of the biggest mistakes made by people in their 20s is putting off debt repayment. You need to start paying off your student loans as quickly as possible as this will keep you from having to pay extra interest over the years. Plus, do you really want to still be paying off your student loans when you’re in your 40s or even your 50s?
A second financial mistake made by twentysomethings is not thinking about retirement. We understand that age 55 or 65 can seem like a long way away but that’s actually a good thing. The more time you have to save for retirement the more money you will be able to save and the more money you will earn in interest. You should be putting at least 3% of your annual salary into a 401(k) or a Roth IRA. Do this and the future you will be eternally grateful.
A third mistake is to avoid making investments. You may not have a lot of money to sock away but it’s important to get started. Your bank probably offers a free investment advisor to help you choose your investments. If not, just pick an index fund and get started. But above and beyond all, get started.
The mistakes made by thirtysomethings
If you’re in your 30s one mistake you may be making is short term financial planning. Whether you think this or not, you are going to really zoom into your 40s. Don’t let these next years slip by. You should be setting goals for the next five, 10 and even 20 years. As an example of this, your unborn or very young child may be years away from college but now is the time to start preparing for these expenses.
Trying to keep up with the Joneses is another mistake that’s almost always made by people in their 30s. You might think it’s fun to compete with family members and your peers but you need to understand that when that relative or friend comes home with a new car all he or she is doing is taking on new debt. The fact is that people who have nicer things are not necessarily better off financially than you and in fact might be worse off.
What’s better is to take pride in how your savings account is growing and not that you have the newest car or toy?
Many thirtysomethings have made the mistake of going back to grad school. In some cases it can be a good idea to get an advanced degree. And in today’s economy, many people are finding it hard to get a job in their field and they are returning to school to try to fix this. The problem is that this only increases your student debts and you might find your new degree doesn’t really lead to a better job or a higher salary.
Have you bought more house than you really need? This is another mistake commonly made by people in their 30s. We understand that it can feel great to buy that first home. And it’s a good investment. But don’t make the mistake of buying a house that’s too big for your budget and your needs. Do this and you’ll not only have a bigger mortgage, but you’ll also have higher taxes and bigger utility bills. A better idea is to start smaller and then move up as your needs and your net worth change.
By the time you reach your 40s you’re probably well entrenched in your career and the idea of changing to a new one can seem very scary. But it’s a mistake not to consider this. If you want to change careers you don’t necessarily have to start at the bottom. You have good, valuable experience that should help you land an equally good job in a new career.
A second financial mistake made by people in their 40s is about their mortgages. You’ve probably been paying on your mortgage for so many years that it’s just become automatic. However, you should now start looking at your end goal. Could you do something to payoff your mortgage even faster? Maybe you would like to pay it off before you become an empty nester. If this is the case, you need to determine to increase your monthly payments to achieve that goal.
If you still have credit card debt this is yet another mistake made by people in their 40s. What you want to do at this time of your life is to get rid of your debts as much as possible. There’s no way to know what will happen to you in the next decade. You might lose your job, see your kids go away to college or be hit by big medical bill. To prepare for these emergencies, you need to not have any debt hanging over you.
Finally, people in their 40s often make the mistake of not having a will. We understand that thinking about your own death is not a fun subject. However, you need to have a will. This is the only way you can control what happens to your money and your other assets when you die. A will also makes sure that your loved ones are not left confused as to what they need to do if something were to suddenly happen to you.
Fiftysomethings and their mistakes
Unfortunately, one of the most common and worst mistakes that people in their 50s make is dipping into their savings. You should have a retirement fund that’s fairly impressive by now and it can be tempting to use some of that money, especially if you’re facing a financial pressure such as paying for your kids’ education or helping support your aging parents. What’s best is to leave your retirement money alone and figure out some other way to deal with any new financial pressures.
It’s also a financial mistake to underestimate what retirement will cost you. Today, the biggest cost most retired people face is healthcare. Whether you like to think about this or not, you have to plan that you might need long-term care in your 80s. This can cost as much as $6000 a month so it’s important to understand this and plan accordingly.
Third, it’s a mistake to let your children use you. We understand that you want to help your kids but they do need to develop some financial independence. You could start with small steps such as refusing to pay for their car insurance or taking them off your family cell phone plan. And, of course, they should eventually pay you rent, which can be a great way to encourage them to move out on their own.