Wouldn’t it be great if each year on your birthday, you received a personalized guide titled “How to Manage Your Money at 30?
Unfortunately, there’s no birthday financial genie, so it’s up to you to do your homework.
Making mistakes is often part of the learning process. However, if you don’t recognize those mistakes and correct them, you may find yourself nearing retirement with nothing to show for all those years of hard work.
Let’s take a closer look at the biggest financial mistakes you should avoid in each decade.
Mistakes to Avoid in Your 20’s:
1. Not Paying Yourself First
When you’re in your 20s, retirement seems to be ages away. Most people in their 20’s have gone through a bit of a roller coaster in the sense of completing school, landing their first professional job, and really figuring out how to be on their own.
You likely think about settling in before saving. The first time you see your rent payment leave your bank account, you feel like you’re broke. Rather than saving what is left, you think, “Am I going to be able to buy food after that?”
If you can relate to that, you are not alone. In fact, CNBC recently reported that 42% of young workers (18 to 29) said they have nothing stored away in savings. Even if retirement seems like a distant dream and your paychecks feel a hair too small, save something – and save it before you do anything else.
The sooner you begin paying yourself, the sooner you will feel the momentum of getting beyond feeling stretched. If you have no clue how to start saving, start small. You can research the wide variety of apps such as Acorns or Betterment. Better yet, if you work for an employer that has a 401k match, you’ve got yourself a slam dunk to getting started.
2. Taking Out Way Too Many Loans
This is not very popular advice when you don’t have any money, to begin with, and have big dreams of attending a great school. All too often, college students set their sights on getting a degree from a prestigious institution and think “I will pay for it later”.
The reality is, our country now faces a major student loan crisis for this very reason. Taking out massive loans without knowing what your future holds is like writing a check you can’t cash. Consider taking as many classes as you can at a community college and then work to pay for the rest of your education.
Mistakes to Avoid in Your 30’s:
1. Not Being Properly Insured
Insurance isn’t the sexiest thing to talk about. In fact, it is easy to ignore. You dish out insurance payments every month and you don’t get the satisfaction of a tangible item in return.
Though, if life throws you an unexpected curveball, you will be so thankful you dished out those monthly insurance premiums over the years.
In this time of your life, it is important to evaluate everything from homeowner’s insurance to life insurance. Even if you know you have these policies in place, revisit them and make sure you have coverage that supports your lifestyle now to make sure it could continue in the same way for you or your spouse in case of the calamity.
Read more: 5 Great Benefits of Selling Life Insurance
2. Buying Expensive “Stuff”
Reaching your 30’s is often a milestone that brings new adventures. For many, this is the first time in their lives that they can enjoy their income and pay for the things they’ve always wanted.
Unfortunately, some “things” can come with an endless price tag. If you find yourself wanting to spend money on a boat, RV, ATV, or other fun purchases like them – remember there are hidden costs.
These items have costs for upkeep and even to use. For example, if you buy a boat, you need to think of where you will store it, how you will haul it, and how much it will cost to operate it. Forgetting to factor in these extra costs can put you over budget making it hard to enjoy your new toy.
Mistakes to Avoid in Your 40’s:
1. Underestimating the Cost of Life
In this decade you have ideally reached a high point in your career and if you fall into the statistics, you have a lot of expenses related to supporting your children.
Whether it’s sports and extracurricular activities or private school tuition, the costs can add up quickly with school-aged kids. It can be tempting to want your kids to do everything, but the reality is, your retirement nest egg needs you to pick and choose which activities fit into the big picture.
Experts recommend that you should spend no more than 10% of your income on children. Of course, you have to find what works for you, but it is important not to underestimate how big the cost of “doing it all” can be.
2. Carrying High Interest Debt
This time of life is no time to be shelling out payments on high-interest credit cards. If using a credit card without paying the balance off in full is the norm for you, this is the best time to get that habit under control.
If you have multiple debts racking up interest, use the snowball tactic to prioritize paying them down. You start with the smallest debt you have (regardless of interest) and pay as much as you can while making only the minimum payments on the other debts.
After you pay off the smallest, move on to the next smallest. This method gets the ball rolling and builds up momentum to ultimately clear out all of your debt.
Mistakes to Avoid in Your 50’s:
1. Lending Money or Co-Signing for Family
This mistake can happen when there is a struggle between your head and your heart. Often, in your 50’s you are more financially stable than the previous decades. If your family views you as the go-to person for advice or financial help, you may feel pressured or even compelled to help.
Whether it is loaning a big chunk of change or signing your name on a loan as a co-signer, there is risk involved. At this time in your life, it is important to protect your nest egg. If your loved one defaults on a loan that you’ve co-signed on or comes back again for another personal loan, you could find your hard-earned money in jeopardy.
Know your boundaries and know it is okay to say no.
2. Messing Up Your 401(k)
If in your 50s, you have the ability to retire early, think twice before you make any decisions on what to do with your retirement account.
If you plan to retire early while in your 50’s, you would think moving your employer-sponsored 401(k) over to a more accessible IRA would make sense. The problem is, withdrawals made from a traditional IRA prior to 59 ½ are subject to 10% early withdrawal penalties.
You are better off leaving that money in your 401(k) and enjoying the ability to withdraw from it without an early withdrawal penalty tax as long as you leave your employer in the calendar year that you turn 55 or older.
Mistakes to Avoid in Your 60’s:
1. Claiming Social Security too early
After you reach retirement age, the thought of drawing on Social Security can be enticing. At all costs, do what you can to delay it. Your annual benefits will begin growing at an annual rate of 8% for every year you delay your benefits beyond full retirement age until 70.
As many seniors are choosing to work beyond 65, companies are adapting and creating new opportunities for seniors to do meaningful work in this decade of life.
The ability to continue working will make the decision to delay your benefits much easier. After you retire and begin taking your benefits, the larger monthly sum will make it all worth it.
2. Disregarding future health care
Though there are wide misconceptions, the truth is that Medicare is not free. Medicare will pick up a large portion of your healthcare but there are many out-of-pocket expenses associated with Original Medicare.
When you first enroll in Medicare, you have the ability to obtain a Medicare supplement with no health questions asked. This is a one-time enrollment period that lasts for 6 months beyond your Part B effective date. Even if you are healthy today, you want to consider the advantages that come with obtaining a comprehensive coverage plan that will carry you through the unexpected health events in the future.