Financial folly can come at any age; with each new financial milestone and responsibility comes a whole new way for you to mess it all up. The good news? You're not alone. In fact, each generation has a host of specific mishaps and poor choices that its members commonly make. The best way to avoid these mistakes is to learn what they are.
With that in mind, here are most common money mistakes made by each generation.
Related: How Old Are You Based on Your Savings Habits?
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Top 5 Financial Mistakes People Make in Their 20s
Twenty-somethings are sometimes seen as the most fiscally irresponsible generation (even though some studies show that they're actually better at saving money than their parents). Whether or not individuals in their 20s are careless with their money, you don't have to be. Avoid these five mistakes to be ahead of the financial game early on.
- Prolonging loan repayment: Don’t push your student loans to the side right after college. It's important to get those paid off quickly, so that you can avoid paying extra money in interest over the years. Also, who wants to keep paying off their student loan debts in their 40s?
- What retirement? Retirement is a long time away. However, you have something very valuable on your side — time. Start investing at least 3 percent of your annual pay into a 401(k) or Roth IRA account. Your 65-year-old self will thank you in the future.
- Avoiding investing: Investing can be intimidating, especially if you do not have a lot to invest. The good news is that you do not need a lot of money or a fancy financial advisor to help you invest. Instead, check with your bank to see if it offers investing and wealth management services.
- Ignoring company benefits: Most people don’t plan to stay with their first “real job” for many years. In fact, for most 20-somethings, their first job out of college is just a stepping stone or a place holder until they can get some experience under their belts. Just because you don’t want to stay with the company forever, however, does not mean you shouldn’t invest in the company benefits. Take full advantage of retirement matching, tuition reimbursement and discounted company stocks.
- Being financially stupid: Many individuals are never taught money management by their parents or school. While this is disappointing, it should not be an excuse to be debilitated by your finances. Learn as much as you can about saving, budgeting, retirement and wealth building now so that you can profit from that knowledge the rest of your life. Learn from financial advisers, books, websites and free classes in your area.
Top 5 Financial Mistakes People Make in Their 30s
Those in their 30s have grown more financially mature than their 20-something selves. Their pay has likely increased, while other financial responsibilities have also grown. Here are some things 30-somethings often get wrong:
- Saving is unorganized: Saving money is a good thing, but your savings account needs to have a goal. You will be more successful if you designate a savings account for each category of savings. For example, your emergency fund will be in one account, your vacation fund in another account, and your kitchen remodel or new car purchase in yet another account.
- Financial planning is short term: Believe it or not, you are going to zoom past your 30s. It is essential to set financial goals for the next five, 10, and 20 years. Your unborn child's college tuition might seem far down the road, but now is the time to start saving for it.
- Buying more house than you need: Many 30-year-olds get to celebrate the monumental accomplishment of buying a home for the first time. Buying a home is a great investment. However, many people put themselves in the financial grave by buying a home that is too big for their needs and budget. A bigger home not only means a bigger mortgage, but also more taxes and higher utility bills. It's wiser to start small and move up when your needs (and net worth) increase.
- Keeping up with the Joneses: It's tempting to compete with peers and family members. You have to remember that when your friend or neighbor goes out to buy a new toy or car, all he is doing is signing up for another debt. Those who have nicer things are not necessarily financially better off. It's wiser to avoid buying flashy gadgets and take pride in your savings account balance instead.
- Going back to grad school: Advancing your degree is a good decision in some cases. However, many individuals have a hard time getting a job in their field, and decide to return to school to fix that. This only increases your student debts — and your new degree might not increase your salary.
Top 5 Financial Mistakes People Make in Their 40s
As a person in your 40s, you are well-versed in the financial game and probably have over a decade invested in your career. Here are the five financial mistakes you have to watch out for.
- Catching up on retirement savings: Even though you were warned to start saving for retirement many years ago, maybe you just never got around to it. It is important to know that it is not too late to start saving. To catch up, you will need to invest the maximum you can in your retirement fund each year. You might not have a huge retirement fund, but you will still have a healthy one if you invest the maximum.
- Being afraid to switch careers: If you already have many years invested in a company, the thought of switching careers now can be frightening. Remember that your experience is valuable and that you don’t have to start at the bottom ring of a new career. Instead, you can use your experience to land you an equally successful job in a new field.
- Getting lost in the mortgage game: You might have been paying your mortgage for so many years that it's become second nature. Now is the time to start looking at the end goal of your mortgage. What can you do to pay it off even faster? Perhaps you want to pay off your mortgage before you are an empty nester; if so, how much more money do you have to put toward your monthly payment?
- Still having credit card debt: Living in your 40s with credit card or student loan debt is not wise. Now is the time to get rid of the debt once and for all. You don’t know what circumstances will be coming your way in the next ten years — job loss, kids going to college, etc. — so it's best not to have extra debt hanging over your head.
- Thinking you are too young for a will: No one likes to think about death, but it's something that needs to be addressed. Having a will helps to clear up any confusion for your loved ones if something were to happen to you.
Top 5 Financial Mistakes People Make in Their 50s
Your 50s are a very crucial year to focus on your future. Retirement is just around the corner for you, and if you are like most individuals in their 50s, you might be faced with financially supporting an adult child and an aging parent at the same time. Avoid these top five mistakes to sail smoothly into retirement.
- Dipping into your retirement: By now, your retirement fund should be quite impressive, and it can be tempting to dip into it early. You might feel the urge to dip into your savings and take the penalty because you are facing some strong financial pressures, such as paying for your kid’s college. The best advice is to keep your retirement where it is and figure out how to deal with your new financial pressures in a different way.
- Rolling over your 401(k): Many individuals end up retiring between the ages 55 and 59. The most common mistake those people make is rolling their 401(k) into an IRA account. This is unwise since the rules of withdrawing from an IRA are different. This step is also unnecessary since your company can keep the retirement account open for several years. Keep your money with your company until you can take it out penalty-free.
- Letting kids use you: You want to help your kids financially, but it is more important for them to develop financial independence. Start with baby moves, such as taking them off your cellphone plan or ceasing to pay for their car insurance. Eventually, they should be paying rent so that they'll be more encouraged to move out on their own.
- Prioritizing mortgage debt over other debts: If you still have outstanding debts other than your mortgage, those need to be taken care of first, before you enter retirement. After the other debts are tackled, then you can make your mortgage a priority. Getting rid of all your debts will relieve you of a lot of financial pressure in your retirement.
- Underestimating retirement costs: The biggest cost more retirees underestimate is health care. You have to consider and plan for the reality that you might need nursing home care in your 80s. This expense can cost over $6,000 a month, so plan early on.