Everybody makes financial mistakes. It’s just human nature. Even the financial experts out in the world make mistakes. Half of them in fact are now financial experts because of their need to fix their own financial mistakes. I’ve made plenty myself, the worst probably being the time in my 20’s in which I signed up to sell cosmetics for a company I knew nothing about. However, with this post what I hope to do is to point out some of the worst financial mistakes that you can make through your life so that you can hopefully avoid them.
Some of The Worst Financial Mistake At Age…
20-29: Not making any financial decisions at all.
Most 20 year olds are not thinking much about their financial futures. They are usually on their own financially for the first time. The last thing they are planning for is next week let alone retirement. This is a tremendous mistake. But rather than getting overwhelmed by jumping straight into retirement planning start first by tracking your expenses so that you know exactly where your money is going. After you do that you might be surprised about some decisions that you are making and saving money might begin naturally after you decide to cut out the waste.
30-39: Still being an impulse shopper.
If you are still an impulse shopper when it comes to most things odds are that you don’t know exactly where your money is going. And if you don’t know that, then odds are you also don’t have a financial plan that includes an emergency fund, college funds for your kids, a retirement fund, etc. Why is this important that you at least have these things set up now? It’s a financial phrase called Compound Interest.
What is Compound Interest? To put it simply it works like this. Let’s say you save $100 in a place that gives you 5% interest. At the end of the year you end up with $105. And here is where your interest compounds. The next year’s interest is made off of last year’s total not your initial investment. So instead of ending up with $110 after year two, you in fact end up with $110.25. This doesn’t sound like a big difference, but it adds up over time.
At age 65 your $100 investment made when you were 30 would be worth $551.60.
If instead you put it in at 40? $338.64
Understand now why now it is important that you have your retirement and other savings plans started?
40-49: Not saving enough money or putting it towards the wrong places.
For most your 40’s and 50’s are when you hit your peak earnings and you are thinking about retirement. You should be socking as much money away as possible, maximizing your retirement fund contributions. If you think about your financial history as a race, you are in the last quarter of your race and you need to amp it up, leaving nothing behind when you cross that finish line.
Unfortunately this might also be the time in which you are thinking about your kid who is heading off to college or older kids want to move back home or older kids who want to borrow money. Think very carefully about these decisions as taking away from your retirement to fund your kids, providing that you have to make that choice as you don’t have enough for both, can be a critical mistake that could cause you to have to push your retirement out to a much later date which is not always possible in today’s job market.
50-59: Taking too many financial risks.
By this age many people are well aware that retirement is looming. But now is not the time to jump on the risk boat with your money. Don’t invest in a new 30-year mortgage, don’t take on a new big debt or create large debt, and start moving your money out of riskier investments. There just simply isn’t time to make up for what could happen if your risky investment goes bad.
60-Retirement: Not having a plan for retirement.
There are a lot of factors to consider when thinking about retirement. Here are a few as outlined in Liz Weston’s Money in your 60’s: 12 Steps to Take:
- What is the estimate of your social security benefits based on your expected retirement date?
- Will your benefits reduce if you take early retirement?
- Where are you going to live? Will you still have a mortgage?
- Will you still be in debt?
- Do you need long-term-care insurance?
- When do you get long-term-care insurance? Between 60-65 when the rates are low? Or between 65-70 when the rates are higher?
Not having a plan to answer these questions and others can cause you to make some mistakes that can negatively and irreparably damage your life in retirement. Take the time to answer these questions before retiring.
This article was written in participation of Women’s Money Week. Check out all of the other wonderful writers that are exploring this topic.
Kelly Kinkaid enjoys writing about such topics as stretching a dollar, personal finance, diet and fitness, and living a life well lived. She spends all of her spare time in her many roles including but not limited to soccer, basketball, swimmer, band, and piano mom, runner and wife. You may contact her via e-mail kellyology(at)gmail(dot)com.