From the time you receive your first allowance until you draw your last paycheck, you are making decisions about money: what to spend, what to save, what to invest. In every season of your life, the choices you make affect your financial well-being down the road. In managing your day-to-day financial issues, it can be easy to lose track of the big picture. Here are some financial mistakes to avoid at every age.
Paying Yourself Last—Or Not at All
In your 20s, you may have your first full-time or professional job, and may be living on your own for the first time. When you are paying your own bills, saving might feel like a luxury you can't afford. But, truly, what you need to do is save a certain amount from each paycheck first, and consider that money untouchable. You can spend the remainder, even if it means not having all the latest styles and gadgets. You will never regret having a nest egg, especially if you invest some of it for retirement.
Spending More Than You Should
It's easy to fall into the trap of wanting to create the perfect adult life: stylish apartment, dining out, traveling, and buying the latest tech. If you see your friends doing this, you might feel like you should, too, or even like you deserve it. But you should take your guidance not from what others are doing, but from your own finances. This is especially true if you need to repay student loans.
Not Learning About Finances
No course you took in college will benefit you as much as taking the time to learn about budgeting, saving, and investing. Taking this step in your 20s will help you avoid financial mistakes in the decades to come, including relying on the advice of advisers who may not have your best interests at heart.
Failing to Save for Retirement
You may have found it difficult to save for retirement in your 20s, when your career was just getting up and running, but it's really important to begin (or continue) your retirement planning now, even if you won't retire for another 30 or 40 years. The sooner you invest, the longer that money has to grow.
Buying Too Much House
Many people buy their first home, or move up to a larger one, in their 30s, especially if they're starting a family. If the housing debacle of 2008 taught us anything, it's that you shouldn't necessarily get the biggest mortgage you qualify for. True, you may get a promotion or raise that would make it more affordable, but if illness or job loss happens instead, you could be in a precarious position.
Not Having Adequate Insurance
It's tempting to skimp on insurance; it can feel like you're writing check after check into a void and getting nothing in return when there are so many things you could be spending that money on. But life turns on a dime, and especially you have a family, having adequate life, and disability insurance could mean the difference between security and catastrophe if something happens to you or your spouse.
Not Having an Estate Plan
In your 40s, the possibility of infirmity or death may be a long way away, but that doesn't mean you shouldn't be prepared for it. By this age, you must have an advance medical directive to dictate your wishes for your health care if you cannot express them yourself, and a last will and testament. Ideally, you will have consulted with an estate planning attorney for a comprehensive estate plan.
Prioritizing Your Kids' College Over Your Retirement
In your 40s, you may begin sending kids off to college, even as you have vivid memories of paying off your own student loans. You may be tempted to pay for their college, even if it means skimping on your retirement savings. Don't do this. Rather, have a candid talk about what you have saved for college and what the most cost-effective options may be for them. While avoiding student loans is commendable, remember that while they can take loans for school, you can't take loans out to fund your retirement.
Borrowing Against Your Retirement Funds or Home
At this point, retirement is visible on the horizon—or should be. So borrowing funds against your home or from your retirement savings should be avoided at all costs. Unless absolutely unavoidable, keep your retirement savings and home equity safe for security in your upcoming retirement.
Not Knowing How Much You'll Have to Live on in Retirement
If you don't have a grip on how much money you'll have, and where it's coming from, you can't plan meaningfully for retirement. You should speak with your financial planner to understand exactly what you'll be getting from Social Security at your intended retirement age, your retirement accounts, and your pension, if you're lucky enough to have one.
Co-Signing Loans for Loved Ones
At this point in your life, you are more established financially, and you may want to offer a hand to children or grandchildren. However, you should resist the idea of co-signing for loans, including college loans, for loved ones. Should they default, you would be on the hook for the loan, and could jeopardize the comfortable retirement for which you've worked so hard.
Failing to Have Long-Term Care Insurance
If you haven't already, now is the time to acquire long-term care insurance or another financial product to protect your hard-earned assets should you need long-term care, as a significant percentage of adults eventually will. Please contact our law office to set up an appointment to discuss long term care insurance and other financial products that can provide long term care benefits, as well as estate planning options, including asset protection trusts, to preserve your assets for the needs of your family, rather than having to spend them on the long term care costs.
If you recognize that you've made some of these financial mistakes in the past, or are making them currently, it's not too late to course-correct. We invite you to contact our law office with any questions or concerns you have about securing your financial future.