Most Common Financial Mistakes Made in Every Decade of Life
For every decade in life, there are varying money concerns, expenses and unique financial milestones.
No matter your age, it can be beneficial to plan ahead and be aware of which financial mistakes are most commonly made in each decade, so you know what to prepare for and how to avoid these errors.
Here are the financial mistakes that are most commonly made in every decade.
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Twenties: Overspending
Many people in their twenties are paying off student loan debts, entering careers with low starting salaries and are more likely to engage in social spending. For this age group, things like retirement seem very far away, so they are more likely to neglect saving and spend too much money.
“In their twenties, many individuals neglect to save and invest, often due to a focus on immediate gratification and lifestyle expenses,” said Antonia Medlicott, CEO of Investing Insiders. “The habit of living paycheck to paycheck can become entrenched, preventing the accumulation of wealth.”
This overspending can result in accumulated debt. People in their twenties often prioritize instant gratification over long-term financial goals, which leads to little-to-no savings, mounting student loan debt and credit card debt.
“Lack of financial literacy and pressure to keep up with peers contribute to this trend,” said Reagan Bonlie, founder and CEO of Nudge Money. “To avoid this, young adults should focus on budgeting, building an emergency fund and investing in their future through retirement accounts and other investment vehicles.”
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Thirties: Not Properly Investing In Major Life Expenses
Many consumers in their thirties are most concerned with buying a home, owning a car or starting a family. However, overinvesting or not properly investing in these goals can result in debt or delay in establishing proper investments or retirement savings. It’s also a time when they may fall victim to “lifestyle creep.”
“Lifestyle creep occurs when an individual’s standard of living improves as their discretionary income rises and former luxuries become new necessities,” said Melissa Murphy Pavone, director of investments at Oppenheimer & Co. Inc. “Avoid the urge to spend more as you make more. Instead, save more.”
People in their thirties may also accumulate more high-interest debt from the increased financial responsibilities that come with this period of life. To avoid this, it’s important to budget carefully.
“Create a comprehensive budget and prioritize paying off high-interest debt,” Medlicott said. “Consider consolidating debt to lower interest rates and make a plan to pay it off aggressively. Building an emergency fund can also prevent future debt accumulation.”
Forties: Neglecting Retirement Savings
It’s common for people in their forties to neglect retirement savings while they prioritize mortgage payments, children’s education and other family expenses. These additional expenses that come with your forties are often overwhelming. Therefore, retirement savings are usually put on the back burner.
Individuals in their forties should regularly review and adjust their retirement plans to ensure they remain on track.
“Take advantage of employer-sponsored retirement plans and maximize contributions, especially if your employer matches contributions,” Medlicott said.
In addition to contributing to retirement accounts, people in their forties should also be investing in brokerage accounts.
“Individuals need to be taught to invest for retirement and not to save for retirement,” said Robert R. Johnson, Ph.D., chartered financial analyst (CFA) and professor of finance at Creighton University’s Heider College of Business. “The surest way to build true long-term wealth for retirement is to invest in the stock market. Investors need to begin compounding early and let that compounding work its patient magic over decades.”
Fifties: Underestimating Healthcare Costs
Many people in their fifties fail to plan for medical costs that come during retirement. Although retirement may still be a decade (or more) away, saving specifically for retirement healthcare costs and considering long-term care is crucial for people in their fifties, Mediclott said.
“Invest in a Health Savings Account (HSA) if eligible and consider long-term care insurance,” she said. “Begin researching Medicare and other health plans to understand coverage and costs.”
With this, further prioritization of healthcare costs may also come a reconsideration of your current retirement plan.
“Failure to adequately plan for healthcare expenses, long-term care needs and potential longevity can deplete retirement savings and jeopardize financial security in later years,” Bonlie said. “To address this, individuals should prioritize healthcare planning, explore long-term care insurance options and adjust their retirement savings strategy to account for potential longevity.”
Sixties: Drawing Social Security Too Early
Claiming your Social Security benefits too early can significantly reduce the amount you receive over your lifetime. However, doing so is still a common financial mistake made by people in their sixties.
“The fear of benefits being reduced or the desire for immediate income leads many to claim as soon as they’re eligible,” Mediclott said. “If possible, delay claiming Social Security until full retirement age or even later to maximize benefits. Use retirement calculators to plan the best time to start benefits based on your financial situation and life expectancy.”
Seventies and Beyond: Poor Estate Planning
For people in their seventies and older, the most common financial mistake they make is neglecting proper estate planning. Doing this can result in potential legal and tax issues for their heirs.
“Procrastination and the discomfort of confronting mortality often cause delays in setting up wills, trusts and other estate planning tools,” Mediclott said. “Work with an estate planning attorney to create or update your will, establish trusts if necessary and ensure all beneficiary designations are current.”
Regularly reviewing and updating your estate plan so that it accurately reflects your current financial situation and family dynamics is also important.
Avoiding These Financial Mistakes
While each decade of life comes with common financial mistakes, knowing what to expect and how to prepare your finances can help you avoid them.
“Overall, the key to avoiding these common financial mistakes is early awareness, education and proactive financial planning,” Bonline said. “Seeking professional advice, staying informed about financial matters and regularly reassessing financial goals and priorities can help individuals navigate each stage of life with confidence and financial security.”
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