How to Avoid Common Financial Mistakes Your Generation Makes

Most Common Money Mistakes People Make in Their 20s, 30s, 40s and Beyond

financial mistakes

Money is a constant throughout our lives, but the role it plays — and our relationship with it changes as we walk the road of life. At every stage, we face different financial opportunities and challenges. With these, inevitably, comes the danger of making missteps. Sadly, we all stumble financially, often in similar ways.

Here are some of the most common money miscues, and thoughts on how to avoid falling into these generational traps.

20s: Overcoming Fear

Young people should invest heavily in growth stocks, which carry some risk but offer the potential for big returns over time. Unfortunately, too many current twenty-somethings are too risk-adverse to adopt this strategy. Instead, their portfolios are thin on stocks and heavy on assets that offer guaranteed income. 

Experts say this risk aversion stems from a lack of financial literacy and a dreadful generational fear of failure. They also believe young people are more skittish because of the craziness they’ve seen in their lifetimes, from the 9-11 attacks to the financial meltdown.

One possible way to ease that angst about investing: Target-date mutual funds, which start out with risker growth assets and slowly transition over the decades to more conservative holdings.

30s: Too Much Expectation and Information

More and more people today are waiting until their 30s to start a family or buy a home.

That makes this a frenetic time. These young adults too often think they should be living the way their parents did when they were in high school. But it takes time to build that sort of financial comfort. Trying to recreate that ideal life by racking up credit card debt and buying too much house will ultimately make it harder to achieve long-term goals.

Another common thirty-something mistake: making poor investment decisions due to lack of knowledge of the many available options, some of which are complicated. Young investors who lack the time or inclination to educate himself or herself might consider working with a financial professional.

Your 40s: Too, Too Much

Midlife brings the biggest expenses of — home ownership, raising kids, and, perhaps, caring for an aging parent. These burdens must be properly managed to avoid both short and long term trouble.

In looking to move from a starter home to the place where they will raise your family, 40-somethings should try not to overspend. They need to ask hard questions about how much space they truly need and whether they really need to be in that trendy neighborhood, as opposed to the less expensive adjacent community. Ideally, a homebuyer should be able to pay off this mortgage by the end of her career. Being mortgage-free in retirement is a huge financial advantage.

College is the single largest child-related expense. Parents need to put this one under the microscope.  Does the kid really need to attend a four-year college to have the career he wants? What are the true benefits of shelling out for a private college instead of attending a good state school?

Children should be required to invest in their education by pursuing scholarships and being responsible for some portion of their college expenses — books, for example.

Anyone who even suspects he may have to support an elderly parent should start those conversations with family early. Be business-like in assessing the parent’s needs and resources. A family member’s elder care contribution should be limited to an amount that won’t undermine their own financial stability.

Your 50s: Catching Up

Too many Americans realize in our 50s that they haven’t saved enough for a retirement that could more than 30 years. That situation can be complicated by a layoff or the costs associated with a lifestyle built up over the years.

More and more Baby Boomers are turning to entrepreneurship in their 50s, hoping a business will give them the added income they need for retirement.

But that’s a risky proposition with both huge potential upsides and downsides.

The answer for 50-somethings worried about retirement is simple but hard. They need to prioritize saving. That might mean downsizing a home (and lifestyle) and/or even taking on a side job or consulting work. It might be uncomfortable now, but it beats the nightmare of an under-funded retirement.

Your 60s, 70s, and Beyond: Failing to Ask for Help

There is much truth to the notion that today’s older Americans are “younger” than previous generations of elderly citizens.

But, age inevitably brings some degree of diminishment of the brain’s analytic abilities. So, it’s important for everyone to have people they can trust to help with financial decisions in their later years. This circle might be made up of family members, financial professionals or a mix of both.