This is a guest post from Laura Adams, also known as Money Girl. Adams is the author of a new book, Money Girl’s Smart Moves to Grow Rich. She also hosts the weekly Money Girl podcast over on Quick and Dirty Tips. For money resources, tips, and advice, connect with her at SmartMovesToGrowRich.com.
There are some basic rules in personal finance that are so vital for success that they pertain to everyone, no matter your age. Tenets like spending within your means and never carrying a balance on a high-interest credit card apply across the board. But how can you know if you’re making any serious financial slip-ups for your current age?
Here are some tips to avoid costly money mistakes when you’re in your 20s, 30s, and 40s. I’ll also share a secret method you can use to learn about money and wealth (or about any subject, for that matter) that’s quick, easy, and maybe even kind of fun!
20-Somethings: The Three Mistakes to Watch Out For
If you’re in your twenties, it’s likely that you’re staying in school longer, putting off moving out of your parents’ home, or delaying marriage and children. You have high expectations for a career that pays well, suits your lifestyle, and inspires you get out of bed each morning. Dramatically improve your financial health by avoiding these three serious money mistakes that can come back to bite you later on:
- Accumulating credit-card debt. Now that you’re a working adult, you might think that you’re entitled to lots of new clothes, nights out on the town, and vacations. The problem is that financing a lifestyle that you can’t afford using a credit card is a terrible financial move. It’s a grim mistake that sticks with you for years and will only get worse as interest accrues each month that you don’t pay off the balance.
- Ditching participation in a 401(k). You might be hesitant to start contributing to a workplace retirement plan (like a 401(k) or a 403(b)) if you aren’t sure how long you’re going to stay in your job, but letting that stop you from contributing — especially when you’re offered free matching funds — is a big mistake. Contribute 10% to 15% of your income and then roll it over into an IRA or a retirement plan at your new employer after you leave the job. No one wants to feel behind; start contributing today and you won’t wake up in your 30s with big financial regrets.
- Not seeking professional advice. Don’t think that you have to be self-sufficient when it comes to handling your money. Get help from a professional — like a Registered Investment Advisor, a financial planner, or a financial coach — to figure out how to set and achieve your unique goals.
30-Somethings: The Three Mistakes to Watch Out For
If you’re past 30, you might be starting a family, moving into a larger home, and climbing up a career ladder. During this life stage you need to stay focused on your goals and make sure you can provide for your family if you lose your job or business. Shore up your financial defenses by avoiding these three financial oversights:
- Forgetting about an emergency fund. Add up your monthly living expenses and multiply that number by six to figure the minimum amount you should keep on hand in an FDIC-insured savings account. Depending on your job stability, industry, and family situation, you might need to have a year or more of emergency savings stashed away. Doing this will ensure you’re protected in case something unexpected arises (like an illness or job loss) and that you’ll be able to keep your life plans on track.
- Skimping on retirement savings. As you begin to earn more money, it might be tempting to spend more on fun trips, fancy cars, and designer clothes. Treating your extra money carelessly and not increasing your contributions to a workplace retirement plan, an IRA, or to both is a mistake. You might also have higher expenses now, but you still need to carve out enough from your budget to keep long-term goals like retirement and paying for a child’s education on track.
- Not being properly insured. Having enough of the right kinds of insurance is an easy way to reduce risk and ensure that you and your family can get through unexpected hardships like an illness, accident, or death. Insurance doesn’t help you build wealth, but it certainly helps you protect it.
40-Somethings: The Three Mistakes to Watch Out For
If you’re a parent in your 40s, you might be looking forward to launching your kids out of the house, doing a happy dance, and refocusing on your own financial needs. This life stage is a great time to simplify your finances and reevaluate your retirement dreams. Don’t let these 3 money mistakes trip you up:
- Failing to focus on retirement. Though you probably have about two decades to go before retirement, you’re getting closer and need to take it more seriously. Enter your information into a retirement calculator at sites like aarp.org and dinkytown.com to make sure you’re putting enough money aside each month.
- Not eliminating debt. In addition to saving for retirement, free up as much discretionary income as possible to send extra payments to your debt. Getting rid of debt sooner rather than later saves a huge amount of interest and allows you to squirrel away even more for retirement during your 40s and 50s.
- Ignoring “teachable” moments. Instead of allowing older children to drain your bank account, teach them how to earn and manage their own money. Help them create a job resume, open a bank account, stick to a budget, set savings goals, and invest for retirement. Even minors can open up and contribute to an IRA as soon as they get their first part-time job!
A Secret to Learning About Money and Wealth
I’m sure you realize that these tips just scratch the surface and that there’s a whole lot more to know about making smart moves with your money. Taking the time to learn about money and wealth pays off whether you’re a young student, a grandparent, or somewhere in between.
Here’s my secret for the best way to learn about money: Make getting the information fit into your lifestyle.
If you love being on the computer, subscribe to Get Rich Slowly so you never miss a post. If you like reading during your lunch break or while you travel, regularly read personal-finance books, such as J.D.’s Your Money: The Missing Manual or my own Money Girl’s Smart Moves to Grow Rich. (You can download two free chapters of my book at SmartMovesToGrowRich.com.) If you spend way too much time in the car or don’t want to get chatty during your pedicure, listen to a money podcast. If you need to be entertained while you’re on the…in the…you know — take a money magazine with you.
You get the idea. See where you have time to squeeze in 15 or 30 minutes of reading or listening about money and you’ll be amazed at how easy it is to take your financial game to a new level, build wealth, and get rich slowly.
GRS is committed to helping our readers save and achieve your financial goals.Savings interest rates may be low, but that’s all the more reason to shop for the best rate.Find the highest savings interest rate from Ally Bank, Capital One 360, Everbank, and more.
This article is about Basics, Hints and Tips
Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.
Discover is a paid advertiser of this site. Reasonable efforts are made to maintain accurate information. See the Discover online credit card application for full terms and conditions on offers and rewards.
SEARCH FOR RECENT ARTICLES
Well, I feel pretty good as a 20-something! My wife and I are nearly out of consumer debt and don’t plan on racking up a credit card ever again!
We have both started contributing to our 401(k)s. It’s not much, but it feels good to start!
I haven’t consulted a professional, but I have my degree in Finance, so I feel like I have a pretty good handle on things. I suppose it is always good to get a second opinion on things though too.
loading....
I’d add one thing to do at every age: occasionally get a copy of your credit report and check it for potential problems. (http://www.annualcreditreport.com is the site sponsored by the U.S. government to get your free report) Even if you’re a perfect money manager, most credit reports have mistakes. And a mistake can cost you when you get insurance or borrow money.
If you have a very common name (like Smith or Lee) this is especially crucial. I once pulled a credit report for a woman who discovered a husband she never knew she had?! Another man’s information was being reported along with hers and it took a bit of work to get it off.
Luckily he also had good credit or it could have been a lot worse.
loading....
It appears that one of the toughest things for people of any age to do is to focus on retiring. I guess so long as it is “far off” it is tough for people to put aside money now for the far off, unknown future. Of course the unfortunate part of this is that the money you save when your younger (thanks to compounding interest) is so much more valuable then what you save later on in the game.
I agree about the credit card debt, but I think it should be noted that debt of any type should be questioned. The housing slump has shown that housing is no longer a sure thing. My six figure student loan debt tells me that “Educational debt” may not always be good debt. In fact, if I was not married I am not sure my job could allow me any extra income after paying off my debt. That is sad. In short, I DO NOT BELIEVE ANY DEBT IS GOOD DEBT.
To be sure, debt can and should be minimized, and that is an important consideration. But, it is better to be debt free, and that means watching student loan debt as well as credit cards. Because the credit card interest may be out of control, but the total amount owed from student loan or mortgage debt can be so much higher of an overall number.
Thanks for the tips, something for people of (almost) all ages to consider!
loading....
I would also state somewhere to only buy as much house as you realistically need and don’t take on any unnecessary debt at all (HELOCs have gotten people in plenty of trouble too, in addition to credit card debt.)
I don’t necessarily agree that consulting a financial adviser is a requirement in your 20s. I know a ton of people that have been steered wrong by ‘professionals’. Everyone should have a least a basic understanding of personal finance, starting with spending less than you make. If you do need a pro, make sure you get a ton of references…
loading....
I think we’re doing ok.
loading....
This post was too light on information and too gimmicky for me to get anything from it.
loading....
Am I the only one totally depressed after checking the retirement calculators (40-somethings)? I put away the maximum I can (which is $5000 this year, and it’s not much less than my self employed income for the year), my husband puts away 12% (including the company match), and the calculators say we will be $1 to $2 million short!!! We are not big spenders in any way. At this point, I feel like it’s not even worth trying, we’ll end up living in a van down by the river whatever we do.
loading....
It looks like we are in track. We are 20-somethings that are operating on the 40-something track, so woot! The only thing mentioned that we do indeed ignore is professional’s advice. Our stock portfolio and investments are doing well and our risk is balanced. I don’t think we’ll need to speak to a professional until we get closer to retirement, if ever…
loading....
I don’t think most students realize when they apply for school loans that while student interest rates are low right now, variable rates are permitted to go all the way up to 25%!!! So, from the generally-accepted premised that high interest credit card debt is bad, so is taking on variable rate student loans that cannot be paid off in a relatively short time (I know, hard to project, and a lot of people tend to think they can pay them off a lot faster then ends up being a possibility).
loading....
These are all great tips, but I think some of the big ones were missed. For example, specific mistakes that my wife and I made were:
Buying too much house.
Buying a brand-new car and financing it instead of saving up and paying cash for a reliable used car.
Not educating ourselves about what a “reasonable” MER is for a mutual fund, and trusting that the funds the financial advisor was pushing us toward were reasonably priced.
Buying too much life insurance (again, encouraged by the friendly financial advisor in whom we placed too much trust).
Joining an “investment club” and believing their promises of an overly-optimistic rate of return.
Those mistakes have cost us literally over $100,000. None of the other mistakes listed in this article would come anywhere near costing us that much money.
Basically, they can all be summed up in one fundamental mistake: Trusting other people when it comes to OUR money. Avoid making that one, big mistake, and you’ll save yourself a lot of money.
loading....
“share a secret method” ? This is so salesman-y. And doesn’t have any new info.
loading....
Some generic basics in this post. I do find theses basics useful, but more tips on how to save finances and steps toward retirement savings at each stage would be more useful.
I do like the tips given by “Kevin,” like financing for a car and buying too much house. These are areas where I have seen some friends get into trouble and need to work hard to get back to feeling secure financially.
loading....
Pretty good general tips for the various ages. It’s probably best to do all these while you’re in your 20s though. That way you’ll be way ahead of the pack on finance.
loading....
I agree that this article is too shallow to be useful for all but the newest of newbies. Kevin makes a lot of good points. Maybe a guest post from him would be in order. Kevin?
loading....
@Sara (#9),
Which lender charges a 25% variable interest rate? I need to make sure I never do business with them!
I have federal direct student loans, which is what most students use to pay for school. The highest rate I have is 7.9% fixed. The others are around 5%.
loading....
Personally, I’d add the teens and caution against taking out student loan debt. I don’t think any student loan debt is good, but I certainly wouldn’t force more than 30k on my worst enemy. Student loans kept us poor for years.
Even if I had to do my 20′s over, I’d still say I did the right thing getting the student loan monkey off my back in the early years instead of contributing to my retirement, which I didn’t do until I was 27 and just about done with the loans.
loading....
A lot of pigeonholing going on in the descriptions of what people are doing at each of various ages. That’s a bit ironic, since it turns out the advice is mostly the same regardless of age: save for retirement and pay off debt.
loading....
I also wholeheartedly agree about the don’t overbuy for your house. Having a nice comfortable mortgage, far cheaper than rent for a much much smaller place is one the smartest financial moves we’ve made.
So many people we know whom we guess have incomes similar to ours live in much grander houses, but don’t sleep nearly as well as we do. They’re all very concerned not only about their huge mortgages but their large tax bills as well.
loading....
Thank God I never had a student loan monkey on my back. I’m 41 and have a jr. collage education. Had a whopping 2,000 student loan. Lived at poverty level untill I was 27(wages in Iowa stink) and have lived the GRS lifestyle since at least 1990. Collage student loan debt has been a major issue to the Gen X populi and many that I know are still paying it off! If anything good has come out of the financel meltodown of the last 4 years, it may be the awakening of the U.S. to the dangers of lifestyle inflation and massive debt.
loading....
@Ryan #15 Sallie Mae, Citi Bank, Chase, etc. Any private student loan can go as high as 25%. When interest rates were higher overall, my Sallie Mae loan was 16%, now it’s “only” 9.25%. We definitely need better laws regarding private loans and diclosures.
loading....
I thought this post was much too basic for most readers at GSR. In each post, two of the tips were repeated from the previous age group boiling down to 1) Contribute something substantial towards retirement and 2) Pay off debt/Watch out for accumulating debt. I was disappointed. While it is hard to develop new, relevant financial advice, I do not find it useful to rehash such simple information over and over.
These are tips akin to “Eat less and exercise more.” Everyone knows what they should be doing (less debt, save more), but in most cases they do simply do not apply them. Perhaps the post should have focused more on specifics such as “Be careful of fees” in regards to mutual finds. However, even this tip has proliferated the money blogs of the internet so much that most people do not find this useful either.
Additionally, I find the advice of “Not seeking professional advice” a bad tip in general. If people would simply spend a weekend reading a solid book or two, they could save thousands of dollars that would be spent paying “financial advisers.” While these professionals can be useful in some circumstances, I do not think they are useful if all you are wanting to do is invest in a 401k. They can be useful for more complicated estates, etc.
loading....
@Chickybeth (#20)
I’m not one to defend private lenders, but I’m not so sure more laws are necessary for disclosures. Both Chase and Discover tell you to take federal loans first. And I had no problem locating what the APR would be.
Maybe they just recently started doing that?
loading....
In my 20s I was partly insane. Went to therapy for years. Barely managed to eke out a living and got into serious credit card debt (but no student loans). I didn’t finally “settle” into living a reasonable life until I got married at 35. I have a lot of catching up to do in terms of finances.
Luckily I don’t plan to ever retire, as I love what I do and would get bored playing shuffleboard. However, disability could put a huge crimp in my enjoyment of life and work. Which is what I worry about more than “retirement”: what to do if I can’t function right some day.
Not trying to be flippant here, but suicide (assisted or not) sounds a lot better than a semi-vegetative state in a money-draining nursing home.
My own grandmother spent the last 10 years of her life at home, with a private nurse, and surrounded by loving family– but in a wheelchair and unable to articulate speech due to a stroke. This was a strong independent woman all her life, and now was fully at the mercy of her paralyzed body. She really wanted to die, and often gestured a “cutthroat” sign (with her functioning hand) in frustration. That gives me some perspective on the possibilities of old age.
Meanwhile I’m trying to GRS… let’s see what happens.
loading....
@22 Ryan: That may be recent because my loans are from several years ago when the colleges were actually taking money from the private lenders to push those loans. They were made to seem equal to federal loans and the best option.
loading....
@24,
Oh, I’ve heard about that. Private lenders also used to make federally guaranteed student loans to parents and students. They received subsidies from the government for this. The gov. would also repay the lender if the student defaulted. They couldn’t lose.
Now, all federal student loans come directly from the U.S. treasury.
loading....
Thanks, Money Girl, for your ideas. I wish I would have heard your advice for people in their 20′s when I was in my 20′s!!
I agree with you that gathering information about personal finance (in a way that fits your lifestyle) is important. But unfortunately, it’s not just having the information that counts, it’s also BEING MOTIVATED enough to do something with the information. Too many people say “I know what I am SUPPOSED to do; I just can’t make myself do it.”
For a sample of ideas on how to motivate yourself toward financial change, check out my blog at http://www.pocketchangebook.com.
loading....
Like so many articles, the advice ends at the 40s….what the heck? You still have a lot of life left to live at 50, and that’s when financial planning becomes really important.
loading....
I would like to see more advice about HOW to invest my money… being in my mid-40′s, I am not sure at what point and at what rate I should be rebalancing my portfolio towards less volatile investments. Since the estimates for how much I will need in retirement seem ridiculously high to me, I just ignore them and save as much as I can (which at this point is 30% of my gross income). I will make do with whatever I have on hand when retirement comes, but I would love to get some insight on portfolio management.
loading....
This was a quick read post and not one that would make me zip over to MG’s site to check out other strategies.
I agree w/#27…Nothing for after 40s and think there’s also a lot of life left to live after 60!
loading....
I have to disagree with the advice to seek professional advice in your 20′s. What is it that JD always says? Nobody cares more about your money than you do. I really think that most people (aside from the extremely wealthy) are better off educating themselves about investing than paying a professional.
loading....
Thanks for the tips, I still have some time left before I retire but I’m focusing more on my retirement goals. I also like the tips that Kevin post#10 gave. About mistakes he made like buying too much house, and saving for a car with cash instead of financing it. Learning from someone’s life experiences and mistakes helps.
loading....
Here a few links on never retiring:
for the working stiff:
http://mises.org/freemarket_detail.aspx?control=147
for the loaded:
http://blogs.wsj.com/wealth/2010/09/27/why-the-wealthy-never-retire/
for the brainy:
http://www.nytimes.com/2005/01/24/opinion/24safire2.html
for the self-employed:
http://freelanceswitch.com/general/why-freelancers-should-never-retire/
for those looking for a perpetual career:
http://financialedge.investopedia.com/financial-edge/0111/5-Careers-You-Never-Retire-From.aspx
etc.
loading....
@Ryan
None of the lenders I know of are at 25% right now (mine are between 2.1 and 6% now), but the point is that if you have a variable rate student loan, by definition it means the rate CAN fluctuate, and legally on these loans, interest CAN go up to 25%. Student loans are typically longer term (10 to 20 years-ish), so who knows what it will look like that far out? Just because the market does not bear it now does not mean that it won’t bear it before the borrower’s loans are paid off!
loading....
Guest post type articles are all well and good, but this was an overly basic roundup of lessons that the vast bulk of GRS readers are already going well beyond.
Was it just me, or did the three life stages all contain something along the lines of ‘avoid debt, save for retirement’? I know the PF blogosphere is one big merry-go-round of guest appearances, but J.D. you normally manage to bring better thought out content to GRS.
I also thought the ‘secret’ was hardly a top money hack – learn about money in a manner that interests you? This is hardly going to replace my copy of the Richest Man in Babylon!
loading....