We all do it—make mistakes when managing our money.
Sometimes the mistakes are small and relatively easy to correct; other times, they can be massive, with their effects not even known till decades later.
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Add to that the trauma of the Great Recession, which wiped out many people's net worth—whether in their retirement accounts, home values or investments (or all of the above), and that means that many people are still struggling with money issues that some thought had been solved years ago.
As tough as it is these days preparing for retirement—now looking even tougher in the current political climate—it pays to try to get ahead of the problem, finding ways to protect our own retirement futures.
Older people will have a tougher time of it, with fewer years left in the workplace to try to right the ship, but younger people might be able to forestall some of the errors their elders—or they themselves—have made, even if they might be doing so later in their lives than might be the best option.
While hindsight is always 20:20, the best way to make sure our financial futures are secure is not to make mistakes in the first place. Here are 5 of the biggest money mistakes people make, and when during their lives they're most likely to make them.
5. 20s: Not saving and investing
Early on, when people are in their twenties, it's both easy and tempting to postpone saving—either for retirement or just for an emergency fund that will allow them to weather a sudden job loss or other financial crisis (think medical bills or serious car trouble).
But that's a mistake. Saving early on, both for retirement and for emergencies, can leave people in a much better position by the time they hit retirement even if those savings aren't very much to begin with.
Saving in a 401(k) or other retirement plan even with the most modest of contributions can pay for itself over time because the saver is getting a jump start on compounding, which will grow an account faster than waiting till later and trying to play catch-up.
And the benefits of having an emergency fund can save a person from higher-priced alternatives, such as attempting to keep up with bills via cash advances against a credit card and its attendant high interest rates.
One more thing: millennials tend to be even more cautious and risk-averse than their elders, thanks to that Great Recession.
However, experts say that when they're in their twenties is the time for people to take a little more of a risk (not a lot!) in their investments in the pursuit of a higher reward, rather than sticking strictly to "safe" but low-return investments like bonds or CDs.
4. 30s: Not saving, too cautious with investments
When people hit their thirties, they should be making themselves more aware of the ins and outs of various retirement savings methods—particularly IRAs.
Now is the time to start branching out into an IRA, with the caveat that they need to understand the differences between IRAs and 401(k)s and not just plunge blindly in.
It's also a good time to focus on what sort of investments are in those accounts, and make sure they're still at appropriate risk levels—particularly if you're planning for something big, like homeownership or the kids' college educations.
Of course, by the time they're in their thirties, people might be getting a bit impatient to start living the "good life," particularly if they've been saving diligently for retirement or emergencies and still working to pay off student loans.
The temptation is there to spend more freely to achieve the standard of living you might have expected by the time you turned 30. That said, spending too much can eat up the money intended for your long-term goals before you even realize it.
The same goes for other commitments people typically make in their thirties: homeownership, marriage, parenthood.
Spending too much on a wedding, a house or things for the kids can cripple savings plans, and even make day-to-day living unpleasant if salaries are stretched too thin.
3. 40s: Sandwiched between two expenses
People in their forties are likely still struggling with the expenses of raising kids—now probably getting to the really expensive stage, with cars, insurance and college bills looming—and might also be having to help out aging or ill parents.
Not making any provision for the care of elderly parents (perhaps through the purchase of a long-term care policy) is just one way people can trap themselves into financially straitened circumstances, since they'll likely be contributing to care and probably even day-to-day expenses, particularly if they find themselves becoming caregivers.
But another big caveat is spending too much on children—whether buying them an expensive car or committing to paying their college tuition.
Parents who lavish too much money on their kids at the sacrifice of their own retirement should be aware that there are other ways to pay for an education than through the Bank of Mom and Dad—loans, grants, scholarships.
They also ought to remember that it's unlikely that, once they've retired with too little money, their kids will come through to make sure their parents are comfortable during their golden years—and if the kids don't do that, their parents will realize those golden years are only brass at best.
So think about that before you're tempted to take money out of your retirement accounts to pay someone else's expenses.
2. 50s: Failing to catch up
When you turn fifty, you're allowed to put extra money into 401(k)s and IRAs. And while it may be a struggle to do it—particularly if you've let your spending creep up to keep pace with any raises you may have gotten, or even to outpace them—now is the time to make the effort.
Failing that, it's time to scale back your spending and readjust your attitude toward your retirement lifestyle.
If you can't stretch your income sufficiently to augment retirement savings when you're theoretically at the peak of your career earnings level, how will you manage once you've retired and there is no more money?
One more thing: start moving your retirement savings away from risk and into safer investments. A market drop now could make it extremely difficult, if not impossible, to regain lost ground by the time you're ready to retire.
1. 60s: Not having an income strategy, claiming Social Security too early
Now that retirement is almost upon you, take a good hard look at what you've managed to save, and see if you can figure out how to turn it into an income stream—whether that's by switching some, or more, investments to income-producing bonds, or buying an annuity, or taking some other action that will offer a dependable amount of money each month.
And think twice before deciding to retire early, or even at your full retirement age.
If you can delay claiming Social Security benefits until age 70, your benefits will be substantially higher—whereas if you retire early, you'll be stuck with a lowered benefit for the rest of your life.
And that could be for the next 30–40 years. Not a pleasant prospect.
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