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b'Age brings us wisdom and hopefully, keeps us from repeating past mistakes\\u2014and that\\u2019s great! But age doesn\\u2019t always protect us from making mistakes in situations that we haven\\u2019t previously encountered.
So it is with our money. \\xa0Every new stage of life brings new financial strategies we should ideally follow. But at every stage, we find new ways to not follow those strategies, and these money mistakes cause us to lose out and jeopardize our financial security. Moreover, as the economy and demographics change, we can be assured that the mistakes we make will not be static\\u2026 so the mistakes of current generations aren\\u2019t the same missteps that their predecessors struggled to avoid.
Here\\u2019s a closer look at some of the biggest money mistakes we make, decade by decade, and how to avoid them.
20s: Playing it too safe
Let\\u2019s begin with those of you who are in your 20s. I have often talked about the power of compounding and starting early with investing and saving. The first full decade of adult life\\u2014your 20s\\u2014should be about investing heavily. Yet, numerous studies show that today\\u2019s 20-somethings just do not take enough risks with investments to build up big returns.
For example, a 2016 study found that millennials tended to favor retirement accounts with little stock and more guaranteed income, choices that would bring skimpy returns over time. When asked why they chose such a conservative portfolio, participants said things such as, \\u201cI honestly know nothing about money right now,\\u201d and explained that a portfolio with a lower risk level seemed like the \\u201cbest option.\\u201d
A majority of these millennials were selecting retirement portfolios more appropriate for employees nearing retirement, rather than those starting their careers. The best way to counter this classic money mistake is to recognize this as what we call \\u201crisk aversion\\u201d and, by knowing it, avoid it. So, instead of taking on the riskiest financial investments, millennials should look at options such as target-date funds, which start out with riskier allocations that gradually become more conservative.
30s: Overwhelmed by Complexity
More so than in previous generations, today\\u2019s 30-year-olds start making huge adult commitments such as getting married, having children, or buying a house.
Yet many go into that situation with heightened expectations and think they are entitled to the same standard of living they had when they left their parents\\u2019 homes for college and career.
But what 30-somethings forget is that it took their parents decades to build up to that stage. And their quest to replicate that lifestyle too early often leads to splurging on things like trying to live too large and beyond their means, which often leads to excess credit-card debt and excess spending, instead of saving, which means they miss out on the 8th wonder of the world: compounding interest. It would be wise for 30-somethings to focus on living prudently, saving, investing, and building up their nest eggs.
40s: Misjudging big expenses
By our 40s, we tend to be about halfway through our working lives, just as bigger expenses enter the picture. Two of these, in particular, can be rife with error: the house and the children.
Many people spend too much on buying a home, often disproportionately more than they can afford, and then don\\u2019t work aggressively enough to pay off their mortgages. A bigger home comes with a bigger mortgage, higher property taxes, and higher maintenance and utility bills. You end up saving much less than you could, which can lead to less-than-optimal income in retirement because your nest egg suffers.
What you want to do instead is to ask yourself, \\u201cWhen do I want my mortgage paid off?\\u201d If you\\u2019re 40 and buy a big house, your 30-year mortgage isn\\u2019t going to be paid off until you\\u2019re 70. So even in retirement, when you may not have any income coming in, you may be forced to work just so you can keep your hou...'