/ Published 9:00 AM EST / Alyssa Charles

Financial mistakes we make and how to avoid them

When it comes to managing our finances, we all make some mistakes along the way. As we get older our financial priorities change and we become more knowledgeable about the strategies we need to use to meet our goals. Manulife Bank Business Development Consultant Lori Lee shares some of the financial mistakes that people make in their 20s, 30s, 40s, 50s and 60s and what can be done to avoid them.

Young woman using credit card on her laptop20's – Misuse of credit
Although research over the last few years has indicated that Millennials prefer using cash and debit over credit cards, a recent survey found that 83% of Millennials (25-34) use credit cards. While it’s important to build your credit rating in your 20s, it’s also important to be smart about how you use your credit card. “Don’t get it and use it all up. But also, don’t get it and get not use it at all,” says Lori. Ideally, you could pay your phone bill with your credit card and then have a recurring payment set to pay your card off before the due date. This will keep you from abusing your credit while establishing a good credit history at the same time.

30s – Not saving enough for retirement
Unfortunately, 71% of Americans say they do not have enough retirement savings[1]. This could be attributed to the fact that many of us see retirement as a distant milestone and think that we can play catch up on our retirement savings later on. The trouble with playing catch-up later on is that other financial priorities arise which may prevent you from actually catching up. “If you have a job with a retirement plan or share program, learn about it and start using it ASAP,” Lori suggests.  

Couple excited about investing in real estate40s – Getting too comfortable
This is the point in life when many people feel comfortable with their income and their debt. The mistake here is getting too comfortable with debt.  “Many people see they have more equity in their 40s and want to leverage that equity or extend/increase borrowings to get into residual income for areas where they suspect they can make some extra money, particularly in real estate,” says Lori. If the rental or real estate market has any negative change, OR if your employment status changes, the next phase of life will be very challenging if you are over leveraged. Work with your advisor to find ways of using your equity wisely to prepare for the years to come.

50s – Underestimating the ”Sandwich Years”
“We hear so much of the challenges people are facing in their 20s between jobs and housing, but I would argue that your 50s are most underestimated, most challenging years for people financially,” says Lori. Between kids (extra-curricular activities, school tuition, etc.) to looking after aging parents and planning for your own retirement, you are sandwiched between all of these financial obligations. If you didn't plan earlier, the challenge is even harder because without the benefit of having the money invested for the last 20-30 years, you have to make up that savings from your current income.

Senior man doing carpentry60s – Retiring too early
Retirement doesn’t have to be an all or nothing proposition. “I see so many people that can work to 65 or even 70, but romanticize the idea of hitting the magic retirement milestone,” says Lori.  “Many of them end up back at work within a few years for various reasons, either social or financial need.” You’ve made it this far – it’s better if you can phase into retirement until you’re sure you’re 'done'. If you need an emergency fund or even something to bridge you into retirement, you need it in place before you retire.

Keep reading for more tips on preparing for your next financial milestone.

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