By the age of 50, a good part of your finances should be sorted out. At this point in your life you should have a plan for your finances and be saving every month. Not doing so is the biggest money mistake you can make at this stage.
If you are reading this and you are still not saving systematically every month, start doing so now. In this article we show you how to save every month and in this one we explain how much you should save according to your income.
Not saving is one of the mistakes made by people in their 50s. Unfortunately, it is not the only one, and fortunately, it is not the most common. There are other common mistakes. Knowing about these will help you better manage your finances at this stage of your life.
Living like you did in your 20s or 30s
There is more talk about the midlife crisis in the 40s rather than the 50s, and yet any change of decade invites reflection. At this point it is easy to get lost and think about all the things you would have liked to do but were unable to.
It’s good to have that bucket list. It is also clear that neither your financial responsibilities nor your situation are the same as when you were 20 or 30 years old. In other words, the structure of your finances, how and why you spend money should not be the same.
Among all the things that you tend to do in your 20s that you should no longer do in your 50s, there is one key element: consuming and purchasing things to make you appear something you’re not. At 20 it is common to want to pretend you are doing well and buy a car you don’t need, more expensive clothes than you can afford or treat your friends. At this stage of life you should have overcome that eagerness and be focusing your money on what really matters, even if that means not keeping up with the Joneses.
Not having your retirement on track
Saving is the first step to achieving the goal of enjoying the retirement you want, rather than the one you can afford. When you cross the 50-year mark, you have 17 years until you reach retirement age. That may seem like a world away now, but it’s not when it comes to saving and investing
If you don’t have a plan for your retirement, now is the time to start one. There’s still time to take advantage of compound interest to make your savings grow faster, but you shouldn’t let more time pass before doing so.
Investing like you did in your 20s
A classic mistake at age 50 is to keep the same investments you had when you were 20 or 30 years old. If at this point you have the same investment product you took out more than 20 years ago, it may not be the right one for you.
Most often we find that people were too cautious at that time or taking on too much risk now. The reason for this is that the risk of your investments tends to change over the course of your life. Experts recommend reducing the risk of your portfolio as you approach retirement.
A simple way to determine the risk you should accept is the 120 rule. This rule says that by subtracting your age from 120 you get the percentage of variable income equities that you should include in your investment portfolio.
Of course, this is not an infallible rule, only an approximation. An alternative, if you do not want to make this decision on your own is to seek the advice or opinion of an investment expert.
Not talking about finances with your children
Would you have liked to know what you know today about finances and money when you were 20 years old? So would your children.
If you haven’t talked about money with your kids, it might be a good time to do so. You can take it as a letter to your 20-year-old self. Share with them what you have learned to improve their perception of money and their financial education, especially if they are studying or are about to start working.
You can also take the opportunity to involve them in the family finances, so they will be aware of the basic aspects of money management and household expenses.
Establish a relationship with your children where money is no longer a taboo subject and you can talk openly about it. This will avoid many problems in the future, both for your children and for you.
Focusing your finances on your children
This is a mistake that people make starting in their 30s, although at this point it usually has a different nuance. If at that age our mistake is to put all our financial plans on hold because of the arrival of our children, at 50 the mistake is to focus our finances on them.
It may be because of their studies, but the most common reason after 55 and close to 60 is to help them buy a house, a car or start a business. Putting your retirement savings at risk for your children is a mistake you should avoid at all costs.
A variant of this mistake is to support your children even if they are earning money, whether they are living at home or not. If your children are working and living at home, having them share in the household expenses will help build their financial awareness. And if you don’t want to undermine their financial future, you can always ask them to use the share they should contribute to start saving and investing for the long term.
Not knowing how to plan for your expenses
Just as with the mistakes we make in our 40s, it’s common not to know what our actual expenses are, let alone what they will be.
At this stage of life there are a series of expenses that will arrive sooner rather than later. The most frequent are usually related to your children’s studies and the car that you bought when they were born and which is now starting to break down.