Making wise financial decisions becomes more vital as you grow age. If you are in your 50s, you may feel like retirement is more than a decade away, so you can afford to make some mistakes. Unfortunately, that becomes increasingly more expensive as you progress in your 50s. Acting with wisdom is essential. Like anything in life, some areas are more important than others. These are 12 money mistakes it’s essential to avoid in your 50s.
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Not Owning Your Car
Committing to a monthly car payment may not be the wisest financial decision. Cars, being depreciating assets, lose value the moment you drive them off the lot or take possession of a used one.
Allocating funds to a car month after month might not align with optimal financial planning. Consider redirecting that money to more constructive endeavors, such as saving or investing.
If a new car is on the horizon, consider a different approach: save up beforehand and make the purchase in cash.
Raiding Your 401K to Pay For Your Kids College
It’s honorable to want to help your children through college. Doing so at the risk of your your 401(k) plan, or any other retirement account can put your golden years at risk.
For that matter, taking on any kind of indebtedness yourself for a college education can cause issues in your 50s. It impacts your cash flow and your retirement planning. After all, you can’t finance retirement.
Not Talking About Finances With Your Children
It’s best to keep your children in the dark about your finances as you age, correct? Wrong. Your children are likely older, and potentially out of the house.
Now is the time to start discussing your plans with them. Let them know what your plans and wishes are. Communicate where your documents are. It’s also wise to include them if they’re going to play a part in helping you as you age.
Prioritizing the Wrong Debts
Being mortgage free in retirement is a goal of many in their 50s. However, if you have other, higher-interest debt, you need to prioritize that first. A balance transfer card can help you lower your interest rate for a temporary time to eliminate the debt.
If you’re carrying student loan debt, that should also be paid off before your mortgage. Social Security income can be garnished for student loan debt so it shouldn’t be overlooked. Furthermore, your mortgage interest rate is likely the lowest of your debt, so it can go last.
Underestimating Future Health Care Costs
Healthcare is expensive. It’s even more so in your retirement years. Reports show the average retiree spends over $300,000 on healthcare costs during retirement.
You still have time to prioritize a healthy lifestyle. Every little bit you do could save you significant sums of cash in the long run.
Not Creating Multiple Streams of Income
Retirees often give up an active stream of income when they leave work. Now is the time to create multiple streams of income to help you weather that upcoming change.
There are many ways to create mailbox money to create passive income. Thankfully, many of them don’t require large sums of cash to begin.
Avoiding Your Catch Up
The IRS allows people over 50 to contribute more money to their retirement plans. For the 2023 tax year you can contribute an additional $1,000 to your IRA.
In a 401(k) you can contribute an additional $7,500. That may not seem like a lot, but if you don’t retire for another decade that’s a good amount of time for your investment to grow.
Being Led By Fear With Your Investments
The stock market is 90 percent driven by emotion. It’s typically best to avoid allowing what you see in the headlines dictate your investment decisions too much.
As the adage goes, what goes down comes up. If you’re fearful of what is going on in your portfolio, find a trusted advisor who can help you make sense of your plan.
Having the Wrong Type of Life Insurance
Your life insurance needs will likely change as you become older. Don’t take a set it and forget it approach with your life insurance. Additionally, one of the worst money moves to make is to view your insurance as an investment.
Identify the needs of your family, and what’s needed for end of life needs, and adjust your life insurance as necessary. Any premiums you claw back are typically best directed to your investments.
Not Having a Will
Having a will is essential to protect your assets when you pass. If you don’t have a will, it’s time to take action in your 50s.
This will this help your loved ones manage your final wishes. Creating a will isn’t overly burdensome. You can create one online through a site like LegalZoom, or find a local lawyer.
Not Having Enough in Your Emergency Fund
Life is full of the unexpected, even in retirement. Growing a fully funded emergency fund in your 50s is essential.
Your living expenses will likely go down, but having enough in savings will help you manage your budget and avoid potential debt.
Not Having a Budget
A budget is a key part to planning your spending. Many people view budgeting as restrictive, but those that do so are viewing budgets the wrong way.
It’s vital to avoid this mistake in your 50s. When done wisely, a budget provides the freedom to spend in line with your goals. This is increasingly important as you age. To start, sit down and look at all of your expenses and income. Then, look at your overall spending.
Anything that doesn’t provide value needs to be cut and, when possible, apply those funds to your long-term goals. You’re retired self will thank you.
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I’m John Schmoll, a former stockbroker, MBA-grad, published finance writer, and founder of Frugal Rules.
As a veteran of the financial services industry, I’ve worked as a mutual fund administrator, banker, and stockbroker and was Series 7 and 63-licensed, but I left all that behind in 2012 to help people learn how to manage their money.
My goal is to help you gain the knowledge you need to become financially independent with personally-tested financial tools and money-saving solutions.