When it comes to finances, nobody is perfect. If you are in your 50s however, it is incredibly important to be wise about the decisions you make. That is because retirement is just a few years away and, you can still grow your savings, but you do not have as much time as you once did.
The key is to make sound financial choices. The first step? Avoid making these seven money mistakes, which were recently outlined by Cheapism.
1. Lifestyle upgrade. It is common for us to upgrade our lifestyle according to our salaries. By the time you reach your 50s, your paycheck is probably much fatter than it was a few years ago. It might be tempting to splash out a bit on your lifestyle however, financial coach Lauren Rilling advises against this. You need to first make sure you are saving for your retirement as well as future expenses before spending any additional income, she said.
2. Underestimating your costs in retirement. You might think certain expenses will no longer apply once you have retired. The house will be paid off, your children can look after themselves, and you will save money on your daily commute and all those lunches. Cory Nichols, the owner of Yes Life Financial, warned against underestimating your spending habits during retirement. "The reality is, in retirement you have more time and therefore you do more things. Things cost money," he said.
3. Tackling your bucket-list. You have spent your life working, paying bills, and planning for retirement, so why not enjoy life a bit? We all have a list of things we would like to do at least once in our lives and while ticking some of those off are not a bad idea, avoid going overboard. First, focus on making important and realistic investments that can give you financial security when it comes time to retire, said Igor Mitic, co-founder of the financial news site Fortunly. "Once you are comfortably retired and have your finances in order, then you can consider revisiting your bucket list," he said.
4. Not clearing up your debt. You will want to clear up as much of your debt as possible before retirement. Many people make the mistake of going into retirement with credit card and bank loan debt, Mitic said. It is best to minimize as many of your expenses for retirement as possible.
5. Not having an emergency fund. Things can go wrong during retirement, and you will want to have an emergency fund if they do. Whether it is an unexpected bill or sudden loss of income, it is best to be prepared, said Greg Klingler, director of wealth management for the Government Employees' Benefit Association (GEBA). "A good baseline is three to six months of expenses in liquid cash," he recommended.
6. Skimping on investments to fund your children's education. It is important to put money aside for your children's education but make sure it is not at the expense of your future in retirement, advised Edith Muthoni, the chief editor at LearnBonds. "Stop viewing your children as an investment and start pushing for a balance between your retirement plans and other financial commitments," she said.
7. Not diversifying your investment portfolio. The best decision you can make for retirement is to diversify your portfolio, according to Muthoni. The mistake most people in their 50s make is that they either invest too aggressively or too conservatively. If you are too aggressive, your savings are exposed to high risks, but if you are too conservative, you miss out on possible investment wins. "You need to master the art of maintaining a healthy investment portfolio that balances between high-risk and high-reward investments," Muthoni said.
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