By the time a person reaches retirement age, it’s likely they’ve made a few financial mistakes in their lives. Everyone has.
Learning from our own mistakes is important. But one of the most effective ways to avoid future mistakes is to learn from other people’s mishaps.
A handful of retirees recently sat down with The Week magazine to talk about the biggest mistakes they made while trying to build up their nest eggs.
Then, a financial advisor weighs in and gives some advice on how you can learn from their mistake – and how to make sure it doesn’t happen to you.
First retiree up: Donald Dixon, a musician and retired Verizon employee.
His mistake: spending money like a millionaire.
He says:
“I made a decent sum of money — my starting salary was a few hundred dollars a week — but I was spending like I was a millionaire on dates, going to sporting events and other ‘me’ things,” Dixon says.
He finally wised up and started contributing 6 percent of his paycheck to a 401(k) in his late 30s — but the damage was done. “Had I prioritized retirement savings earlier, I think I would have a huge nest egg, instead of the moderate one I have today,” he says.
Although that “moderate” nest egg covers Dixon’s necessities, he’s had to forgo the “upgraded lifestyle” — one with a fancy car and bigger apartment — that he was looking forward to enjoying in retirement.
This mistake is common: young people start their careers and aren’t used to handling large sums of money. Every paycheck seems like it could last forever, and buy so much.
Luckily, the financial mistakes we make in our 20’s don’t have to define our future. The sooner you start budgeting and cutting out non-essential expenses, the better.
A financial advisor says:
As Dixon’s example suggests, preparing yourself to live well in retirement isn’t just about investing early — it’s also about taming your non-essential spending and living within your means as a young adult, says Douglas Goldstein, a CFP® and author of Rich as a King: How the Wisdom of Chess Can Make You a Grandmaster of Investing.
“If you aren’t used to budgeting, you may find this endeavor difficult in the beginning,” Goldstein says. “But there are ways to help yourself get started, like jotting it down in a notebook or typing it on your phone every time you spend any money.”
“Once you know where your money is going, you can make the necessary adjustments to cut non-essential expenses out of your budget, like unused gym memberships and appetizers,” he says, “so you can allocate more of your hard-earned money to an emergency fund or toward retirement.”
Bonus: Making smart spending and savings decisions as a young adult not only boosts your bank account balances — that’ll hopefully afford you the type of retirement you’re dreaming of — but it also helps prepare you to live on a fixed income during your golden years and avoid outliving your cash.
