Whether you’re a fresh-faced university student or approaching retirement age, money mistakes are lurking at every stage of life. But knowing what you or your family might encounter down the road can help you prepare for the worst.
Here are some of the biggest money mistakes people make as they go through life:
Adulting 101
The money habits you create in your late teens and twenties can shape your financial future for years to come. Bringing home a decent paycheck for the first time in your working life is exciting! You finally have money for nights out, holidays abroad and shopping trips. Or, you may be earning less than your friends, and feel pressure to keep up financially. Putting a couple of rounds on the credit card every weekend can’t hurt, right?
Consider saving a healthy portion of your pay, building an emergency fund should you become unemployed. Limiting credit card use can help you stay out of debt, especially if you pay off the balance every month. Do both of these and you’ll also have a head start on big ticket purchases, like a new car or a house.
Now may also be a good time to start building your own assets. This may include investing, buying a starter property or contributing to a retirement plan. You might also consider purchasing life insurance. Taking out cover can generally be more affordable for young, healthy adults, so applying for cover now may help you avoid being priced out of or excluded from purchasing life insurance later in life.
Falling in love
Money is one topic that’s often avoided as couples get to know each other. Discussing your personal finances is not fun. You may feel exposed or vulnerable if you’re not doing well financially. But couples in long-term relationships could save themselves a lot of strife by broaching this delicate subject.
Finances are a cause of friction in many relationships, and disagreements about money can be a strong predictor of divorce.1 Does your partner spend their paycheck on luxuries, whilst you save every penny? Are either of you carrying a large amount of credit card debt? Does one of you make significantly more than the other? These are things you should ideally discuss before moving in together or getting married, so you can begin to work through any potential conflicts.
Marriage & babies
New Zealanders are choosing to have kids later, with the median age of first time mothers reaching 28 in 2013.2 Many couples now spend several child-free years together before starting a family. You may think that pre-baby planning starts when you begin trying to conceive, but ideally you and your partner should consider starting the financial planning even sooner.
Setting money goals—such as saving for a wedding, new home or kids—can help pad your bank account before you reach these milestones. You may also want to prepare for other ways your life could change in the future. Creating an emergency fund in case of unemployment (if you haven’t already), contributing extra to a retirement fund or investing are all things you might consider.
A family affair
Money matters can be a challenge for families, especially given how they often play on our emotions. Parents may feel pressure to give their children more than they had, spending big on the latest toys and electronics. The desire to “keep up with the Joneses” can also extend to cars, clothing and even home buying. Overspending can creep up on you fast, and could leave your family open to financial hardship.
Setting limits on gift giving and receiving can help you stay within your budget and curb children’s expectations. Capping wish lists at five items or requiring young ones to ask for items they need as well as ones they want are common strategies families use. Teaching children the value of money by giving them an allowance and encouraging them to save for big ticket items can also help.
You may also find it difficult to think about what might happen if tragedy were to strike your family. A serious accident or untimely death could put your loved ones in a precarious financial situation. Life insurance is one way families help protect their financial future, providing a safety net should the worst happen.
Golden years
The biggest retirement mistake you can make is not saving enough. A 2017 study found that a single person may need just over $100,000 saved by the age of 65 (in addition to superannuation) to afford a basic lifestyle in New Zealand’s largest cities.3 Longer life spans may mean saving and preparing more for retirement, but some 43 per cent of Kiwis don’t have a retirement plan.4
The earlier you start thinking about your post-work life, the better off you’re likely to be when the time comes. Begin by envisioning your ideal retirement life, so you have something to plan around. A financial advisor can give you specific advice based on your financial situation to help you achieve your dreams.
You may also want to consider the financial situation you’ll leave behind after death. If you have any big debts, such as a mortgage, you may want to increase your life insurance policy to cover these liabilities. Funeral insurance may also be appropriate, helping your family pay for your final goodbye.
Making smart money choices throughout your life can help you and your family stay financially protected.
1. Stuff.co.nz, How do happy couples deal with money
2. Stats NZ, New Zealand women are having their first child at age 30
3. Stuff.co.nz, $101,774 in savings needed at 65, just to get by in retirement
4. Stuff.co.nz, Kiwis lack retirement plan
About Author: Momentum Life is a leading provider of Life insurance and Funeral insurance in New Zealand.
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