The baby boom generation has been around long enough to make many mistakes with their personal finances, and the following list is among the most costly mistakes they have made, and we can all learn from their lack of preparation for disaster.
Wants versus needs
Boomers have gone into debt to buy things they want. There is nothing wrong with rewarding yourself with something you want, but it is critical to understand the difference between what you want and what you actually need. Never borrow money to buy what you want. This is an essential part of staying prepped. Some of us forget the essentials and focus only on the bunker. Those people may have a shelter, but not the essential supplies to fill it.
Credit card balance
Other than the most extreme emergencies, there is never a good reason to carry a balance on your credit card. The interest charged makes everything you buy more expensive. You can also develop a bad habit of not paying for everything you purchase each month, and over time, your balance grows. A smart way to use credit cards is to use them for the rewards, and pay the balance in full each month.
Too much house
Never buy a house that is more than you can afford. Eventually, paying too high a price for a home or too high of an interest rate will catch up to you. People spending too much of their monthly income on their house have nothing to fall back on when an emergency happens.
Using a credit line
Having a credit line at your local bank, especially one that is tied to the equity in your home is a bad idea. You will simply be tempted to buy extravagant items that you have no need for. One exception to this is when the credit line is being used to help finance a side business. In this case, the debt is for investment.
Expensive car loans
If you absolutely need to finance a car, make sure you get a good interest rate for the auto loan and have a large down payment. This way the total amount you pay over time, will not be a lot more than the cash price of the automobile.
When baby boomers talk about financial regrets, student loans are at the top of the list. It is not so much the concept of borrowing for education that is the problem, but it is the amount that was borrowed. Often a college graduate does not make the money they thought they would and is saddled with loans that are near impossible to pay back. Only borrow what you can pay back in a reasonable time frame.
Cashing a retirement account to pay off debt
This is similar to getting a second mortgage to pay off debt. The difference is that you are cashing in an asset instead of borrowing against the asset. However, this is a bad idea because in a worse case scenario, you can restructure debt in a bankruptcy, and a retirement account is usually protected from creditors.
Not saving enough for retirement of crisis situations
This is one of the most common mistakes among the baby boom generation. Not only do you need to be realistic about how much money you need in retirement, but you must be aware of the fact that you may live longer than you think. You can easily outlive your retirement savings. This money is so key in an emergency and you may need it to get out of a jam.
Depending upon your home equity for retirement
For many people, the equity in their home is all they have saved for their retirement, but when retirement day arrives, the equity is not nearly enough to live on. Always have several retirement savings plans, including a 401k.
An entire generation has made financial mistakes that everyone can learn from. In general, always remember that debt can be good, but only for investment. All other reasons for debt should be avoided as much as possible. If we are not prepared for the inevitable next round of crisis then we are putting both ourselves and everyone around us at risk. Stay Prepped!