Younger generations could learn a thing or two about money from baby boomers. Not because the boomers have done everything right. In truth, this generation _ made of individuals born between 1946 and 1964 _ has made its fair share of financial missteps.
But that's exactly why millennials and members of Generation X should listen to this older and wiser generation. Boomers have been there, done that and learned from what they did wrong.
Here, three boomers offer up their best money advice in hopes of helping you avoid making money mistakes.
CASHING OUT A 401(K)
Tom Corley, author of "Change Your Habits, Change Your Life," said his biggest money mistake was cashing out a 401(k). He took $40,000 he had in a retirement account with a former employer and invested it in the stock of a company that hired him.
It might have seemed like a smart move at the time, but putting all of your money into a single investment is a mistake _ one Corley learned the hard way. "My employer eventually filed for bankruptcy, and the value of my stock went from $150,000 to $0," he said.
Plus, if you cash out a 401(k) before age 59 {, you'll be hit with a 10 percent early withdrawal penalty on top of regular income taxes on the amount withdrawn. "I would tell my former self to not do that and instead, roll my old 401(k) money into a rollover IRA and invest that money in a broad range of mutual funds in sectors that were growing," Corley said. If you leave a job, you can roll over a 401(k) to an IRA or into your new employer's 401(k) to avoid tax penalties and let your retirement account continue to grow.
BUYING TOO MUCH HOUSE
It's easy to fall in love with a house that costs more than you can afford. Cathy Curtis, a certified financial planner and founder of Curtis Financial Planning in Oakland, Calif., said she made this mistake _ and still regrets it.
When she was younger, Curtis decided to sell her two-bedroom, 1,500-square-foot home to buy something a little larger with her husband. They didn't want to buy too much house but found a 3,000-square-foot home they loved. The house was a little out of their price range.
"We made an offer anyway, and it was accepted," she said. "I don't think either of us thought hard enough about what it means to buy a house double the size of what we had lived in." Not only did their mortgage payments increase dramatically, but they also had to shell out money to furnish their larger home. As a result, they had to cut back other spending.
"When I look back, I would definitely have opted for a smaller house with a smaller mortgage and property tax," Curtis said. Buying too much house not only can stretch you too thin financially, but it can also leave you with less money for things you enjoy _ such as travel _ and for your retirement someday.
FALLING FOR AN INVESTMENT SCAM
Gary Weiner, founder of the Super Savings Tips website, learned the hard way that if a deal seems too good to be true, it probably is. In his 20s, Weiner heard his sister's ex-husband touting his new business, The Sports Hall of Fame, on the radio. Weiner thought it would be a good investment opportunity.
"We met in New York at his plush offices, and he did his best to try and talk me out of investing, and at the same time talked about how magnificent this was going to be," Weiner said. The former brother-in-law touted fancy dinners and meeting sports celebrities and said there would be a huge profit for the venture's investors. "After a few days, he accepted my check for $10,000 and I received a stock certificate from him," Weiner said.
After a few weeks went by without hearing from his former brother-in-law about the progress of the company _ and failing to reach him by phone _ Weiner went back to the New York office. "To my shock, the offices were gone, and not a single person in his building knew of him or any office," Weiner said. He reported the con to the police and learned a year later that the former brother-in-law had gone to jail for swindling three dozen people out of hundreds of thousands of dollars.
"I was not only out of money, but I was crushed by being taken by someone that I had idolized as a kid," Weiner said. He learned, though, that you have to do your due diligence before making any investments. And you have to keep emotions out of investment decisions.
