/These Mistakes Can Cripple Your Future

These Mistakes Can Cripple Your Future

You want to have a secure, comfortable future, right?

Well that future will have to avoid more pitfalls than Indiana Jones–so you need to know what lies ahead. CNN Money compiled a list of the biggest financial┬ámistakes that can cripple your future. Here are some of the highlights:

1. Waiting too long to start saving for retirement

The Center for Retirement Research at Boston College revealed in 2010 that just 60% of people in their 20s who were eligible to contribute to a 401(k) were doing so, compared with 84% of people in their 50s. Many young people either save nothing or save too little because they believe they have plenty of time, or because they have other demands on their cash and think they cannot afford to save.

Unfortunately, the longer you wait, the less the power of compounding will benefit you, and the harder it will be to save enough for a comfortable retirement. If you begin saving in your 20s, you could retire a millionaire by saving just over 13.5% of an average 20-year-old’s salary — even if you never increase your monthly retirement savings above $305 per month during your whole career. But if you wait until you’re in your 50s, you’ll need to save almost $4,000 a month to have $1 million by age 63, the average retirement age in the United States.

If you made the maximum IRA contributions of $5,500 starting at age 25 versus starting at age 40, you’d end up investing $82,500 more during your working years if you retires at 65. But the payoff of those early investments is enormous: Assuming your investments earned an average of 8% a year, you’d end up with more than $1.5 million in savings if you started at age 25, compared with around $435,000 if you began investing at 45.

2. Buying a home that is too expensive

Buying a home that’s too expensive makes you “house poor.” You’ll pay more of your income than you should toward your housing, which will make it difficult to save or invest for retirement. A costlier home also comes with higher property taxes and insurance premiums. If your house costs more because it’s larger, you’ll spend more on furniture, utilities, and maintenance. Higher mortgage payments are also harder to make if you lose your job or otherwise suffer a drop in income, which makes the chance of foreclosure greater.

Most banks will only lend to you if your total debt, including all of your housing costs and other debts, amounts to 43% or less of your income. When considering only your housing costs, keep this number at or below 28% of your income. If housing is very expensive in your area, consider saving up for a larger down payment so your mortgage balance is lower — and avoid fancy mortgage products like balloon mortgages, which make a home seem affordable but could ultimately end up costing you the house if you cannot afford your payments through the life of the loan.

You can get the rest of the list over at CNN Money.

You’ll want to avoid ALL these mistakes if you can–but you’ll have to be proactive starting today.