Welcome to your 40s and a new period of your financial life. You may be older, a little wiser and probably more established and financially settled than you’ve ever been in your life or perhaps you’re still worrying about your financial security and perhaps you still have a few financial concerns that you need to work on like funding your child’s future education or maybe even planning for retirement.
[Read: Mistakes that Affect Your Credit Score]
There are some common money mistakes that people make in their 40s and this list has been put together to inform you of these errors, so that you don’t become complacent and makes these mistakes yourself and to help you to take care of your financial well-being.
Here are the most common money mistakes:
- No Plans For Your Money – After the Great Recession a lot of people in their 40s have struggled to afford housing and establish their careers. They haven’t been able to plan what they do with their money and are recovering from what they may have lost. It’s important to make a financial plan now and ensure it’s followed through.
- No Cash Reserves – Many people in their 40s don’t have an emergency fund and it’s time to make plans to establish one as soon as possible. This will give you peace of mind and the security of having funds available if you should need them and avoid having to rely on other forms of funding if something happens like taking out a credit card or borrowing money from a high cost payday lender.
- Not Enough In Your Emergency Fund – You may have had an emergency fund in place for a number of years but now that you’re older it may not be enough to support your current earnings and lifestyle. When you reach your 40s it’s a good idea to invest some of your emergency fund to allow it to grow while keeping a portion available for emergency situations.
- Consumer Debt Complacency – You may have a great job and a lovely home and you may have some consumer debts that you’re trying to pay off. At this stage, try not to take on any further debts that aren’t essential or place yourself in positions where you need to borrow.
- Prioritizing Mortgage Payments – You may think it’s a great idea to pay off your mortgage so that you own your own home but your other financial obligations such as debts, taking care of your child’s education or saving for retirement also need to be taken into consideration.
- Remodeling Your Home To Add Value – We all have individual tastes and what may be your idea of an ideal bathroom or kitchen may be someone else’s worst nightmare and they’ll just want to replace all the renovations you’ve done. Creating individuality in your home can actually reduce its value.
- Take Care Of Your Retirement Funds – Sometimes when you’re trying to provide for the future of your family and their education it’s sometimes necessary to take care of your own future first in order to stabilize that before taking care of others. Your children can also take out a loan to pay for their education but that’s something you won’t be able to do when you’re retired. It’s important that you take care of your retirement funds and continue to pay and give them enough time to make your long term savings effective.
- Maintaining The Same Savings And Investments – You’ve heard the expression “don’t put all your eggs in one basket” and this is one of the reasons why the older generation are being more financially successful as they have channeled their savings and investments into diversified areas. Those in their 40s haven’t really taken advantage of this and is one reason why they’re not doing so well.
- Taking Risks – A new opportunity comes along and you want to take a risk with it, but at this point it may be wiser to keep a reign on your impulses. Keep an eye on your checking account, having an emergency fund, diversifying your investments and not taking on additional debt are much wiser and prudent strategies than taking unnecessary risks that may or may not pay off. It’s better to maintain the elements you can control and not worry about those things that you can’t.
- Relying On Your Monthly Earnings – Your income rises from your early career in your 20s and peaks at around 50 but there is always the possibility that you may lose your job as we saw during the recession. If this happens when you’re in your late 40s or early 50s then it may be more difficult to get another job and suddenly your earning potential will stop.
[Read: Mistakes that Affect Your Credit Score]
It’s important in your 40s to be aware of what’s ahead and mindful of what could happen to your financial position and avoid these common pitfalls to ensure you are able to maintain your financial security that you have been striving for your whole working life.