Your 40s are the period when you really make serious money. This is the time when you’re done with expenses related to children and mortgage, making investing in your 40s easier. Here are the top money mistakes to avoid in your 40s.
You’ve probably been working hard through your 20s and 30s, so you feel you’ve earned the right to treating yourself to a fancy lifestyle, a good car and so on. But you could easily get carried away and go overboard with the expenses.
This could cause heavy damage to your retirement plans. This doesn’t mean you have to sacrifice your quality of life.
The Clock is Ticking
Even if you’re quite comfortable with your financial position, there’s no room for complacency. You can always do more to ensure greater financial security. I see a lot of people in their 40s making money mistakes that I’d like you to avoid.
There’s a lot of retirement advice from retirees doing the rounds and here are some more tips for financial mistakes to sidestep in your 40s.
Money Mistakes You Must Not Make in Your 40’s
#1. Maintaining Pension Contributions
Your salary is high and you still have about 20 years of investments to make towards your pension. This is the time you need to up your pension contributions while you make money at your job.
Get your pension affairs in perfect order while trying not to make money mistakes. Make an automatic enrollment to workplace pension plans. Increase your contribution to as much as you can afford. At least make sure that you are saving enough to match your employer in the 401(k) plan.
If you have many pensions lying around in different workplaces, check out the scheme for these funds. If you allow it to stay there, you might be shortchanging your final amount. Use Tracker from PensionBee to put all pensions in a single place and manage them more efficiently.
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#2. Moderate Investments – Retirement Mistakes
This is something that you really need to avoid while considering saving for retirement at 40 and avoiding money mistakes. You might have made conservative investments a decade or two back. This was perfectly understandable, as there were responsibilities related to mortgage, student loans, children’s education and so on.
While considering best investments to make in your 40s, consider placing at least 70% of your investments in stocks. It’s a good idea to invest around 25% of your income in investments, so that you reap a good retirement harvest after twenty years.
Make contributions to conventional IRA accounts such as a Roth IRA as part of a smart investment strategy, thereby avoiding common money mistakes.
#3. Having Debts
Having debts is a major financial blunder you want to steer clear off during your 40s. Pay off any consumer debts incurring high interests and try to finish it off.
Try paying off all your credit cards one by one, while attempting to avoid money mistakes in your 40s. Try to use the right cards. For instance, you can use rewards cards for expenses, so that you get rewards like a free travel. Use credit cards wisely and pay off the debt diligently without incurring interest.
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#4. Spending on Kids College
One problem you face in your 40s is that you need to save money for your children’s college tuition and also save for your retirement. There’s no right or wrong about the amount of cash you need to be spending on your children’s’ college education. The thumb rule is that you should not be paying for all their expenses, as you need to save money in your 40s to avoid money mistakes.
Let your children pay for some of the costs. For instance, they can work and study to pay off some costs. It’s an important aspect of managing money in your 40s.
You should have already started saving for your children’s college education in your 30s.
Check out the 529 college saving plans, so that you don’t have to borrow much. Most universities give the option for prepaid tuition plans, so that you can lock the rates at current prices.
#5. Neglecting Insurance
Life insurance is not too expensive when you are in your 40s. It could be a lifesaver in case of a disaster and protect you from money mistakes.
Check out your home insurance; health insurance; auto insurance; life insurance and other aspects of your financial world. Also consider the umbrella insurance option, especially for those having considerable assets and who are making big money.
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#6. Remodeling Your Home
Are you considering supersizing your home or remodeling it? You want to upgrade your kitchen to a fancy one perhaps. Your earnings have increased and you think that remodeling will increase the value of your home.
Sorry to burst the bubble. Remodeling will not add much value to your house and could present one of the major money mistakes. Average house sizes have actually been shrinking, according to census data. You should be considering wealth building strategies instead of spending it on supersizing your house.
#7. Stuck in Old Skills
Your skills are earning you a good sum, no doubt. But that doesn’t mean you have to be stuck in them. Why not learn some new skill sets to make some extra money. For instance, learn cooking or windsurfing or a new language. Try Yoga or ukulele or learn a dance.
You can pick these up very fast and you never know when they might come in useful, as a secondary source of income to avoid money mistakes during your 40s.
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#8. Too Old to Change Careers
You probably think that 40s is too old to be switching careers. When you are in your 20s, you are very aggressive about promotions and pay increases. But you do tend to be rather complacent during 40s. You might have spent close to two decades at your current job.
But that doesn’t mean you cannot switch careers during your 40s. There are many online platforms like Amazon Handmade or Etsy, where you can make a fresh and better start on that dream business, keeping your paycheck job on as well.
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Final Word
In short, this is the time when you are transitioning from parental responsibilities to retirement. You need to focus on how to make money in your 40s and avoid money mistakes. Get your financial strategies in order to stay on top of things. You might be feeling invincible when you are in your 20s. As for 30s, it brings in a lot of responsibilities.
The 40s are very important, as you are nearing retirement and need to guard against money mistakes.
Retirement might seem to be a faraway spot at 40, but it’s very important to make the maximum possible contribution towards saving for it. Your 40s are a kind of sandwich decade, where your children are still with you and you still have two decades of work to go. Follow these tips to fulfill your financial goals for a happy retirement.
