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As you enter your 40s, you start to have a fuller understanding of the importance and benefit of sound financial planning.
After all, it’s never too early or too late to get your finances in order!
Unfortunately, there are some common missteps that many people make when managing their money in their 40s, some with more costly implications than others.
In this article we’ll be taking an in-depth look at the most expensive mistakes one can make in their 40s so that you can prevent them from happening.
So sit back, relax and read on to learn about the 15 costliest financial mistakes many people make once they reach middle age.
#1. Ignoring Career Growth
In your 40s, you have a lot going on: housework, raising a family, dealing with elderly parents, and more.
As a result, it can be easy to become complacent in your career.
But your 40s and 50s are most peoples highest earning years.
As a result, you should take time to figure out your next steps so you can ensure you are earning as large of a salary as possible.
Not only will this make your day-to-day finances more manageable, but it will allow you to save more too.
#2. Not Strengthening Your Marriage
You might wonder why marriage is on a finance list, but as you enter your 40s, you have more things needing your time.
Many people give everything but their spouse their time.
Then when the kids leave the nest, the connection you had is lost, and you get divorced, which can destroy your financial plans in an instant.
#3. Don’t Get Annual Doctor Checkups
As you age, more health issues can start to creep up.
While we all think we are invincible, we are not.
And the sooner you spot any issues, the easier they are to manage.
For example, if you catch skin cancer early enough, you can have the spot removed.
But wait too long, and now you will need more advanced and costly treatments.
As annoying as it might be to visit your doctor every year, you will be grateful you did if anything comes up.
Plus, the healthier you are, the less likely you will be saddled with high healthcare costs in retirement.
#4. Ignore Interest on Savings
Having money in an emergency fund is one of the basic principles of personal finance.
But too many people put their savings in the bank they have their checking account with.
This is a problem because the interest rate is most likely close to zero, even with many banks raising interest rates.
Why does this matter?
If you have $20,000 in an emergency fund and it is earning 0.50% in five years, you earned a little more than $500.
But put that money in an account earning 3.5%, and in five years, you earned close to $4,000.
And don’t make the mistake of thinking this doesn’t apply to you if you have an online savings account.
I have my savings with Capital One 360. But my accounts were more than five years old. In that time, they introduced newer savings accounts.
I found out my savings paid 0.30% while the “new” accounts paid 3.6%. I was missing out on hundreds of dollars.
Take five minutes to check your interest rate and switch to a better bank if yours isn’t paying a competitive rate.
#5. Not Funding a Roth IRA
A Roth IRA is a great retirement account that everyone should have.
You don’t get any tax breaks for putting money into the account, but you don’t pay any tax on the money you take out, including earnings.
This is a great way to build up your retirement savings and keep your taxes low in retirement.
While there are limits to how much you can contribute annually, putting something in this account type is better than nothing.
#6. Delay Major Repairs
As important as it is to catch things early when it comes to your health, it is also important to catch things early regarding your belongings.
If you have a water heater that is over ten years old, you might want to spend the money to have it replaced now.
It isn’t fun to spend $1,000, but that is much less than if it fails and you have a flooded basement.
Not only will you have to spend more money, but you will have the headache of dealing with the insurance company and contractors to fix everything.
#7. Not Paying Extra on Their Mortgage
Your mortgage is your largest monthly bill, and while it can be painful to write the check, it is critical you try to pay more every month.
Doing so will help ensure you don’t have a mortgage when you retire.
The benefit here is that you will need less money to survive.
For example, if you have a $1,000 mortgage payment, that is $12,000 more per year you need in retirement.
But if you don’t have this expense, you can use the money you have saved for other things.
You don’t need to pay off your mortgage in 10 years but try to pay something extra each month, even if it is rounding from $1,152 to an even $1,200.
Not only will you pay off your loan sooner, but you will save thousands in interest as well.
#8. Putting Their Kids First
It’s natural to want the best for your kids.
But too many people put their kids ahead of themselves, especially regarding money.
They prioritize saving for college instead of their own retirement.
We all know that college costs an arm and a leg, but there are options if you don’t have enough money.
You could go to school part-time or community college for a few years.
You might even get a job and see if your employer will help pay.
Then there are student loans, which can be good if used within reason.
But there are no loans for retirement. And no one wants to retire only to work to afford to live.
Finally, think about the stress you will put on your adult children when you get older and don’t have any money.
Now they have to take on those costs and their living costs.
Don’t put this stress on them. Make your retirement a priority.
And here is a bonus point. If you put yourself first and have plenty of money, you can gift your kids some money to help pay down their student loans.
#9. Not Having Estate Documents in Place
Most of us don’t want to think about passing away, but it is a reality of life.
And while putting together estate documents isn’t exciting, they are a must.
Think about your partner or kids when you pass if you don’t have these documents.
Not only will they be grieving, but they also have the stress of figuring out where all your money is, how much you had, what you want to do with your belongings, and more.
With proper estate documents, that stress is mostly gone.
They have a guide for what to do, and any only need to follow a few steps.
So while you might not be excited to get things in order, do it for the people dealing with your estate and make things easier on them.
#10. Don’t Take Advantage of AARP
Many people don’t realize you don’t need to be a senior citizen to sign up for AARP.
You can do it at any age.
And the sooner you sign up, the sooner you can take advantage of member discounts.
You can get discounts for travel, dining out, healthcare, gifts, groceries, entertainment, and more.
For many people, the savings far outweigh the annual membership cost.
#11. Not Thinking About They Want in Retirement
Too many people think of retirement as a time to stop working.
Then when they do retire, they are miserable because they don’t know what to do every day.
Take some time now and think about what retirement looks like to you.
Are you traveling? Volunteering? Enjoying hobbies?
The more detailed plan you create, the more you will be prepared when the time comes.
Plus, this level of detail can inspire you to save more.
What is more appealing, saving for retirement or so you can play golf at all the courses on your bucket list?
#12. Don’t Shop For Insurance Coverage
If you have the same insurance coverage you signed up for over ten years ago, you might be wasting a boatload of money.
Over the years, your rates increased, and while you might get discounts, you aren’t getting any discounts for being a loyal customer.
Most insurance companies offer rock-bottom premiums to new customers to get them on board.
Then the rock bottom pricing ends.
You need to shop around to see if what you pay is competitive with the market.
The good news is that this is easy to do, thanks to technology.
Now you can get multiple insurance quotes for free in minutes.
Who knows, you might be able to save $1,000 or more by switching.
#13. Not Having Someone Review Your Finances
When you are young, your finances are relatively simple.
You need an emergency fund, additional savings, and a retirement account.
But as you age and have a family, things change.
In addition to the above, you need to think about college, life insurance, long-term care insurance, if you want to leave money to your kids, and more.
This can quickly become very complex, and many throw up their hands and give up.
A better option is to talk to a financial professional.
You don’t need to have them manage your money for you. Simply pay them a couple of hundred dollars to review your finances and build a plan for you.
With this plan, you can now take meaningful action to reach your goals.
#14. Not Getting a Handle on Debt
Most people have debt.
Sadly it’s a part of life for many.
But when you are young, you can get away with it for a bit as you still have plenty of time to save and invest.
But once you hit your 40s, the clock is ticking and you have less time until retirement.
As a result, you need to get a handle on your debt and start paying it off quickly.
#15. Not Saving More For Retirement
As your salary increases, you should be putting more away for retirement.
But sadly, many people don’t do this.
They keep the amount they are saving the same. Some may even cut back.
It is understandable to see why, as having a family, a mortgage, and hobbies can add up.
But you must increase the amount you save as you earn more.
This ensures a retirement that will avoid financial struggle.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.