Each stage in life brings a new wave of financial responsibilities that cannot afford to be ignored. If you live your 40s the same way that you did in your 20's, with no real financial plan, then you’re bound for serious trouble ahead. Here are the top 5 financial mistakes that you should avoid in your 40s, enabling you to achieve financial security and a stable future.
1. Purchasing a Home Beyond your Budget
Countless Americans in their 30s and 40s make the costly mistake of purchasing a more expensive home than necessary, which can have disastrous consequences on the rest of your personal finances. Spending more than you can afford on mortgage payments may prevent you from saving sufficiently for your retirement, and this is without factoring in the expensive costs of maintaining a large house. A more financially savvy decision would be to live in a modest home while ensuring that you can plan for retirement and avoid falling into credit card debt.
Keep Reading: How to create a successful personal budget
2. Squandering your Retirement Fund
If you start tapping into your retirement fund in your 40s, you’re going to have a tough wake-up call once retirement is on the horizon. This is a period in your life when saving for retirement is essential, and if you start spending your assets now, there won’t be anything left when you need it the most. Your IRA or 401(k) should be considered untouchable until you reach retirement—don’t make the mistake of viewing your retirement fund as disposable income.
3. Not Having an Emergency Fund
Even if you were able to wing it during your 20s, living without an emergency fund at this stage of your life is grossly irresponsible. It’s impossible to plan for every curve ball that life throws your way, but without an emergency fund, you’ll have no flexibility when facing a crisis such as a job loss, doctor bills, or death in the family. Only an emergency fund will enable you to confront life’s challenges head-on without spiraling into debt from which you may never recover.
Keep Reading: Emergency funds: why you need to start one
4. Neglecting Life Insurance
Your needs and responsibilities change drastically as you age, and this should be reflected in your life insurance policy. Maybe you were able to coast through your 20s and even some of your 30s without a life insurance policy, but if you have children then it’s critical that you have taken out a policy which protects their future if something happens to you. The optimal policy depends on your particular financial circumstances and responsibilities, but everyone should have one.
5. Spiraling into Credit Card Debt
At this point in your life, credit card debt is something that must be avoided at all costs. Spending frivolously and adding to your existing credit card balances will severely inhibit your ability to save for retirement. It’s not sufficient to simply make the minimum monthly payments on your credit cards each month and hope for the best. Sit down and form a concrete plan which allows you to pay off all of your balance as quickly as possible so that the interest payments don’t end up consuming all of your retirement money.
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