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Although I’m frugal for the most part, I haven’t always managed my money well. While in college, I maxed out my credit card and struggled to pay off the debt. I’m also in the process of paying off my student loan debt, and I learned from my mistakes. I have a daughter now, and as I approach my 40s, it is important that I be wise with my finances. I want to leave my daughter with a decent inheritance, and teach her by example. Here are some financial mistakes to avoid in your 40s.
Focusing Too Much on Kids’ College Education
While there’s nothing wrong with putting aside money for your kid’s college education, you shouldn’t focus so much on this goal to the detriment of your retirement savings. Your child can apply for numerous scholarships, obtain student loans, attend trade school instead of a university, or start a home-based business to build a strong career. When you don’t have adequate retirement savings, your children will have increased expenses in caregiving as you get older.
Not Investing Enough
This is an issue that I’m trying to rectify now. Many people do not invest enough when they’re in their 40s, and it could lead to financial problems after retirement. Your 40s is the time when you need to invest liberally. It is hard to invest when you’re in debt, so it’s important to eliminate as much debt as possible to free up funds for investing. In addition to your 401K or Roth IRA plan, there are other ways to invest.
One option would be a dividend reinvestment plan. With this plan, you’re able to purchase stocks from a company without the broker as a middleman. You can invest as much or little as you wish, and any dividends you earn can be reinvested so that you will earn even more on your investments. You can also buy more stocks due to the dividend reinvestments. There is also the option of receiving your dividends directly into your checking account.
Another idea would be to invest in exchange-traded funds. They are similar to traditional mutual funds, but you don’t need to go through an individual mutual fund manager to purchase them. ETFs are funds that track indexes such as the NASDAQ-100, Dow Jones, and the S&P 500. You’re buying shares of the portfolio that tracks these indexes. In addition, certain ETFs don’t cost a lot to purchase. In addition, you can gradually watch your money grow.
You can invest by starting a home-based business. You’ll earn a decent income for yourself, and you can put some of your profits towards retirement savings, giving to others, or the purchase of an affordable home for your family. When starting a home-based business, think about a service that is both profitable and that you’re passionate about. Purchase web hosting and build a well-designed website.
Buying a Home or Car You Can’t Afford
When you’re in your 40s, you might be riding high professionally. Your income is increasing, and some of you are in leadership positions at work. However, don’t let the success cause you to make bad spending decisions. You might earn enough to buy a $300,000 home but this doesn’t automatically mean you should buy it. If you want retire in ten years, it would not be wise to buy this home because it might eat up your retirement income. Make sure that you spend money wisely while still enjoying the fruits of your labor.
Ignoring Life Insurance
If you have children or other dependents, it is important that you purchase life insurance. While you might live a long life, you want to be prepared in the event you pass away. A while back I wrote a post titled Prepare Loved Ones for Your Death Financially with These Tips. This gives more in-depth advice on what you can do to get your finances in order before your death. Term life insurance is generally recommended for several reasons. It is cheaper than whole life insurance, and also because you can get coverage between ten and thirty years depending on your needs. If you have a mortgage or kids still in college, it would be a good idea to buy enough insurance to cover those expenses should you pass away.
Not Teaching The Kids Financial Literacy
If you don’t want to be your kids’ATM forever, then don’t make the mistake of not teaching them proper money management. Your kids need to understand that they are not entitled to everything they want, and that hard work is important in achieving financial independence. If your kids are little, open a savings account for them and have them put part of their allowance or extra money they get into the account. Help your teenager obtain a part-time job and then make them responsible for their own clothes, phone bill, and any miscellaneous things they might want. Talk to them about the importance of saving for retirement as adults, and discuss the difference between wants and needs. It’s also necessaary to talk with your kids about using credit cards wisely and responsible borrowing.
Not Having an Emergency Fund
When you don’t have an emergency fund, you are prone to getting in debt with credit cards or personal loans. Job losses, health issues, death in the family, or a natural disaster can strike at any time, and you want to have enough savings to get you through those rough patches.
Failing to Boost Income
Maybe you’re in your 40s but your career and income are stagnant. You worked in the same industry for years, but now it seems that this field will soon become obsolete or require additional training. Now is the time to reevaluate your career and decide on a new path if it’s necessary to increase your income. If you spoke with your boss about a promotion or raise but things haven’t changed, it is time to seek new employment. Another option would be to start a side hustle that could become a business later on. When you increase your income, you improve chances of financial stability.
Being Lackluster About Your Health
Improper care for your body is costly because it could result in surgeries or high-priced medications. Even if you have good health insurance, there are certain procedures or exams that might not be covered under your policy. You should also review your health insurance policy to ensure that the coverage meets your needs. Eat healthier foods and get in some physical activity a few times each week.
In conclusion, when you avoid these mistakes, you can enter your 40s with confidence and live a financially satisfying life.