Your 40s are an important time in your financial journey. Numerous reports indicate your 40s and early 50s are your best earning years in your career. Pair that with increasing expenses, if you have a family and/or mortgage, and it’s essential to make wise decisions.
You still have time to make solid progress, but making certain money mistakes can set you back if you’re not careful. These are 11 missteps to avoid making in your 40s.
Table of Contents
Not Funding Your HSA
A Health Savings Account (HSA) is an incredible tool to manage expenses for healthcare needs. Think of a HSA as similar to an IRA but for your health needs.
You can contribute up to $8,300 as a family or $4,150 as an individual in 2024 to your HSA. And contributions are tax-deductible. Ignoring it can cost you in the long term.
With the average 65-year-old couple spending $315,000 on healthcare needs in retirement, it’s time to start saving.
Forgetting Your Retirement Planning
It may seem like retirement is still far off. Unfortunately, once you hit your late 40s you’re closer to retirement age than your college years.
Now is the time to start saving as much as possible. Take advantage of the 401(k) match through your employer. Open and fund an IRA.
Look for alternative investments. Time is the best gift you can give your money, so do your future self a favor and start investing.
Avoiding Getting Fit
No one is guaranteed good health in retirement. However, you can take steps now to improve your health now and for the future.
Look for simple ways to get fit. Even if it starts with walking around your neighborhood, start with that.
Netflix also has exercise videos. You don’t need to spend a lot of money to get fit.
Growing Your Debt
As your income grows, it’s easy to supersize your spending. Debt erodes wealth, especially when it’s in the form of credit card debt.
If you’re in debt, work on a plan to eradicate it. Revisit your budget and identify ways to cut back. Take the savings and apply it to your debt.
Not Growing Your Emergency Funds
A retired couple should have at least 12 months’ worth of living expenses in savings. That amount will be even more insurmountable if you start saving today.
Choose an online bank, such as CIT Bank, that pays high interest and has no fees. Then, set up an automatic transfer. It makes saving that much easier.
Avoiding Creating Multiple Streams of Income
The average millionaire has at least nine streams of income. You don’t necessarily need to have that many, but having multiple optimizes your finances.
Your paycheck is one stream. Investments outside the stock market can be another. Identify opportunities that work for you and start attacking them.
Not Starting a 529 Plan For Your Children
Retirement planning comes before saving for college needs your children will face. That doesn’t mean you need to ignore college planning, though.
A 529 Plan is a fantastic way to do it. Contributions are tax-deductible in many states. Your children can withdraw funds for qualified educational expenses tax-free.
Friends and family members can contribute to plans too.
Being Too Risk Averse
Risk can be both good and bad. I regularly speak with people who become too risk-averse in their 40s. Unfortunately, it can mean their investments won’t grow as much.
You don’t want to take on too much risk, but there’s certainly a wise level to seek. If you’re concerned, speak with an advisor to create a plan for you.
Not Creating a Will
It’s inevitable. We will all depart this world at some point. If you have someone you love or depend on you, a will is one of the best things you can do to care for them upon your demise.
Unfortunately, studies show less than 40 percent of adults have wills. If that’s you, it could pose significant problems if you have an untimely passing.
Creating a will isn’t that expensive and there are numerous legitimate websites that help you do it for an affordable rate.
Few people like to think about it, but we’re not going to live forever. What would happen to your family if you were to have an untimely death? Are you the sole income earner in your home? Do you have multiple children?
These questions, and more, are important to ask yourself. Life insurance is often the best tool to provide for your family in the event of an untimely passing. As you age, the more expensive it is to purchase so it’s best to act sooner rather than later.
Don’t overlook other insurance products, such as disability coverage as you may benefit from additional coverage.
Raiding Your Home Equity
You may want to do a serious upgrade to your home. However, the only real resource is the equity in your home.
It’s best to tread lightly with your home equity. You put your house on the line and you incur fees. There may be a good time to do it but do your due diligence first.
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I’m John Schmoll, a former stockbroker, MBA-grad, published finance writer, and founder of Frugal Rules.
As a veteran of the financial services industry, I’ve worked as a mutual fund administrator, banker, and stockbroker and was Series 7 and 63-licensed, but I left all that behind in 2012 to help people learn how to manage their money.
My goal is to help you gain the knowledge you need to become financially independent with personally-tested financial tools and money-saving solutions.