As we get older, we feel that we have learned from our mistakes and experiences and we become pretty confident in our decision making. We have lived through the lean years and found a way to get by and now we are saving for the future and beginning to really enjoy life.
We still feel young at heart and are living like we have many years before we will need to survive off of savings and retirement funds.
But the truth is that many 40 somethings are still making a few critical financial mistakes that could cripple their opportunity for a comfortable future. Money mistakes people make in their 40s can be very costly.
College VS Retirement
As parents, you have spent nearly two decades putting your child’s needs before your own. So when it is time to explore ways to fund a college education, you naturally feel some responsibility. With more than half of all high school graduates attending college, that means there are a lot of parents out there who are feeling the burden of paying for this continued education. After all, how is a teenager going to pay the $15,000 or more than a year in college costs? The answer could be any one of a number of ways such as a job, savings from summer jobs, scholarships, grants or even a student loan. But parents hate to see their children going into debt so young so they offer to help out or even foot the entire bill. And in all too many cases this means ignoring saving for their own retirement. Parents even knowingly choose to delay their retirement for a few years to help fund college for their children. But what they are failing to see is that children can get low interest loans for education while there are no loans available to fund retirement.
Having Too Much Fun
After years of living on a tight budget, it is understandable that with fewer expenses and large incomes, 40 somethings want to enjoy the fruits of their labor. In many cases, children are older and travel becomes a not so difficult adventure to plan. Nicer meals out and luxury items also begin to become the norm. The days of a big night out being a pizza and a few beers are replaced with fine dining and entertainment. All of this is well earned but it is important to remember that everything can be good as long as it is in moderation. Your 40s are typically the years when your income has grown substantially or might even be at its peak. These are also the years when you should be most focused on saving for the future and for retirement. Taking an occasional nice vacation is well deserved but be sure to have a budget that includes a good savings for your future. In that same vein, don’t over invest in home renovations and remodels. You might have a long list of dream renovations but be sure to keep within the value of your home and your neighborhood. Over investing in your home is like throwing money away. Do renovations that will provide a good return on investment. If you simply can’t live with your current home then consider selling but never spend more on renovations than you can recover when you sell the home.
Being in your 40s is a strange middle ground for many people. You are not feeling old yet, just mature and smarter. So you think that bad things will never happen to you. You are too young for health issues or for being laid off. So you happily cash your growing paychecks and spend little or no time planning for the future and for a rainy day. Most consumers in their 40s have not increased their life insurance or reviewed their health insurance to make sure that they have adequate coverage. And sadly, the only time they realize this is when it is too late. Even a short stay in the hospital can easily cost $50,000. And if you have a huge deductible or only very basic medical coverage, then you could be paying on that medical bill for many years. Likewise, most 40 somethings don’t have much of an emergency fund tucked away in case something happens to a car, their home or even worse, their job. All of the financial experts recommend that you have at least enough saved to cover six months of your bills. But less than 10% of all consumers have those finds tucked away. A huge bill in your 40s could mean that you are making payments almost until you reach retirement. Or in the worst case, it means until you reach what you thought was retirement, but now you can’t afford to retire.
Be Wise in Your 40s
With some of your greatest earning potential coming in your 40s and 50s, you need to be smart about how you spend your money. A huge increase in your standard of living now could result in delaying your retirement or an awful retirement full of part time jobs and clipping coupons to make ends meet. You also need to come to terms with the fact that as your children become adults, they need to also become financially independent and find a way to pay for their own college education if that is important to them. They have far more options to pay for college than you will to pay for retirement. Understand that if you don’t have money for retirement, then you could be forced to rely on your children to support you. All you are doing is delaying the time when you child pays a bill. Help them learn at a young age to be financially independent and smart with their money. Show them that it’s important to plan for and save for the future. It is a lesson that will serve them well. Avoid the money mistakes people make in their 40s and you will be able to enjoy your golden years without having to worry about your finances.