5 Critical Financial Mistakes To Avoid in Your 40s

Posted on by Chandan Sanwal

Life, as it is said, begins at 40. It is the time when big things like marriages, having kids and home loans are out of the way. You have climbed the big corporate ladder and entered your peak earning years. You have more money and freedom than ever before to live the life you have been working hard since your 20s.

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But making the most of this important phase can make or break your future. It’s not about feeling guilty about treating yourself with the things you deserve. It’s about being cautious of a few financial mistakes at this life-stage.

Read on to know some financial mistakes to steer clear of in your forties:

  1. Not Having a Big Enough Emergency Fund

Your 40s is that phase of life when you are likely to have significant responsibilities. At this point, you may be a parent, homeowner, and a boss. Therefore, unexpected expenses are likely to rise. Imagine losing the job when you have monthly home loan EMIs, car payments, a stay-at-home spouse, and two kids!

It’s better to give yourself peace of mind. For that purpose, keep three to six months of living expenses in an emergency fund which you could pull from in case of job loss, medical emergency and so forth.

2. Lacking Life Insurance

It’s never easy to think about what might happen to your loved ones after your demise. But then again, avoiding it isn’t a great idea either, especially if you are the only breadwinner for your dear ones. Therefore, one of the most vital steps in planning for life’s only certainty is to make sure you have ‘Life Insurance’ in place. Without one, your spouse might have to bear the financial burden alone, in your absence.

If you already have life insurance, especially a term plan, review your coverage and increase the same if required. Because it might seem tempting to ’set and forget’ about insurance, however, reviewing it is essential at every life stage to ensure that you are adequately covered.

There are many types of life insurance in India, including term insurance, unit-linked insurance plans, retirement plans etc. Also, insurers like Max Life Insurance offer many benefits with such plans including tax benefits, affordable premiums and so forth. So, make sure that you buy the best plan that suits your needs.

3. Thinking It’s Too Late to Start Investing

“I will start investing when I get a raise.” “Investing will become easy when my children finish higher studies.” If you have given these excuses to put off investing in your youth and now feel like it’s too late, don’t fret!

Just like it’s said for everything- “It’s never too late to start investing”! Start somewhere, even if you save just 2 to 5 percent of your paycheque, you will be surprised how it adds up. Once you understand the benefits of compounding and get into the habit of investing, you will find it surprisingly easy to increase that number up to 10, 15 and then 20 percent of your income.

4. Investing Too Conservatively Or Too Aggressively

With more financial security and a higher salary in your 40s, it is vital to start getting serious about investing. However, when it comes to investing, choose your investment strategy that suits your budget, risk appetite and goals.

Meaning, don’t commit the mistake of being too conservative than you need to be. Likewise, avoid taking more risks than you need to.

5. Putting Your Children’s Needs Ahead Of Your Retirement

Many parents prioritize funding their children’s higher education. And yes, it is natural to put your kids first, before yourself. This is called good parenting!

However, concern arises when you forgo saving for your own retirement in favour of contributing to higher education of your kids. But the question is- Do you really want to find yourself relying on your kids to support you during your golden days? Definitely not!

Therefore, a true gift to your children would be to adequately prepare for your own retirement along with saving for their education and other goals.

The Bottom Line

A lot can happen in your 40s, but with solid financial planning, you can maintain a comfortable financial cushion for your loved ones while creating the lifestyle you want.

So, take advantage of your peak earning years to sail the ship right. Remember that money handled appropriately can only mean more financial security and opportunities for your loved ones.

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