5 Money Mistakes to Avoid in your 40’s
Ways of handling and approach towards finances changes with age. In 40’s, following money mistakes should be avoided:-
1] Buying more number of Homes than You can Afford –
When your income finally feels stable and strong for the first time in your life, it’s tempting to upgrade your lifestyle. Many people choose to do that in the form of new houses, often signing up for a big fat loan along the way. This is a big mistake.
Avoid expensive homes until you’re at a financially secure point where you don’t have other debts you’re facing and can easily handle the extra expense even if you were to lose your job, is advisable. Many people don’t realize the true cost of homeownership and find themselves in financial trouble after they’ve taken that step.
It’s tempting to opt for more square footage, a larger garden, and a developed neighborhood. But this means a bigger home loan, increased maintenance costs, and high property taxes. Houses aren’t great investments, so you should be realistic about your budget and avoid tying up all your savings in your home.
Here are few reasons why Real Estate is not a great investment option –
- Difficult to sell when the need arise
- Very low rental yield (3-4% max)
- Low liquidity
- A litigious asset class
- Difficult to track the value
- Difficult to manage
2] Overspending on Your Kids –
Parents tend to overspend on expensive cribs, bottles, clothes, and nursery accessories. You want to raise your child in a comfortable environment, but there are bound to be unexpected costs to arise.
Its hard to say no to everything your kids’ desires and you really do want to provide those things — not just because you love your kids, but because their friends’ parents are your friends and neighbors, and there’s pressure for you to fit in. Sometimes peer pressure and keeping up to social standards are the main reasons for overspending on kids.
For example, deciding a certain budget for your child’s birthday gift but buying gift almost double the budget just because your child asked for it and you could not say no or could not explain the reason for not buying the gift. This could lead to become a habit, not just in terms of gifts but in general spending patterns, which will have sever effects on your finances in the long term.
This is a good time to reassess your money values and teach your kids about creating their own value system. That way, the whole family is spending money and time on what really matters to each of you.
3] Not Saving for Your Retirement –
After decades of working hard, you’ll be ready to retire. If you’re in your 40s, then you should probably start saving for retirement.
This is actually a great idea because the earlier you start saving for retirement, the more money you’ll earn on your deposits due to compound interest on your savings. Another great option is to invest your saved money in instruments that suits you and gives you desired interests.
If a 40 year old is planning to retire at 60 and is expecting Rs. 50k/month (today’s cost) expenses every month after retirement – then he/she will need approx. Rs. 5.5 Crore corpus at the age of retirement!
4] Not having a big Emergency Fund –
Emergencies can strike any time. With an emergency fund in place you will be financially better prepared to face such situations. Although, there is no thumb rule, a sum equivalent to 6-12 months of expenses should be kept in the emergency fund. The fact is that emergencies really do happen, even if you don’t own much and you’re healthy.
As your family and commitments grow, so does your need to plan for unexpected emergencies. You have increased responsibilities and your emergency fund should reflect that. Adjust the size of the fund corpus and plan to have about six month’s worth of living expenses, including loan payments, put away in a safe place that you won’t be tempted to take back from.
5] Not Writing a Will or Doing Estate Planning –
People have to lunge through their parents’ estates while grieving their loss. It’s essential to create a plan for supporting your family, if you pass away or are injured and can no longer work.
Doing the work now will spare your spouse and children a lot of pain. Work with an estate attorney to create a will, and consider the best ways to leave money to your heirs or charitable organizations. It’s important for both spouses to be active participants in their family’s financial planning.
Some reasons why writing a will and estate planning is important –
- Avoiding Conflicts & Fights
- Protecting the Beneficiaries
- Reducing Estate Taxes
- Protecting Assets from unexpected Creditors
Your 40’s can be a wonderful time of life when your family grows, alongside your income, travel, household items and future possibilities. By making sure you avoid these common money mistakes, you’ll quickly take charge of your finances and still have plenty of time to achieve your financial goals.