7 Major Financial Mistakes to Avoid in Your 40s, According to a Financial Advisor

Set clear goals, build a cash reserve, and more advice from a man who knows his money.

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Your 20s are for making mistakes. Your 30s are for learning how to juggle the responsibilities of work and family. As for your 40s? They’re for battening down the damn hatches. Life just seems to get a bit more real when you hit your fourth decade. Your job is more serious. Your schedule is packed. You’re juggling more family issues. And not to mention your financial life kicks into full gear because of home ownership, college savings, and about 1,000 other expenses. And, oh yeah, retirement savings. Getting your financial life in order can seem a bit daunting, and, well, it is. But making the most of this important time in your life can make or break your future. Because time is running out to put in the work and ensure that you don’t make mistakes that have a long-term impact. To help you out, here are seven of the most important errors to avoid in your 40s.

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Not Having Any Financial Goals

It sounds silly, but it’s unbelievably common. Without knowing where you’re going, you very well might find yourself going nowhere. To fix this, start by not only identifying your goal but also by quantifying them (by time and value) and by order of importance. In doing so, you make them actionable. You know when you want to achieve them and the kind of resources required to make it possible. Lastly, order them from most to least important so you know which ones to tackle first. Having multiple financial goals but limited financial resources can be overwhelming. This system solves that.

Thinking It’s Too Late

Just because you’re not a kid anymore doesn’t mean it’s too late for you to get started plotting out your financial future.  Yes, things might be harder for you than a decade ago. But that’s a terrible reason not to do anything.

To combat these psychological traps, take a step back to realize that emotions and personal finance don’t mix. In fact, they tend to mess things up. This might be the perfect time to seek out a financial professional to see how you can get back on track and deal with your individual financial situation. Finding a good financial advisor isn’t all that difficult and some objective advice could go a long way.

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Not Having a Cash Reserve

You’re likely at a point in your life where you have significant and numerous responsibilities. You’re a dad, boss, homeowner, and husband. Without a doubt, unexpected expenses will arise and dipping into your retirement funds to pay them is unacceptable. Enter the cash reserve.

Ideally, you’re going to want to have three to six months of your living expenses in a cash reserve. There’s nothing sexy about hoarding cash, but boy is it useful when life happens. Look at your budget to see what you can afford to save towards your rainy-day fund each month. It might be drastic, but maybe you cut back on some of your long-term savings, like retirement or the kids’ college education, to protect yourself in the short-run.

Taking on Too Little Risk

Just because you’re starting late or a bit older doesn’t mean you should invest like you’re a senior citizen. It’s all relative. If we’re talking about investing for long-term goals (things that are 10+ years away), you still have time on your side when it comes to investments.

Start by taking the time to reassess your goals and when you want them achieved. Chances are, if you’re a little behind on things, your timeline for completing your goals is going to be pushed out a bit further too. Therefore, it may be okay to assume the same kind of risk you would take in your 20s or 30s. You know what they say, the Target 2055 fund is the new Target 2045 fund. I apologize for that joke.

Taking on Too Much Risk

Of course, the opposite is true too. People tend to overcompensate for having missed out on investing. While taking on some additional risk might not be a bad thing, taking on too much can backfire big time. Once again, this is where your emotions can end up costing you dearly because discipline and planning tend to go out the window when you’re playing catch up.

Avoid being speculative. Now is not the time to go all in on Bitcoin in hopes that a new technology will be the answer to all your problems. That might be cool for your little cousin. He can afford to take that type of risk. You can’t. Before ratcheting up the risk, ask yourself if the risk you’re about to take is worth the reward. What’s the worst that can happen? It just might sober you up.

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Lacking Life Insurance

Like it or not, the odds of you dropping dead are much greater today than they were yesterday. Moreover, responsibilities, as well as liabilities, are at an all-time high. Leaving your loved ones without the financial resources to move on is just not cool. It’s downright irresponsible. Luckily, there’s a solution for that.

It’s 100 percent not too late to buy life insurance. Sure, it might be more expensive than it would’ve been had you bought it years ago, but there’s a policy out there for everyone. Think of how well you will sleep at night knowing that, god forbid, something happens to you that your loved ones will be okay. So, check out this no bullshit guide to buying your first life insurance policy. You’re going to feel better.

Not Having an Estate Plan

Married or not, the absence of estate planning documents is a mistake. If someone needed to make a medical or financial decision on your behalf, do you want to let the state you live in choose who that is? I sure as hell don’t. What about the legacy you want to leave? Even if it’s an old baseball card collection and your MacBook, shouldn’t you decide where your stuff goes? Oh, and your minor children are technically your stuff too, so it’s imperative that the right guardians are assigned if you kick the bucket.

Go visit a trust and estate attorney right now. They will help you draft a will (where your stuff goes when you die), power of attorney (who can make financial decisions for you), and medical directives (who can make a medical decision for you). These legal documents are what I call an estate planning starter kid and if they aren’t in your fireproof lockbox, it’s best you schedule that consultation today.

Douglas A. Boneparth is NYC’s Financial Advisor for Millennials. He’s the co-author of The Millennial Money Fix and the CFP Board Ambassador for New York. 

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