- Date : 23/05/2020
- Read: 4 mins
If you are hitting the 40s, then these are the financial decision-traps that you should avoid, in order to secure your financial future.
Youth is not the only age when people make financial mistakes. By not starting with financial planning early, youngsters can look back at their follies with regret in the decades that lie ahead. But even at a more mature age, people may take decisions or develop habits that can jeopardise their financial future. This may happen out of compulsion or just by losing sight of the bigger picture of a financially secure future. Here are some of the money mistakes that people make in their 40s:
1. Not planning your money
You may be earning very well, but if you don’t earmark portions of your income for the future in a planned manner, the chances are that the income will just fizzle away, leaving you unprepared for the future.
2. Keeping a high-interest debt
If part of your dues include debts where a high rate of interest is charged, your priority should be to pay the debt off at the earliest. So, if you are saving some of your money and continuing the high-debt interest, you are actually losing money in terms of the interest cost.
3. Building an emergency fund
The size of your emergency fund that you envisaged a decade would no longer apply once you take inflation into account. With passing age, the possibility and nature of emergencies also evolve. An emergency fund of a 20-year-old could be a few months’ worths of savings to see through a period of unemployment. But, in your 40s, you have to increase the size of your emergency fund to factor in your family as well.
4. Retirement planning
The retirement saving and investment plans that you initiated a decade ago may not stand the test of inflation today. You have to continuously monitor how well your retirement corpus is growing and whether it needs any supplementary savings to strengthen your post-retirement corpus.
5. Unmonitored expenditure on children
Spending on children can be the most satisfying feeling for any parent. But by the time you are in your 40s, your child’s expenses are going to increase. Expensive school trips, the constant pestering over the first bike etc. You have to prioritise these and make sure you don’t break the piggy bank while trying to fulfil all of them.
6. Insufficient insurance cover
Many of us may have taken term insurance while starting our career and relied on the office’s health insurance for health cover. However, as you grow older, it is obvious that your insurance cover must increase to meet your family obligations, as should the extent of your medical cover. Sudden medical expenses can deplete your emergency fund significantly.
7. Realising it’s never too late
It may sound more like a philosophical mantra, but even in money matters, it stands true. For example, if you have never invested in public provident fund, you can start even now and continue it for a minimum of 15 years.
8. Household renovations
Building your dream home, renovating it or moving into a bigger one are typical aspirations for people in their 40s. But you have to look at the pragmatic side of it too. Parting with a large chunk of cash or taking another loan will have financial repercussions. So fulfil your aspirations, but only to the extent that your disposable income can meet them.
9. Trying to keep up with peers
The 40s are the age when people start becoming more important, and soon enough peer pressure builds in. This race, also known as “Keeping up with the Joneses”, can lead to an erosion of wealth and a series of unnecessary expenditures.
Related: 7 Pillars of financial planning
10. No estate planning
The 40s is also the ideal time to give estate planning due consideration. If the unthinkable happens, it is your will that will protect the rights of your family. A will also eliminates the possibility of someone unrelated contesting and claiming the estate. Without a will, your estate may not be inherited in the manner you wanted it to be.
The risks and responsibilities of a person increase with age. Take a look at this financial planning for beginners: A 7 step guide to know what are the pitfalls and traps that can unsettle a person’s finances and avoid them at all costs.