12 Ways 40-Year-Olds Accidentally Ruin Their Finances

You may feel your life is more comfortable in your 40s, but that doesn’t mean you should ease up on your finances.
Updated Jan. 5, 2024
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You may have lofty financial goals to hit by the time you’re in your 40s or before you reach your 50s. These goals could involve maxing out your 401(k) consistently or having sizable savings stored away in case of an emergency. Whatever you’re trying to achieve, it’s important to avoid common financial pitfalls along the way.

To avoid these pitfalls, you’ll need to take action. Making the right money moves in your 40s can help set you up for financial success for the rest of your life, so it’s essential to be actively involved with your finances instead of playing a spectator role. And be sure to avoid these 12 money mistakes along the way.

12 worst money mistakes people make in their 40s

Failing to plan for retirement

Saving for retirement takes dedication and hard work, but above all, it takes a plan. You can’t expect to reach retirement age and have a nice nest egg waiting for you if you never planned to save money.

Instead of hoping for the best with retirement, plan for the best to happen. If you don’t have retirement accounts set up, look into different options and see which ones would work the best for you. Then, it’s up to you to put away the money you need to live the life you want in retirement.

Take the time to work out exactly how much money you want to save for retirement and then calculate what you need to save each year to make it happen. This will give you a clear plan to put in motion.

Investing too little

Knowing how to invest money doesn’t mean you need to be an expert on the stock market (though that wouldn’t hurt), but it does mean you should know what investing options are available to you and how they affect your financial situation. With this knowledge, you can decide how much money to invest with any available investment option.

Be aware, investing too little into something will likely have very little impact on your financial future. For example, putting $1,000 into a traditional savings account for a child’s future college fund 10 years down the road may not be the best investment option. At the national savings interest rate of .06% (as of March 30, 2022), you’d end up with about $1,006 after 10 years.

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Investing too much

Investing too much can also be a problem. You typically shouldn’t touch the money you’ve invested for many years, depending on the investment. Otherwise, you may have to pay certain penalties or fees, like when withdrawing funds early from a retirement plan.

So if you have too much money invested, you may not have enough liquidity, or cash, to cover daily expenses. It’s a tough situation. You want to avoid early withdrawal penalties on your investments, but you need money on hand to cover the necessities. Your best bet is to find a good balance between investing enough to make a difference and having cash available in an emergency fund in case you need it.

Not teaching their kids about money

Whether we like it, money is an integral part of our everyday lives. Having a good foundation of financial knowledge can go a long way in improving your overall quality of life, so it’s best to learn about money from a young age.

You may not feel like a financial wizard yourself, but you likely have some well-earned nuggets of wisdom to pass on. If you do, share them with your kids. Talking to kids about money doesn’t have to be a full course on how to build credit, but you can share financial tips now and then that you wish you had known when you were younger.

Avoiding estate planning

Estate planning involves planning for what happens with your property after you die. You’d hope this situation would be a long way off from any age, but simply hoping for something doesn’t stop it from happening. When you finish planning for your estate, you get the peace of mind that comes with it.

You can’t start estate planning at too early of an age, but getting started with planning in your 30s and finishing it up in your 40s is a good idea. It’s especially important if you have children or other dependents because you want to make sure any inheritance, property, money, or other assets are all distributed properly. Otherwise, a court may end up deciding how to split everything.

Dipping into retirement savings

Your retirement savings exist for one reason and one reason only: to help you live the life you want when you’re retired. Of course, it’s your money and you can do what you want with it, but it would typically be a grave mistake to dip into your retirement savings early.

The penalty for withdrawing funds from your traditional IRA or employer-provided retirement account before age 59 1/2 is 10%. So if you withdraw $10,000 early, you’ll lose $1,000 of it. That’s too much money to walk away from, especially when you’re the one that worked to save it.

To avoid dipping into your retirement savings, consider using budgeting apps and putting money into savings accounts in case of an emergency. This will help you manage your finances and avoid taking a hit from an early retirement fund withdrawal.

Buying too much for their kids

Having kids often brings on a whole slew of additional expenses you may not have been prepared for. As they get older, you get more used to what kind of money you expect to spend on your kids, but it can still be difficult to control.

This is especially true if your kids start to want pricier things as they grow up. The simple toys they loved as toddlers are soon replaced by video games, smartphones, and other expensive electronics. And the costs quickly add up. Buying too many of the things your kids want can put a serious dent in your finances, especially because there’s always a new toy or gadget coming out.

Avoiding money conversations with parents

It may seem strange to have a money conversation with your parents where you’re concerned about their plans, but it’s often something that needs to be done. Many parents have planned for their financial futures and are all set with how they’re going to cover everyday costs and health care during retirement.

However, if your parents aren’t completely set financially, you’ll need to discuss with them how they’re going to pay for any costs that come up. You may need to end up helping them if you’re in a position to. Having this conversation early can help you better prepare for potential financial burdens ahead of time instead of being surprised by them. This may drive you to start budgeting and putting away savings, just in case.

Not keeping an open mind about mortgages

Taking out a mortgage is a big step for anyone because it typically involves tens or hundreds of thousands of dollars in debt. It’s exciting to buy a new home and you want to get the loan process done as quickly as possible so you can move in, but you need to keep an open mind about mortgages.

Shop around and find the best loan rates you can. Getting even a small decrease in your interest rate can offer a huge opportunity to save money over the long term. Also, it can make a lot of sense to refinance your mortgage later for a better rate, contract length, or both. Refinancing can easily open up space in your budget you didn’t know you had and provide more opportunities to work on other financial goals.

If you’re thinking about refinancing, check out our picks for the best mortgage lenders.

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Spending too much on home renovations

When it comes time to do home renovations, don’t get too crazy with the improvements. Having a comfortable, safe, and secure home is important, but consider taking a step back now and then when reviewing your house’s proposed renovations.

For example, do you really need those marble countertops? Or actual hardwood floors when laminate flooring can also work? Focus on necessary expenses, such as replacing a leaky roof or making your home more energy-efficient. These are things you need to do, and some of them can help save you money on your monthly bills.

Letting lifestyle creep take over

If your income is good and you don’t have many expenses, it’s tempting to spend your extra money on things you don’t need. As you spend more money on non-essential items, they become part of your lifestyle and you get used to them. They may even become necessary expenses in your mind.

Getting used to spending more on an inflated lifestyle is called lifestyle creep. It’s not necessarily a bad thing when you’re earning a lot of money, but that might not always be the case. You could lose your job or get into retirement and suddenly realize your income can’t sustain your lifestyle.

Instead of falling prey to lifestyle creep, use your extra funds to put away savings and investments for the future. You don’t have to live a super budget-conscious lifestyle, but focusing on the future now will make things a lot easier later on.

Not building an emergency fund

Knowing how to manage your money includes creating and regularly contributing to an emergency fund. Life is uncertain at times, which can mean you end up with unexpected expenses. Whether it’s a car accident, your washing machine needing repairs, or a tree branch hitting a window, you need to have money on hand to take care of things.

As you build your emergency fund, consider how much money would be enough to tide you over in an emergency. The amount of money you need is up to you, but you can start with any amount and slowly add to it. Keep in mind, your emergency fund is only for emergencies, so don’t be tempted to use it for anything else. Otherwise, you won’t have the money when you really need it.

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The bottom line

Your 40s are an ideal time to enjoy watching your kids grow up and potentially earning the best income of your life up to this point. They’re also a great time to plan ahead and map out your financial future. This will help you avoid being caught unprepared for the different situations many people run into later in life. So make sure you avoid these costly money mistakes now so you’re not paying for them in upcoming years.

Author Details

Ben Walker, CEPF, CFEI® Ben Walker, CEPF, CFEI®, is credit cards specialist. For over a decade, he's leveraged credit card points and miles to travel the world. His expertise extends to other areas of personal finance — including loans, insurance, investing, and real estate — and you can find his insights on The Washington Post, Debt.com, Yahoo! Finance, and Fox Business.

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