Tuesday, October 07, 2014

In your forties, most people are fairly well settled and nearing peak earning potential. Retirement and sending the kids to college still seem pretty far off. The challenge, says online consumer finance guru Mandy Woodruff, is keeping one eye firmly on the present while planning for the future.

Woodruff suggests making the most of your forties by avoiding seven common money mistakes:

Super-sizing your house – You may have outgrown your cozy starter home. Go ahead and buy a larger one. But with a bigger mortgage come bigger expenses. Take care not to buy more house than you can comfortably afford.

Putting college funds ahead of retirement savings – Parents who put off retirement saving to bankroll their kids’ education may be making a mistake. Your children may get scholarships, financial aid or low-cost loans when the time comes. But if you are not prepared at retirement, there will be few lenders willing to come to your aid.

Saving for retirement like a 20-something – Contributing 5% your 401(k) is fine when you are starting out. But it won’t be enough to fund your retirement when you need it. Financial planners suggest increasing your contribution by a minimum of 1% every year you are in the workforce.

Investing too conservatively - It may feel nice to take less risk in CDs or bonds, but putting all your money in those safer investments during your peak earning years could leave you with an insufficient nest egg. Advisors suggest a moderately aggressive portfolio at least until your 50s.

Using bankruptcy as a Band-aid – After the last recession, more than 1.4 million Americans filed for bankruptcy. But bankruptcy is a temporary solution and there are long-term consequences to consider. The best course when you are feeling strapped is to find ways to reduce expenses and eliminate debt.

Leaving end-of-life care to chance – Too many Americans active in their ‘40s ignore the reality of death. Have a will. Have a life insurance policy. Have an advance medical directive.

Treating your 401(k) or mortgage like a piggy bank – Borrowing from retirement savings or taking a home equity loan is like stealing your own security. You face steep tax penalties for early withdrawal and you miss out on years of potential gain. See a reputable financial planner for alternative ideas before dipping into these funds.

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