6 Money Mistakes to Avoid in your 40s

Money Mistakes You Shouldn't Make in Your 40s

Your 40s are an exciting decade as your children might be preparing to move away from home, you are near the top of the corporate ladder at work, and you might finally have a large disposable income that allows you to spend a few extra dollars on yourself. As this decade will serve as a transition from being a parent to thinking more about retirement, avoiding these money mistakes can keep your finances on track.

Invest Too Conservatively

Pitfall: The 40s are probably your peak earnings decade, and you still have 10-20 years before you retire. Some 40-year-olds adopt a conservative investment strategy too soon.

Due to your high salary and lack of bills like student loans and a large home mortgage payment that consumed a large portion of your salary during your 20s and 30s, you have more money to invest in your 40s than ever before! While you might not be as aggressive as a 20-year-old, you can still invest mostly in stocks.

Solution: You need to choose an investment strategy that complements your risk tolerance, but, you should be able to invest at least 70% of your investment portfolio in stocks. Also, try to invest at least 25% of your income to max out your retirement accounts every year.

Expensive Home Remodels

Pitfall: Now that the house is paid in full or you are getting ready to buy a “retirement home,” you might want to pay for an expensive home remodel or upsize to a larger home.

While your home might need necessary upgrades like new flooring, windows, or paint from normal wear and tear, you might want to think twice about doing an expensive remodel or buying a new house to finally live in your dream house. A larger home means higher property taxes, utilities, and insurance payments.

Also, when your children move out in a few years, will you really need the additional square footage? Just something to think about.

Solution: Do make necessary repairs and upgrades that can help improve “curb appeal” if you plan to sell or want to improve the living conditions of your house, but, do not sacrifice your retirement fund or life savings to improve your house as the financial return on investment isn’t guaranteed.

Putting College Before Retirement

Pitfall: Parents want their children to enter the workforce debt-free pay for their college degree when they cannot afford the expense themselves.

College is more expensive now than it has ever been. With noble intentions, parents take out student loans or “borrow” from their retirement savings to pay tuition. Parents busy paying back the loans or their retirement funds may have to delay retirement or “move in” with their children to afford retirement.

Solution: If helping pay for your child’s college diploma is an important goal, contribute what you can and have them pay for the rest, even if it means co-signing their student loans. Use the Personal Capital retirement calculator to see how much you can afford to divert from your retirement contributions and still reach your retirement goals on time.

Not Building an Emergency Fund

Problem: Perhaps you neglected to build a large emergency fund to focus on getting out of debt, paying for family activities, or simply living a paycheck to paycheck lifestyle.

Several times a year, a study is released showing that too many Americans would have to go into debt if confronted with an unexpected expense as little as $500. Just because you might be in your peak earning years doesn’t mean you don’t need an emergency fund.

Life might be more complicated now than when you first graduated college as you have a family, a house to maintain, and maybe even the occasional doctor visit for aches and pains. You need an emergency fund that can absorb six months of living expenses if you were to be out of work.

Solution: Talk with a financial advisor or use a budgeting app like Personal Capital to make a savings plan to build up your emergency fund. If you have nothing saved for an emergency, first start with saving $500 and gradually build up to six months. A good savings target is $100 until you get into the habit of saving and can reduce your unnecessary expenses as much as possible.

Ignoring Your Health

Problem: Your body starts to wear down each decade of life and you are no longer as invincible as you were in your 20s.

When you turn 40, doctors will recommend more preventative exams and procedures. These annual physicals and routine exams can help prevent more expensive medical procedures in your future years.

Solution: Go to the doctor regularly. Also, engage in healthy behaviors like regular exercise and avoid junk foods to potentially prevent ailments. Being proactive in your younger years can save you a lot of money in the future. Consider opening an HSA (Health Savings Account) to pay for medical expenses tax-free.

Stagnating Your Career

Problem: You might think you no longer have to climb the corporate ladder after “paying your dues” during your 20s and 30s.

Your 40s and 50s are your peak earning years and it can be ample opportunity to look for new promotions that can boost your salary. If you don’t like your current job and can afford a career transition, you are still young enough to change employers and work a job you enjoy for your remaining working years.

Solution: Firstly, if you are happy with your current employment situation and are on-track to accomplish your money goals, don’t make any changes. If not, consider seeking a promotion now that the children might be old enough to work longer hours. Or, also look at switching employers are taking up a side hustle to make a few extra dollars in the evenings.


Some people call your 40s the “Sandwich Decade” because you have usually established your career at this point and are no longer a new parent. But, your children probably haven’t moved out quite yet and you still have two full working decades remaining. Use your 40s to catch up from your cash-strapped 20s and 30s, and, you still have time to be aggressive with your investments and savings to pursue your financial and personal goals.

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About the Author Josh Patoka

Leave a Comment:

Steveark says July 11

That is all so well said! In my 40’s, 41 actually, I promoted into a top job at my company and broke into solid six figure income territory. I also kept the 401k maxed and 100% in stocks. My kids were all earning free rides in college with high ACT scores and great study skills and I was well into distance running and competitive tennis. Now in my early 60’s I’m retired, financially independent, all kids graduated debt free and my wife of nearly 40 years and I are still into distance running and competitive tennis. We didn’t upgrade the house in our 40’s except with affordable remodeling and add-ons and got it paid off completely before we hit 50. We bought our cars with cash and did not owe anyone a cent after the house was paid off. Now early retired and very happy with no stress and more money than we need life is pretty good. I realize I owe a lot of my present contentment to my 40 year old self who , somehow, resisted the urge to inflate his lifestyle when his pay went up and decided he was going to get and stay fit. Great article and from where I am now I firmly believe you are telling it like it is!

Chris says July 22

I think that the comments on housing are spot on. There are many people who own nice houses. They renovate, and expect the value to go way up. They become house poor and can’t save or invest for the future because all of their net worth is tied up in a McMansion.

Heather says November 16

Thanks for writing a piece actually aimed at those of us in our forties. Sometimes I think that Gen X is going to end up to be the lost generation. It seems like 90% of content out there is aimed either at those perky Millennials or the Boomers who just won’t go away.

My husband and I are aiming for at least partial FI in the next five years, despite our late start. Our dream is that once the last of the kids are in college we can start travelling and live on a combination of savings and a significantly reduced income (we both work remotely, so we can hopefully maintain our current jobs but just slash hour hours).

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