This is what happens with compound interest when you invest 1,000 euros at the offset and add 200 euros more each month at an annual return of 6%. The slope of the curve increases over the years and, as you can see, you still have time to take advantage of it.
Planning for retirement involves saving and investing according to a plan and not improvising as you go along. This is another of the financial mistakes made at this age: outlandish investments.
From setting up that bar you’ve always wanted with your friends to creating any other type of business based on what you liked when you were young. The reason for these investments is that at the age of 40 it is normal to take stock of your professional and personal life. Looking back, it is easy to feel that you missed that entrepreneurial experience, or simply be tired of your job. If you put this together with the feeling that almost half of your life has gone by, it will probably push you to take the leap.
And taking the plunge can be fine, but only if you’ve done the math, are clear that this is what you’re looking for, and have a financial safety net in case things go wrong.
Not having a plan for your debts
People who had debt in their 30s can easily carry this into the next decade of their lives. If this is your case, take advantage of the momentum of this change of cycle to remedy this situation.
The most typical is that these debts are personal loans for things like car or vacation, to which credit cards may also be added. Most often, the debt is under control and you may even be able to meet your payments on time. However, that doesn’t mean it’s the best thing for your finances.
Paying off your debts will immediately reduce your level of financial stress and increase your ability to save just when you need it most. To set your plan in motion, all you need to do is make a list of your debts, and choose the smallest one or the one with the highest interest rate if you think you can eliminate it in three months.
Not knowing how to plan for your real expenses
Do you know how much university costs for your children? You may have a rough idea and may even think it’s free because education is public. In any case, this is a really good example of the kind of expenses you can plan for, something you should be doing at this stage of your life.
Just as you can go ahead and save for your children’s college education, you can also plan for many other expenses that are bound to come up sooner or later. Home improvements, a new car, a new refrigerator… and even retirement expenses. If you’re thinking about a travel-filled retirement, you may not be able to afford it on a state pension, for example.
Stopping to think about these expenses will help you:
- Cope with them better, without going into debt and without them throwing your finances out of whack when they arrive.
- Not have to give things up and have everything as you would like it (because you have planned properly).
- Value them much more and not break the budget you set for them (especially in terms of consumer goods).
As you have just seen, all the money mistakes people make at 40 are easily avoided. Now you just have to do something about them or sort them out.