5 Financial Mistakes You Shouldn't Be Making in Your 40s

Don't ruin this potentially lucrative decade by making these financial mistakes.

Managing your money responsibly is crucial at every point in your life, but your 40s are the time to buckle down and get serious about it, if you haven't already. You're probably earning more money than you ever have in your career up until this point, but you probably also have more expenses. Retirement doesn't seem as distant as it once did and you might have kids whom you hope to send to college one day. 

Achieving all these goals is possible, but you can't afford to make any mistakes. Here are five of the most devastating errors to avoid.

1. Not increasing your emergency fund with your spending

If you have an emergency fund, you're doing better than the majority of Americans, but you can't just create one and then forget about it. This money is what's going to keep you out of debt if you have a medical emergency, an unexpected home repair, or a job loss, and neglecting it could be devastating. What might have been enough to get you by for three months when you were young and single probably isn't going to be enough to support a family for an extended period of time. 

As your salary and your household expenses grow, you must increase your emergency fund accordingly. Your goal should be three to six months' worth of living expenses. Keep in mind that even if your income and expenses haven't changed, inflation might drive up these costs over time. Reevaluate your emergency fund at least once per year and always replenish anything you take out of it following an emergency.

2. Treating your home equity like a piggy bank

The average American buys their first home at 32, according to the National Association of Realtors, and by the time they're in their 40s, they've most likely accumulated some equity. Every little bit gets you closer to paying off your mortgage, but not if you're continually borrowing against your home equity to finance large purchases like a car or vacation. Avoid tapping your home equity if you ever hope to get rid of your mortgage, unless you're using it for things like home repairs that might increase the value of your home when you sell it.

You're better off saving up for vacations, cars, and other big-ticket items on your own in a savings account. You might have to cut back on discretionary spending or work a little extra in order to make that happen. Create a budget to help you track your spending, locate areas where you can cut back, and figure out how much you can reasonably save each month.

3. Ignoring your health

When you're young, your body can bounce back from most unhealthy choices, but this becomes more and more difficult as you age. Failing to take care of your health in your 40s could lead to serious problems in your 50s, 60s, and beyond that could end up costing you tens or even hundreds of thousands of dollars in doctor visits and prescription medications. 

You'll never have complete control over what health issues arise, but you can give yourself the best shot at a healthy life by eating well, exercising regularly, and avoiding bad habits like smoking. You should also plan for future healthcare costs by saving in a health savings account (HSA) if you're eligible for one. If not, save at least enough to cover your health insurance deductible with your emergency fund.

4. Stagnating professionally

A PayScale study found that full-time workers with bachelor's degrees tend to earn the most money in their 40s and 50s. Women tend to peak around 40 while men can peak as late as their early 50s. Some of that comes down to job choice. Men are more likely to choose jobs like engineering and software development positions where there's more growth potential while women are more likely to choose jobs, like teaching, with less growth potential. 

You might not be planning a drastic career change at this stage of your life, but it doesn't hurt to make new long-term career goals. Consider investing in further education or professional development courses or starting your own business if that's something you've always wanted to do. This will take time and money, but you could be rewarded with a more fulfilling career and a larger income if you persevere.

Don't just coast through your 40s. Use this time wisely to plan for your future so the next few decades are just as enjoyable as this one. If you're guilty of any of the above mistakes, correct them now before they can wreak serious havoc on your finances.