While you can get away with financial mistakes made in your 20s and 30s, every single mistake made in the 40s will have a major impact on the rest of your life and beyond that.
It is therefore very important that you make the right decisions from the moment you hit forty. The following are five broad financial areas to focus on that will set the groundwork for a lifetime of financial security.
Pay cash for most things
The idea is to eliminate debt except for big investments such as your mortgage and car payments. The average American household has over $14,000 in credit card debt*. Since the average interest rate for credit card debt is 14%, this means we pay on average $2,000 per year in interests alone – a complete waste of money, right? The sooner you get out of this trap by paying in cash, the more money you’ll have to build you financial future.
Create multiple streams of income
Time flies and as soon as you hit 40, it’s usually only a few more years before you’re retiring. To ensure a financially secure retirement life, consider starting a series of systematic investments and invest as much as you can. You can start with a retirement account. But don’t stop there. A few other options you may want to consider include investing in stocks and mutual, buying Treasury Bills through Treasury Direct, and investing in other vehicles.
Ensure that your mortgage is paid off when you retire
For an even less stressful retirement life, you should make arrangements to have the mortgage cleared early. You don’t want to be paying $2,000 or more towards mortgage each month in retirement. It can be a big burden. Fortunately, there are a few options here too. You can sell the current home and downsize, you can move into your vacation property, or even plan your payments in such a way that you’ll have the mortgage paid off a few years before you retire.
Write a net worth statement each year
The simplest way to go about this is to keep an assets and liabilities statement. Just make it as detailed as possible and ensure to update it each year. Even if you work with a financial planner, the net worth statement should be reviewed at least once a year. This will help you immensely in the future as you’ll be able to focus on getting your assets to overtake your liabilities.
Run a retirement calculator annually
You are always advised to save towards retirement. In fact, you need to know how much you should be saving monthly depending on your current earnings and the kind of retirement life you wish to have. Failure to save appropriately can have very painful consequences. To find out if you’re saving appropriately, run a retirement calculator every year. There are several retirement saving calculators out there that you can use.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
*Source: CNBC