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5 Top Money Mistakes Made in Our 40s and How to Avoid Them

, by Rob Kaufman

Some people refer to their 40s as the "prime" years... some as "middle aged" and others as "the sandwich years" (taking care of both children and parents). Whatever you decide to call them, be aware that it's a crucial time to make sure your financial future is on track.

As you enter your 40s, you're getting closer to retirement. That means you need to carefully monitor your finances and be as confident as possible in the money decisions you make. There are a quite a few common financial mistakes you might be prone to make in your 40s. Some of them are similar, and even the same, as those made in your 30s and 20s . But for now, let's stick with the top 5 money mistakes often made in the "prime" years...

  1. Not increasing retirement savings

If you're in your 40s, there are times you've probably realized how quickly time has passed and how your personal and financial needs have changed. With retirement around the corner (remember how quickly time passes?), you can't continue to save as though you're in your 20's or 30's. It's time to start saving like you're going to be living off that money... because you will.

Unfortunately, some people find out they haven't saved enough after they're in their mid- to late-60s. That's why it's so important that during your 40s, when your income is most likely to peak, you should try to increase your retirement contributions each year you're still working. If you can do this, you'll be in much better shape come retirement.

  1. Using your mortgage as a cash machine

A Home Equity Line of Credit (HELOC) is great to have in times of emergency. Since HELOC interest is typically lower than that of credit cards, it could be a less expensive option to help fund major expenses or refinance higher interest debts.

A mistake some people in their 40s make is to use a HELOC to enhance their lifestyle (i.e., a more expensive car) or purchase things they might not actually need. Over time, the amount of money taken out on the HELOC grows, along with the minimum interest payment. The line of credit then turns into another hefty debt. It's usually best to use a HELOC only when necessary and when you know you can pay it back quickly and with as little interest as possible.

  1. Conservative Investing

You might have noticed that this is a repeat of a mistake we sometimes make in our 30s , but make no mistake (pun intended), it can also be a problem in our 40s. You may still have more than twenty years of investing ahead for you to maximize gains. Changing to an investment strategy in your 40s that is too conservative could quite possibly cut your profit potential. Your 40s are a time when you're likely to be making the greatest amount of money you've made during your career. So make the most out of it by monitoring your portfolio to help ensure you're maximizing gains.

  1. Small Emergency Fund

We hope that as we get older things will get a little easier - we'll have steady income, some debts will be closer to being paid off, the kids are taking care of their student loans, etc. Unfortunately, things don't always go as planned and unexpected occurrences throw us off course. It's for these times that an adequate emergency fund is crucial.

Back in our 20s, when we had fewer responsibilities, an emergency "stash" of a few thousand dollars could hold us over for a while. In our 40s, not so much. You might have a mortgage, a car payment (or two... or three) and children in school, just to name a few financially-taxing obligations. Give yourself some peace of mind with 3 to 6 months' worth of living expenses at your disposal. You can keep this emergency fund in a higher-interest-bearing account from which you can take your money without penalty if you should lose your job or an emergency situation arises.

  1. Buying too much house

If you're in your 40s and living in a house, you might feel that it's time to "upsize" or buy more house to fit your family's needs. Two questions to ask yourself (and your spouse) are, "Is getting a larger home a necessity?" and, "Can we really afford it?"

Other than getting more space and possibly better amenities, what else are you getting? A bigger mortgage...higher monthly costs...more property taxes? Such additional costs could mean more sacrifices. For example, you may have to decrease your monthly savings, which could mean less money for retirement. If you have children and planned on saving money for college, the amount of money you can contribute to that fund may also decrease. Think carefully before taking the plunge. More house could result in less of otherimportant things in life.

See how other myFICO customers have worked to avoid these 5 major money mistakes, no matter what their age. Visit myFICO forums to get some good tips and advice.

Rob Kaufman

Rob is a writer... of blogs, books and business. His financial investment experience combined with a long background in marketing credit protection services provides a source of information that helps fill the gaps on one's journey toward financial well-being. His goal is simple: The more people he can help, the better.