Bola Ajomale, the National Association of Securities Dealers (NASD) Managing Director and Chief Executive Officer, once emphasised on this page that life is not all about returns but about stability and planning.
The financial expert, who had worked with blue-chip companies; including Ernst & Young, Augusto & Co., Canada Pension Plan, and several other companies abroad; offered useful investment advice when he said: “If you are 24 years old, I advise you buy equities. If you are 35 to 40 years old, buy a house.
“If you are 50 years old, invest in your children. At 60 years old, go and invest in bonds. It all depends on the stage you are in life.”
There are different strokes at different stages in a life time. Your 40s should be the most financially empowering decade of your life when you reach peak earning potential.
To help you make the most of this decade, here are a few common money mistakes to avoid, according to www.payscale.com
Avoid supersize mansions
Buying a house at 40 is good investment but one has to resist the temptation to rent elaborate living apartment or buying more house than one can comfortably afford.
Apart from taking on a bigger mortgage, larger homes mean more electricity costs, higher maintenance fees, and steeper property taxes, but could be profitable if on the grounds of business investment.
“I have found that among my clients those best prepared for retirement are those with the most modest homes in comparison to their incomes,” says James Kinney, a certified United States financial planner.
Saving for retirement as if younger
As you grow older, keep adjusting not only your investment portfolio but also retirement savings. Do not underestimate your financial needs in the long run.
Once you reach your 40s, income will likely peak and flatten out, while your largest expenses – housing, education, transportation, child care and health care – will only increase.
In view of this fact, experts advise that you increase retirement contributions by at least 1 per cent each workforce year. Better still, the contribution should be enough to fund the chosen lifestyle to which one has become accustomed.
Investing too conservatively
Since retirement is at about 65, you may slightly adjust your risk tolerance level to accommodate certain investments without being conservative.
Since you still have another 20 or so years ahead of you to reap potential gains from your investment choices, it is not always time to completely stop exploring investment opportunities.
“You want a moderately aggressive portfolio and you don’t really want to become too moderate until your 50s. You have to remember you’re planning for life after 65,” says Samirian Hall, President of BudgetWise Financial, based in the U.S.
Since 40s may turn out to be your peak earning year, it is important to determine the asset allocation that is right for you, even if that generally entails a good chunk of your portfolio invested in equities.
Everyone should make his/her investment choices based on his/her own comfort level with risk, financial ability, and age.
Leaving end-of-life care to chance
Death is inevitable. What happens after you are no more depends largely on the action you take before it is too late. A will may make all the difference. Unfortunately, more than two-thirds of adult deceased Nigerians did not leave any will or life insurance policy.
Once you are married, buy a home or become a parent, it becomes very important to meet an attorney to draw up a will, complete estate plan in addition to making sure you have a sufficient life insurance policy.
A living will dictates how you want your end of life care to be handled if you are too ill to communicate your wishes. With designated financial power of an attorney, these will keep your kids from squabbling over who gets what.
It ensures that someone you trust can make financial and legal decisions on your behalf if you become incapacitated, and also affords you an advance medical directive.
Tapping into retirement funds early
Avoid tapping into your retirement savings early in the day. Pulling out money before you reach retirement age can result in regrettable errors.
Even as you set and reach other financial goals, such as buying a house or helping to pay for your children’s college, it is a good idea for retirement savings to remain a priority.
If you are setting up a business and need funding, consider disposing any of your assets. You can always replace those assets with time. To this extent, no reason is enough to tap into retirement savings early in time.
Not investing in self
Since retirement is inevitable, it is important to invest in oneself at an age not later than 40. When it comes to preparing for the kind of retirement you want, your career can impact whether you can get there or not.