Midlife Car Buy: Red Flag or Green Light? Plus, 15 Financial Traps in Your 40s to Dodge

Investing in your future is more important than ever, especially in the age of zero-hours contracts, gig economies, and digital nomadism. However, some of us may still be late to the game, waiting until our forties to start our financial action plan. What tips can a middle-aged investor take into their methodology?

#1. Lifestyle Creep

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We all feel tempted to live further beyond our means when more income arrives, but lifestyle creep will destroy any chance you have at financial freedom. If you have $5,000 per month available to invest in your forties, don’t spend any of it trying to justify needless luxuries — especially those designed to inflate status.

#2. High-Interest Debt

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In our forties, we may still have some debts, such as student loans or credit cards. Getting credit is hard if you have little to spare, and a bad credit record will also increase your interest rates on bank loans. Ensuring your healthy credit score will give you the most competitive interest rates.

#3. Eschewing Health Insurance

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Once we hit those golden years, our bodies begin their slow decline, where we heal slower, move more cautiously, and have delayed reactions. Ensuring your loved ones are covered in serious illness, accidents, or physical challenges is important — not to mention cheaper in the long run. A large expenditure in later life could destroy your portfolio.

#4. New Debt

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While ensuring you have a strong credit record is paramount to getting the best credit deals or mortgages, one must ask whether they need any new debt. Maybe you plan to start a business during this time, and your initial costs will soon be recouped, but any new debt must be avoided entirely.

#5. Not Prioritizing Retirement Savings

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You may have that 401K already, but are you treating it right? Ignoring your retirement fund is much like neglecting significant others. Retirement investing needs constant attention and nurturing, so leaving it on the back burner is non-negotiable. Schroders says that “projection bias” is the idea that people believe their preferences will stay the same over time. Checking in on your investments will mitigate potential and avoidable losses.

#6. Overpaying on a House

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There are many factors to consider when buying a house, including population growth, median values, and local school zoning. Your real estate agent will always overvalue the property they wish to sell you, though this goes without saying. By researching the market and other properties in the area, you will not pay above the rates, which can cause middle-aged investors problems in the long run.

#7. Neglecting Estate Planning

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While our forties don’t seem like we are nearing the end of our days, there is no reason to avoid planning a will. Firstly, it will give you peace of mind; more importantly, it will help your family avoid heartbreaking and unnecessary penalty fees accrued without your presence. It is never too early to consolidate the transferral of assets — providing you have them.

#8. Vacations

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Life can be difficult for hardworking parents who are forced to watch our very public world share their dream travel photos online — even more so if we have impressionable teenagers to support. Moreover, however tempting those business class flights to Cancun are, why not just fly coach and invest the rest? Your memories won’t come from sipping champagne onboard, only the smiles you give your loved ones in a new setting.

#9. Bad Investment Choices

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Research is mentioned much in the annals of financial history, but knowing which red flags to monitor before (and after) investing will help anyone running out of time with their portfolio. Traits such as high return promises, trading fees, or a high fund manager turnover may indicate you made a bad move in the market.

#10. Overspending on Kids

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The adage is that “life begins at 40.” The sentiment in this statement is admirable, and while seeing your children develop into young adults is rewarding, having to support them as adults isn’t. Fortune says that of the 68% of parents still financially supporting their kids into adulthood, many will have to prolong their retirement.

#11. Staying in One Lane

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Diversify, diversify, diversify is the instruction every financial writer will tell first-time or novice investors. However, first, you must understand what it means. If you diversify your investment portfolio, you mitigate risk by not leaving all your eggs in one proverbial basket. By your forties, especially for people late to the game, a good blend of stocks and bonds will complement other investments like property or even tax-free 529 college saving plans for those with growing children.

#12. Buying New Cars

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For some, the temptation to buy that shiny, new vehicle is hard to resist, especially if you have ambitions for a specific dream car your whole life. However, buying brand new is one of the worst plays one can make. A new car depreciates by more depending on usage. According to The AA, a brand-new car can depreciate as much as 60% over three years with 10,000 miles per annum on the clock. A more prudent move is to buy an 18 to 24-month-old model, which is not far off brand new.

#13. Sitting on Too Much Cash

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Due to interest rate fluctuation, experts advise not to sit on too much cash. As long as interest keeps up with inflation, cash will hold its value, but when an economic downswing occurs, interest rates can plummet as central banks try to alleviate the rise in inflation. These days, the world is volatile, leaving world interest rates at the whim of world events affecting commodities, such as oil production or shipping routes.

#14. The Wrong Person

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Middle age can be stressful if we make mistakes in the preceding years, especially in our marital choices. Nothing will destroy a 401K faster than divorce, custody battles, and asset-stripping significant others. While investing in the right stocks is important, investing time and money in the right life companion is equally essential. And while there are fiscal reasons for choosing well, the spiritual benefits are hard to gauge.

#15. Not Starting

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The biggest sin any financial warrior can commit is not joining the fight. Even forty-somethings may not have started yet, and people with no investing knowledge can seem daunting. However, not getting started is far worse than making early mistakes; moreover, you will always be in a losing position if your bank savings are competing with inflation.

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The post Midlife Car Buy: Red Flag or Green Light? Plus, 15 Financial Traps in Your 40s to Dodge first appeared on From Frugal to Free.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.

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