The Biggest Money Mistakes People Make After Turning 40

Somewhere around 40, retirement stops being a someday word and turns into a math problem. And the night you finally run the numbers, your stomach drops because all of a sudden the gap between where you are and where you thought you'd be is wider than you actually want to admit. And this is where the mistakes are made. But I'm going to give you the mistakes so you can avoid them. And here's what happens and why this makes it so dangerous. It's one of the 6 mistakes I'm going to talk about literally almost wiped me out completely. A loss that wiped out 1/3 of everything I own in a single shot. I'm gonna tell you exactly how it happened later in the video and how I clawed every dollar back and then some. This is Building Your Money Machine, where we help you master your money, eliminate financial stress so you can live a life of choice. And I'm your host, Mel Abraham. So let's get to these 6 so they don't get to you. Let's do this. So let's get into the 6 biggest money mistakes that people make after turning 40. And the very first one, Is the trap that fools almost every single one of them. All right, here's the thing. Mistake number 1 is the one that hides all the others, and that's confusing income for wealth. Let me introduce you to someone, and we'll call him David. David's 44 years old. He works in software sales. He's married, he's got 2 kids, and over 4 years, his household income has gone from about $180,000 a year to $280,000. So on paper, David's crushing it. But if you saw his life from the outside, you'd assume that he's actually set for good. But David's got about $220,000 saved for retirement at 44 years old. One good year of income. That's it. Sitting in a reservoir after 2 decades of work. The hose is wide open, but the reservoir is nearly dry. So watch what happened to David. Because it's happening to a lot of you right now. When the income is big, it feels like wealth. The cars, the vacations, the house, the whole lifestyle all whisper the word wealthy. So you stop asking the harder question, which is, what happens the day the income stops? See, income and wealth are 2 completely different animals. Income is the water that's coming out of the hose. It only flows while you're holding it, while you're working, while you're producing, while you're doing the running on the treadmill. Wealth, on the other hand, that's what's sitting in the reservoir. It's the water that's still there when you finally put the hose down, when you stop working. And high income with an empty reservoir is just a shinier leash. See, this is the trap of your 40s specifically. These are your peak earning years. This is where the hose is the biggest. This is where you start to see the ramp-up of, of the income. And so, The hose has never been fatter, but the illusion has never been stronger. You feel the most wealthy at the exact moment that you might be building the least. So the fix starts with telling yourself the truth. Your income was never the scoreboard. Your reservoir was. That's the game. From this day on, the number that matters isn't what you make, it's what you keep. And in fact, it's not even what you keep, it's what you get to work for you. And what that money can produce without you, without your efforts. So this is a time where you got to get honest about that one number, and every other decision in this episode gets easier. But if you ignore it and you walk straight into the second mistake, the one that nearly took me out, now you're in trouble. So mistake number 2. Hmm. This can be the most dangerous in the least amount of time, and I call it the catch-up gamble. Go back to David for a moment. A few months after he finally looked at his reservoir, he did what a lot of smart people, smart, driven people did. He panicked quietly, but he panicked nonetheless. He looked at the $220,000 and he looked at his calendar and he looked at the fact that he, he wants to be done working by age 60. So he had a little over a decade, a decade and a half. And he decided to himself that index funds and ETF funds were just Too slow to fix it this time. So David went hunting for speed. He moved a bunch of his money into a couple of concentrated stock bets. So he was picking stocks. He put some into crypto because some guy at his gym said he doubled it. Then a buddy brought him a private real estate deal. He didn't fully understand it, but with returns that sounded too good to pass up, so he jumped in. And literally inside about 18 months, 2 of those bets, they went sideways, and David was down around $60,000. Right when he felt the most behind, he dug the hole deeper and faster. And here's what I need you to see and need you to hear, because almost nobody names it. David didn't feel reckless. In his own head, he was being aggressive and responsible at the same time. He thought he was finally taking control of his future and taking his future seriously. That's what makes this so dangerous. It's a gambler's mentality wearing a suit and tie. Think about how a gambler loses big. They don't lose it all on the first bet. They lose one bet and then they try to win it back on the next one. They double down to try and pick up the losses that lost on the first bet, and the next one goes against them too. So they double down again, and before they know it, they chase it and chase it and it wipes them out. Not the first loss. It's the repetitive chasing, the gambler's mentality that does it. David was running the same play. The only difference was what he was chasing. A gambler is chasing the lost money from the prior bets. David was chasing lost time. He didn't invest enough soon enough, he said. So now he was going to pile on the risk so he could make up for his time, and he was going to pile on the risk that he shouldn't to touch— make up for the years that that he can't get back. The risk taken out of panic, man, is almost always, it's gonna turn against you. I know this one. I know it in my bones because I nearly ended my own story this exact way. Years ago, 2005, I got pulled into an investment that I thought was great. It sounded too good to be true, but I saw an accelerated path to where I wanted to go. Lack of patience, turned out to be a Ponzi scheme. And when it collapsed, I lost well into the 7 figures. More than 1/3 of everything I owned Gone. And I promise you, in that moment, every instinct in my body screamed the same thing that actually David felt. Make it back fast. Take a big swing. You've got a lot of catching up to do. I need a home run. I gotta find a home run. That's what was pulling at me. And had I answered it, I could have been in deeper trouble, but I didn't. And that decision's the only reason I'm sitting in this chair today. Instead of gambling to recover, I went back to the most boring plan you can imagine. I, I lived below my means. I ran my business. I did the things that I did previously to build it. I invested consistently and only in the things I understood, and I let the machine do the work. It took about 18 months. Within 18 months, I had not only recovered the losses, but I had tripled them. Not with a bigger bet, but with a better system. And here's the part that surprised me the most. The same thing David eventually found himself. The peace of mind, the peace came back before the money did. The moment I stopped trying to catch up and started trusting the machine, that knot in my stomach just kind of loosened long before the account ever caught up. Because I finally understood something, and I understood that I was never really behind on the money. I was behind on a system. And a system is something that you can start building today. Doesn't matter where you start. It doesn't matter what you have. That's the whole reframe. You cannot outgamble lost time. You can only outbuild it. The catch-up bet feels like the fast lane, and it is the fastest way to lose the very decade you're trying to save. That's the game. All right, that's mistake number 2. Now, some people will sit back and say, wait a second, I don't even know where I'm supposed to be going. And I get it. So when you talk about that reservoir and how much it should be, most people never Really even run their numbers. So I'm gonna help you stop guessing at it, at least give you a tool that makes it easier to find the trajectory for you. It's called the Freedom Number Calculator. We'll hook it up here. You can go put your numbers in, play around with it. It'll give you a ballpark number. At least you know the direction you're going. It's at melabraham.com/number. All right, let's go back to now mistake number 3. This one, mistake number 3 is why the reservoir stays empty even as the hose Gets bigger. It's called lifestyle creep. Look at the math that should bother you. David's income went up $100,000 over 4 years. That's $100 grand. And almost none of it reached the reservoir. Almost none of it got into his financial future. So you gotta ask yourself, where did it all go? Well, it went into a slightly bigger house, a nicer car, then a second nicer car. Then the vacations got upgraded. Then the dinners out and the subscriptions and the kids' activities, all of it crept up to match the new income. Every single raise got quietly absorbed by a lifestyle that expanded to eat it. This is the sneaky killer of your 40s because it, it never feels like a mistake in the moment. Nobody torches $100 grand in one reckless weekend. Neither did David. But you can upgrade your life 5% here, 10% there, and, and each choice feels completely reasonable when you look at it in isolation on its own. And you earned it, right? I get it. You worked hard. You deserve the nicer things. I get it. And maybe you do. But when your lifestyle rises to meet every single dollar of income, then you've just built a treadmill instead of a machine. The faster you run, the more you have to run just to stay in place. You could double your income again and end up in the exact same stressed position because the lifestyle would simply rise to swallow that up too. Now, I'm not saying not to celebrate. I'm not saying not to enjoy it. I want you to enjoy it. Here's what I tell people to do. I want you to take a slice of that windfall, a slice of that income, and set it aside for your enjoyment. Take another slice. Maybe you have to set it aside for taxes because we want to make sure that it's taken care of. And you might have to take a slice to put aside for additional expenses or your living. Anything beyond that should be put towards your financial future. I call it leapfrog funding. All right. But when the raise shows up and the lifestyle holds steady and the difference goes straight into the reservoir before you ever get it in your hands, then you don't have a money problem here. You've, you've got this dialed in. Now, most people will sit back and go, I don't understand where the money's going. Well, it's not a problem with your money. It's a symptom with your choices. It's a symptom with your behaviors. It's a symptom that is an empty reservoir. And the cause of it was lifestyle choices, habits, and behaviors. The lifestyle that grew in lockstep with your income and ate your freedom one reasonable upgrade at a time. So again, the move is simple here. The next time your income jumps, Let your savings jump first and your lifestyle sit still or jump second. Bank the raise before it hardens into a habit that you can't actually walk back. That one discipline held across your peak earning years is the whole difference between a reservoir that fills and one that stays bone dry while you wonder where the money went. All right, mistake number 4. This shows up the second your income starts to look juicy to other people. You start to fall for complex, exotic products, pie-in-the-sky promises. See, once your income starts to grow, people start to see you differently. And around this stage of the game, something predictable happens. I see it all the time. You have real income and you have a little money behind you, so you become the target. The whole life insurance salespeople, the advisors that are charging a percentage of everything you own, the guy with the private equity deal, that is absolutely gonna 5x or 10x. They literally all come out of the woodwork hunting for you, and they all run the same pitch, and the pitch sounds flattering. It goes something like this. Ah, index funds and ETFs are fine for beginners, but you've outgrown all that. You're sophisticated now. Someone at your level, you need something more advanced, tax advantage this and actively manage that in a private deal that only certain people get access to. That's what happened to me. See, it's flattery dressed up as strategy, and it's aimed straight at the fear that we've been talking about. You feel behind, so a shortcut that promises to catch you up fast is the most seductive thing in the world. And you want to believe that you've earned your way into a— some smarter, faster room. Let me save you a decade of pain with a filter I use. Before you put a dollar into anything, I want you to ask 2 questions. One, can you explain this investment in plain English in 2 sentences on the back of a napkin? If you can't explain where the money goes and how it makes money and how the money comes back to you, you don't understand it and you have no business putting your future inside of it. Complexity is exactly where the fees and the losses actually hide, and that's the game that they're playing. It's smoke and mirrors. 2, is the person selling it to you a fiduciary, legally required to put your interests ahead of their own commission? If the answer is anything other than an immediate yes, you already have your answer. See, most of the exotic stuff fails both tests. The whole life policy where your premiums fund the salesperson's commission and salesperson's life for the first several years before it ever gets to do anything for you. The private equity deal or the private deal with no liquidity, no track record, no transparency, no data. I got in those, I can't get out. The actively managed fund that's just charging you a percentage a year to underperform the boring index. None of it survives the 2 simple questions. Simplicity wins at every level of wealth. It doesn't matter whether you're in 5 figures, 6 figures, 7 figures. Simplicity will always win. Keep it simple. You don't need complexity to build wealth. I've proven it. My clients approve. My students have proven it. The people I've watched build real money didn't do it with sophisticated products. They did it with boring, understandable ones that they can hold for a very long time. Complexity doesn't prove you've arrived. It just quietly bleeds your returns and hides the losses. Well, it does. All right. Mistake number 5. This one carries the most heartache for me, and it's wrapped in love, and that is becoming the family bank. The timing is what makes your 40s so brutal here. You're in what I call the sandwich generation. On one side, you've got kids maybe heading to college and their tuition numbers, they read like a second mortgage. Okay. On the other side, you might have aging parents that may be starting to need help financially or with care. And both of these things land in the exact decade that your reservoir is supposed to be filling the fastest. And because you're the one who's done well, the responsible one who's hit 6 figures, you quietly get elected to be the bank. The tuition gap gets covered by you. The parents who are short gets covered by you. The sibling with a business idea, the emergency, the loan, the— it all flows towards the person who has it, which is you. And I want to be clear here because this one, I get it's a tender one. Helping the people you love is not a mistake, and that's not the mistake we're talking about. Wanting to take care of your parents and give your kids a real start is one of the most beautiful things money makes possible. I get it. The instinct is good, and I'd never tell you to kill it. This mistake, though, is doing it in a way that drains your reservoir literally dry and calls it love. Because here's the hard truth nobody says out loud at, at, at the dinner table. You can't pour from an empty reservoir. If you fund everyone else's life and you torch your own future while doing it, you don't end up as the family hero. You end up as the next person who needs rescuing 20 years from now with no machine of your own and nobody behind you to catch it. So you build the boundary before the requests come, not in the emotional heat of the moment when they do come. Decide in advance, what can you give without wrecking your own plan? Fund your reservoir first, the same way that they tell you to put your own oxygen mask on first before you help the person next to you. Then you can help with the overflow instead of from the foundation. We can't erode the foundation. And when it comes to co-signing or lending large amounts of money, listen, be really clear-eyed about what you're really doing here. You're taking on all of the risk with none of the control. If it goes bad, and let's face it, often it does, you lose the money and you strain the relationship in the same stroke all at once. If you truly want to help and you can afford it, a smaller gift with no strings attached protects both you, your money, and the relationship far better than a big loan that quietly poisons both. So take care of your people. I get it. I want you to. Just don't set yourself on fire to keep everyone else warm. So the most generous thing you can do for your family over the long haul is to refuse to become the cautionary tale. You're not the family bank, nor are you required to be that. That leads me to mistake number 6. And this one's the quiet one. It's short, but it might be the most dangerous one of all. And that's complacency. Complacency dressed up as I've got time. There's a famous piece of wealth advice that says the first $100,000 is the hardest. And it's true, it is. And after that, it gets totally easy. It's totally true. And you gotta do things differently. You gotta be different to get to that first $100,000. And then after that first $100,000, it starts to get easier. But here's what people hear wrong. They hear it as a permission to coast. I've done the hardest part, so now I can ease off the gas. That is the trap. In your 40s, it's not the time where you sit back and say, I don't need to feel urgent anymore. Retirement is still a couple decades out. You still have time. You still have, you have the process, you have the work ahead of you, and it'll work for you. The kids are busy, work is busy, life is loud, and you're building a machine. It's one thing that right now doesn't feel like it's got a deadline screaming in your face. So it waits and you delay or you stall out or you slow down and it waits and then you blink and you're 50. And the decade that held the most compounding power you will ever get, the years when every single dollar had the most time left to grow while at the same time having the income at the level that you can grow it faster, that decade didn't vanish just to a crash or a bad bet. It vanished into something called later. One someday at a time. And I, and I say it all the time, complacency is the first step to crisis. Not because something dramatic happens, but because nothing does. The reservoir doesn't drain overnight. It just never really fills. One comfortable, reasonable, eh, I'll get to it next year at a time. That's the way it plays out. Your 40s, Are not the decade to coast. They're the decade that decides everything. The most expensive thing you can do right now, frankly, is nothing. So we gotta get you in the game. So let me pull this all together for you, but not as a checklist because that was never the point. Every one of these mistakes come from the same place. A good, hardworking person hits their 40s, feels behind, starts reacting out of fear instead of building out of clarity. The income fools you because you have more of it. The panic pushes you toward risk. Lifestyle eats the raise. The deservedness, the entitlement starts to eat it. The shiny product promise is a shortcut. The family leans on you at the same time, and complacency whispers that you still got plenty of time. Underneath all of it sits one lie worth killing today, and the lie that you're behind on You're probably not behind on money. Most of the people I meet in their 40s were never behind on earning. They were just behind on a system. And a system is the one thing you can start building this week, this day, today, at any income, at any age, with whatever is in the reservoir now. That's the whole game. A reservoir that fills and eventually a machine that produces water, whether you're holding the hose or not. A bigger hose was never going to save you. This shift is what your 40s, from the decade you panicked into to the decade everything changed, when you start to see that earnings and wealth are not the same thing. Because earning more doesn't make you free, a money machine does. I hope that this hit. I hope you'll look at things differently. I hope that whether you're in your 20s or 30s, your 40s, your 50s, you will start to take control and do some of the things that move you closer in the process. All right. And if you're in this game with me, do me a favor, subscribe, stay with me on this journey because I got so much more coming your way to help guide you, to help shine the light, to move you in the direction that gives you the life that you deserve, that you desire, and that you envision. So subscribe so the next one finds you. And while you're there, do me a favor, give me a thumbs up and a comment. Let me know you're in, you're in the neighborhood. I'd love to hear from you. I'd love to chat with you. And See what you're up to and what's going on. All right, until I get a chance to see you in the next one or on your path to financial freedom, as I always say, always, always strive for living life that outlives you. See you in the next one. Cheers for now. And that's it for this episode of Building Your Money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful, Here's what I'd love for you to do. If you'd do me a favor, go to Apple Podcasts or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people, because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much. Thank you.