Money Mistakes to Avoid in Your 40s
Money Mistakes to Avoid in Your 40s
- October 21, 2018
- Posted by: Daniel McGregor
Your 20s were for having fun and growing up. Your 30s were when life got serious – getting married, buying a house and starting a family. Your 40s are like the climate change debate… a period where talk is cheap, time slips by, and before you know it, it’s too late and the damage is done.
Your 40s are a tough time because it’s when the perfect storm of stress exists in life. There’s pressure to earn more to stay on top of the costs of living, while trying to pay off a house, raise a family of kids that do more and cost more, while also trying to enjoy some lifestyle along the way.
That’s why it’s the crucial decade… a lot of people see this decade fly before their eyes, then enter their 50s and wonder what happened. Or they simply put long-term financial planning to the side to worry about once the kids are off their hands.
Here are the top money mistakes I see people make in their 40s…
Buying More House Than You Can Afford
I’ve seen many people over the years who come to get advice in their 50s and when we discuss their financial history, it’s often the case that they sold a house in their 40s and bought a much bigger, much more expensive house to replace it… with a large mortgage to match. I don’t want to sound like a spoil sport, but it’s SO important to understand the long-term implications of this. It’s not about not doing something like this, it’s about doing it sensibly. If your housing decisions mean you’ll end up still having a mortgage when you retire, then it’s more house than you can afford.
Do the numbers and if you’re not sure how to do the numbers, get help! This is about being realistic about your situation and avoiding tying up all your wealth in a home that will produce no income for you.
Not Having an Emergency Fund
In your 40s, your financial responsibilities are high. You’ve got mortgage payments to make, possibly school fees to pay and mouths to feed. This is why an emergency fund is so vital. And you can kill two birds with one stone by using an offset account as your emergency fund… savings on hand and they’re saving you interest on your mortgage.
Aim to have 3-6 months of living expenses in an emergency fund. Once you make that a reality, you’ll be amazed at the opportunities that then open up to start exploring wealth creation strategies.
Not Doing Estate Planning and Insurance
Your 40s is not the time to stick your head in the sand. Just for a moment, imagine what life would be like for your family if you died. What would life be like for you and your family if sickness or injury meant you could not work for a long period of time, possibly never again? You would have immediately realised how terrible that situation would be if it eventuates.
Take estate planning and insurances seriously so that you can rest easy at night knowing the people you care most about are taken care of if disaster strikes.
Not Paying Attention to Super
Superannuation is money for jam! It’s simply a tax structure where the maximum amount of tax you will pay is 15%. That’s why ignoring it is like shooting your future self in the foot. You have enormous control over your super and if you’re not sure how yours is invested or what you’re paying in fees, then chances are yours is not going to grow into what it should for your retirement.
When it comes to superannuation, you’re possibly talking about an amount of money in the hundreds of thousands, possibly millions, and yet most Australians in their 40s ignore it. I’d bet $2 that every time you put money into a trolley at the supermarket that you take that trolley back and collect your $2. Give your super the same energy and then some.
You know what, come and have a free financial health check and if you’re not satisfied, I’ll give you $2 for your next trolley!
Make your 40s the decade where you set yourself up for the rest of your life.
Even better… take control in your 30s!
Cheers,
Daniel