With all the hype around 40 being the new 30 (or even the new 20), you may be forgiven for applying this mindset to all aspects of your life.
However, when it comes to managing your finances, the typical 30s approach of “living large” just doesn’t cut it.
While we all lead different lives, for the vast majority the 30s are when you get married, get a mortgage and start a family. Your income tends to increase significantly since your 20s as you work your way up the corporate ladder, but money also seems to disappear much faster. The thriftier days of your 20s are replaced with nicer restaurants, a bigger house, family holidays, education for the kids, and so on.
Once you reach your 40s though, you realise that retirement may only be a short (yes it goes fast!) 20 years away. Consequently, your spending habits and goals should take a notable shift towards a saving mentality as you begin to financially plan and prepare more and more for the long-term future.
Here are 3 costly mistakes people in their 40s make when managing their finances.
- They don’t plan for unforeseen events
Sadly, your 40s are when it becomes more common to hear about a serious health or financial scare hitting someone in your social circle. Not to mention divorce strikes 1 out of 3 couples 12 years into marriage (your 40s). We all think we are immune and “it won’t happen to me”. But no one is exempt from these unexpected turns and events, which can present a heavy financial burden if we don’t put any funds aside as a safety net. Seeking financial advice early is always the best approach when you find yourself in a sticky situation.
- They have no documented financial plan
You may think managing your finances responsibly is as simple as paying your bills and debts and having an automatic savings arrangement, but there’s much more to it than that. If you hold onto this attitude, you’ll never get the most out of your money. At a minimum, by 40 you should have a written financial plan that details your immediate and long-term financial goals, annual budgeting and cashflow, insurance protection, superannuation and retirement planning, all your investments and assets, and estate planning. Your financial plan needs to be adjusted every year too, so it’s always in line with where you are currently at. For instance, retirement planning will need to take the limelight in your 40s so you can continue the lifestyle you’ve become accustomed to into your mid-late 60s.
- They don’t adjust their spending and lifestyle circumstances
Strangely enough, many people in their 40s upgrade to a bigger and newer house or splash out on an expensive car simply because they can, or believe they deserve the “mansion” and “toys” after having worked hard all these years. Of course societal pressure plays a role too, with shows like The Block and House Rules teasing us with the belief a “parents’ retreat” or resort themed backyard is the new standard. It’s not! Stay in a house that is comfortable and you can afford, and bring your focus to reducing your mortgage and boosting retirement savings. This doesn’t mean you can’t treat yourself, just be mindful about spending these dollars on the thing/s that will truly enhance your life without being a burden.
Building and maintaining wealth is a lifelong activity that needs constant adjusting and improving. Help is always available no matter what stage of life you are in.
TWD provide greater financial certainty for all our clients. To find out how we can help you manage your finances, no matter what your age, send us an email at firstname.lastname@example.org or give us a call on 1300 893 000.