The Immortal 40’s – Common Financial Mistakes
The 40’s are, for many people, a critical decade for building wealth. Income is usually on the rise, but so are expenses such as mortgages and school fees. Juggling priorities can be a real challenge, and mistakes made in this stage of life can have a large bearing on the size of your future fortune.
Forewarned is forearmed, so if you’re entering or already amidst this decade of life, here are a few classic mistakes to avoid:
1. Not paying attention to superannuation
Retirement is decades away, so why pay attention to super at this time of life? Because putting that time to use can generate big rewards.
Take Jo. On turning 40 she decides to contribute an additional $5,000 per year, after tax, to her super fund. There it earns 7% per annum after fees and tax. By the time she turns 50, Jo’s super balance will potentially be $69,000 higher than if she hadn’t made the additional contributions. By age 65, the extra contributions made during her 40s could potentially add $316,000 more to Jo’s super fund!
Depending on individual circumstances, strategies involving salary sacrifice, spouse contributions and government co-contributions could further boost your super.
2. Buying the biggest house in the best street
It may seem sensible to buy an expensive home if it is going to appreciate in value. However, the bigger the mortgage the greater the risk of experiencing financial stress and of reaching retirement with a substantial home loan still hanging over your head.
Life is more enjoyable (and isn’t that what it’s really all about?) if your budget makes room for some good times now rather than saddling yourself with major debt that requires gratification to be constantly delayed.
3. Spending money you don’t have on a car you don’t need
Much as you may love that new-car leather-seat smell, borrowing money to buy an expensive new car is a classic way of eroding wealth. New cars shed value faster than a molting moggie sheds hair, leaving you paying interest on a loan that can quickly exceed the value of the car. And expensive cars usually come with higher running costs.
Prudent car buying can add hundreds of thousands of dollars to your future wealth.
4. The wrong insurance mix
If you’re like most Australians your personal and property insurance coverage is probably inadequate.
Yes, insurance premiums can be expensive, but the consequences of inadequate insurance can be financially (and emotionally) devastating. While it may be a straightforward exercise to work out how much insurance you need on your home, contents and car, your needs for personal insurances (life and disability cover) differ. Expert advice will help you decide on the most appropriate cover.
Also, check you’re not paying for ‘junk’ insurance. Accident cover is a common example. It might be cheap, but only because it provides very limited protection.
5. Feeling immortal
Okay, the likelihood that you will die or become severely disabled during your 40s may be fairly small, but accidents can and do happen.
Do you have a Will and have you given someone your power of attorney (PoA)? Are both current? Your Will and PoA are important documents, and should be reviewed regularly – especially if you have a family that needs to be taken care of.
Make the most of your 40s
All these mistakes can be avoided with some forward planning and expert advice, so talk to your financial adviser about how to make the most of your 40s or sit down to make a list and action points for yourself.
Small changes at this important stage of your life could really make a major difference to your future retirement wealth. It will also make you feel more in control and more focused as you’re working towards a long term goal, knowing you’re in control of your financial future.
Important Information and Disclaimer
MK Wealth Solutions is a Corporate Authorised Representative No 100223 of Synchron ABN 33 007 207 650 AFSL 243313. The information provided in this article has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your personal financial adviser before you make any decision regarding any products mentioned in this article. Whilst care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither MK Wealth Solutions and Synchron, nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.