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10 Financial Mistakes To Avoid In Your 40s

More often than not, it’s only when you enter your forties that retirement planning becomes a priority. How can you use these years to grow your nest egg and set a great foundation for the rest of your life?

To ensure you don’t spend your final working years desperately trying to catch up, here are 10 common mistakes to avoid in your forties.

  1. Wasting money post-mortgage

Finally paying off the mortgage and owning your home outright is a huge achievement, but it is important not to get carried away. The biggest mistake people often make after paying off their mortgage is not using the savings excess.  We understand it’s about a balance between fun and saving. Once you’ve paid off the mortgage, spending years wasting that extra money is a huge mistake.

  1. Not using lazy Equity

Few people have the capacity to build significant wealth without the use of borrowed money. Successful people and businesses have long recognised that by borrowing money and investing it productively, they can grow their wealth faster than if they relied solely on their own savings capacity.  With the value of homes growing strongly in recent times we see too many clients not using the lazy equity in their homes to help them reach their goals sooner.

Lazy Equity is the term given to equity that you have accumulated in your property portfolio but which, for some reason, you are not putting to its most appropriate use (i.e. to invest in more appreciating assets).

  1. Forgetting the future and not resetting goals

As you begin to move into the second part of your working life, it’s vital to remember that any financial commitments you make may postpone your retirement.  We often see some clients not understand that the decisions they make today impact them later.  If you decide to do something like upgrade or renovate the house, it could very well mean you need to work until your late sixties to sustain it. Its understanding the consequences.

  1. Not inspecting your insurance

While it’s tempting to ’set and forget’ an insurance policy, it’s essential you review your policy and cover at every life stage to ensure you’re not paying for something you don’t need.  If you have just repaid or reduced your mortgage, you may need less insurance for example. There’s a mountain of savings to be made simply by checking your policy.

  1. Splitting your savings

Getting divorced can be one of the most costly things you can do. Divorce can halve your assets and income while leaving your level of expenses very much whole.  When you get divorced, your electricity bill doesn’t halve. Making time for each other or investing in marriage counselling could save you many, many thousands.

  1. Shelving super contributions

Despite last year’s changes to the superannuation system, it remains a retirement savings tool you shouldn’t ignore.  With the reduction in the concessional contribution cap from 1 July 2017 to the lowest amount ever, you can no longer wait until you are a few years out from retirement and then pour money into super.  The new rules mean you need to plan earlier.

  1. Not Having a sufficient enough Cash Reserve

You’re likely at a point in your life where you have significant and numerous responsibilities. You’re likely a partner; parent, boss, homeowner, and many other roles. Without a doubt, unexpected expenses will arise and dipping into your retirement funds to pay them is unacceptable. Enter the cash reserve.  Ideally, you’re going to want to have three to six months of your living expenses in a cash reserve. There’s nothing sexy about hoarding cash, but boy is it useful when life happens.

  1. Not Having an Estate Plan

Married or not, the absence of estate planning documents is a mistake. If someone needed to make a medical or financial decision on your behalf, do you want to let the state you live in choose who that is? What about the legacy you want to leave? Oh, and your kids too, so it’s imperative that the right guardians are assigned if you kick the bucket. Go visit a specialist estate lawyer right now. They will help you draft a will (where your stuff goes when you die), power of attorney (who can make financial & medical decisions for you).

  1. Not taking care of your health.

Medical expenses tend to grow exponentially with age. In fact, Medicare data shows that of all the money you’ll spend on healthcare during your lifetime, 30% will be spent in your final six months. Investing in a good diet and exercise today should help reduce your future medical bills and keep you fit for longer.

  1. Teach a child to fish, and you will both reap the benefits

The skills we help our children develop early in life will be key to their future ability to make prudent financial decisions.  Which brings us back to teaching your child to fish, at an early age. From our experience, the best way to do this is to start small and build a good foundation. Engage with them around a topic that is both relevant and timely and allow that conversation to gradually bleed in to a broader discussion about the family’s wealth. The initial topic might be how create a budget, or the share of a company that your child is interested in.

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