Smart money decisions in your 40’s

Your 40’s is the decade where the changes you make can have a real impact on your future self. For many, it also means dealing with potential significant life events such as buying a home, managing a growing family, and developing your career. The financial decisions you make now can and will impact your future financial wellbeing. Here are some smart money decisions to consider.

Here’s a very sobering fact, only 30% of Irish people have a will, according to a survey conducted by Amárach Research on behalf of My Legacy*. Having an up-to-date will is good financial practice generally but especially important if you have children. Additionally, if you have existing financial commitments and financial assets you need to ask yourself “how would my financial assets be allocated and managed in the event of my unexpected death?” Being prepared for the unexpected is why it is so important personal financial affairs and our wishes are documented properly for those left behind.

*Source ACL Solicitors October 2016

In your 40’s, it’s important to maintain financial balance. While there can be many financial demands, this is the time where good financial discipline is really important. And although this may be a time of life where your career progression and earnings may increase your desire to splash out and spend, this is also the time where you need to remain focused on your life goals and protect your financial wellbeing. Simple budgeting tips like the 50:30:20 rule can help you manage your spending habits and ensure you make best use of your money in the long term. See here

If you lost your ability to earn an income through injury, illness or loss of income, how would you cope? If you don’t have any protection in place, you may want to consider changing this. This is especially true if you have other people depending on your income. Understand the benefits you have in place. Review your employee benefits package such as insurance and/or health policies and life/illness plans you may currently hold. You need to ensure you are covered for the life events that could undermine your financial wellbeing the most. Remember, it will be too late to put protections in place after an event has occurred so checking your benefits for illness, death, injury & accident and ensuring they cover what you may need should be a priority. Also, it’s a good idea to review existing policies every few years to ensure you understand what level of cover you have in place currently and whether or not it is sufficient for your changing life needs.

If you have children then you will be only too well aware of the many costs it takes to raise them. A big expense is education. Many parents may not fully factor it into their long-term financial plans but saving for a child’s future education should begin early. A relatively small amount saved regularly over a long period of time can be sufficient to cover significant education costs when the time comes. The sooner you start the easier it will be.

Building an adequate retirement fund starting in your 40’s may seem daunting to some people. Due to other day-to-day living expenses, it is important not to despair, you may still have 20 to 30 years before you retire. Starting now could mean you can still build up a significant retirement pot to fund the lifestyle you require in retirement. It’s also important to recognise that people are living longer and it’s not unreasonable to envisage living as many years in retirement as you did working. To plan effectively, consider at what age you would like to retire and broadly, what standard of living you would like to have when you do. Many people may wish to simply match the standard of living they have presently. Using this approach will inform you on how much of a pension pot you will need to have accumulated to deliver that lifestyle. For those who already have a pension fund in place now is the time to review and really understand your plan, how you can maximise your contributions and take further advantage of any tax reliefs or any available employer contributions by topping it up.

You can’t always know what’s around the next corner. So it’s important to make sure you’re ready for the unexpected. That means making sure you have a savings pot to fall back on. A rule of thumb is that you have at least three to six months’ expenses saved up for the emergencies life may throw at you. Adding a small amount regularly to your savings pot will build up your fund over time and help establish some new savings habits. Remember when you use it you will need to build it back up. For tips on savings see here