October 17, 2018

Financial checklist for 40 somethings

The old saying “Life begins at 40”, doesn’t hold true anymore.

Back when it was coined life expectancy was barely 70, most people had raised their kids by 40 and were then free to follow their dreams before retiring at 65 after a lifetime working in the same job, then collecting the pension which was seen as a reward for all that hard work.

Not so now. People marry later, have children later and start their careers later.

The 40s are now the decade where people are usually trying to juggle the demands of parenthood with work, paying off a mortgage and generally finding there are a lot of demands on their wallets.

By the time you get to your 60s there may not be a pension because governments around the world are struggling to fund them as the Baby Boomer generation retires in droves.

The flip side to all that is that this is the decade where you are likely to be at or nearing peak earning capacity.

This is the decade where, if you have been financially savvy in your 30s (see 30s checklist), you can throttle back if necessary on the amount of money you are investing and let compounding do the heavy lifting for you while you deal with the heavy expenses that having a family entails.

But there are still some things that you would be wise to do.

Build an emergency fund

Having an emergency fund of at-call cash equivalent to about six months’ salary is something everyone in their 40s with a young family should try to accumulate.

Medical and education expenses, funds for holidays, wear and tear on the house, job loss – you never know where the next big bill could come from, and having a cash reserve to cover unexpected events can save a lot of headaches.

Get good advice

If you haven’t already, establishing relationships with a good financial planner and a taxation professional is a smart move. They will help you ensure that you are on track to achieve your financial goals by fine-tuning your investment strategy and streamlining your tax obligations.

Look to your equity

If you have built up equity in your home over a decade or so, you might consider using it to acquire an investment property or perhaps a share portfolio. Of course if you can manage it, continuing to put money into superannuation will enhance your retirement income down the track.

Educate your children

Forty-something parents will have children who are now capable of learning about finances, so talk to them about yours. It is a mystery that something so important as money management is given so little attention in schools. The sooner kids start learning about wealth accumulation the better.

And you parents

This is also a good time to discuss aged-care planning with your own parents. By having a sensible discussion about what sort of care or retirement living the elderly members of your family will require, you will avoid stress later.

Invest in your health

Lastly, keep investing in your health. Exercise regularly, watch your weight and reward yourself occasionally with the things that make you smile. These hard years will soon be over and you don’t want to be a physical wreck just as your wealth strategies start to bear fruit.

If your children are old enough to learn about finances start to talk to them about it.

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