Following on from my previous blog, Financial Advice for 30 Somethings, I thought I would touch on financial considerations for people in their 40s.

This is a more serious time in our lifecycle. Thought processes and decisions involve:

• Children and school fees
• Family homes and associated debt
• Retirement thinking and planning considerations
• Where to spend money, as this is usually your highest income decade
• Elderly or sick parents

The above can takeover dinner table discussions and in this fast paced lifestyle, decisions and actions are pushed to one side, sometimes not thought about until something goes wrong or a hasty decision needs to be made.

The role of the financial adviser in this decade, is about assisting clients with actioning decisions and budgeting.

The emotional response we hear regularly is “retirement is still 20 years away, but the mortgage and the school fees are now!”

Does this sound familiar? 

The major dilemmas we come across are as follows:

• Paying off the mortgage versus putting more money into superannuation
• Debt consolidation
• Managing discretionary spending and saving for holidays
• New investments – what and where?
• Employee versus starting a business
• HECS debt – to pay or not pay for tertiary education
• Estate planning

Tips for success

Mortgage versus superannuation. More than likely the priority will be to pay down the mortgage. From a financial returns perspective, putting money into superannuation is more likely to win, as the money going in is pre-tax and the earnings inside super is taxed at 15%. It will all depend on tax rates, interest rates and risk profile (investment returns). With lower contribution levels of superannuation, considering salary sacrificing earlier rather than later is now a more crucial decision for clients in this lifecycle decade.

Discretionary spending. Clients want to give their children an opportunity to participate and experience new things. Balancing the household budget, having money available for all members, family holidays, and having funds leftover for a “rainy day”, takes effort from both the client and the adviser. Our job is not to set the budget but to coach on the potential juggling of balls – and keeping them in the air! Only if there is some money left over, can extra debt repayments be made or investments can be started. Having a budget and then sticking to it is vital.

Protect yourself. I mentioned this tip in my previous blog for 30 somethings. It is still a big tip for this decade as well. The biggest cashflow injection into your household budget is you. The need to protect this “wealth” is vital to building and maintaining your asset base. Medical costs are expensive and can take a large chunk of savings. Mortgage costs can also quickly erode savings and lead to further stress on households. The ability for an individual or their family to access a benefit in the event of an injury or death is of immense importance. With school fees and maybe a bigger family home, managing the cost of insurance versus the security for the family becomes an annual conversation between adviser and client. 

Children’s tertiary education. Some clients who had their children at an early age, are now looking at tertiary education expenses. Sometimes parents feel the need to pay for their children’s university fees so they do not come out with a large debt at the end of their course. HECS repayments are related to the income your children earn – that is they are means tested. The more they earn the more they repay. Parents are then able to invest their money in assets elsewhere and secure their own future. Parents can then assist their children in other areas like a deposit on a house or establishing a business.  

Estate Planning. This topic starts to become a regular conversation with clients, especially those with elderly parents, or in a second marriage with children from previous marriages. It is never too early to review Wills and or discuss structures to house assets upon death. A lot of heartache and money can be saved by having things in place well before the event. If you have not started this process – now is the time!  

More information

Please contact me if I can provide you with more information about navigating your finances in your 40s. My number is 07 3002 2690 or email ianw[@]lanternadvisory.com.au.