If you’ve hit 40 and still don’t have your financial affairs in order, it’s never too late to do something about it. We Talk Money’s Tony Sandercock offers advice for getting on track.
‘‘No one is interested in your excuses anymore!” That’s the tough love Sandercock is dishing out to 40-somethings who don’t have a financial vision for the future. If you haven’t already, it’s time to take a serious look at where you’re at now, where you want to be - and how you plan to get there.
What is my current situation and where do I want go from here?
There may be a number of legitimate reasons for why you’re not on track financially, but rather than getting caught up in looking back, take action. “Generally in your 40s you’re somewhere near the peak of your career and your earning potential is at its highest,” Sandercock says. “It’s that basic equation that is the framework for all your future financial decisions.” As a starting point, Sandercock recommends looking into income protection. “The ability to work is one of our biggest assets, so insuring your income should be a priority for anyone who is employed,’ he says.
Do I have a financial goal?
“I always recommend starting with a goal,” advises Sandercock. “You also need to understand the scope of what you’re trying to tackle. Once people understand the size of the task ahead of them, that hopefully gives them the focus and motivation needed to make it happen because, to be successful financially, you need to know what to do, and how to do it. While you need to have the resources, most importantly, you really have to want to do it.”
Should I start an investment portfolio?
Sandercock recommends people in their 40s establish an investment portfolio, which may at first seem overwhelming if you’ve never given it any thought. “A lot of people think, ‘I don’t really have a target or a plan to work my way through this complexity, so therefore I’ll do nothing’, Sandercock says.
To get started, he suggests going back to step one. “If you’ve really taken the time to work out where you are, where you want to be and how you’re going to get there, choosing the correct investment opportunity then becomes easier. “Then you’ll know how much risk you’re willing to take and, for instance, whether you need to borrow some money. Otherwise, you’re just guessing.”
What are my debts and assets?
It’s essential at this stage of life to take stock of your debts and assets, and compare that to where you should be if you’re going to achieve your goals. However, Sandercock acknowledges things are harder today than for previous generations. “When I was 25, I had two kids and a mortgage. How many 25 year olds do you know now that have two kids and a mortgage?” he queries. “Not very many. So what would have been appropriate for me in my mid 40s (in terms of debts paid off and assets acquired) might today be more appropriate for someone in their mid 50s.”
The government’s MoneySmart website has useful health check tools that can help you obtain a good overview of where you’re at with your debts and assets and can assist you in getting on track with your finances.
Have I thought about my children’s tertiary education?
Given tertiary education can be expensive for young people, it’s a good idea to give some thought to how you may contribute to your children’s further education. Sandercock recommends thinking about it as part of the 70-10-10-10 rule, which is: 70 percent of your income goes to the money you need to live day to day, 10 percent to debt repayment, 10 percent to the future and 10 percent to you. “If you’re using the 70-10-10-10, you can put the 10 percent for the future towards your children’s tertiary education.”
Do I have a will?
“Everybody has a will by default,” explains Sandercock. “Each state government has laws that decide what happens to people’s assets if they die without a will. These are called the laws of intestacy and they vary in each state. The problem with this is it might not actually be what you want. I would suggest anybody with kids and debts and the like needs to have that discussion and put something in place.”
Do I have life insurance?
Sandercock suggests that life insurance is particularly essential if you have children, and debts such as a mortgage. So if you’re 40 and still don’t have life insurance, now is the time to do some research so you can be certain your dependents are protected if something happens to you.
* Tony Sandercock provides general financial information only. As a financial adviser he does not endorse any product in particular