Financial Management By The Decade: The 40’s

Your forties are a good time to check out how you are doing financially. Many people find that they are finally getting some results. Salaries are likely to be higher, you are making some headway in decreasing your mortgage, and the kids may be at the age where they are not as financially draining as previously. It becomes easier to concentrate on building wealth.

Watch your spending

The only way to accumulate assets is to spend less than you earn.

At this point, you should make sure that your debts have been taken care of and you may want to start focusing on paying off your mortgage. Every additional dollar you pay on your mortgage comes directly off the principal.

Canadians pay off their mortgage at an average age of 48 years.

Resist the urge to trade up to a larger home now that you have a higher income and could qualify for a larger mortgage. Is it reasonable for you to buy a bigger house at this time? Apart from the bigger mortgage, larger homes mean higher utility costs, steeper property taxes and higher maintenance costs.

Don’t take on more debt by tapping into a home equity line of credit for unnecessary luxuries.

Investing for retirement

At 40 retirement may still seem far way. If you are in this age group and haven’t yet begun to save for retirement, now is the time to start.

Unless you are in a particularly low-income bracket, you should stick to RRSPs for your retirement savings. You’ll get an immediate tax refund that you can reinvest.

If you are in a position where your savings have grown substantially and you don’t have the time or interest to manage your money yourself, this may be a good time to consider hiring an investment adviser to draw up a portfolio to help you achieve your retirement goals.

Start getting a feel for what you want to be doing in your post-working years, and how much it will cost. Revisit your financial plan and estimate whether your savings will produce a large enough nest egg to cover your living expenses in retirement. Make adjustments as necessary.

Some challenges in this age group

Some challenges at this age may be a career change, divorce, remarriage, or caring for elderly parents.

Those who married late and had children even later may find that they may be falling behind in their retirement savings, and still with a large mortgage to pay. Not only do they have to deal with the normal costs of raising children and saving for their education, they must also deal with the need to fund their own retirement at a time when they don’t have too many years left to save.

If that’s you, you may have to do a bit of extra planning. There’s likely to be a strain on your budget. Pay down high interest debt. You don’t need to be extra frugal but avoid large luxury expenses. Try to accelerate paying off your home by making rapid biweekly mortgage payments instead of monthly payments. You’ll have it paid off by the time you retire.

Many forty-somethings have responsibilities for aging parents. It’s difficult, but it may become necessary to have a conversation with your parents about their financial situation, where to find their will and other important documents, and their medical and long term needs.

Provide for your family

Update your will and estate plan. Make sure you have sufficient life insurance and have designated a guardian for your young children. Revisit the named beneficiaries on your insurance policies and registered savings plans.

Financial takeaway for your forties – Revisit and update your financial plan.