SERIES: How to be money-wise in your 40s

Last updated on 5th December, 2018 at 02:38 pm

Even though you might be at your earning peak in this decade, there are new financial priorities that need serious planning and attention.

You’ve hit the big 4-0 and, midlife crisis aside, it’s a great decade. You’re secure in your career and most people hit their earnings peak now. While your income may have never been so good, this decade brings a new set of financial priorities. If you have kids, they’re considering their post-matric education options. That new car looks like a possibility and that long-awaited overseas holiday is on the cards. And, if you’ve left it too late to save for retirement, the good news is there’s still time to secure your financial future by following these four steps.

1 Reduce your debt

With so many demands on your income, it’s important to eliminate debt. This allows you to channel more income into saving and investing rather than paying interest. We all want to retire bond-free, but paying off your bond now is not the priority. Interest rates on bonds are relatively low (around 10%) compared with interest rates on store cards and credit cards (21+%). It’s better to use your money to pay off the higher-interest debt. Of course, it would be great to do both. But focus more on paying card debt off as quickly as possible. If you have a lot of debt, use all available funds to pay it off. If you have relatively small debt, use one-third of any cash allocated to savings to pay your debt until it is gone.

2 Ramp up your retirement savings

Retirement may still seem a long way off, but now is the time – especially if you are starting late – to contribute the maximum to savings. It’s easy to consider spending your money elsewhere, like university fees, but this is not the way to go. You, or your children, can borrow money for fees, but you can’t borrow to fund your retirement. Max your contributions to your company pension or provident fund and top up your retirement annuity contributions. With 25 years left until retirement, a good guideline is saving 28% of your income.

3 Reconsider your risk tolerance

By now, you should have a healthy portfolio of investment products. Asset allocation is the mix of a portfolio’s equities, bonds, property and other assets. It limits risk because when some asset classes falter, others rise. Or that’s the theory. If you have invested consistently up to now, then consult your financial planner and ascertain whether you can invest in less risky investments. If you’ve waited until now to invest and need a high return, you may have to dial up the risk with a larger portion of equities in your portfolio.

4 Get your estate in order

If you have dependants it’s important to make sure they are protected in case something happens to you. That means you need life insurance and a Will. More than 70% of the working population in South Africa do not have a Will. Dying intestate (without a Will) would make your loss even harder for your family. Make sure all of your accounts name the correct beneficiary and your documents, once made, are stored safely and people know where to find them.