Finances in your 40s: More money, but often more problems

Having developed your occupational expertise and being on an upward earnings trajectory, your 40s can be a highly successful time in your career.

At the same time, however, it is likely your personal life has become more complex and demanding, especially when it involves parenting teenagers, running a home, worrying about ageing parents and trying to find work-life balance.

As opposed to being cash-flush years, the 40s can be particularly lean in terms of cash flow as you find yourself financially torn between paying off your home loan, saving for retirement, investing for your children’s education, and possibly providing your parents with financial assistance.

Navigating your finances in your 40s can be complicated, and here are some points to consider:

Emergency funding

With children, property, pets, vehicles, holiday houses and more “stuff” in general, you will likely need access to more emergency funding. If you still have a home loan, your access bond is a great place to keep your emergency funding.

Being responsible for more people and more things, more can go wrong, and you must have access to cash when you need it.

Large vet bills, broken appliances, tyre replacements, sports tours, emergency travel and hospital co-payments can and do happen – often simultaneously – and adequate emergency funding will prevent you from incurring debt to fund these costs.

Looking after aged parents

Your parents may be close to their retirement or even in retirement, and if you don’t have a good idea of what their retirement funding position is, now is a good time to find out.

If they are underfunded for their retirement, you and your siblings may be required to assist them financially in the future.

The thought of part-financing your parents’ retirement when you are still trying to save for your own can be overwhelming.

However, knowledge is power – so use this decade to obtain certainty about your parents’ financial situation so that you can put plans in place if need be.

Divorce

According to Statistics SA, the median age for divorce among men is age 44 and among women it’s 40, with 44.6% of marriages not lasting 10 years.

With the high divorce rates in our country, there is a real chance of having to deal with a divorce in your 40s and it can set you back financially.

Before entering divorce proceedings, be sure to seek independent legal and financial advice so that you fully understand your rights and financial position at the outset.

Also, don’t rush into a divorce settlement to flee a toxic situation as this will only compromise you financially. If possible, work towards a mediated divorce settlement that prioritises an amicable parting of ways.

Blended families

With the high rate of divorce comes the likelihood of finding yourself part of a blended family, which can make life complicated and expensive.

Ex-spouses, stepchildren, maintenance obligations and children from a previous marriage, or being financially responsible for more than one home, can be financially taxing.

Careful budgeting and planning are essential to keep track of your finances and to manage your outflows.

Check your retirement funding

If you haven’t yet partnered with a financial planning expert, now is the time to find a trusted, independent adviser.

You may have group retirement benefits in place coupled with several other long-term investments, but remember there is a difference between a retirement fund and a retirement plan.

Your adviser will assess your current investments, assist with restructuring and rebalancing your portfolio, and develop a road map to achieve your retirement goals.

He will also assess whether you are invested too conservatively for your investment horizon and ensure you are investing in the most tax-efficient way.

Give someone access to your digital life

It is a good idea to give someone access to your digital usernames and passwords. If something happened to you, would your loved ones be able to access your accounts and manage the household’s finances?

Make a list of all the important bank accounts and online portals together with your login credentials and PIN numbers, and give them to your spouse, financial adviser or trusted friend.

Don’t keep moving homes

Before upgrading the family home, think and plan. Where will your children study after school? What accommodation will you need when your children are students? Where will they park their cars?

Are you contemplating a work-from-home option?

Do you foresee your parents living on your property in the future? Will they need a carer?

Buying and selling homes is expensive so avoid upgrading to a home that will suffice for the next few years only.

Think long term about your family structure and the accommodation requirements you will need beyond the next few years.

Torr is founding director at Crue Invest

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