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SCOTT HANNAH: Eight savvy money moves to make in your 40s

For many, their 40s can feel like they’re stuck between “I need to save money” and “You only live once.”
For many, their 40s can feel like they’re stuck between “I need to save money” and “You only live once.”

Q: My partner and I have been debating about buying a newer home for our growing family or renovating our current home. We are both in our 40s, earn decent incomes from our careers and don’t feel like we’re too bad with money overall. When we met with a financial adviser to go over what possible changes would do to our finances, we’re having second thoughts; there’s so much we didn’t consider beyond what a bigger mortgage or reno would cost us. Now we feel like we might be missing opportunities with our money. What can you suggest? ~Eric

A: Buying, selling or renovating a home are big decisions; it was wise of you to consider your longer-term financial implications with the help of a professional before making a decision. For many, their 40s can feel like they’re stuck between “I need to save money” and “You only live once.” Retirement isn’t that far off anymore, but you work hard and also want to enjoy the fruits of your labour.

People in their 40s often also feel like part of the sandwich generation; you’ve got kids to raise but also aging parents, or even grandparents, to help look after. If you made smart financial decisions in your 20s and 30s, you might be all set by the time you’re in your 40s, but life is never perfect. Chances are that you figured you’d take care of a few things later – and now that later is here, you’re not sure how to afford what you put off.

With that in mind, here are eight of the best money moves to make in your 40s:

1. More money, more savings

If you’re pretty happy with your lifestyle the way it is, when you get a raise, direct it all toward savings. Before you level up your lifestyle to your new pay scale, check in with yourself; would you actually be happier with more? Money doesn’t buy happiness, but it does buy a bigger balance in your savings accounts.

If you’ve got kids, resist saving for their education costs before you save for your retirement . They can apply for student loans, scholarships and grants or work part-time to finance their education. None of these options are available to help you pay for your golden years, and your kids likely won’t be in a position to supplement your retirement income when the time comes because they’ll be busy with lives and families of their own by then.

2. If you have a partner, co-ordinate financial strategies

If you have a spouse or partner, consult a tax professional, an estate planning lawyer (depending on your situation), as well as a Certified Financial Planner to plan how best to balance your financial affairs between the two of you. For instance, if one of you has a higher income or pensions through an employer, you will need to take steps now to take advantage of income tax reduction options later on.

3. Be responsible for your own insurance needs

If you have people depending on you, when you’re young(er) and healthy, that’s the time to take out insurance. Co-ordinate with your spouse and your children’s other parent, if necessary, and ensure that you have the coverage you need so that they aren’t left short should you pass away or become critically ill.

It’s best to arrange at least some insurance through an independent agent yourself. If all of your family’s coverage is through your employers, and something happens to change your employment situation or the coverage they offer, you might end up with less than you had counted on, or forced to buy more at an expensive time in life.

4. Don’t let debt take the shine off of your golden years

If you are trying to build up your nest egg but the balances in your savings account are dwarfed by what you owe on your credit cards, line of credit and mortgage, the time to turn the tables is now while you’re at or near your peak earning potential.

It’s important to keep saving in an emergency fund while you’re paying down debt. However, some people end up saving so much off of each paycheque (e.g. deductions for a pension at work, RRSP contributions and other savings or insurance) that they are making up the shortfall with credit. It’s best to strike a balance so that you don’t abandon saving, but also pay off your debts because you don’t want to end up getting further behind with each passing month.

Establish a realistic household budget that accounts for all of your regular and seasonal expenses, along with debt payments and contributions to savings (savings is actually an expense when it comes to budgeting) to see where you can make changes so that your debt takes priority. Debt is expensive; to a certain degree, even the good debt. The last thing you want to do is retire with mortgage payments and no realistic plan how to live with reduced income .

5. Even a castle needs cash

Cash is king; paying off your mortgage is queen. The reason for this is simple — you need cash to pay for what you need when you no longer have employment income. A home that’s paid off means that you have a place to live with fewer expenses, but to put groceries in your fridge, gas in your car and to book a holiday in Hawaii, you need cash for everything else.

Paying off your mortgage in your 50s is a fantastic goal, but not if it means ignoring your RRSP, TFSA and other savings, e.g. pensions through work. Speak with a financial planner who can help you decide how much you need to save to pay for your lifestyle without being forced to sell your home. If your home is part of your retirement plan, you want to sell it when you’re ready, not when your finances force you out.

Should I Pay Off Debt or Save Money?

6. Get your legal house in order

If you don’t have a will, power of attorney and/or representation agreement, you could leave your family and any minor children in a legal quagmire, even forced to make tough choices on your behalf. If you have legal documents but haven’t reviewed them in many years, made your family aware of your wishes, moved within Canada or are still connected with an ex-spouse, take the time to review your matters sooner than later. Forms periodically get changed and laws are updated — you want others to be able to count on your directives and decisions when they need to.

7. Commit to living within your means

“To live within your means” is the same as saying “avoid spending more than you earn.” Don’t ignore this tip just because it’s obvious, or because you think debt is normal. Not spending more than you earn means not relying on credit to finance everything. It means paying your credit cards off every month in full, but not by going into debt with your line of credit to make the payments. It means driving a modest car that you can afford to fix, buying a home in an area where keeping up with the Joneses won’t put you in the poor house, saving up at least a partial payment for bigger expenses or purchases; and, being able to sleep at night without worrying about your finances.

8. Have ‘the talk’ with your parents

It can creep up slowly or hit you all at once — your parents or grandparents suddenly need a lot more help than ever before. This can mean with their housing arrangement, due to a medical situation, there might be legal issues that need addressing; or, it might be all of this combined and then some. Don’t underestimate how much time, money and energy it takes to be your aging loved one’s advocate and/or care provider.

Having “the talk” with your parents is important; however, don’t be surprised if it takes time for them to share their thoughts and plans with you. Many parents don’t want to share their financial information with their adult children, especially when it’s paired with advance care and estate planning.

Even in an ideal situation you will still find yourself navigating unfamiliar territory, so encourage your parents to talk to you about their hopes and plans, even if they don’t want to talk about money. They might be expecting to live with you as they age; you might not have room for them in your home or your lifestyle. Hopefully they’ve set aside what they need for themselves and arranged their affairs in a way that eases the burden on you, but many haven’t. Ultimately it is better to know what you’ll be up against so that you can plan accordingly.

The bottom line on smart money moves to make in your 40s

Thinking about the future can be a heavy obligation when you’re working, playing taxi driver, carving out me or us time, checking in on the in-laws and generally just trying to make it from one paycheque to the next. But the future will be here before you know it. Don’t put off until tomorrow what you can do today — there’s a lot of truth to the wise words of Benjamin Franklin, especially when it comes to our finances.

Scott Hannah is president of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by email , check www.nomoredebts.org or call 1-888-527-8999.

Copyright Postmedia Network Inc., 2019

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