Money mistakes to avoid in your 40s.

                       

Your 40s are a pivotal decade in all aspects of your life. Many people reevaluate their priorities and where they spend their time and effort. It’s often a decade when your career or child-rearing peaks. And, typically, you know yourself a bit better than when you were 20. For many, this decade also sees an increased income and expenses and a growing pressure to plan for your future. 

This is a decade where financial missteps can have consequences on your golden years, so it’s important to be aware of what you need to do. Making the right moves now can set you up for success in the years ahead. 

This blog covers: 

  • Retirement planning 
  • Managing your investments 
  • Your estate planning 
  • Lifestyle creep 
  • Consumer debt and home expenses 
  • Necessary financial conversations 

In this blog, you’ll hear from wealth advisor Kalev Vesik. He kindly sat down with us to discuss money mistakes to avoid in your 40s, giving you a professional insight into the subject. 

Delaying retirement planning.

The best time to start saving for retirement was yesterday, and the second-best time is today. 

If you haven’t started thinking about retirement, the good news is that it is never too late to start. In 2022, contributions by Canadian tax filers to RRSPs went down 3.4% from the previous year. It appears that, on average, Canadians are putting their money elsewhere. But, if you don’t plan for your retirement, you could potentially outlive your savings. 

Wealth advisor Kalev says not prioritizing retirement planning and savings is a big error folks can make in their 40s. “At 40, most people look at 65 as the retirement age, meaning they have approximately 25 years or less to get there. The longer you wait to plan, the more anxiety it’s going to give you because you don’t know what your retirement looks like, and if you haven’t started saving, the more you’re going to have to start saving.” 

Kalev says it can be a bit of a reality check, but it’s never too late to start. “Sit down with a wealth professional and look at what you have, including any retirement benefits offered through your employer and then determine what retirement looks like for you.”

It’s easy to put other life priorities ahead of saving for your retirement, like your kids’ college fund. Even though it may be difficult, you need to prioritize your own financial security. If you don’t, you run the risk of becoming dependent financially later in life, either on your children or other loved ones.

If you’re just starting to think about saving for your retirement, there are strategies you can use to make the most of your money, like contributing to your RRSPs. We recommend speaking with a wealth professional to determine how to maximize your contributions. 

Mismanaging your investments.

Sometimes, being too cautious can lead to mismanaging your investments. Kalev tells us he often sees people being too conservative, and not growth-oriented. “Focusing on term deposits, focusing on GICs, is fine for any short-term goals. But if you’re in your 40s, you have the time to let your investments grow.” 

Inflation affects your investment returns, and your dollar today will not be worth a dollar tomorrow. Kalev clarifies, “I’m not saying to take on risky investments. When you work with a wealth professional, you can find what works best for you and make sure you know what your investments are doing and why we’re taking the strategy we do.”

“Focusing on term deposits, focusing on GICs, is fine for any short-term goals. But if you’re in your 40s, you have the time to let your investments grow.” – Kalev Vesik, Wealth Advisor

Overlooking estate planning in your 40s can leave you vulnerable.

Many people overlook estate planning as they enter their 40s; the last thing you want to do on your time off is to plan your will. But your 40s are a critical time to ensure your future and your family’s future are protected. Kalev Vesik highlights the importance of addressing estate planning early, especially when you may have both children and aging parents to consider.

“In your 40s, you’re likely going to have some kids, and you may also have parents that are retired and older in life,” Kalev explains. “And this is the time when your own health concerns can start creeping up. I’ve had clients in their 40s with major health concerns, and whether it’s death or incapacitation, it’s essential to be prepared.”

Estate planning ensures that if something happens to you, you have control over where your assets will go. “You want to make sure you have a will so you know where your assets are going and who they are going to, especially if you have children,” Kalev says. “You’ll want to designate a guardian in case both you and your spouse pass, and also have a power of attorney and representation agreement in place for financial and health care decisions if you can’t.”

Now is the time to take action, as Kalev emphasizes: “You want to be protected.”

“You want to make sure you have a will so you know where your assets are going and who they are going to, especially if you have children,”

Consumer debt, like spending too much on your home, is an easy trap to fall into.

When you hit 40, it can feel like a natural time to upgrade your home. Maybe your kids have grown, and you want more space, or perhaps your kitchen is looking a little dated. 

Resist the urge to make expensive renovations or move into a place you can’t pay off. Going into retirement with debt is not the goal, and you can’t count on renovations to pay off. 

The same principle applies to other loans you may want to take on. While it isn’t as fun, trying to pay off any consumer debt you have at this time is a smarter move. 

Lifestyle can creep up if you’re not vigilant.

As you move into your 40s, you’re probably earning more than you did in your younger years, making it easy to spend more, too. But as Kalev Vesik explains, it’s important to keep a close eye on your spending habits to avoid the trap of lifestyle creep.

“In your 40s, you’re probably earning more money. So if you’re earning more, are your expenses also going up, or are they staying the same?” Kalev asks. “You really want to avoid lifestyle creep. If you’re making more money but spending more on fancier restaurants or other luxuries, you’re probably not actually saving more.”

Kalev suggests taking a step back and evaluating your last three months of expenses to see where you can cut back and increase savings. “If you’re making more money, you should be able to save more rather than having everything cost more just because you have more income,” he advises.

One of the most important habits you can adopt is paying yourself first. “Whenever you get paid, move money into your RRSP, TFSA, or children’s RESP right away. If you’re self-employed, try to do this at least once a month,” Kalev says. Automating your savings helps ensure you’re not tempted to spend it elsewhere.

Kalev also stresses the importance of maintaining a solid emergency fund. “If your lifestyle has expanded, your emergency fund needs to grow with it. If you used to think your monthly expenses were $3,000 but now they’re $5,000, that’s a $2,000 difference. Over three months, that’s $6,000 you need to account for,” he explains. 

If your lifestyle has expanded, your emergency fund needs to grow with it.

Having enough liquid cash saved will prevent you from dipping into investments for unexpected expenses, whether it’s a new car engine, a special assessment for your property, or a new washer and dryer.

Not having “The Talk” with your parents.

One often overlooked financial conversation is the one you need to have with your parents. As Kalev Vesik points out, this becomes especially critical when your parents are in retirement. 

“You want to talk to your parents about their finances,” he says. “Do they have enough saved, or are they going to run short? Are you going to have to top up at some point, which could mean taking away from your own savings to help them if they don’t have enough?”

These conversations, though often tough to bring up, will help you better understand your parent’s financial situation and hopefully avoid surprises down the road. Kalev also raises the question of inheritance: “Are you going to receive an inheritance, and is it better to receive some of it now rather than later, after they pass? There could be major taxable consequences of waiting in terms of capital gains, whereas receiving it earlier could help many people in their 40s who could use the extra money.”

Another important topic to cover is your parent’s estate plan. In your 40s, you may find yourself part of a “sandwich generation,” looking after both aging parents and your children. This makes it essential to ensure not only that you have a will, power of attorney, and representation agreement in place but that your parents do as well.

“If something happens to your parents, if they can no longer make their own financial or healthcare decisions, you, as their child, may need to step in,” Kalev explains. “The last thing you want is a parent who suddenly has dementia and can’t sign a contract, leaving you unable to manage their finances.”

If something happens to your parents, if they can no longer make their own financial or healthcare decisions, you, as their child, may need to step in.

Having these conversations early can help prevent emotional and financial strain down the road, ensuring that you and your family are prepared for whatever the future may bring.

Financial security is easier to achieve with some help.

You don’t have to take care of everything yourself; a trusted wealth advisor can create a plan for you and your family to help plan for your financial future. 

Vancity and Aviso Wealth advisors like Kalev Vesik help Vancity members in their 40s stay financially healthy, ensuring they can afford the lifestyle they want throughout their entire lives. Connect with Vancity to explore solutions for your unique needs.

Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. The information contained in this article is from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is not intended to be investment, tax or other advice and should not be relied on without seeking the guidance of a professional to ensure your circumstances are properly considered.

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