For years now, many so-called “millennials” have been given reams of advice on what to do, or learn, or know, about their money before they turn 30.
That’s all well and good, but as over half of us will be aged anywhere between 30-38 as of 2020, it is also about time we discuss what should be happening with our money before we hit the big 4-0.
1. Know your retirement needs
This means really know your retirement needs. At the age of 40 you will have anywhere between twenty to twenty-five years of earning power left (generally speaking). This means that if you haven’t been putting money away before, you should start so with dedication.
It can be difficult to get a true gauge or your expenses – especially if you have children in the house – but sit down and make a list of all concrete expenses that you know won’t change. If you own your own home you may wish you exclude mortgage payments, as hopefully this will have been paid off by the time you retire, but remember to add in higher health insurance costs or private specialist fees. Once you have a solid number to work with you can work backwards to understand how much money you need to be saving and investing monthly in order to reach that amount by retirement.
2. Pay off your student debt
Although in the UK your student loan doesn’t show up on your credit history, it can come up when you’re looking into getting a mortgage. Lenders will take your loan into account when they are assessing how much you can afford to repay on a monthly basis.
For this reason alone it is well worth clearing your debt, but it is also beneficial to clear it before you hit forty, as the money you have previously been losing from your salary each month you can now start to save or invest for your future.
3. Make contingency plans
If you have children this can be especially important, as having other human beings rely on you to help them in a tight spot is a huge responsibility, and one that you may want to fully plan for. Before you turn 40 you should have contingency plans, and enough money saved to handle each one, worked out for the future; including (but not limited to), early retirement, illness, job loss, or change of circumstances.
This means working on building your emergency fund, and assessing the balance of your liquid to illiquid assets to ensure you have access to cash if necessary, whilst not unbalancing your portfolio in the long run.
4. Start investing
It may be that your twenties were about establishing yourself, settling into your career, or spending money on experiences or your education. This might mean that there was no money left for investment.
If that’s the case then opening an investment account and educating yourself on the correct balance of assets you need should be one of your top 5 goals before you hit forty.
Whether you decide to invest in real estate, the stock market, emerging markets, or a collection of everything; try to make sure you have a solid, balanced portfolio built up by the time your forty, which you can then revisit one a year to re-balance accordingly.
5. Understand your parents’ finances
This may be difficult, as many adults feel that their financial situation is a private matter and will be unwilling to discuss it. However, as your parents advance in years it’s important to sit down and have a frank discussion about their financial situation and their future plans. If there is too much tension to have this conversation privately, consider employing the services of a professional financial planner.
The reason for this conversation is mainly due to the fact that end of life care is becoming increasingly expensive, with weekly residential nursing care costing an average of £876 a week in the UK. If your parents do not have the finances in place to pay for this, and they do not qualify for state care, you will need to factor this financial commitment into your future expenses. Depending on their savings and pension allowances, you may also need to consider making their mortgage and utility payments for them too; all things that must be accounted for in your future expense calculations.
Oval does not provide financial advice. If you need further information we suggest you look for expert advice.