If you’re in your forties, or fast approaching this age, we have good news and bad news. The good news is that you are about to enter the most financially empowering decade of your life because according to PayScale.com, this is when you reach your peak earning potential. The bad news is that this is also the time when the competing financial priorities in your life can make it more difficult to keep your wealth planning under control. However, regardless of your situation, it is still possible to generate wealth in your forties in between paying off your bond, and paying for school fees, your car and the occasional family holiday. Here are six ways you can generate wealth in your forties:
Keep debt to a minimum
As you pass the 40-year mark, make it a priority to reduce debt and instead of adding to existing debt, rather focus on paying off debt with a higher interest rate than what you can commonly earn on an investment, like credit cards, personal loans, etc.
Secure the children’s future
A recent study by a leading Sunday newspaper found that tertiary education will cost as much as R470 000 by 2028. If you have not done so already, it is a good idea to begin saving for your children’s education – be it school fees or university tuition. (To save R470 000 in the next 12 years, you must invest of R1 470 per month, escalating at 5% per year, and earn a return of 9% per annum.)
Save over and above retirement fund contributions
Statistics show that if you save 15% of your gross income, you will likely have retirement funds that provide a post-retirement income of about 70% of your salary, provided you save for at least 40 years. With this in mind, it is advisable to top up your contributions to a retirement fund, especially if you’re in your forties and are just getting started, or if you want more than 70% of your income in retirement.
Plan for the unexpected
Life happens and very often we are not prepared for the curve balls it throws at us. These curve balls come in the shape of events like health emergencies, family crises, unexpected costs to repair a car, major household appliances or damage to a house. Therefore, it is essential to have an emergency fund to cover a financial shortfall when an unexpected expense crops up.
Plan your tax affairs with profit in mind
Very few of us relish the thought of paying taxes, and rather regard it as a necessary evil. However, while it is important to always comply with SARS’ rules and regulations, it is also important to make full use of the tax benefits legislation allows to encourage savings. It is therefore advisable to seek professional advice about what retirement fund best suits your individual needs.
Align investments with life stage and risk profile
While your risk appetite may be greater earlier in life, in your forties it’s crucial to make sure your investments are aligned with and adapted to suit your life stage and risk profile. Having said this, it is a good idea to ask for professional advice so that your investment portfolio will reserve sufficient capital in the run-up to retirement.
At this point in our lives, we have twenty years of work behind us, and roughly twenty years of work ahead. However, you have time to harness the power of twenty years’ experience and knowledge to rectify any mistakes you may have made in the first twenty, and generate wealth in your forties.
And if you want to take wealth generation to level 2.0, also involve the family by keeping the lines of communication open and involving your family in your financial decisions. Educating your children about saving is arguably one of the most important ways to instil financial planning basics that will go on to ensure you preserve generational wealth.