Ben Nash – Michmutters
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Investing, tax, super, property: Money mistakes 40-somethings make

Your 40s is an exciting time when it comes to wealth building, as this is the time most people reach the tipping point on their journey to financial independence.

But you have to get it right. If you don’t, you’ll be playing catch-up in future years and likely will need to make sacrifices.

In this piece, I cover the key money areas you should be focused on in your 40s to drive success.

Automate your saving success

Your 40s will be close to your peak earning years, and will likely be your peak borrowing years, so being on top of your savings and cashflow is important.

From a savings perspective, when you’re earning bigger dollars the difference between doing OK and doing great is huge. If you don’t already have a good savings system in place, now is the time to make it happen.

You should be looking to automate your money management, have all your bills and commitments provided for and paid without you having to think about them, and to have your savings building automatically.

Having a good savings system is important so you’re crystal clear on how much money you have available to direct wealth building strategies. Particularly given your 40s are likely to be your peak potential borrowing years, having total clarity on your “free cash” number will give you the confidence to take full advantage of your ability to grow wealth through borrowing.

investment

By the time you get to your 40s, you should already have some good experience with investing and have a foundation of quality investments in place. If not, this should be your first priority.

There are a lot of different opinions (and ways to be right) on the best way to invest, but the statistics show us that passive index funds perform best 95 per cent of the time. My view is that passive investments are an extremely effective way to build wealth while minimizing risk.

If you’re really drawn to interesting investments (read: crypto, start-ups, etc), with higher potential returns and higher risk, it’s important in your 40s you have clear boundaries for how much of your portfolio you want to hold in these sort of riskier investments.

My view is that you probably don’t want to hold more than 10 per cent of your investments in this bucket, and skipping them altogether to focus on the more boring but highly effective investments like index funds will serve you well.

Property

Your 40s are going to be your peak borrowing years, with higher incomes and a long time until retirement age (as defined by the banks and lenders).

Risk management is critical, but in my opinion leverage is a highly effective way to build wealth relatively quickly – and something you should look to go “all in” on in your 40s.

I’m not saying you need to rush out and buy 20 properties, but having a good quality investment property, or properties, behind you in your 40s will do some magic in future years.

It’s important when you’re borrowing at higher levels that your plan around this is rock solid – you don’t want to be caught out by higher interest rates, rental vacancies, or unexpected expenses that can throw a spanner in the works.

If you’re going down this path, take the time to map out your game plan and consider investing in some good quality financial advice so you know all your bases are covered and that you can execute and drive the results you want with confidence.

tax

In your 40s tax planning can mean the difference between success and mediocrity. Your income (and marginal tax rate) will be higher, and you’ll have more investments behind you generating taxable income that needs to be dealt with.

Having a smart tax strategy will pay big dividends.

You’ll want to look at where and how you’re holding your investments, if you’re part of a couple, who should own which investments, how to leverage the concessional tax rates in super, and whether you’ll benefit from using tax structures like trusts and investment companies.

You should also be looking at tax strategies like debt recycling, super contributions, and harnessing the power of franked dividends to cut your tax bill and boost your after-tax investing return.

Every dollar of tax you save is an extra dollar you can direct back to your wealth building, ultimately helping you get ahead faster and easier.

Super

The effort you put into super in your 40s will be a big driver of your success in future years.

With a higher income and (relatively) limited time to retirement, you should be looking to maximize the tax deductible “concessional” contributions to super every year. The current limit for these contributions is $27,500 including money contributed by your employer.

If you haven’t been maximizing your super contributions in previous years, you can also “catch up” on up to five years worth of contributions, generating some serious tax deductions and getting a heap of money into the low tax super environment.

Maximizing your super contributions through your 40s will ensure you go into your 50s with a solid amount of investments behind you that can grow well over the decades to come.

Insurance

In your 40s your income and financial commitments will likely be at their highest levels, and because you still have some time to reach the typical retirement age, it’s likely you’re still heavily reliant on your income to get you to where you want to be .

I get that most people don’t like and often don’t trust insurance, but in my opinion this is something everyone should have until they’ve reached complete financial security.

Income replacement insurance premiums are tax deductible, and having this cover in place will give you peace of mind that the unexpected isn’t going to sabotage your money success.

Be aware that not all insurance is made the same, and cheapest is definitely not best when it comes to protecting your wealth. Insurance is incredibly complicated and can be confusing, so if you’re considering putting insurance cover into place you’ll benefit from getting some good advice.

The wrap

Your financial potential is still yet to be unleashed in your 40s, and the work you put in here will dictate how far you can go in future years. But it won’t just happen on its own – you need to be firmly in the driver’s seat here.

You should go into your 40s with a solid plan, revisit it regularly, and keep your focus as you move forward achieving your money milestones.

Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth www.pivotwealth.com.au, and Author of the Amazon best-selling book ‘Get Unstuck: Your guide to creating a life not limited by money’.

Ben has just launched a series of free online money education events to help you get on the front financial foot. You can check out all the details and book your place here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your

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Categories
Business

House prices: Interest rate rises and property downturn could be good for buyers

Rising interest rates and uncertainty are causing the property market to cool around Australia. Sydney and Melbourne markets are leading the decline at -2.7 per cent and -0.9 per cent respectively, looking at CoreLogic data.

Based on the Australian Bureau of Statistics (ABS) average property price of $1.2 million in Sydney and $966,500 in Melbourne, this reflects respective discounts of $32,999 and $8699 on the average property today.

With inflation at a 21-year high of 6.1 per cent and interest rates at 1.85 per cent and tipped to continue to rise, it seems likely there will be more pressure on property prices in the short term.

But maybe this could be a good thing. Watching the huge property run over the last couple of years, many people were either priced out of the market or felt property had become overcooked.

With prices on the decline, is it now a smart time to jump in?

State of the property market

Through 2020-21 we saw the value of all property in Australia increase by 23.7 per cent, the strongest growth seen since 2003. In contrast to the weak property market we’re seeing today, for the same time last year the average house price rose $107,000 in Sydney and $41,000 in Melbourne in just three months.

In 2022, we’ve been seeing declines driven by rising interest rates and uncertainty about how the Australian economy is going to ride out the current inflation crisis. The Reserve Bank of Australia (RBA) initially forecast a 15 per cent decline in the property market by the end of 2023, with further falls predicted in 2024.

Worth noting is that not all areas have been (or likely will be) impacted by this downturn equally. We’re seeing property prices hold up more in areas with strong demand and limited supply, and prices weaker in areas that don’t have the same fundamentals. This trend is likely to continue throughout this period of property market disruption.

The key driver of softer property prices is rising interest rates, which have increased by 1.75 per cent over the last four months adding thousands to the cost of repayments on the average Aussie mortgage. With rates forecast to continue rising through 2022 as the RBA grapples with the current global inflation crisis, further pressure will be placed on borrowers and the property market as a result.

Advantages of buying property now

With the property market softening and fewer buyers in the market, people buying property today are doing it at a solid discount to the prices we’ve seen recently.

There’s a lot of fear and uncertainty out there. In my experience helping people with their investing through up and down markets, I’ve found that this uncertainty creates opportunity.

During the height of the Covid crisis there was also a lot of talk about the potential for big property market declines, and a lot of people were too fearful to buy property. Many people were sitting on the sidelines waiting for the uncertainty to pass, convinced there would be a huge crash that would allow them to pick up even more of a bargain.

But before we knew it, the ‘crisis’ was over and the uncertainty was gone. The property market didn’t fail as far as was expected, and many people missed the boat.

In my view, the current conditions are perfect for property buyers to pick up a bargain.

Disadvantages of buying property now

That being said, buying property today does come with risk. The main one that any property buyer needs to manage in the short-term is the likelihood of interest rates rising further.

Rising interest rates for property buyers today mean that you’re highly likely to be paying more for your mortgage in six months than you are today. As mentioned above, rates are tipped to raise around 2 per cent from their current levels in the short-term – meaning you need to be prepared and ready to fund higher mortgage repayments.

There is also potential for property values ​​to fall further in the short-term. Buying and then selling property is an expensive exercise, so you never want to be forced to sell a property. But when values ​​are declining, it’s even more important to protect yourself.

When is the best time to buy property

Looking back, it’s easy to identify ‘good’ times to buy property, but nobody has a crystal ball. We never really know where the property market is going until it actually happens.

And further, while there have been times that we can see would have been better than others to buy property, values ​​have consistently risen over the long-term. That means that over any 10-year period, your asset would have increased in value.

This suggests that the best time to buy was always 10 years ago. The second best time is today.

My view is that if property is on your money road map, now is a great time to buy. You’ll be able to take advantage of the uncertainty, pick up an asset that was a good investment six months ago at a higher price, and move forward on your money journey.

Finding a good quality property is crucial, and having a rock solid plan absolutely necessary to protect your risk. But get these two things right and you’ll be set for success, and will position yourself to come out of this period of disruption in a stronger position than you went into it.

The wrap

Buying property is scary at the best of times, but when fear and uncertainty are high it’s even harder. But property has been one of the most effective ways to invest to build wealth for the last hundred or so years in Australia, and I don’t see that changing any time soon.

Take the time to get your approach right, then make it happen – your future self will thank you for it.

Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth, and author of the Amazon best-selling book ‘Get Unstuck: Your guide to creating a life not limited by money’.

Ben has just launched a series of free online money education events to help you get on the front financial foot. You can check out all the details and book your place here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.

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