I have a particular interest in financial matters for women over 40, because in addition to it being my mission to help more over 40s become confident money bosses, I am one.
And whether you, like me, only got your act together later rather than sooner or maybe have been making sensible money moves up to this point, there are some important things we should check we are getting on top of during this decade.
Having an effective money management scheme
The first step to being good with money is to have a grip on what is coming into and going out of your bank accounts.
Budgeting software such as You Need A Budget (YNAB) or Money Dashboard as well as “smart” accounts offered by the online banks such as Starling, are very effective at analysing what money is coming in and directing it to the various money pots you want your money to go to. Such as monthly expenses, savings, money for investing and fun money.
When you have an effective money management scheme things like Christmas and birthdays don’t come as a surprise because you have planned for them and it makes it so much easier to maintain flexibility in your finances while also making sure you are directing your money to work towards your goals.
Building an emergency “F U” Fund
One thing that is guaranteed in our 40s is that there will be no shortages of emergencies.
And you ideally want to get a cash buffer to cover 3 – 6 months of expenses. If you haven’t already got an emergency fund start working on getting at least one month together as this puts you on the path to no longer living pay-check to pay-check and gives you the flexibility to show your finger to the big challenges that may come your way.
Be sure to keep your emergency fund topped up and ready to support you should you need it.
Paying down high interest rate debt
One of the most important things you can do for your current and future financial stability in your 40s is to pay off high interest rate debt.
This debt is literally holding you back because it is using the power of compounding to suck money out of your future.
Take a look at this shocking example, if you had a £1,000 pounds of credit card debt with an annual interest rate of 19% and were paying the minimum £25 required repayment it would take you 18.5 years to repay the debt and you will have been charged £1,271 in interest. You will be able to pay off your debt in 11 months if you repay £100 per month instead, saving yourself £1,182 in interest.
Bridging the gap between what you want at retirement versus what you may have
According to a 2020 study by YouGov and Irwin Mitchell Law Firm, 33% of women in their 40s don’t have a retirement plan and just 22% of women in this age group know how much income they will need in retirement and what kind of nest egg will give them that.
If you have a workplace pension but don’t really know much about it, ask your employer. Check how the plan is doing, how much you are estimated to have in retirement and how much income this will provide per month.
If you are self-employed and don’t have a pension, open one now and start saving. Through your pension you get government tax relief by way of an add back into your pension of the tax you have paid on your contribution and this will speed up the growth in your nest egg.
It’s helpful to know your nest egg goal as well. I use the pension calculator provided by the robo-investor platform Nutmeg. Based on how much income you want per year in retirement, and some experts say as a rule of thumb assume you will need 80% of your current income, it will give you the amount you need to save per month to reach the required nest egg sufficient to support your required income.
Planning to be spontaneous
Reaching our 40s is a milestone to be celebrated and who wants to live out this decade in deprivation? Not me, but neither do we want to live out our retirement in that state. So, what’s to be done?
Plan for the fun. So instead of always jumping into the exciting opportunities with your eyes closed and holding your breath because you know you can’t afford it or having to continuously forego these fun times, include them in your budget and start saving for them. That way when the opportunities come, and you know they will, you can happily join in the fun, guilt and debt free!
Cross your I’s and dot your T’s
40 means we are real grown-up’s and need to do grown up things like get our documents in order.
If you haven’t already, get a Will drawn up, and this is especially relevant if you have dependents who may need taking care of. Get a file together of all your important financial details, bank accounts, pensions, investments, passwords and such and make sure the relevant people know how to access it and finally make sure you have adequate insurances in place to protect yourself in the event you cannot work, your assets and your dependents.