Time is money. It’s probably the oldest cliché in the book. But, and pun intended, it has always stood the test of time.
If you were to give this otherwise simplistic statement a chance, you could say the longer someone has been gainfully employed, the more the money they have - for example, as compared to someone who has been in employment for a shorter period of time.
This is, however, not always the case. Someone with over 15-20 years of experience could have just as much as someone with less than 10 years of work experience depending on, chiefly, how they played their cards.
But what remains true is that in the world of formal employment, up until retirement, time is equal to money - you exchange your time for money, you get more for overtime work, the longer the years of service the more money you may potentially have earned. How you spend that money is a totally different thing - which may explain your net worth.
This article explores the wealth-building considerations of a professional over 15 years into formal employment, keen on riding the next decade or so of gainful employment and finishing on the top.
That is why time is such an important factor - the fact that a lot of time has passed since the first pay cheque which is a determinant of current financial position - and that there is still significantly enough time to turn the tide, but with little room for error, before retirement comes knocking.
You probably already have children in secondary school (or thereabout), a family home that you have paid off or are paying off or built from scratch, two family cars and a number of investments.
With retirement just about 15 or less years away, you are very keen to make the smartest money moves you have ever made - you want to secure your children’s education, have a blissful retirement, never worry about cash flow, support passion projects and a whole load of things that a successful professional desires.
The snapshot of possibilities above is nowhere near universal but a reflection of the big picture thoughts of an arguably late career professional readying up for a phase of non negotiable stability laced with steady growth.
If you are just about this stage in your career, how do you make the best out of the money that you are earning, what you will continue earning and safeguard your financial future? Let’s dive in.
At this stage in your financial journey you have probably seen it all - been through the ups and downs of early career chaos, survived the challenges of raising a young family, made some bad investment decisions and survived, got burned, and made some solid investments that have kept you aflot.
Like every stage in life, this phase of your financial life also needs a realignment of goals to account for among others, time and its effects on potential financial decisions.
Risk tolerance is an expression of how much of a loss one is willing to endure within their investment portfolio. Age, income, comfort level and investment goals are some of the determining factors.
Economic shocks are unavoidable in investing, but that doesn't make them any less unpleasant. Having been saving for years, seeing your hard-earned profits vanish suddenly can be devastating.
You probably do not want to deal with a lot of unpredictability at this point.
So, how do you go about reassessing your risk tolerance? These are the two important questions you should ask yourself.
Investing is a leap of faith, not to mention a test of determination. The assets with the largest potential payoff are also some of the riskiest, but if you can weather their periodic spikes in volatility, you'll be better positioned to achieve your long-term objectives.
While many individuals think of risk in terms of their ability to withstand emotional losses, there's another factor to consider: your ability to recover financially.
You can certainly afford to be more aggressive with your investing when you're in your twenties and even thirties. However, now that retirement isn't so far away, it's a good idea to think about lowering your risk appetite.
Risk tolerance is broadly classified into three levels. Generally, the higher the risk you take, the more you already have in stable sources of income and vice versa.
It is probably time you engaged the services of a financial planner. As much as you can learn through experience, or even get formal training - a little help from a professional can go a long way.
At this point in your financial journey, you are angling more towards certainty - reducing the possibility of making mistakes and guarding as much as you can that growth curve you so desire - shopping for a reputable financial advisor can do you good.
Read Also: Why You Might Need a Financial Advisor
One of the challenges you may have conquered in your thirties is dependence on employment income, so you probably are well aware of the need to have sources of income that are non-identical to each other.
Diversification is really the next logical step after determining your risk tolerance. You want to make sure you have a wide enough variety of investments such that no single asset or risk can topple your financial standing.
If you have opted to hire a financial advisor, they can be great at giving you actionable steps to protecting your net worth through diversification.
Read Also: 7 Ideas to Diversify Your Sources of Income
Your financial plan will need to be rejigged as older parents with school-going children because the more children grow older, the more they become expensive.
When it comes to saving for college, one of the most common mistakes many parents make is failing to reevaluate their college-savings fund. Whether your child will be attending college in a year or in 5 years, it's a good idea to review your plan to ensure you're still on track.
To ensure that you reach this objective, you should assess your ability to save for education and change your savings plan accordingly. The frequency with which you do this will be determined by a variety of circumstances, including the consistency of your income, the frequency with which you receive raises, and so on. In general, a once a year review of your college savings strategy is a smart start.
One of the most significant advantages of an annual evaluation is that you may anticipate any shortcomings and make necessary adjustments in advance.
It is equally important that you know the best place to keep the retirement fund for maximum benefit. Since by the time your child(ren) is going to college costs are likely to be higher than today, you have to choose vehicles that guarantee returns higher than annual inflation rates.
You really have to also get practical with the college savings procedure. If say you have 3 children born 4 years apart - at some point you will have them all in school demanding money from your pocket.
College will typically be the biggest expense, but secondary school has been getting more expensive over the years - it is very important you do the estimates together with a timeline on what money will be needed when for your education fund to actually save you from the pain of hefty bank withdrawals - and possibly loans, salary advances and the like.
When it comes to building wealth in your 40s, saving money is critical, but so is paying off debt. How far have you gotten with your mortgage repayments? Or a personal loan? Does your spouse too have debt? Where is this debt you are taking being consumed?
Create a strategy to pay down your debt now if you don't want to worry about mortgage payments, credit card bills, personal loans, or other debt when you retire.
You can use the avalanche technique, which entails paying the bare minimum on all of your debts while concentrating your efforts on the obligation with the greatest interest rate. When you've paid off that, move on to the next highest interest rate and resume the process until you're debt-free.
You could also look at the snowball approach of debt repayment. You accomplish this by paying the bare minimum on all accounts and concentrating on the debt with the greatest balance.
Naturally, you may not be able to pay off all of your debt at once. It has taken you years, and could probably take even more years, especially if you took out a mortgage and still owe money on it. However, you must devise a debt payback strategy in order to stay on track.
If you are not indebted, you still should be aware that debt can present you with opportunities to grow your wealth. You could take a second mortgage on your house and finance an additional real estate investment while also enjoying some tax deductions, for example.
Also, you can use other assets you have accumulated to secure funds that help you take advantage of a profitable opportunity. For instance, many commercial banks will allow you to borrow against the balance on your fixed deposit account up to a limit of 90%. With this, you can finance a business venture without withdrawing your savings and continue earning an interest on them.
Earlier in your twenties, you may have experimented with side hustles with varying degrees of success. At this stage, the need to boost cash-inflows is more important than ever before and one of the most satisfying ways to do this is increasing passive income channels.
A professional with over 15 years of experience is a walking book in their field - one of the more popular ways of making passive income is publishing a book, guide etc and get royalties for years. There are numerous ways to explore in terms of exploiting one's expertise that is both in the form of passive and active income such as being a coach, speaker or columnist.
The revenue streams you create today can be a huge boost to your post-retirement life and plug any leakages in your longer-term obligations such as in children’s expenses, supporting your elderly folk and so on.
Having been on a financial journey for a long time, you typically will have already factored an emergency fund into your financial plan - either in a Money Market Fund, a Govt Security or in a less conventional savings vehicle of your choice.
It is now more clear than ever, thanks to the pandemic, just how rapidly things can get out of control. It is even clearer how tumultuous it can be for those without a solid financial cushion in the form of an emergency fund - even worse, if you have a family.
So, how much in emergency funds do you need?
While conventional wisdom recommends up to about six months of living expenses, you should now be aiming to have a cushion large enough to cover at least a year's worth of expenses, with another two to four years' worth of expenses saved in reasonably liquid investments.
Having that much cash on hand will prevent you from having to liquidate your assets during a recession.
After every emergency, it's a good idea to check in on your emergency fund. Depending on your living expenses and life changes, you can modify your savings upwards or downwards.
As your assets increase in value, you may require more insurance to protect them. Perhaps you should now rent a larger space hence needing renters insurance, if you're purchasing a home you might need home insurance, auto insurance for your car, and health and life insurance for you and your family. All of these situations necessitate enhanced protection
Do you have any kind of insurance for your home? If you don't have it, now is the time to obtain it. You've probably accumulated more valuable items by the time you're in your 40s. You presumably have more to lose in the case of a disaster, from a nice car to a larger house. You should purchase renter's insurance even if you rent.
Consider what you already have. How much would it cost to get them replaced? Insurance may be able to assist you in covering that expense without breaking the bank.
Disability insurance will help pay your expenses if you become disabled and are unable to work. Unlike short-term disability insurance, which only covers you for a certain time, long-term disability insurance can cover you for years. As a result, it's something worth looking into.
Many parents in their 40s still have children who rely on them financially, and you should set aside funds to cover their care if you become incapacitated.
Before you turn 50, lock in a 20- or 25-year insurance to cover you till you retire and beyond.
Choosing coverage that equals five to ten times your annual pay will ensure that your loved ones can still maintain their standard of living if you're not there.
The term life policy is typically cheaper as compared to the whole life policy for arguably the same protection, but this may vary from insurer to insurer - make sure you discuss with your financial adviser, insurance agent what is the best option for you and your spouse.
Note that the earlier you get a life policy, the cheaper the premiums will typically be. At this age, it is advisable to have a life insurance policy if you do not have one. If you had taken one in your early thirties, it may be time to review.
Lifestyle inflation refers to a situation where as one’s income increases, their expenses increase - potentially swallowing up the additional income earned.
One of the fuels of lifestyle inflation in your 40s could be social status and the habit of comparison, chasing societal expectations. With a significantly higher income than your 30s, some investments and potentially in a double-income family, the allure of living the ideal lifestyle can be hard to resist.
But if you are to put your life into perspective, it may actually be time to downsize - your children are now young adults and barely at home, do you really need that big house? You could even afford to move much further away from the CBD and focus on spending on experiences rather than items.
Do you really need to maintain a comprehensive cover for the 20-year-old car that you just can’t let go of but barely drive?
Peer pressure - it may sound a little condescending to use this on a 40-something-year-old. Just like an impressionable 16-year-old may be lured by his peers to try a beer, so are you still vulnerable to the twinkly idiosyncrasies of your peers, your age notwithstanding.
Goals are meant to keep you focused on what you want to achieve. Lifestyle inflation will almost always come in the way of your goals - Maybe you are just not ready to buy a house - you want to build yours from scratch over a period of three years. That’s your plan and that’s okay.
One of the most effective antidotes against the lure of lifestyle inflation is to have a clearly laid out financial plan, complete with milestones that you can follow, track progress - and importantly, a plan that you and your partner are happy with.
The plan is your benchmark, if you are veering off, you know you are inviting trouble. That does not mean plans cannot be amended, but you have to be making conscious, rational decisions.
As you do everything possible to keep lifestyle inflation at bay, please keep in mind that money is only a means to an end. Live a little too. Don't put off enjoying your money until you're too old. Spend some money on memorable experiences and memories with your family.
Don't forget to give back. Giving what you can to aid others can be emotionally rewarding - you choose courses to support every month, quarterly or annually. You can also give your time, which is a significant resource as well.
If you are still looking for a financial benefit to giving, you may be eligible for a tax deduction if you donate to a charitable organisation under the Income Tax (Charitable Donations) Regulations.
As your parents get older, there's a strong possibility you'll have to help them manage their finances. As their financial decision-making abilities deteriorate with age, you may be called upon to assist them in avoiding scams and fraud.
If they are unable to manage their finances due to a health issue, you may be asked to do so for them. If they haven't saved enough for retirement or haven't budgeted for the high expense of long-term care, they may appeal to you for financial assistance.
In truth, it's not a question of whether, but when your parents would require your financial assistance. However, if you wait until they are in need of assistance before approaching them about their finances, things may get a little complicated.
You should also have a strategy in place for what would happen if you sadly passed away as you amass assets and wealth. If you're married, your assets will normally pass to your spouse in the event of your death, but it's crucial to prepare for the possibility that both of you might not be there.
Although such conversations are never pleasant to have, you should decide who will inherit your assets and in what quantities when you pass away. You can work with a lawyer to ensure that your will includes all important points including clearly naming the beneficiaries.
It's critical to maintain your financial records up to date as your financial circumstance changes.
You may have accomplished a lot by the time you're in your 40s, but there's still a lot more to do. You don't want to be cash-strapped or in debt in your forties and fifties.
Saving enough money in your emergency fund for unforeseen expenses, maximising your retirement savings account, diversifying your investments and considering your insurance options are just some of the great ways you can get more out of your money.
And most of all, Enjoy!