Financial Traps - Part 1

As a financial planner, I know that, for some people, their 40s can be the hardest part of their financial lives.

Many hit their peak debt levels in this stage – often that bigger mortgage for their ‘forever’ house catapults them up a few levels.

Add in private school fees, lifestyle inflation and the other costs that come with living life, and all of a sudden the pressure can start to pile on.

Of course, this isn’t hardship in the truest sense – and most of the people I’ve spoken in this phase of life are adamant that they know it’s hard, but that it’ll pass and they chose all of these pressures.

They’re not complaining – they’re just saying, this is a hard time.  

They’re still walking along a tightrope though, with the slightest breeze of misfortune liable to blow them off the line.

But for many of us, this phase of life will sit near the halfway point of our time here. Meaning that there’s still a lot of winding, financial road ahead of us – and that road still has a few traps along the way.

So in this post, I want to take a few moments to list out the 9 Financial Traps that People in their 40s Should Watch Out For.

Hopefully spending time thinking about these now will help you avoid stumbling into them later – and let you push through this tough phase, to those sunny, post-mortgage-and-school-fees years!

Financial Traps People in their 40s Should Watch Out For

1.  Failing to Plan (i.e., Planning to Fail)

It is notoriously difficult for humans to think about the distant future. In fact, some research has shown that we feel about as close to our distant future selves as we do to a complete stranger.

The inverse of this is that we’re far more comfortable focusing on the immediacy of the short-term. What we need to get done today, this week, this month.

Which can leave us in a whirlpool of reactivity, getting spun from one event to another, without ever feeling like we’re in control.

Planning – the act of sitting down and working out your desired destination, and the steps required to get you there – is the cure for this lingering disorientation.

If you’re not currently doing this, I strongly encourage you to book the time in your diary to sit down and take this enormously helpful step.

It will give you back real agency about your financial journey and help you stride forward with purpose; instead of drifting into these other traps.

2.  Not Communicating

If you’re part of a couple, another big trap to watch out for is failing to communicate.

About anything, of course – communication is the fuel that’ll power the engine of your relationship – but particularly about money.

You probably have very different views about money, about responsibility and about your future. Fantastic! How dull it would be to be tied to a clone for the rest of your life!

But these same differences that make life interesting will also corrode your bond if you don’t ever talk about them!.

Do what’s necessary to start communicating effectively about money. Otherwise, you run the risk of persistent disagreements, misalignment and flat out resentment about a really important part of life.

The opposite of falling into this trap?

A partnership where you can harness your respective energies, perspectives and beliefs into building the life you both desire.

Well worth the awkwardness and effort of effectively communicating.

3.  Lifestyle Inflation

I used to think it was as simple as not trying to keep up with the Joneses.

Don’t buy the brand new car, I used to think.

I mean, I still believe this, but it’s bigger than simply ignoring those damned Joneses.

Everywhere you look, there’s pressure to spend more money on things you don’t need.

And this pressure is directly proportional to your earnings. As they increase – thank you, pay rise and bonus – the pressure to spend more does as well.

“Just this once.”

“I deserve this.”

“As a reward to myself/my family/whoever.”

“Everyone else at my level has this thing, so I must have it too.”

But what this really does is usurp your priorities for your financial life – and replaces them with what others have decided is important.  

Which is why a strong plan (see point 1) and, ideally, a relationship built on communication (point 2) are so important.

These are the shield and sword that help you to fight off these endless temptations. Which empowers you to keep control of your own financial situation.

Put another way – who really benefits from you using your credit card to over-spend at Christmas? It’s not you. It’s not future you. Arguably, it’s not your family either.

So arm yourself with the tools and weapons you need to fight off this lifestyle inflation.

4.  Neglecting Your Safety Net

Bear with me while we stumble down a worst-case scenario laneway.

Imagine the awful situation where you’ve had a car accident.

You survive, but you’re left with severely broken legs and end up in traction. You’re incapacitated for the next three months, racking up medical bills from day one. Sure, TAC will kick in at some stage and help out, but you are – effectively – on your own.

What’s your financial back up plan in such an event?

What do you use to meet those expenses that don’t stop? Mortgage repayments, utility bills, groceries, school fees, all those parts of life that continue.

This is what your safety net is for.

Like a performer gliding along a high wire, there is a chance that any of us will slip and fall at some stage in our lives.

And when we do, we need a safety net to catch us before we crash into the unforgiving ground.

What kind of state is your safety net in?

Is it strong, bouncy, high off the ground and ready to catch you when you fall from life’s high wire?

Or is it a bit ratty, loose in places, few holes here and there and lower to the ground than you’d prefer?

Or, do you not have one at all?

Are you sliding along life’s high wire, maybe with a family on your back, without a safety net?

How does that make you feel?

This trap is serious, and increasingly common. We all need a cash buffer behind us, that helps us through life’s crises.

Three months cash, as a minimum, with six months sitting in a savings account a sign of really healthy finances.

And, no, spare capacity on a credit card doesn’t count.  

And that’s Part 1 of my 9 Traps People in their 40s Should Be Aware Of. I’m going to stop it there because I’m on track to hit the 3,000 word mark and that seems more a feat of endurance for readers than a blog post!

So be sure to return next week to find out the other 5 traps people in their 40s should try to avoid.