Financial Traps - Part 2
Welcome to part 2 of my 9 Financial Traps that People in their 40s Should Watch Out For. In my last post, I explained that, over my 15-odd years of providing financial advice, I’ve seen people fall into one of these traps in their 40s.
And often we’ve been asked to help get them out of it – which we often can. But it takes a lot more time, effort and expense to do that. Avoiding them altogether is a far better option!
So after exploring the first 4 traps:
Failing to Plan
Not Communicating
Lifestyle Inflation
Neglecting Your Safety Net
Let’s dive into the next 5:
1. Drowning in Debt
When I was in high school, my friends and I used to catch the bus to swim at Chelsea beach.
Anybody that’s paddled in the waters of the eastern side of the Port Philip Bay will know how you can stride out from the shore. You keep walking, the water keeps getting deeper. And deeper.
And, depending on the tide, deeper again until it’s just about over your head.
This is what too much debt can feel like.
You don’t start with the water over your head. It happens over time, step by step.
It starts with a credit card. Then a car loan. Maybe a Centrelink debt. Then another credit card.
Then a mortgage, maybe a personal loan.
Then another car loan, because you got that new job and you deserve a new car.
Then a caravan – why not – and a fair bit on Afterpay.
And all of sudden, the waters tickling your nostril hairs.
The good news – and, again, familiar to anybody that’s been to these beaches – is that if you keep walking, soon you come upon a sandbar.
And it starts to get a bit shallower. A bit easier. You can breathe again as the water dips below your shoulders, your chest, waist, then your knees.
You find yourself standing atop a sandbar, with the sun burning down on the top of your head.
The moral to this – you can get out of the deep water. You don’t have to stay there, desperately hoping that the tide will go out (it might come in, after all – ask the RBA) or that you’ll be able to stay afloat somehow.
No, the best way out of this trap is to to keep going, with intention and direction, until you can get back to dry(er) land.
The trick is to know which way to go, how to get there and not drowning in the meantime.
2. Spending Too Much On Your Kids
I have no data for this, but I’m confident that one of the most important and popular aspirations people have is to give their kids a better life than they had.
It’s an almost universal goal, but heavy with nuance.
Because what does better mean? More loving? More comfortable? More supportive? More secure? More communicative?
This decision or position is much easier for people who have taken the time to clarify their values and priorities.
But for many other people, this desire tends to translate into two different decisions:
a) Put them through private school.
b) Spend lots of money on them.
Both of these reactions are eminently understandable – a private school education should be better than a public school one. And when you haven’t had a lot in your childhood, the instinctive desire to buy things for your kids makes sense.
Where it becomes a trap, though, is when you end up over-spending on the kids.
Take, as an example, the fees for one of the prominent private schools in Ballarat – Ballarat Grammar. With a strong reputation as a great school, the fees are significant:
Primary School (as of 2024) - $77,980.
Secondary School (as of 2024) - $131,080.
TOTAL: $209,060.
This, I should highlight, is for one child.
Again – a worthy expense.
But, at what cost? If paying for this form of education, out of a desire to give the kids a ‘better’ life, is going to compromise on your life – now and in retirement – then it comes perilously close to looking like a ‘trap’.
The same applies to buying the kids heaps of things and experiences.
A backyard filled with swings, cubbies, trampolines and monkey bars costs real money. And that real money comes from somewhere.
Every dollar spent there is a dollar that can’t be put towards paying down debt, or accumulating assets, or darning your safety net, or preparing for retirement.
There’s nothing inherently wrong with this – if you can afford it.
But if you can’t, and you’re compromising your financial present and future for a hard-to-define ‘better’ life for your kids, then you may have stumbled into the best-intentioned trap in this list.
3. Ignoring Insurance
Insurance is the worst. It’s expensive, getting underwritten is invasive and dragging a claim out of the insurer makes pulling teeth look like a holiday.
However.
Let’s revisit the car accident I mentioned back in the safety net point above.
But in this version, you’re paralysed and won’t ever be able to return to work.
An awful, life-changing moment.
Imagine, though, that in that moment you either had the peace of mind that comes with knowing you have $1.5m of disability insurance in place, that you and your family can use to clear your debt, fund living expenses and cover the quickly-multiplying medical bills.
Now imagine you don’t have that.
For all the pain, expense and counter-logic of it (you’re paying for a product you hope to never use!), this is where insurance is needed.
And given that your 40s are often where you are at peak debt, peak fiscal obligations and near the peak of your earnings, not having insurance in your 40s is like putting your foot in the bear trap and hoping it doesn’t go off.
4. Impulse Investing
Remember way back in point 1., where I trumpeted the benefits of having a solid plan in place?
Well, when you don’t, you’re running the risk of indulging in impulse investing.
You may not have heard of the term, but you may know the experience.
The people who hop on to every investing fad that pollutes their Instagram feed. Crypto. Whiskey barrels. Gold. Ostriches. Vending machines.
All of them promise great returns, excitement and the benefits only those in the know (like you!) can access.
But when you have no other plan, no other framework you can hang these investments on, they’re as damaging as the impulse purchase you made that night after a few too many wines (I’m looking at you, weirdly useless knife sharpener).
Impulse investing is a trap for two reasons. First, obviously, they’ll probably damage your financial situation. See: the crypto rollercoaster.
But second, they also give you the illusion that you’re making progress with your finances.
So you feel like you’re doing something, the right thing even, when really you’re just stuck gawking at the shiny thing distracting you from the hard graft of responsible finances.
5. Kicking the Can Down the Road
Now, I’ll try to limit how much of my own on-the-cusp-of-40 existential dread creeps into this part, but the reality is that the time you have left to build your best financial life is running lower than it was 5, 10 years ago.
Which doesn’t make it hyper urgent that you do something, anything, right now in a dust cloud of panic.
What it does mean, instead, is that kicking the can down the road is going to limit the peak of what your finances can do.
For plenty of reasons – not least of which is compounding – procrastination is going to lead to missed opportunities and additional stress for you.
I’m a big believer that it’s better to make a wrong decision than no decision at all.
Buy the house, or don’t buy the house. Whatever you do, don’t spend the next 4 years debating whether you should buy it or not.
Now, don’t rush big decisions – but don’t sit on them forever, hoping for the perfect day when everything lines up and you can do it all without taking any risk.
Those perfect days don’t really exist.
Most people understand that every financial decision involves risk. Doing one thing means there’s a risk that it could go wrong.
But what a lot of people forget is that the decisions you don’t make also carry risk.
If you delay your decision for too long – months, years – then you’re putting part of your life on hold. And that has real costs and consequences.
So take action – start planning, start doing, and start moving!
None of these traps are terminal – but blindly stumbling into any of them won’t help you build your best financial life.
You’ll also notice that the easiest way to avoid them is to be intentional about your finances and your life. It’s easy to drift along and suddenly find yourself caught in the teeth of the insurance, or debt, traps.
Of course, life happens – we get busy, our own life admin gets pushed aside as more urgent, exciting or interesting things come along.
But another truism is that while life happens, reality doesn’t care.
Each of these traps has the potential to set your finances back – significantly. And having seen the pressure, worries and damage that can do to people’s financial psyche, I strongly encourage you to avoid them.
Instead, be deliberate about the life you want, and harness your financial future to that.
It may not work out exactly as planned – but you’ll be giving yourself a far better chance than if you just keep drifting along.