The 40s are a turning point for most Australians. It’s a time of high earnings, and if you are in your 40s it's halfway between entering the workforce and the traditional retirement age. How you invest and save for retirement in your 40s can strongly impact your future assets.
By the time most people are in their 40s, increasing their asset base is high on the “to do” list as well as paying down bad debt.
Now that you are in your 40s it’s important that you don’t make big financial mistakes. It's fine if you are in your 20s but not 40s as you have less time to make it up before retirement and it may mean that you have to work longer than expected. But do note that investing has it’s risks, but doing nothing is more risky as it gives you just that, nothing.
So if you want to know how to become rich in your 40s it's not achieved by doing nothing, let me explain.
Before you start to adventure into purchasing assets that you can invest in you need to do some housekeeping making sure it’s all in order.
Firstly, make sure you have an emergency fund set up. At this time in your life you don’t want to be going into more bad debt than you need to. You may have a family which means you need money to pay for all your living expenses if you happen to lose your job or business. Health issues, redundancies or freaks of nature ruin any plans to get ahead.
A well-stocked emergency bank account which would equate to 6 months of one person’s wage needs to be setup if you haven’t already. The ultimate would be 12 months depending on where you live and your circumstances. Not only will this give you piece of mind but when something does happen you can concentrate on the emergency rather than the money.
Secondly, financial planning in your 40s is so important. Become debt free asap by getting rid of any bad debt including, student loan, personal loans, credit cards or car loan etc, these bad debts have high interest rates and need to be paid off in your 40s. You don’t want these types of bad debts in your 50s. As you plan how to build wealth in your 40s, you need to be getting rid of these types of bad debts allowing you to use the extra money you put towards investments that are building wealth in your 40s.
The faster you can pay any bad debt off the faster you can begin building wealth in your 40s.
Looking to purchase an investment property? Everyone is different and it's important to understand where you are and where you want to go. We can help you find out how to become rich in your 40s by investing in property. Contact us for a Free Wealth Building Consultation Here Today.
Finally, before we get into building wealth in your 40s and investing in your 40s. You need to make sure you have your paperwork in order.
Whether or not you have assets or a family you need to think about the people around you and how they will continue on if you were suddenly taken from this earth and I don’t mean on Richard Branson’s Virgin Galactic.
Estate planning in your 40s is so important that there is no point investing in your 40s if you don't have these documents completed.
Will. A Will is a legal document that sets out who you want to receive your assets when you die. Making a Will is the only way you can ensure your assets will be distributed according to your wishes when you die. Studies show that at least 45% of Australians do not have a valid Will.
If you die without a Will your estate will be distributed according to a pre-determined formula and, if your only living relatives are more distant than cousins, your estate will pass to the government. Source NSW Govt
The second part to a Will (which you will complete at the same time) is a Power of Attorney, this is where you appoint someone to conduct your affairs if you are unable to so.
Now that you have created the emergency fund, paid off any bad debts, arranged your estate planning you can now look at how to become rich in your 40s.
Use your equity or save a deposit to purchase a rental property, pay down the debt and or purchase another investment property. Make sure you do your research before buying.
Buying shares can be exciting but if you are a beginner get educated and don't risk money you don't have. Stick to blue chip shares in Australia or America .
You may have setup your super in your 20's and still only contributing the minimum amount. Look at increasing your contribution, even if its only 1%, it will make a big difference.
If you are still in the mindset of buying expensive cars, eating out most nights and having luxury holidays then this part is not for you. How to become rich in your 40s is all about sacrificing the now for the future. Which means not spending on things that aren't going to make you money for your retirement.
Though we don't want to be the grinch of fun, you can still enjoy a holiday and buy a car, just think about your choices and whether they will hinder your chances of investing after 40. Do you need to buy a $60,000 car when a $25,000 car would suit just fine, you could put that extra $35,000 into an investment property?
We specialise in investment properties, and as investing in property is investing in bricks and mortar, you can actually see your asset. Unlike the abstract and quite often confusing share market. Although both require experts in their own fields to effectively manage it for you, property is proven to be the most stable, over a long period of time.
With an established financial foundation in place, you can access the equity in your own home, using it wisely to become an investor, and reaping the benefits of a well thought out plan, so that your next phase 50 -60 planning your retirement will happen easily, through creating passive income.
It’s about the long game, the long game, as our motto suggests is “Buy Property and wait, don’t wait to buy property.”
When you become an investor in property, you are playing the long game. Capital growth will happen, as will fluctuations in the market. Yet the downturns are always followed by growth. With the right team by your side, the right properties, in the sought-after locations means that your long game not only has capital growth, it also has long term quality tenants paying rent, which in turn pays for the loan on your investment property.
The Australian Tax Office (ATO) considers you a small business owner, the property being your business, and as such you are entitled to the tax deductions associated with your small business. You save in income tax, grow your investment portfolio, your tenant and the ATO combined, pay most if not all your outgoings, and if there is a shortfall, this is tax deduction on your own earnings.
So, as your property increases in value, you can then use that equity to purchase your second investment property. And repeat!
Why would you do this?
To begin with, through the right financial structures in place, you have the opportunity to own your own home a lot sooner.
Then, you can concentrate on paying down your first investment property, then your second and so on.
The long game is to reach the point where you own all your properties, then planning and implementing your retirement strategy becomes a reality. At that stage, the passive income you’re receiving from your investment properties, together with your superannuation has you retiring and living a more than comfortable retirement.
Did you know that the ABS thinks a comfortable retirement for a couple is living on $58,000 per year (pre-tax)? We think you deserve a far more comfortable retirement, and we are certain you do too!
So, where/how do you start the process of your first investment property?
Assemble your team of professionals, your property strategist, property management, finance broker, accountant, solicitor and rental agent. We are all specialists in our chosen fields, however, when it comes to property investment, it’s best to let those who specialise in the myriad of steps involved to take care of it for you, and you go about what you’re good at. It’s the same as taking your car to a mechanic to get it repaired, rather than being a “Jack of all Trades” and master of none.
The first property you buy is essential for how to become rich in your 40s. This property will act as the springboard for your future portfolio. With your team of specialists by your side, and at this stage it is your property strategists’ role to find a property that will perform above average when it comes to capital growth. Your property strategist will also educate you on the difference between risk management and risk avoidance.
All investments contain an element of risk. If you get stuck in risk avoidance, you’ll basically do nothing, and eventually retire on the pension. Risk management on the other hand, is about identifying potential risk and then taking actions to minimise the potential loss.
Some common risk managements strategies are to take out life insurance, and income protection insurance. Having landlord’s insurance. Maintaining a financial buffer to see you through times of economic turbulence. The most important strategy is surrounding yourself with a good team who will give you a level perspective, sound advice, and implement all risk management strategies suitable to your individual needs.
Your strategist will also coach you on your long game on how to become rich in your 40s.
However! It is the best get rich slow strategy.
It takes time to get rich through property. There are countless books telling you stories of people getting rich, becoming multi-millionaires in property in short periods of time. Beware the pitfalls of thinking this is that easy! It isn’t, and no one has written the sequels on how they lost all that in even a shorter time, or what they did to achieve it “behind the scenes”.
It takes 2 to 3 cycles of the property market to build a substantial asset base, so you need to hold onto your properties for the length of time it takes for the effects of compounding to work. With the right strategy this is achievable, repeatable and successful.
Talk to us and we will show you how with our step by step process to becoming rich in your 40s.
Bad debt is any debt that costs you money that
you have to repay from your earnings.
Good debt, on the other hand, is debt that you have, that someone else pays
e.g. your tenant through renting your investment property.,
and the tax department, through reducing your income tax
again, because you have an investment property.
Different types of investment carry different levels of risk which can influence the returns you may receive.
A good way to manage risk can be to spread your investments across different asset classes.
Do Your Research
There is a lot of information online about investing, take into account your affordability and avoid any get rich quick investments.
Now that you are in your 40s you will be wanting to find a way to get your money to work just as hard as you do.
Of course you need a deposit to purchase an investment property. Now that you are in your 40s you may already own your own home, but still have a mortgage. That's fine but what you may not know is that you could have equity in your property to use as the deposit.
Most people will access equity from their own home to purchase their first investment property. Equity is the difference between the current value of your home and how much you owe on it (your current mortgage). It is the portion of your home that you actually own, & as such you can borrow some of this portion.
So, if your home is worth $500,000 and you still owe $300,000 then your equity is $200,000.
The good news is, you can use equity as security with the banks. This means you can borrow against your equity to purchase an investment property, and by doing just that, you turn some of your “bad debt” into “good debt”.
Buying an investment property gets you started on creating your own investment portfolio and securing your future wealth and retirement plans.
Now there is a difference between total equity (in this case the $200,000 mentioned above) and usable equity. Banks will usually lend you 80% of the value of your home, less the debt you already have. This is your usable equity. The bank is lending this to you against the value of your home, so they won’t lend you the full amount.
Using our example above, your home is worth $500,000, and you still owe $300,000, here’s the math:
Your property Value @ $500,000
Value of your property @ 80% = $ 400,000
Less your mortgage @ $300,000
You have usable equity of $100,000.
When it comes to buying an investment property, the simple rule is to multiply your usable equity by four to arrive at your maximum purchase price of your investment property.
The banks will lend you 80% - being $320,000 in this case, against the purchase, and the property costs $400,000. This leaves $80,000, which is your deposit. Add to your deposit, the costs associated with purchasing that property, such as stamp duty, legal fees etc. Usually around $20,000 on a $400,000 property.
So, the total funds needed to purchase a $400,000 investment property is now $100,000.
This is your usable equity, as shown in the calculations above.
Provided you can afford the new loan, together with your existing loan based on your income and expenses and including the projected rental income that your new purchase will afford you, the bank will lend you the money to start your investment journey.
However, always consider your own circumstances, and seek the help of a Mortgage Broker to keep your best interests in mind.
Using your home equity is a serious decision and squandering this on luxury cars and/or holidays will NOT be in your best interests. It takes years to build up equity in your home and turning that equity into more bad debt will not serve you well in the future, especially at retirement age. It's important to know how to invest in your 40s.
So, use your usable equity wisely, and ensure that the decisions you make today lead you to a wealthy future where planning for your retirement, through owning your properties, is your end game. Passive income is the key to a happy, more than comfortable retirement, in your mid 60’s or even before. It’s your choice!
We are surprised when businesses try to put you in the same box as everyone else. Being in your 40s is not the same as being in your 20s or 30s, we make sure we listen to you and your circumstances. Grab your free property investment planning consultation today here.
Once you develop the mindset of an investor and you understand the difference between saving with the intent of investing and saving to feel good that you have all this money just sitting in your bank account, which might be earning some interest yes, but did you know that the tax office sees that interest earned as income?
Well they do, and they will tax you on it too. Which is tax after you’ve already paid income tax on that same money! Talk about double-dipping!
Once you get the difference, then you begin to establish your property portfolio. Now that’s a really exciting time for you, as being in your 40s is time to kick your investing into gear and start to build towards your wealth creation retirement plan.
Don't get bogged down in thinking investing is not right for you. All this means is that you need to find out more about investing, what type of investments you should purchase and why you should. It's always frightening starting something new, but I can assure you investing is the right thing to do.
Have a chat with a financial adviser or try one of our property investment consultations.
How to become rich in your 40s is possible, but it won't happen by just earning a wage and putting your money in the bank. But you must start now, don't wait until your 50s.
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