The secrets of personal finance you must know before you turn 40

Your financial progress will take a leap forward once you learn these 20 things-to-know-before-40.

29 January 2016: The list of things to do before 40 has changed a lot over time. Some want to go skydiving, others want to travel the world and a few get a Harley motorcycle. However, there is one thing that will not change and is non negotiable: you can no longer be financially ignorant once you reach 40.

There are three basics of a solid financial foundation

Make sure you have no credit card debt. The next step is ensuring you maintain an emergency fund with enough money to get you out of a jam and lastly, your retirement account should be open and growing. The rest, including travel, owning a home and investments should come later.

How to structure a budget

Without a budget, you’re unlikely to achieve any of your financial goals. If you want to buy a home, pay off credit card debts or travelling, you will need to learn how to budget your money properly.

How much do you earn and spend each month?

This will tie into your budget planning. Calculate how much income you receive from your salary and other payments such as dividends or interest. Then work out what you spend so you can get your net income for each month.

Know what your prefect retirement will cost

There are several retirement calculators online that can help you crunch the numbers and figure out how much you'll need to earn for your perfect retirement. When you reach 40, you will need to know what you want from your retirement and if you can actually achieve those goals.

Figure out how much you’ve saved for retirement

Check out your super statements and balances to get an idea how much you’ve saved and how well your investment is performing. Since super is an investment, choose an option that will meet your performance needs. Higher risk options return much more than conservative options.

How does your significant other handle money?

Understand how your partner understands money and their thought process when it comes to finance. Here are some questions that you should ask your partner about their finances. Ask them about their job and if they want kids, and who would take care of them. Set your priorities straight and ask if you will spend money on travelling or your mortgage. Figure out who will keep track of your bank accounts. Are you natural “savers” or “spenders”? Or perhaps you want to invest your money into the market? Either way, you will have to figure all this out with your partner.

Are your parents financially stable?

Talk to your parents and get them to give you passwords and anything else you need to access their accounts so you can help them in their older years. You'll need to help them with insurance like health and long-term care. It might be a tough job to do, but you’ll be glad you did it so you can help your parents out financially.

Learn how to invest

Before investing your money into the market, learn the basics of the share market. You most certainly need to try and seek professional help before investing. You can do it by yourself but it’s a lot riskier if you don’t have a thorough knowledge of the market. Before you get started with your investments, make sure you have safe emergency funds so you can keep your retirement on track.

Do you have a good accountant?

It can be really easy to be overwhelmed by all the tricky parts of managing your finances. Try sitting down with a financial adviser or accountant to help manage your finances and taxes. However, if you feel as if you can do it yourself, then meeting with a financial professional is up to you.

Don't do these things if you buy a new place

Although renovating is a lot of fun, after you buy a house or take out a mortgage, it might not be the smartest thing to do. You would definitely go over your budget if you don’t set realistic expectations.

Do you know what “rebalancing” is?

In finance you want to make sure that your financial portfolios are in a position to grow whilst still protecting you in the event of a share market crash so you don't lose your money. Diversify your portfolio by having a variety of assets so you can avoid unnecessary financial risk.

Take out life insurance

Life insurance is a monthly premium whereby your covered if you lose your spouse or another income earner. If you or your spouse dies, you or your children won’t need to worry about financial problems.

Tame your daily splurges

If you’re in a habit of buying a $5 or more smoothie everyday, you might be aware of how much that would rack up in the course of one year. This habit could be holding you back from achieving your financial goals. So try and cut down on unnecessary spending habits to help encourage your financial success.

TV dinners

By 40, you should be pretty adept at cooking for yourself or your significant other. You probably have a signature dish that you like to stun your dinner guests with but on the off days, you may need a few cheaper suggestions. Any cheap TV dinner would do the trick. Penne pasta, wheat berry risotto and lamb stew are a few cheap and easy meals. Unfortunately, two minute noodles aren’t on the list.

How to ask for a pay rise

The best way to financial freedom is growing your income. Saving more than you spend will help but you should try asking for more money. Make sure you’re earning what you’re worth.

What is a will? Do I have to get one?

There are two types of wills: a last will and testament and a living will. The last will and testament is a legal document which details what needs to happen to your belongings once you've passed away. On the flip side, a living will is a health care initiative that gives instructions on how to care for you if you can't communicate. For example, if you're in a coma, it would be hard to communicate your desires.

What role do taxes play in your retirement?

Some super funds will make you pay taxes and others have no tax. To control your tax bracket, it’s good to have part of your income which is tax-free and taxable. It’s important to have diversity in your retirement tax situation.

Learn everything you can about interest

Simple interest is money that you can receive depending on the amount and time period you leave it at a bank (in terms of savings accounts). Compound interest is calculated more often so that it continually grows and gives you more money. Do some research on your bank and see what interest rates it offers for your accounts.

How your money can affect others

If you want to save the world, you don’t need to be a superhero. You can start by trying socially responsible investing. Recycling, donating to charity, eating organic and signing petitions are just a few of the ways to help out with your money. Deciding how to spend your money can really say something about your character and will end up making a difference.

A financial plan

Some people like budgets created in small stages - and that’s completely fine. However if you plan ahead, you'll be in a better position for the future and will make your money grow faster. Those who fail to plan are planning to fail. Whatever you choose to do, creating a financial plan will always help get you where you want to go.

It’s best to learn these things earlier on so you have a better chance at getting on top of your finances before they become too much of a hassle.

Shirley Liu

Shirley is's publisher for banking and investments. She is currently studying a Masters in Commerce (Finance) and is the author of hundreds of articles. She is passionate about helping Aussies make an informed decision, save money and find the best deal for their needs.

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