Note: This post was first published in June 2020 and updated in January 2022
Much as we hate to admit it, there will come a time when our glorious twenties and happy thirties will be well behind us.
Yours truly is a case in point.
If you are fortunate enough to have focused on personal finance matters early on, you may be entering the next decade with a sense of optimism and self-satisfaction.
For others, it may be an overwhelming desire to reach back through time and punch your younger self in the face.
Why-or-why didn’t we make the right decisions back then?
Oh, just how helpful it would have been to have the benefit of two decades’ worth of saving and compounding.
In other words, this:
Thankfully for your twenty-year-old self, time travel hasn’t yet been invented.
Which is just as well. Because if you don’t start building wealth right now, your sixty-year-old self is going to pull out all stops, and actually find a way to go back and give you the bollocking of your life.
The good news about being in your forties is that while you might be late getting off the start line, there are advantages too.
You are probably further along in your career – with an increase in earnings to boot.
By now, your kids may well be out of those eyewateringly expensive early years, what with the daycare and everything.
And while some people will unfortunately start their forties with high levels of debt, many others will have accumulated some assets already.
Perhaps some equity in your house. A bit of a nest egg in your workplace pensions or 401(k) plans.
Most importantly, one would hope that by your forties, you will have developed enough self-esteem to stop caring about keeping up with the Joneses.
If you have a clear sense of your true priorities in life, building wealth becomes a much easier exercise.
Let’s get on with it:
1. Get Up To Speed On The Basics
Just because your younger years are behind you does not mean you get a pass on personal finance basics.
So start by learning everything you can about personal finance. Re-evaluate every single one of your expenses. Prioritize investments.
Most importantly, stay healthy. Early on in life, you can get away with just about any self-destructive habit. Not anymore.
Remember – an investment in yourself is the best kind of investment you could possibly make. Without it, your wealth-building journey is doomed from the start.
2. Get Rid Of Your Debt
Just do it. No ifs and buts (unless it’s mortgage debt, in which case see below).
Yes, you could really use that holiday. And it would sure feel nice to indulge in your hobbies.
But if you are using debt for any kind of non-essential spending, you are just putting on a nice pair of cement shoes.
That sixty-something version of yourself? He or she doesn’t care about a holiday. No, they just want to have the option of retiring in a comfortable and dignified way.
And if you don’t give it to them, they might just whip out the brass knuckle.
So do whatever it takes. Pay it off. Get on with life.
3. Focus On Deferred Savings Vehicles
Let’s face it – if you are just starting out, retiring early may well be out of the question. But that’s not necessarily a bad thing, as it can actually simplify the task at hand.
Here in the UK, one of the biggest issues presented by early retirement is figuring out how to allocate investments between your pension and your ISA.
Thankfully, that’s not something you have to worry about. Now is the time to go full throttle on your workplace pensions – and get the wonderful employer matching and tax breaks.
If you happen to be in a higher tax bracket by now, that helps juice your returns even more.
What also should help is the fact that retirement is actually not that far away. Many younger people dismiss workplace pensions / 401(k) plans because they don’t feel comfortable locking up the money for such a long period of time.
Well, you no longer have that problem.
With retirement just a decade or two away, there’s no reason not to pile into whatever deferred savings vehicle that may be on offer.
In other words, give them all the love free money can buy.
4. Stock Market Is Still Key – But Don’t Forget Bonds
It might not seem like you’ve got a lot of runway, but you do.
With retirement still a decade or two away, you simply can’t afford to miss out on the compounding superpower of the stock market.
That being said, perhaps there’s a place in your portfolio for a sprinkling of bonds.
Yes, they do eat into your returns. But in return, they provide a cushion against near-term volatility, reducing the likelihood of you doing something silly – and losing even more money along the way.
If the market selloff over the past few weeks has had you reaching for the “SELL” button, remember this – it’s much better to sacrifice a few points of long-term returns than to panic, sell in a correction, and crystallize a loss.
And as you gear up for actual retirement, having a portion of your investments in bonds can ensure you get to dictate the timetable, not the stock market.
So read up on investing in bonds. They are guaranteed to be a good, reliable friend on the journey.
5. Focus On Longevity Of Work
It can be appealing to try and do everything you can to shorten the time to retirement.
Unfortunately, the numbers don’t lie. Getting from zero to hero (where hero means leaving your job behind) in 10 years is a tall ask. It requires diligence, discipline, and a pretty punchy savings rate.
Doing so in 20 years is much, much easier – and enjoyable.
So as you plan your career going forward, you may well be better off in lower-pay, lower-impact jobs.
Much better to do something enjoyable for 20 years than to spend the next 15 hating your boss – and your life.
6. Mind Your Mortgage
For most people (myself included), retiring with a mortgage can be the biggest anathema of them all.
It simply doesn’t feel right. And so the temptation may be to channel every free pound / dollar / euro into repaying your mortgage ASAP.
Unfortunately, this strategy can often be highly counterproductive, especially in today’s world of ultra-low interest rates.
One of the first posts I wrote on this blog was on this very topic.
I’ve also subsequently written a post on some advanced considerations regarding early mortgage repayment.
Sure, there are advantages to clearing your mortgage. But if you are starting out late, you really need to consider all the pros and cons.
You may well be better off investing all the extra cash – and downsizing to a fully paid-off house at some point.
There’s also the option of using the equity in your home to buy a place in a lower-cost location (Spain or Costa Rica, anyone?).
As nice as it feels to have a fully paid off home, you don’t want it to be the only asset in your name. That sixty-year-old version of yourself will not be happy.
Starting your journey to financial independence in your forties can feel like a tall ask. In many ways, it is.
But make no mistake: it’s not too late.
You still have plenty of time to move the dial in your career.
To take chances in and outside of work. To try and fail – until you finally succeed.
Time is still your friend. You’ve got decades and decades of runway to let compound interest work its magic.
You are no longer shackled by unhelpful preconceptions you may have held earlier in life. You know where your priorities lie – and what it will take to achieve them.
Most importantly – you are not alone. Plenty of people have walked this path before – with amazing outcomes.
And plenty of others (at least in the personal finance blogosphere) are there to help support you along the way.
So press on the gas – and enjoy the journey!
About Banker On Fire
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Banker On FIRE is a London-based M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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