For many, your 40s are an important decade for building wealth.

But while your income may be rising, so are expenses such as mortgages and school tuitions. Choosing which priorities to focus on can be a real challenge.

Unfortunately, mistakes made during this stage of your life can have a big impact on your future wealth.

Forewarned is forearmed, so if you’re about to enter – or are already in the middle of – this decade of life, here are some classic mistakes to avoid.

1. Not paying attention to superannuation

Why bother with super when retirement feels decades away?  Because leveraging that time to grow your wealth can generate big rewards.

Let’s use Jo as an example. On turning 40, she decides to make additional contributions to her super fund.  She settles on $5,000 per year, after tax. There it earns 7% per annum after fees and tax.

By the time she turns 50, Jo’s superannuation balance could be $69,000 higher than if she hadn’t made additional contributions. Those extra contributions made during her 40s could add up to $316,000 more to Jo’s super fund by the time she’s 65!

There are a number of individual circumstances that will affect your results, but strategies including salary sacrifice, spouse contributions, and government co-contributions could further boost your super even more.

2. Buying the biggest house on the best street

Buying an expensive home that will appreciate in value might seem sensible. But a bigger mortgage also means a greater risk of financial stress.  Plus, you don’t want to reach retirement with a substantial home loan still hanging over your head.

A budget that allows for some good times now will make life much more enjoyable, and isn’t that what it’s really all about?  By contrast, saddling yourself with major debt may cause those good times to be constantly (maybe even permanently!) delayed.

3. Spending money you don’t have on a car you don’t need to impress people you don’t like

Borrowing money to buy an expensive new car is a classic way of eroding wealth.

As much as you may love that new-car leather-seat smell, new cars shed their value faster than a moulting moggie sheds hair.  And you end up paying interest on a loan that may quickly surpass the value of the car!  Not to mention that expensive cars often come with higher running costs as well.

Here’s an enduring piece of wealth creation advice:  drive the cheapest car your ego will allow. You can add hundreds of thousands of dollars to your future wealth through prudent car purchases.

4. The wrong insurance mix

If you’re like most Australians, your personal and property insurance coverage is inadequate.

We know – insurance premiums can be expensive.  But the consequences of inadequate insurance can be devastating, both financially and emotionally.

It is a fairly straightforward exercise to work out how much insurance you need on your home, contents and car, but your personal insurance needs (life and disability) differ. Deciding on the most appropriate cover is best done with expert help.

Also, make sure you’re not paying for ‘junk’ insurance. A common example is accident cover. It may be cheap, but that’s often only because it provides very limited protection.

5. Feeling immortal

Let’s get real.  While the likelihood that you will die or become severely disabled during your 40s might be fairly small, accidents can and do happen – regularly.

Making sure you have at least these basic provisions in place is crucial:

• Do you have a Will?
• Have you given someone your power of attorney (PoA)?
• Are they both current?

Your Will and PoA are important documents, and should be reviewed regularly.

Make the most of your 40s

It’s easy to avoid all of these mistakes with some planning and expert advice, so book in to speak with your financial adviser now. Avoiding even just some of these pitfalls can help you make the most of your 40s and really boost your future fortune.

Plan for your future today

Speak to a financial planner today to improve your position and stretch your dollar further.  

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This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.