The 40s are, for many people, a critical decade for building wealth. Income is usually on the rise, but so are expenses such as mortgages and school fees. Juggling priorities can be a real challenge, and mistakes made in this stage of life can have a large bearing on the size of your future fortune.

If you're entering or already amidst this decade of life, here are a few classic mistakes to be aware of.

1. Forgetting about superannuation

Retirement is decades away, so why pay attention to super at this time of life? Because putting that time to use can generate big rewards.

For example: if, on turning 40, you decided to contribute an additional $5,000 per year to your super fund, it could earn 7% per annum after fees and tax. By the time you turn 50, your super balance will potentially be $69,000 higher than if you hadn't made the additional contributions. By age 65, the extra contributions made during your 40s could potentially add $316,000 more to your super fund!

Depending on individual circumstances, strategies involving salary sacrifice, spouse contributions and government co-contributions could further boost your super.

2. Buying a big house in the best suburb

It may seem sensible to buy an expensive home if you're planning on living there long term with the expectancy it will appreciate in value. However, the bigger the mortgage the greater the risk of experiencing financial stress and of reaching retirement with a substantial home loan still hanging over your head.

Life is more enjoyable (and isn't that what it's really all about?) if your budget makes room for some good times now rather than saddling yourself with major debt that requires gratification to be constantly delayed.

3. Over-spending on a new car

Much as you may love that new-car leather-seat smell, borrowing money to buy an expensive new car is an easy way of eroding wealth. New cars shed value fast, leaving you paying interest on a loan that can quickly exceed the value of the car.

A practical piece of advice is to drive the cheapest car your ego will allow as sensible car buying can add hundreds of thousands of dollars to your future wealth.

4. The wrong insurance mix

If you're like most Australians your personal and property insurance coverage probably isn't up to scratch.

Yes, insurance premiums can be expensive, but the consequences of inadequate insurance can be financially (and emotionally) devastating. While it may be a straightforward exercise to work out how much insurance you need on your home, contents and car, your needs for personal insurances (life and disability cover) differ. Expert advice will help you decide on the most appropriate cover.

Also, check you're not paying for 'junk' insurance. Accident cover is a common example. It might be cheap, but only because it provides very limited protection.

Learn more about Auswide Bank insurance options. Auswide Bank offers a variety of quality insurance covers to help protect you and your family from loss and hardship caused by unexpected circumstances.

5. Feeling immortal

The likelihood you will pass or become severely disabled during your 40s may be fairly small, but accidents can and do happen.

Do you have a Will and have you given someone your power of attorney? Are both current? Your Will and power of attorney are important documents, and should be reviewed regularly.

This information provides general advice only. We do not provide advice based on any consideration of your personal objectives, needs or circumstances. Some content reproduced with permission.

Published: Tuesday, 19 Jul 2022