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On a recent episode of the podcast “Suze Orman’s Women & Money (AndEveryone Smart Enough To Listen),” Orman fielded a question from a 40-year-old woman (aka MS) who wants to move out of the home she owns with minimal cost. I received it. Go straight to a stylish apartment.
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MS revealed on the podcast that he plans to use all or most of his cash on hand to upgrade, or take out minimal loans. But she said she has a precarious job and must be prepared to leave at any time. If that happens, Ms. MS has a contingency plan in place to liquidate her assets and return to her parents’ home in a cheaper country where she can live indefinitely.
Orman responded that MS’s thinking is illogical and explained why upgrading your lifestyle in your 40s is a financial risk.
Expenses, taxes, and retirement potential
Orman cited multiple reasons why MS’s decision to upgrade her lifestyle was a bad idea, including increased expenses, taxes and the possibility of retirement.
“You now own your home outright and don’t have any bills or anything,” she said. “And what you’re saying is you want to move to a fancier place, but then you have more expenses, more taxes, everything, and you don’t have a steady job. So you have to be ready to retire at any time.” No need.”
Savings for retirement decrease
Orman also pointed out that unnecessary spending can take you away from your retirement savings goals.
“So even if you’re 40, you’re still in the compounding year. Now’s not the time to spend money, so you need to save it, invest it, and be smart with your money.”
Another financial expert talks about lifestyle upgrades in your 40s
By the time you reach your 40s, you’ve likely already been working for more than 20 years, says Dr. Annie Cole, founder and money coach and editor of Money Essentials for Women. She pointed out that your efforts should start to pay off through promotions, raises, savings, etc.
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But even if it feels like the perfect time to treat yourself or improve your lifestyle, she says you should keep the following in mind before making any big changes.
Involves short-term and long-term risks
“Before making any big changes, it’s important to consider the short-term and long-term risks that can result in large expenses, such as higher monthly mortgage or car payments,” Cole recommended. “A general rule of thumb is to spend 50% of your after-tax salary on necessities, 30% on wants, and 20% on savings. If you make $150,000 a year after taxes, your monthly income is $12,500. That means you’re spending $6,250 on necessities, $3,750 on wants, and $2,500 on savings. So if you have room to add on a bigger car or mortgage payment, great! ”
However, Cole recommends keeping in mind that some purchases come with additional ongoing costs such as property taxes, insurance, and maintenance. “Be sure to add up the total cost and make sure you can afford it in your monthly budget,” she added.
long term financial goals
Additionally, Cole said it’s important to consider your long-term financial goals and see if lifestyle upgrades fit with those goals.
“For example, if you’ve been wanting to start traveling more every year, and you’re tempted to take money out of your savings or retirement to make that happen, now is the time to pause,” she recommended. “Temporarily reducing or pausing your retirement benefits in your 40s can have a significant impact on your ability to retire on time with a livable amount in the bank.”
Is it a good idea to upgrade your lifestyle from your 40s?
Cole said depending on your total income and the stability of that income, you may be in a position to upgrade your lifestyle into your 40s.
“If you’re spending significantly less than your income, have an emergency fund that covers six months’ worth of expenses, and have accumulated enough retirement funds to retire by at least age 65, you’re in a great position. Please start the upgrade,” she explained. “But before you do that, ask yourself one question: ‘Why am I making this lifestyle upgrade?'”
Cole says that if you’re motivated by the pressure to keep up with your neighbors, such as installing a new fence or repaving your driveway, it doesn’t give you much personal satisfaction. He said he might not be able to do so.
“Instead, if you deeply value family time and decide to invest some money in a vacation rental that everyone visits year-round, that purchase will bring you more joy and satisfaction.” “Sho,” she added.
