Is it too late to turn around your finances in your 40s?

The 8th wonder of the world’s power has diminished

Around three years ago me and my wife sat down and faced our debt. We had a house yes, but we had heaps of consumer debt following a holiday to Cuba and deciding that Cyprus would be the best place to get married. Our journey out of debt hasn’t been an easy one but as we approach our mid-forties we are looking at gaining wealth and even planning for eventual retirement but all the videos and literature we read focuses upon years and years of compound interest — Einstein is meant to have called compound interest the 8th wonder of the world. So, in your 40s is it too late to reap the real benefits of compound interest?

Our journey

We spent our 20s and 30s thinking we were good with money with no real idea of how clueless we were. We earnt ok money — I’m a teacher and my wife, a teaching assistant so nothing flash but enough you’d think to survive and wouldn’t need to take on debt. We took on debt, thinking we’d easily pay it off and everyone does it.

Our lightbulb moment came three years ago when yet another round of opening a 0% credit card to pay off another credit card. We came not quite unstuck but it was more difficult than usual. This then led to us totalling all our debts and reaching a truly horrifying figure. We discussed bankrupcy but felt that we’d taken on the debt and we worked full time so morally we should pay it off.

Research

So over the past three years we’ve learnt that we should have started saving and investing in our teens or at the very latest early 20s — damn we’ve well missed the boat! So many financial videos, podcasts and articles are aimed at millenials and encouraging them to save and invest young. Then they’d be a flippant it’s never to late to turns things around but with no real advice/hope. Looking at various compound interest charts and keying in the numbers, 30 years plus is needed to get the real benefits — that’d put us in our mid 70s!

Your 40s

If like us, you’ve reached this decade in debt and a minus net worth, it isn’t too late but you really need to start now to turn things around. I’ve had/got friends on low incomes who admit to being “shit” with money and say they’ve never got anything to put away for saving. The conundrum becomes more complex as they’ve spent a least a couple of decades living like this. It’s habitual and needs to break. Our experience has taught us that it is true that evening putting the slightest bit into savings/investments leads to healthy habits.

We got to this stage and have been pretty full on ever since. Wiping out debt was stage one. Stage two was saving and investing. Investing in our retirement and wondering if we would need to continue working well into our 70s! We now have a strong focus and plan to retirement in our mid 60s — we won’t have the luxury retirement (but few teachers do!) but we will, for us, be comfortable and if we want to work part-time to keep us occupied then so be it.

The best thing we ever did was wake up, smell the coffee (made at home, not a pricey takeaway one!) and get intentional.

New habits

Aside from a mortgage, which yes I know is debt, we have no debt whatsoever and intend never to take on any more. There’s loads of arguments for “good debt” but we have decided that our new habits need to continue so we never go back to mindset of putting a $8000 dollar holiday on a credit card — paying nothing off before the holiday and then thinking that it would be easy to pay off afterwards (as if you’re going to be so motivated to pay off a holiday from the past). One big change in mindset is that when we get an increase at work, we are no longer increasing our lifestyle. This took time as previously we’d told ourselves that we deserved the treat. We had an issue with entitlement.

10% of our wages goes straight into a retirement fund and my wife starting this year is able to save 100%, yes 100% of her salary. Wow, what a difference three years makes. We also invest in ETFs and a little with individual shares.

Our mortgage which has 20 years left to run, if we stay on track with be paid off in 6.

The biggest learning for us, wasn’t that we’d wasted time, left it too late but that we’d developed such shitty habits. Absolutely awful habits with money and the sad thing is we actually considered this to be normal. A life of debt is usual for so many people.

Conclusion

It’s true that it’s never too late to turn around your finances, do we wish we had started earlier — absolutely but we thank our lucky stars that we aren’t in our 60s, close to retirement and trying desperately to catch up. In your 40s, compound interest is still a “thing” and you can benefit from it — just nowhere as easy as if you had started earlier. The main thing is to start changing those habits, educate yourself and get intentional.