{"id":294,"date":"2019-11-20T01:33:38","date_gmt":"2019-11-20T01:33:38","guid":{"rendered":"https:\/\/prideadvice.com.au\/avoid-the-mid-life-crisis\/"},"modified":"2024-02-09T03:11:51","modified_gmt":"2024-02-09T03:11:51","slug":"avoid-the-mid-life-crisis","status":"publish","type":"post","link":"https:\/\/prideadvice.com.au\/avoid-the-mid-life-crisis\/","title":{"rendered":"Avoid the mid-life crisis"},"content":{"rendered":"\n

Brett Schatto from Pride Advice contributed to the Money Magazine November 2019 Edition cover story on debt management. Read an extract from the article below or check out Brett and Tony\u2019s chat about the article on the video “<\/em>Strategy Session – Managing the Debt Trap<\/em><\/a>“<\/em><\/p>\n\n\n\n

This\ntime of life is typically the consolidation and growth phase of your wealth-creation\njourney. At this stage, it\u2019s important to have a multi-pronged approach that\nincludes strategies to reduce your debts and at the same time grow your assets.\n<\/p>\n\n\n\n

\u201cReducing\nyour debt may look appealing as it delivers a risk-free and often tax-effective\nbenefit to your financial position,\u201d says Pete Pennicott, a director and\nfinancial adviser at Pekada. \u201cBut that is only half of the story. In the\nextremely low interest rate environment, you need to consider the opportunity\ncost of debt reduction versus investing into growth assets which, over time,\nhave proven to deliver greater returns than mortgage rates.\u201d <\/p>\n\n\n\n

Having\nfunds sitting in an everyday bank or online savings account is rarely the best option\nif you do have debts. This is because the earnings rate is generally lower than\nyour loan interest rate and is also subject to income tax. <\/p>\n\n\n\n

\u201cA\nbetter use in most cases will be to hold the funds in an offset account, which\nreduces interest payable but still provides at-call access to the funds. An\noffset account is really a no-brainer if you have a home loan, as it is a\nsimple and risk-free way to make your loan payments go further,\u201d says\nPennicott. <\/p>\n\n\n\n

In\na falling interest rate environment a good piece of advice is to maintain your loan\nrepayments at their current rate even when the minimum amount is reduced due to\nlower interest rates. This means more of your payment goes towards reducing the\nloan\u2019s principle and accelerating your path to becoming debt free. <\/p>\n\n\n\n

It\u2019s\nalso important to acknowledge that it can be difficult to reduce debt and save\nat this time of life because there are many demands for your money. Your 40s\nand 50s are also likely to be the years when you\u2019re saddled with the most debt\nthanks to a mortgage on your home. \u201cYou may need a bigger home as your kids get\nolder. Then, there are all the additional out-of-pocket expenses such as the\ncost of running a second car to get the kids to sport, laptops and school\nequipment, mobile phones, clothes, parties and holidays. <\/p>\n\n\n\n

\u201cIt\u2019s easy to lose track of spending and take your eye off your goals during this stage. So it\u2019s important to ensure your retirement savings are working efficiently at this stage,\u201d says Brett Schatto, chief executive of Pride Advice in Adelaide. <\/strong><\/p>\n\n\n\n

These\nyears are also the ultimate income-generating years if you have worked hard and\nare at the peak of your working life potential. This means it\u2019s critical to\nhave a plan for these years to make sure you maximise every dollar to help you\non the road to financial independence. <\/p>\n\n\n\n

\u201cRegularly\nreview your mortgage repayments. And if you\u2019re keen to invest, ensure you pay\noff any bad debt first,\u201d says financial planner Gianna Thomson. <\/p>\n\n\n\n

Good\ndebts are investment debts that are tax deductible, particularly where the growth\nand income from the investment are more than the cost of debt. Bad debt\nincludes consumer debt such as credit cards, buy now, pay later services and\npersonal car loans. <\/p>\n\n\n\n

Depending\non your circumstances, you may feel comfortable forgoing higher debt repayments\nto focus on salary sacrificing into your superannuation fund. This reduces your\nincome and tax payable. <\/p>\n\n\n\n

\u201cIf\nthis is the approach you choose, a taxfree lump sum could be withdrawn from your\nsuper when you retire to pay off your mortgage,\u201d says Thomson. It\u2019s also\nimportant to recognise that illness and injury can be a problem for this group.\n\u201cIf you don\u2019t have personal insurances in place, people often use their credit\ncard or redraw to fund medical expenses,\u201d says Thomson. <\/p>\n\n\n\n

To\navoid this situation, ensure you have the right income protection and trauma\ninsurance in place early in life. If you do fall ill, an option may be to\nreduce your repayments by switching from a principle and interest to\ninterest-only mortgage. <\/p>\n\n\n\n

Try\nto avoid getting into debt to pay school fees during these years. Thomson says\nher son was born in September this year and he already has an education fund.\nOne idea is to use online calculators that help with estimating the cost of\nprivate schooling or university and how much you need to save or invest every\nmonth. <\/p>\n\n\n\n

During\nthese years, another option may be to use the equity in your home to free up\ncash flow that can be allocated to debt-recycling strategies such as converting\nthe equity from the main home into a line of credit. This may be applicable for\npeople who have paid off half or more of their home loan. <\/p>\n\n\n\n

\u201cThis\nmay be an efficient way of creating a productive asset such as an investment portfolio.\nSurplus cash flow or savings are used to reduce the outstanding home loan balance,\nreducing non-deductible debt and converting this into tax-deductible debt,\u201d says\nMike Lawson, from About the Goal Financial Solutions. <\/p>\n\n\n\n

\u201cThis\nprocess can continue until the home loan is repaid. When this is done, surplus income\ncan be used to acquire additional investments or pay down the investment loan. <\/p>\n\n\n\n

The\nmiddle life years can also be when the risk of \u201csexually transmitted debt\u201d \u2013\ndebt you catch from your partner \u2013 is highest. <\/p>\n\n\n\n

\u201cIt\u2019s\nnot necessarily malicious, but the end result, whether or not the relationship\nhas ended, is you can end up with debt simply from being in that relationship,\u201d\nsays FinFit\u2019s Donna Sgangarella. <\/p>\n\n\n\n

\u201cSexually\ntransmitted debt can be long lasting and very damaging. Communication is key\nbetween partners. You need to openly talk about your finances and ask this\nsimple question: what would happen if everything was to go wrong? <\/p>\n","protected":false},"excerpt":{"rendered":"

Brett Schatto from Pride Advice contributed to the Money Magazine November 2019 Edition cover story on debt management. Click to read an extract from the article or check out Brett and Tony\u2019s chat about the article on the video “Strategy Session – Managing the Debt Trap”<\/p>\n","protected":false},"author":3,"featured_media":295,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_uag_custom_page_level_css":"","_price":"","_stock":"","_tribe_ticket_header":"","_tribe_default_ticket_provider":"","_tribe_ticket_capacity":"0","_ticket_start_date":"","_ticket_end_date":"","_tribe_ticket_show_description":"","_tribe_ticket_show_not_going":false,"_tribe_ticket_use_global_stock":"","_tribe_ticket_global_stock_level":"","_global_stock_mode":"","_global_stock_cap":"","_tribe_rsvp_for_event":"","_tribe_ticket_going_count":"","_tribe_ticket_not_going_count":"","_tribe_tickets_list":"[]","_tribe_ticket_has_attendee_info_fields":false,"footnotes":""},"categories":[7],"tags":[],"acf":[],"yoast_head":"\nAvoid the mid-life crisis - Pride Advice<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/prideadvice.com.au\/avoid-the-mid-life-crisis\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Avoid the mid-life crisis - Pride Advice\" \/>\n<meta property=\"og:description\" content=\"Brett Schatto from Pride Advice contributed to the Money Magazine November 2019 Edition cover story on debt management. 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