Are you guilty of these five midlife money myths?

Midlife can be a challenging period when everything seems to weigh heavily on us. Most people in this stage are at the top of their game and under pressure to keep rising. They’re earning the biggest bucks they’ll ever earn.

But they’re also likely saddled with the tail end of the largest mortgage and the most financial responsibilities they’ll ever carry.

They’ve got teenagers or young adults in their home, ageing parents looking for support, a partner they barely find time for and a career they have to keep looking invested in. And they feel the pressure of planning for retirement, too. No wonder so many of us end up in midlife crisis.

Trying to ‘keep up with the Joneses’ can be something many people fall victim to as they get older.Credit: Simon Letch

To put some light in the tunnel, while running on that wheel, many midlifers take shortcuts and avoid having to do the hard work required to be financially successful into the next stage of life.

There’s lots to choose from – taking on risky investments, hoping for high returns without understanding the market; operating without a budget and spending on ‘whatever we need’; using credit cards to cover shortfalls in income. Then there’s my favourite: putting off retirement saving to free up cash flow in the short term.

But these quick grabs rarely lead to financial stability. And they certainly don’t help you set yourself up for the future.

Instead of falling for these myths, let’s bust them wide open and focus on what truly works for a healthier, wealthier and wiser second half of life.

Myth #1: I don’t have time to focus on my money

Most people in midlife face a common challenge: they don’t prioritise making time to focus on their finances. This lack of attention costs them. They miss the opportunities to understand how financial systems work in the second half of life, set goals for their future and consistently practise the right things to build their wealth.

Yet the changes we need to make, if made at this time of our lives, can make us truly wealthy, even if we have no wealth today to speak of.

What should you prioritise learning about? Superannuation is the big one. As you get closer to retirement age, this system can really bolster your financial security. Investing is also important, as is managing your cash flow sensibly, with a set of financial goals firmly in focus.

I’m not suggesting you should be overly conservative in midlife. But choose the risks carefully and be smart.

Myth #2: I don’t need a budget

Many people in midlife spend as they need and want to, often covering any shortfall with credit cards. In today’s challenging economy this has become more common than we might admit, leading many to find their finances spiralling out of control.

I hate to break it to you: if you want to plan for the future you need a budget. Your budget is the framework that tells you the truth about your spending habits – how much you spend on your cost of living, how much you spend on discretionary items and how much you spend on your lifestyle.

Once you have a budget in place you need to work out how much you have as surplus in that budget every month, after paying your mortgage and your other debts. And finally you need to look hard at the numbers and evaluate whether you should reset the way you spend and save money.

It’s really tough to do when things cost so much. But, as you’ll see below, saving is important in midlife.

Myth #3: Everyone has a new car and drinks fancy wine – I should, too

If you live in the suburbs of a big city it might feel like everyone around you has a new car, a selection of stunning, posh-brand jeans and a passion for fancy wine. I have one message for you: it’s a trap that can delay your retirement one day.

And it’s a common trap in middle-class Australia, where we want to look like we have more than we really do to please people we aspire to be connected with or want to maintain connection with.

Sadly, many people use their credit cards and debt to do this. We buy a new outfit – on credit card or, even worse, Afterpay, to look good “because they saw my blue dress at the last event” or “my jeans are so last year”.

We buy a new car because “everyone’s doing it” and we bring fancy wine to dinner to look good, or worse, we go out and eat fancy when we really can’t afford to.

It’s a hard trap to unwind ourselves from, and you need good friends to be able to do it.

A few years ago our friends got together and agreed on four principles:

• When we dine together we stick to at-home events
• No one is to bring wine costing more than $25
• There is no need to dress fancy, just be who you are
• We always, always bring a plate to each other’s house, so there is no pressure on anyone when they host

We wanted to pay off our mortgages and grow our wealth, not our egos. And none of us wanted to stop having fun as we did so.

Myth #4: I don’t need to save for retirement now

If your life expectancy extends into your 90s and you plan to retire at the average age of 65, you’ll need to save enough money to support yourself for 25 to 35 years.

While you might qualify for an age pension, which currently offers up to about $29,028 a year for singles and $43,753 a year for couples, depending on your assets and other income, it probably won’t provide the quality of life you aspire to.

There’s a crucial secret about saving for retirement that we don’t discuss enough in our 40s and 50s: compound investment over the long term is the easiest way to do the hard work. Sounds boring, doesn’t it? Well, stay with me. It’s not!

It involves investing in high-quality, long-term growth assets that typically increase in value each year and provide a steady income stream that can be reinvested.

Risky investments such as cryptocurrency can be a great way to lose a lot of money later in life.Credit: Getty

For instance, starting at 50 with a $100,000 investment in assets averaging 7 to 10 per cent annual returns (typical for Australian equities over the past decade), you could double your money every seven to 10 years through compound returns alone.

Adding $10,000 annually to these investments could grow your initial $100,000 to about $334,880 at 7 per cent or $418,740 at 10 per cent return over 10 years. Remarkably, you’d have contributed only $200,000 from your own savings efforts during that period.

Plus, if you used superannuation tax concessions and saved this money within your superannuation fund, you could potentially save 15 to 30 per cent in tax on each dollar invested. That’s free money! Why don’t we talk about this more?

Myth #5: Investing in risky investments without experience

This is a pet peeve of mine and I’ve seen it happen repeatedly. People who are easily influenced dive into stock trading, currency trading or, worse, cryptocurrencies, without understanding the intricacies of short-term trading, all in an attempt to solve their financial worries or get ahead of their credit card bill.

You may have heard someone talk about taking $10,000 that could have been invested in a stable long-term option and instead using it to buy speculative stocks. They only tell you how much money they made, never how much they lost getting there. Even worse, if they don’t lose their money the first time, they might think they’re invincible and double down.

Short- and medium-term investing require increasingly sophisticated skills, which most of us don’t have on tap. As I showed you earlier, focusing on long-term investments can bring you healthy returns – so why bother?

I’m not suggesting you should be overly conservative in midlife. With more than 10 years until you access your superannuation, there’s ample time to navigate economic fluctuations if you invest in growth assets. But choose the risks carefully and be smart.

Bec Wilson is the author of the bestseller How to Have an Epic Retirement. She writes a weekly newsletter at epicretirement.net and she is the host of the Prime Time podcast.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making financial decisions.

Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.