Suze Orman: Why Upgrading Lifestyle in Your 40s Is a Financial Risk

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On a recent episode of “Suze Orman’s Women & Money (And Everyone Smart Enough To Listen)” podcast, Orman received a question from a 40-year-old woman — aka MS — with minimal expenses who wanted to move from a home she owns outright to a swankier apartment.

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MS revealed on the podcast that she planned to use all or most of the cash she has on hand for the upgrade, or take a minimal loan. However, she noted she has an unstable job and has to be ready to retire at any time. If that happens, MS has a contingency plan to liquidate her assets and move back to her parent’s home in a low-cost country where she can live indefinitely.  

Orman replied that MS’s thinking is illogical, and offered reasons why upgrading your lifestyle in your 40s is a financial risk.

Expenses, Taxes and the Possibility of Having To Retire

Orman gave multiple reasons MS’s decision to upgrade her lifestyle was a bad idea, including more expenses, taxes and the possibility of having to retire.

“You currently own your home outright, you don’t have any bills, whatever,” she said. “And what you’re saying is that you want to move to a swankier place, which means more expenses, more taxes, more everything — and you don’t have a stable job. So you have to be prepared to retire at any time.”

Reduces Retirement Savings

Additionally, Orman pointed out that spending unnecessarily takes away from the goal of saving for retirement.

“So at 40 years of age, [these are] still your compounding years. These are not the years for you to be spending money, and you need to be saving it and investing it and being wise with money.”

Another Financial Expert’s Take On Upgrading Your Lifestyle in Your 40’s

Dr. Annie Cole, Ed.D., founder and money coach at Money Essentials for Women, said by the time you reach your 40s, you’ve likely already been working for over 20 years. She pointed out that your hard work should be starting to pay off via promotions, pay raises and a savings cushion.

However, she said even if you feel like it’s the perfect time to treat yourself and upgrade your lifestyle, you should keep the following in mind before making any major changes:

Short- and Long-Term Risks Involved

“Before making any big changes, it’s important to consider the short-term and long-term risks of taking on great expenses, like a bigger monthly mortgage or car payment,” Cole recommended. “A general rule of thumb is to spend 50% of your after-tax pay on essential needs, 30% on wants and 20% on savings. If you’re making $150,000 a year after taxes, that means using your $12,500 monthly income on $6,250 of essentials, $3,750 on wants and $2,500 towards savings. If that leaves you room to add in a bigger car or mortgage payment, then great!”

However, Cole recommended keeping in mind that some purchases come with added, ongoing costs such as property taxes, insurance and maintenance. “Be sure to add up the total cost and make sure you can afford it within your monthly budget,” she added.

Long-Term Financial Goals

Additionally, Cole said it’s important to consider your long-term financial goals and make sure your lifestyle upgrades fit into those goals.

“For example, if you want to start traveling heavily every year and you’re tempted to pull money from your savings or retirement contributions to make it happen, it’s time to take a pause,” she recommended. “Temporarily reducing or pausing your retirement contributions in your 40s can have a major impact on your ability to retire on time and with a livable amount in the bank.”

Is It Ever a Good Idea To Upgrade Your Lifestyle in Your 40s?

Cole said that, depending on your total income and the stability of that income, you might be well-positioned to upgrade your lifestyle in your 40s. 

“If you’re spending way below your means, you have an emergency fund that covers six months of your expenses, and you’re contributing enough to a retirement account to retire by at least 65, then you’re in a great place to start making upgrades,” she explained. “Before you do, though, ask yourself this one question: ‘Why am I making this lifestyle upgrade?'”

Cole said if you’re motivated by pressure to keep up with your neighbors, such as putting up a new fence or repaving your driveway, you might not gain much personal satisfaction from it.

“If instead you have a deep value for family time and you decide to invest some money into a vacation rental that everyone visits throughout the year, then your purchase will bring you a lot more joy and satisfaction,” she added.

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