What mid life crisis?
We’ve all heard the joke about people having a mid life crisis.
That guy in their forties and fifties who goes out and buys a convertible sports coupe or Harley Davidson are labeled as going through some form of mid life crisis – but for the vast majority of people this is a false description.
The cause of so many people buying these items at an older age, rather than when they are in their twenties or thirties (and let’s face it, when they would look far cooler), is due to two reasons that relate to your money and financial life – and it has nothing to do with going through some form of mid life crisis.
These two reasons are expenditure and compound interest.
Expenditure needs before a mid life crisis
For most people, their twenties and thirties are spent paying down a large mortgage and raising children. Both of these activities cost huge sums of money.
Paying off an average home will cost about £505,000. (The average British home costs £288,000 and the figure of £505,000 is assuming finance over 25 years at an interest rate of 5%).
Raising a child will cost roughly £230,000.
It’s little wonder why you don’t see more people with these types of fun products at a younger age.
Most simply cannot afford it.
Not to mention the impracticality of trying to play taxi to your family on the back of a motorbike – it’s probably not a good idea to try and follow Vietnam’s lead.
Compound interest is needed before your mid life crisis
Unless you happen to have a double-barrelled surname, it’s highly unlikely that you will inherit any substantial sums of money (at least in your twenties or thirties). Ignoring the very wealthy, if you are an every day person and you inherit at a young age, it’s because you have had the unfortunate tragedy of losing a family member too soon.
The only way for most of us to get hold of large sums of money to buy luxury and enjoyable items such as sports cars and motorbikes is through saving and investing (unless of course you want to be a financial idiot and take on consumer debt – good luck with that financial plan – you’re going to need it).
To have your ‘mid life crisis’ spending spree, you firstly need to sacrifice consumption today, for the possibility of increased consumption in the future. I say possibility because you can lose your shirt through poor investment choices, but if you invest sensibly and wisely, that possibility becomes a probability.
So, while many would dismiss that convertible or motorbike as a mid life crisis, those in the know will understand that it’s simply sound financial planning.