Reaching your 40s is a big moment in life: You know you have a long way to go before you can achieve your dreams, but you have the sense that you need to get your finances in order. Now is the time to do that if you want to retire comfortably, buy the home of your dreams, travel more, or just be financially secure.
The good news is that your 40s don’t have to be a financial crossroads, where you wonder how you’ll ever catch up. The right moves can still make the life you want, and even put you in a position to have more freedom down the road. Here are 14 financial strategies to make in your 40s to live the life you want.
Start Saving for Retirement If You Haven’t Already
If you’re in your 40s and haven’t saved much yet, you can think you’ve missed the boat on retirement. But don’t panic, there’s still a way to build a comfortable nest egg. If you are eligible for an employer match, max out your 401(k) contributions, and if you aren’t, open an IRA to get some extra tax breaks. The better, the longer an investment has to grow.
Pay Off High Interest Debt
If you’re still carrying high interest debt such as credit card balances, it’s time to pay it off. The more you let this debt linger the less you’ll be able to save. However, by getting rid of these high interest balances, you’ll have more cash available for investment and savings.
Build an Emergency Fund
An emergency fund will give you the cushion so you don’t resort to debt when emergencies happen. Experts say you should put three to six months’ worth of living expenses into a high-yield savings account that will allow your money to continue to grow until you need it.
Reevaluate Your Budget
If you’re in your 40s, now is a great time to take a fresh look at your monthly budget. It may be that what worked for you in your 30s isn’t what you should be doing now. You match your spending to things like kids college tuition, retirement, any future goals. There are always ways you can cut down on non essential expenses like subscriptions or eating out to free up some money to pay attention to more essential financial goals.
Refinance Your Mortgage
If you’ve been in your home for several years, refinancing your mortgage may be a smart move. With interest rates still low compared to what’s to come, you can refinance to reduce your monthly payment, shorten or lengthen the term of your loan, or even tap into some of your home’s equity to pay for a major purchase or investment.
Diversify Your Investments
Don’t put all your eggs in one basket. If you’re only investing in one type of asset, it’s time to diversify. Bonds, real estate and even other alternatives can help you avoid jumping to conclusions and reduce your risk. The key is diversification. Diversification has been shown as increasing long term returns and protecting from market volatility.
Think of a Health Savings Account (HSA)
You can actually save for future medical expenses – in a Health Savings Account (HSA). Money you put in an HSA is tax deductible, grows tax free, and when you spend it in an HSA for qualifying medical expenses, you walk away tax free.
Create Your Children’s Education Fund as Your Priority
Saving for your child’s education should be a priority, but it shouldn’t come at the expense of your own retirement. A 529 plan and an Education Savings Account (ESA) are both tax advantaged ways to build a college fund. And, just remember, you can borrow for college, but you can’t borrow for retirement.
Remember Your Credit Score
If your credit score is good, you can save yourself some money on loans, credit cards, and even insurance premiums. It is a vital thing to do to check your score regularly and know your score. Paying off debts, keeping credit card balances low and not opening new accounts is helping.
Start Thinking About Long Term Care
Thinking about long term care may seem too early but the sooner you plan, the better off you will be. Long term care insurance pays for help with daily living activities as you age, but it can be expensive. It’s time to start researching some of the policies that will fit your budget now.
Side Hustle Helps You to Increase Your Income
If you have a particular skill or passion, why not make it extra income? When you’re in your 40s, a side hustle can be a way to supplement your full time job, pay down debt, or build savings. No matter if you’re teaching an online course, freelancing, or starting a small business, the extra cash can help you get there faster.
Review and Update Your Estate Plan
At 40, it’s time to review your estate plan. If you haven’t made one already, now is the time to do so. This all makes sure that your assets and wishes are protected just in case the unexpected happens. Updating your plan as your life changes — in the event of new family members, or changes to your financial situation can also help you avoid problems down the road.
Think About Downsizing
If you’re in your 40s, you may be in a position to downsize your home, or move to a cheaper place. Downsizing isn’t the most glamorous option, but it can be a lot of financial relief. Or you could move to a smaller home or to a less expensive city and put it towards a retirement nest egg, or to take a few holidays, or even to early retirement.
Making the Most of Employer Benefits
Stock options, performance bonuses, and tuition reimbursement; if your employer offers any of these benefits, it’s time to use them. Some of the benefits can save some of your money, help you invest in your future or even make you more ahead in your professional life.
Disclaimer: This list is solely the author’s opinion based on research and publicly available information.
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