It’s a great time to reflect upon your life’s achievements, milestones, and relationships. For some, especially those without their finances in order, it can be a time of panic.
As you approach 40, you may be painfully aware of the fact that you have less time to correct any financial mistakes made in the past. You need to be serious about money if your goal is to enjoy your golden age without any financial worries. Financial advisers recommend a few money moves that everyone should make by their 40th birthday.
1. Consumer debt is a problem.
Ryan Inman, financial planner for physicians, believes it is important to have a plan in place to handle consumer debt before you turn 40. This is especially true for high-interest credit card debt. Credit card debt is difficult to repay, and can drain your monthly budget. The average interest rate on credit cards is now 17%.
There are many ways to pay off debt. You can pay off your debt the old-fashioned method by paying as much each month as possible, or you can try debt snowball and debt avalanche. You can apply for a credit card to secure 0% APR up to 21-months.
Inman says that you should aim to be debt-free at this stage of your life.
This may seem a lofty objective, but not having to pay interest on consumer debts will allow you to save more money for retirement or catch up with your investments if they’re behind.
2. Maximize retirement savings
When you are young, it’s easy to overlook the importance of maxing out retirement savings. But when you reach your 40s, you realize how much your nest egg must grow.
Benjamin Brandt is a financial planner and hosts the Retirement starts Today Radio podcast. He suggests that anyone approaching 40 should start saving for retirement. You can make your contributions through your payroll, which will be deducted from your pre-tax earnings. It’s not nearly as expensive as you may think. Contributing the maximum to your retirement account will also reduce your taxable earnings, which may result in a lower income tax bill for this year.
Brandt suggests that if you’re not able to give the maximum, you should try to increase your contribution each year.
Brandon Renfro, assistant professor of Finance and financial planner from Hallsville, Texas says you should at least make sure that you get the full match by your employer on your retirement plan. Employer match is the money that your employer may match when you invest for retirement. Your employer may agree to match up to 6% each year of your income, but you must contribute the same amount to receive the full amount.
As you near your 40s, you should make the most of your employer’s match to save for retirement.
3. Automate your finances
Riley Adams, a Certified Public Accountant who writes for Young and the Invested says your 40s is a great time to automate your investment if you haven’t done so already. You’re less prone to waste money on things you don’t really need, or increase your lifestyle when your income increases.
He says that automating your financial transactions will help you protect yourself against yourself. This will take the stress out of managing your finances and put your money to better uses.
You could, for example, set up an automated bank transfer to ensure that a certain amount of money is transferred into a high-yielding savings account each month. You can also set up automatic deposits to a brokerage account. Automating your retirement account at work is also possible, since money will be taken from your paycheck and invested for you.
4. Buy insurance based on future financials
Brenton Harrison, financial planner at Henderson Financial Group, says you should have all your insurance requirements in order by the time you turn 40. You should try to consider your insurance requirements in the future.
He says it’s tempting for people to base their insurance needs on their current income or net worth. “But many people’s 40s are the peak earning years of their careers, so insurance requirements you had before 40 may not be sufficient as your career advances.”
Harrison recommends sitting down to think about your career goals and where you want to be in 10 years. Then, you can buy insurance according to your financial picture.
He says, “If you are confident that you will reach a certain level in your career, you should start planning now.”
Think beyond the basic insurances like auto and homeowner’s insurance. You may choose to purchase an umbrella policy which extends coverage limits under certain circumstances.
Luis Rosa, financial planner, says: “Also make sure you have adequate life insurance coverage.”
He says that if you plan to have a family in the future or already have one, it’s important to protect them. You’re more likely to be able to afford the insurance you need if you are in your 40s or earlier and relatively healthy.
5. Create an emergency fund
You may have struggled to manage your finances and had credit card debt in the past. This is because you didn’t create an Emergency Fund. Experts agree that any amount is better than none, but they recommend keeping a separate emergency fund with at least three to six month’s worth of expenses.
If you save money, you will be ready for anything. Even if your savings can’t cover six months’ worth of expenses, you should still start saving — even if it’s only a few hundred dollars.
You’ll get there if you put your money in an account that pays interest and continue to add to it.
