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Tuesday, March 5, 2024

5 Money Moves You Need to Make Before You Turn 40

As you approach the big 4-0, it’s normal to reflect on your past financial decisions and start feeling anxious about your future security. With retirement on the horizon, time is running out to implement changes to get your finances on track.

While younger folks may be able to brush off past financial mistakes and risky decisions, those days are over for forty-somethings. Financial advisors agree – to enjoy your golden years stress-free, you must get serious about money management in your forties.

Why Your Forties Are Crucial for Financial Planning

Your forties are pivotal because it’s often the highest-earning decade for many workers. With more disposable income, it can be tempting to inflate your lifestyle and overspend. However, this sets you up for financial hardship when you retire or face unexpected emergencies.

Additionally, the forties are the last chance to significantly grow retirement savings and investment accounts before retirement. As the saying goes:

The best time to plant a tree was 20 years ago. The next best time is now.

In other words, the sooner you implement positive financial changes, the more you will benefit down the road. Whether you’ve made mistakes or simply been negligent, use your forties to play catch up.

Tackle High-Interest Consumer Debt Aggressively

Consumer debt like credit cards should be priority number one to pay off in your forties. With the average credit card interest rate over 17 percent, this debt grows rapidly. Consequently, monthly interest payments strain budgets and make saving difficult.

“Ideally, you should aim to have no debt other than your mortgage at this point in your life,”

says financial planner Ryan Inman. While becoming completely debt-free may seem unrealistic for some, it’s crucial to eliminate high-interest debt first.

If paying off debt entirely feels out of reach presently, commit to an aggressive payoff plan using methods like the debt avalanche, debt snowball, or credit card balance transfers. Relief from burdensome interest payments allows you to redirect cash flow toward retirement and investment savings.

Max Out Retirement Account Contributions

With a retirement crisis looming, maximizing contributions to workplace retirement accounts like 401(k)s becomes urgent in your forties. While such accounts allow contributing up to to $20,500 presently人, actually reaching that maximum may seem implausible.

However, financial planner Benjamin Brandt explains that contributing the limit isn’t as expensive as it appears since deposits are pre-tax income. Plus, you receive substantial tax savings from larger contributions. Even small, incremental 401(k) increases over time lead toExponential growth.

At minimum, ensure you contribute enough to get your full employer match if one’s offered. Turning down free retirement money is throwing away guaranteed returns.

“Your employer match is free money for the taking, and you should take advantage of all the help you can get with saving for retirement.”

Implement Automation to Streamline Money Management

Reaching your forties means added responsibilities and less free time. Consequently, staying on top of finances manually becomes nearly impossible. Certified Public Accountant Riley Adams suggests utilizing automation to simplify money management.

With automated systems in place, you spend less time worrying about money movements. Plus, automation prevents overspending by forcing consistent saving and investing. For example:

  • Set up direct deposit to instantly distribute paychecks into different accounts
  • Create an automatic transfer to move money monthly from checking to savings accounts
  • Enable automatic investments into retirement accounts and brokerages

Automation allows your finances to function more efficiently while you focus on other responsibilities.

Get Insurance Tailored to Your Financial Future

Since your forties are often peak earning years, avoid the mistake of basing insurance coverage on current income. Instead, financial planner Brenton Harrison recommends anticipating your future financial picture when getting insured.

Think seriously about your income and career aspirations over the next decade. Then, opt for policy limits and coverage types that align with that financial trajectory rather than current circumstances. This prevents grappling with insufficient coverage later when claiming benefits.

While insurance needs differ, essential policies like life, disability, homeowners, and umbrella insurance become necessary in your forties as assets, families, and careers grow. Don’t wait until it’s too late to get critical protection.

Build a Sizeable Emergency Fund

As responsibilities and expenses multiply with age, income disruptions from job losses or disabilities become detrimental without savings. That’s why building an emergency fund with three to six months’ worth of living expenses is recommended before reaching your forties.

Emergency savings allow you to withstand interruptions in income and unexpected costs without relying on credit cards or loans. Even starting with a small $1,000 emergency fund makes a difference.

“You never know what obstacles life will throw at you, but if you set aside savings, you’ll be prepared for almost anything.”

Though it takes time and discipline to build emergency savings, the financial security and peace of mind it provides makes the effort worthwhile.

Additional Strategies to Adopt in Your Forties

Along with the major money moves above, adopting a few additional financial strategies in your forties leads to long-term stability. Consider the tips below to round out your money management approach:

  • Review asset allocation: Rebalance investment accounts to ensure proper asset class diversification aligned with your risk tolerance.
  • Consolidate retirement accounts: Combine old 401(k)s and IRAs to simplify investing for retirement.
  • Discuss inheritance plans: Have open conversations with aging parents about their estate plans to eliminate surprises later.
  • Pay down mortgages aggressively: Funnel extra income toward mortgage principal to pay off homes faster.
  • Build alternative income streams: Generate additional revenue with side hustles and passive income sources.

Conclusion

Approaching the milestone age of 40 serves as a financial wake-up call for many. With two decades left until retirement, getting serious about money management becomes urgent.

Implement the crucial moves outlined here – eliminating debt, maximizing retirement savings, utilizing automation, securing insurance, and building emergency savings. Successfully doing so positions you for a stable financial future beyond your career.

Adopting smart financial habits in your forties leads to increased savings, controlled spending, and investment portfolio growth. Though it requires diligence and intentional effort, the payoff of financial freedom in retirement makes it worthwhile.

The time is now to take control and solidify your finances. Don’t wait until your golden years to start making smart money decisions. Be proactive, make a plan, and set yourself up for success. Your future self will thank you down the road.

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