5 min read
Jun 09, 2023
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It’s important to monitor your financial goals throughout every stage of life. And being in your 40s is no different. You may have new financial responsibilities to consider and investments to protect, which can change the way you spend your money every month. Prioritizing these financial goals will help you and your loved ones find success later in life. Use this milestone guide to get your finances into shape.
Lesson Notes:
- Focus on paying down debts, protecting your health and assets, and investing in your retirement.
- Avoid incurring additional interest by finding loans with low rates and paying off high-interest credit card debt.
- Consider increasing the amount of earnings you put away in retirement accounts.
LESSON CONTENTS
Important financial goals for your 40s:
Increase your retirement savings
It’s time to start taking a closer look at your retirement savings plan now that you’re roughly twenty years or more away from retirement. According to financial experts, you should have roughly three times your yearly salary in savings by the time you reach age 40. If you haven’t reached this goal, don't worry, there’s still plenty of time to start contributing. If your employer offers a retirement account, take full advantage of it by maximizing your employer’s contributions. If you have an individual retirement account (IRA) or Roth IRA, the yearly contribution limit is $6,500 for those under age 50. Try to save this much every year or roughly 10% of your yearly salary.
To get a more personalized view, consider talking to a financial advisorto get a better idea of how much money you will need in your golden years based on inflation and your current lifestyle. Prices have increased substantially over the last several years, so adjust your estimates accordingly.
Add to your emergency fund
It’s important to have at least several months of income saved in case of an emergency, not including your retirement savings. This money could be used to pay for living expenses if you lose your job, experience a medical crisis, or lose property in a natural disaster. Maintain your emergency fund as the years go by and consider keeping this money in a separate account, so you’re not tempted to spend it. You may need to add to the fund as you take on new liabilities. For example, being responsible for children or aging parents can increase your risk of becoming financially liable for a medical emergency. Owning property or your own business can also expose you to additional legal responsibilities.
Plan for your child’s education
If you have or plan to have children, start saving for their education today. Consider setting up a 529 college savings plan if you haven’t done so already. These accounts work like a Roth IRA by letting you invest your after-tax income into a saving account that then grows on a tax-deferred basis. You can then deduct the money tax-free as long as it goes towards qualifying higher education expenses, such as tuition, room and board, and textbooks. Be sure to adjust your savings plan as the cost of higher education increases and research the cost of private and public schools based on your budget.
Get rid of debt
Taking on debt is common for most Americans, but some debts can harm your finances more than others. If you are carrying around debt, such as credit card debt, focus on eliminating it as soon as possible by allocating as much of your income to paying down your debts. One great debt repayment strategy is the avalanche method, in which you pay off the debt with the highest interest rate first to save money over time and get rid of any debts that aren’t appreciating in value. For home loans and student loans, it’s important to continue making monthly payments until the debt is paid off. You may also consider refinancing these loans as time goes by to lock in a lower interest rate.
Invest in your health
Your health can significantly impact your finances as the years go by, and vice versa. A medical emergency can wreak havoc on your savings, and stressing about money can increase your risk of chronic disease. Invest in your health and plan in advance to avoid these situations when possible.
Do your best to lead a healthy lifestyle to decrease your risk of injury and illness by seeing the doctor regularly and screening for various diseases. Also, invest in good health insurance for you and your loved ones to protect yourself from high medical debt. Ensure you have enough money in your emergency fund to cover the deductible in your insurance plan. If you have not already, speak to a financial advisor to see if life insurance is suitable for you. You can lock in a low monthly premium if you are still young and healthy when you sign up. This will leave your loved ones with a sizeable benefit in the event of your passing.
Protect your assets
At this stage in your life, you may have acquired several assets, including a home or car. For most people, their home is their largest source of wealth, so do your best to protect your investment. The US has experienced more severe weather over the last several decades, so ensure you have enough home insurance in case of a disaster such as a flood, hurricane, fire or tornado. Additionally, expand your policy if you have made any new additions in the last year, and keep up with regular repairs.
Along with protecting your assets, continue making regular monthly payments on your mortgage loan and consider paying more than the required amount every month to reduce the accrued interest.
Set up an estate plan
Everyone can benefit from having an estate plan regardless of how much money they make. This kind of financial planning isn’t just for the ultra-rich; it’s for anyone with assets or savings. The plan will help your loved ones divide up your assets in the event of your death to fulfill your wishes in your absence. It will oversee the transfer of property and other assets to designated recipients and identify the power of attorney if you suddenly fall ill and can no longer make decisions for yourself.
Being in your 40s can come with many responsibilities, and managing your money is an important step toward securing your future. Use these tips to make the most of every dollar you earn.
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