Your 40s are a pivotal decade. You’re likely making more money than ever before, and you’re halfway between entering the workforce and retiring. As a result, saving for retirement and investing can significantly affect your future financial security.
Here are seven tips that can help you build wealth in your 40s.
1. Keep an Emergency fund
Job loss and unexpected expenses can challenge our financial security. So it’s important to keep an emergency fund that can provide financial stability during setbacks, whether dealing with a health issue, an expensive home repair, or a company downsizing.
Though a top financial priority at any age, a well-stocked emergency fund becomes even more crucial in the peak earning years when the stakes are higher. Many people in their 40s have mortgages, student debt, and families to care for – perhaps even aging parents, too – so an emergency fund can offer peace of mind while managing increased financial responsibility.
2. Start Chipping Away at Debt
Also by 40, most people have accrued plenty of debt, often in the form of student loans, car loans, mortgages, and credit cards. So your financial plan for eliminating these debts needs to be solid.
Credit card debt typically boasts the highest interest rates making it the most expensive debt to carry. So paying off your credit cards should be your primary focus in your 40s as you think about how to build wealth. Reevaluating your budget to reduce spending can also help alleviate your credit card debt and allow you to prioritize other repayments moving forward.
3. Think About Retirement
Whether it’s a 401k, an IRA, or a comparable savings fund, you should have been contributing to your retirement plan since you started working.
The good news is that you still have time to save for retirement at 40 if you have yet to do so. Long-term pension plans are good options as they have tax advantages and generate higher retirement savings due to compound interest.
If you contribute via your bank branch or through HR at your company, switch to an automatic fund transfer that draws a percentage from each paycheck. This way, you won’t have to remember to save, the investment will be spread out over time, and you’ll be on your way to a comfortable retirement.
4. Invest in Non-Retirement Accounts
Investing outside of your retirement fund is also important. Since retirement savings in tax-advantaged accounts are restricted by federal law, consider exploring other investment opportunities after you’ve maxed out your retirement account.
For example, you could set up a 529 plan for your children’s future education that offers tax advantages and compound growth. So even as college tuition and fees continue to rise, you’ll be prepared to help your kids achieve their collegiate goals.
5. Consider Life Insurance
You and your family should already be covered by health insurance; but in your 40s, life insurance should become essential to your financial planning.
If you have term or permanent life insurance, your beneficiaries would receive benefits in the event of your death, which can be used for household expenses, education, mortgage payments, and funeral expenses.
6. Employ a Financial Professional
Professional financial guidance can help you maximize the potential of your current financial situation regardless of how much money you have. Financial professionals can put together a holistic plan that addresses all sorts of goals, such as your children’s college funds, paying off your mortgage early, financing a graduate degree, or purchasing an income property.
Plus, financial professionals can help you invest wisely in your 40s so you’re set up for retirement. They know the tricks of the trade and can tailor those tricks to your specific needs and goals.
7. Get Into the Property Market
Getting serious about home ownership in your 40s is a good idea if it makes sense financially and geographically. Remember, it’s never too late to start investing in real estate.
Many people aren’t financially capable of entering the property market until their 40s, so if you find yourself in this position, you’re not alone. But, since real estate is always a good long-term investment – regardless of the market’s ebbs and flows – you should try to purchase property in your 40s if you have yet to do so.
Save as much money as possible for the down payment to keep your monthly interest and principal payment low and to avoid mandatory private mortgage insurance, which is usually required on deposits that comprise less than 20% of the overall purchase price.
Remember, your 40s are a pivotal decade for earning and investing potential, so make the most of them!