6 Tips for Managing Money in Your 40s
Many perks can come with being in your 40s. For starters, research suggests that people make the most money in their lives during this decade. Your 40s may be the start of your prime earning years, which could bring along more financial stability.
At the same time, though, your 40s may lead to a number of other considerations. If you’re a parent, chances are that your kids are growing up. In addition to your efforts to keep the fridge full, college is right around the corner. On the flip side, your own parents are getting older, too—giving you the right to claim your status as a member of the sandwich generation.
Add it all up, and the argument could easily be made that knowing how to manage your money is perhaps most important when you are in your 40s. With that in mind, let’s take a look at six money management tips that can help you get a better hold on your financial future—and the financial future of your family.
Money Management Tips for Folks in Their 40s
As you begin planning your financial future, here are some tips to keep in mind.
1. Your emergency fund
If there’s anything we’ve learned in the midst of the coronavirus pandemic, it’s that the world can change drastically and rapidly at a moment’s notice.
As you enter your 40s and become more familiar with your financial obligations, we highly recommend stashing away cash in an emergency fund that can cover 6-12 months of living expenses.
That way, when the unthinkable happens, you may still be able to live comfortably while figuring out your next moves.
2. Funding your retirement plan
Here are some sobering statistics about retirement, courtesy of The Simple Dollar:
- One-third of Americans don’t have anything saved for retirement.
- Of those who have retirement accounts, 23 percent have less than $10,000 in them.
- Nearly 30 percent of Gen Xers (those in their 40s and early 50s) have nothing saved for retirement.
Avoid this fate by not only funding your retirement but also maximizing those investments however you can. For example, if you work for a company that offers 401(k) matching, by all means maximize your contributions to take full advantage of that benefit. You may also want to contribute even more than that amount to your retirement savings, if you can afford to.
On top of that, look into maximizing an IRA account each year. If you choose a traditional IRA, you’ll be able to reduce your tax liability each year. If you opt for a Roth IRA, you’ll be able to withdraw earnings tax-free once you reach retirement age.
- Open a brokerage account
If you have enough cash laying around, you should consider opening a brokerage account.
The upside here is that you don’t have to wait until you reach retirement age to access your funds. Unlike IRAs, there also isn’t a limit to how much money you can invest in your brokerage account each year. What’s more, you won’t have to withdraw your funds at specific times, either, giving you more flexibility on when you’re going to incur capital gains taxes.
With so many securities to choose from, managing a brokerage account can be tricky. But you don’t have to do it all on your own. A financial advisor can help you make the decisions you’re most comfortable with.
4. Insuring yourself
No one wants to wind up in a sticky situation only to find out they don’t have proper insurance. This is why life insurance, property and casualty insurance, and similar types of coverage can be so important.
In fact, property and casualty insurance—which may cover you in the event that a visitor gets injured on your property or if your home is damaged because of vandalism, a weather event, and more—is one of the more overlooked forms of insurance today.
5. Bad debt, good debt--Know the difference
Bad debt—including credit card debt—can be prohibitively debilitating. If you have any high-interest debt on the books, work expediently to pay it off.
Keep in mind that not all debt is bad. Mortgages, student loans, and small-business loans, for example, can be useful forms of debt.
6. Talk to your parents about their money
It might be a little awkward. But sooner or later, you will probably have to talk to your parents about their finances. Do they have enough money to live off? What happens if they get sick or decline cognitively? Is their housing taken care of? What about health insurance?
These are difficult questions. But they’re ones you will likely need to begin asking in your 40s.
7. Write a will and begin estate planning
What happens after you’re gone? Who gets what?
Let’s hope you still have decades and decades left on the planet. Even so, you’ll need to begin writing your will and getting your estate plans in order during your 40s.
This might sound like a tall order, but it doesn’t have to be. A financial planner can help.
You Don’t Have to Secure Your Financial Future on Your Own
Planning your financial future can be tricky when you do it by yourself. With so much on the line, you don’t want to leave anything to chance.
The good news is that you don’t have to go it on your own. When you partner with a financial advisor, the financial planning process may become easier because you’re able to leverage the knowledge and expertise of professionals who have helped people in similar situations build their financial plans.
Schedule a consultation today to find out more about how EP Wealth can help you prepare for the future and work toward meeting your financial objectives.
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