5 Smart Financial Strategies to Implement Before Turning 40
Wise Bread Picks
Reaching the milestone of 40 years old is an ideal moment to reflect on your journey—considering the achievements you’ve made and the relationships you’ve nurtured. However, for many, especially those who haven’t managed their finances well, this can trigger anxiety.
Turning 40 often highlights the urgency to correct past financial missteps. It’s essential to take charge of your finances to ensure a stress-free retirement. Financial experts recommend several key money moves to make before hitting this significant age.
1. Deal with Consumer Debt
According to Ryan Inman, a financial planner for doctors, addressing consumer debt is vital before you turn 40, especially high-interest credit card debt. With average credit card interest rates exceeding 17%, this debt can severely impact your monthly budget.
To tackle debt, consider various strategies. You might opt for the traditional method of paying as much as possible each month, or explore techniques like debt snowball or debt avalanche methods. Alternatively, applying for a balance transfer credit card can provide 0% APR for up to 21 months.
Aiming to be debt-free, aside from your mortgage, is a worthy goal. Eliminating interest payments on consumer debt will allow you to save more for retirement and catch up on investments.
2. Maximize Your Retirement Savings
As you approach your 40s, it becomes increasingly clear that your retirement savings need to grow significantly. Financial planner Benjamin Brandt, host of the podcast Retirement Starts Today Radio, advises maximizing your retirement contributions. Setting up contributions through payroll means you’re using pre-tax income, making it less burdensome than it appears.
If you can’t contribute the maximum, aim to increase your contributions gradually each year. At the very least, ensure you’re receiving the full employer match on your retirement plan, which is essentially free money towards your future.
3. Automate Your Finances
Certified Public Accountant Riley Adams suggests that your 40s are an excellent time to automate your finances. By automating investments and savings, you reduce the temptation to overspend and inflate your lifestyle as your income increases.
For instance, set up automatic transfers to a high-yield savings account or a brokerage account. Automating retirement savings through workplace accounts also counts, as the money is deducted from your paycheck and invested on your behalf. (See also: 5 Ways to Automate Your Finances)
4. Purchase Insurance Based on Your Future Finances
By the time you turn 40, it’s essential to evaluate your insurance needs with an eye toward the future. Financial planner Brenton Harrison emphasizes that many individuals experience peak earning years in their 40s, meaning your insurance requirements may change as your career progresses.
Consider your career trajectory and financial goals for the next decade when determining your insurance needs. Don’t wait until you’ve achieved your goals to start planning. Additionally, ensure you have adequate life insurance coverage, especially if you have or plan to have a family.
5. Build an Emergency Fund
If you’ve faced financial challenges and dealt with credit card debt, it may be due to a lack of an emergency fund. Experts recommend maintaining a separate fund for unexpected expenses or job loss, ideally containing three to six months’ worth of expenses.
While saving this amount may seem daunting, starting with any amount is better than nothing. Place your savings in an interest-bearing account and continue to contribute until you reach your goal.
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Wise Bread Picks
Reaching the milestone of 40 years old is an ideal moment to reflect on your journey—considering the achievements you’ve made and the relationships you’ve nurtured. However, for many, especially those who haven’t managed their finances well, this can trigger anxiety.
Turning 40 often highlights the urgency to correct past financial missteps. It’s essential to take charge of your finances to ensure a stress-free retirement. Financial experts recommend several key money moves to make before hitting this significant age.
1. Deal with Consumer Debt
According to Ryan Inman, a financial planner for doctors, addressing consumer debt is vital before you turn 40, especially high-interest credit card debt. With average credit card interest rates exceeding 17%, this debt can severely impact your monthly budget.
To tackle debt, consider various strategies. You might opt for the traditional method of paying as much as possible each month, or explore techniques like debt snowball or debt avalanche methods. Alternatively, applying for a balance transfer credit card can provide 0% APR for up to 21 months.
Aiming to be debt-free, aside from your mortgage, is a worthy goal. Eliminating interest payments on consumer debt will allow you to save more for retirement and catch up on investments.
2. Maximize Your Retirement Savings
As you approach your 40s, it becomes increasingly clear that your retirement savings need to grow significantly. Financial planner Benjamin Brandt, host of the podcast Retirement Starts Today Radio, advises maximizing your retirement contributions. Setting up contributions through payroll means you’re using pre-tax income, making it less burdensome than it appears.
If you can’t contribute the maximum, aim to increase your contributions gradually each year. At the very least, ensure you’re receiving the full employer match on your retirement plan, which is essentially free money towards your future.
3. Automate Your Finances
Certified Public Accountant Riley Adams suggests that your 40s are an excellent time to automate your finances. By automating investments and savings, you reduce the temptation to overspend and inflate your lifestyle as your income increases.
For instance, set up automatic transfers to a high-yield savings account or a brokerage account. Automating retirement savings through workplace accounts also counts, as the money is deducted from your paycheck and invested on your behalf. (See also: 5 Ways to Automate Your Finances)
4. Purchase Insurance Based on Your Future Finances
By the time you turn 40, it’s essential to evaluate your insurance needs with an eye toward the future. Financial planner Brenton Harrison emphasizes that many individuals experience peak earning years in their 40s, meaning your insurance requirements may change as your career progresses.
Consider your career trajectory and financial goals for the next decade when determining your insurance needs. Don’t wait until you’ve achieved your goals to start planning. Additionally, ensure you have adequate life insurance coverage, especially if you have or plan to have a family.
5. Build an Emergency Fund
If you’ve faced financial challenges and dealt with credit card debt, it may be due to a lack of an emergency fund. Experts recommend maintaining a separate fund for unexpected expenses or job loss, ideally containing three to six months’ worth of expenses.
While saving this amount may seem daunting, starting with any amount is better than nothing. Place your savings in an interest-bearing account and continue to contribute until you reach your goal.
Like this article? Pin it!
