What I Wish I Knew About My Finances in My 40s

“If only I knew then what I know now” is a common phrase among older adults. It’s also uttered quite frequently when thinking about your finances as you approach retirement. Your 40s are a time when you’ll make choices that will determine your financial future. Here are a six financial tips to think about in this decade.

Finally Eliminate Debt

It’s a crucial time to get your financial house in order and the quickest way to do that is to rid yourself of any outstanding debt you have like car loans or credit cards. Tackle high-interest debt first and once that’s paid off, reallocate that monthly payment to another expense or continue to build your emergency savings fund. Better yet, if your emergency savings is in good shape, allocate the extra money to a savings vehicle that will earn interest such as an Individual Retirement Account (IRA). There are two types of IRAs, traditional and Roth and both have advantages.

Maximize Your Earnings

If you’ve reached a point in your career where you are a valuable asset to your company, it’s time to ask for a raise and position yourself for the future. Negotiating and obtaining a raise now will help build your retirement fund and solidify your earnings. Before you approach your boss for a raise, research comparable salaries to determine if your compensation is above or below the average range for your industry. Not only will you see a bump in your paycheck, but you can put the extra income toward funding your retirement. This is also a great time to turn that hobby into a side hustle to generate an extra cushion and maybe even prepare for a second career in retirement.

Save More, Spend Less

Your 40s is a time to enjoy the benefits of at least 20 years of work. Most people are established in their careers and have a solid financial situation. As a result, some people begin to add new expenses creating what is known as “lifestyle inflation.” It’s nice to have a stable income and be comfortable but being mindful of overspending is important. Be careful not to splurge too much and risk all of the careful planning you’ve done to get to this point. A few major purchases combined with unexpected health issues or job loss could force you to make difficult choices.

Increase Retirement Contributions

Once you hit your 40s retirement feels a lot closer than it did in your 20s and even just a decade ago. While many experts say that you should have three times your salary saved by 40, the average U.S. household headed by those 44-49 has only $81,347 saved for retirement according to the Economic Policy Institute. All is not lost, however. If you are behind there is still time to catch up on your retirement savings by maximizing your contributions or at minimum contributing enough to get your employer match. It’s also during this phase of your life that you may find yourself in the sandwich generation -- caught between the financial needs of your children and your parents. It’s crucial not to sacrifice your retirement savings to help them out.

Maintain Your Home

Your home is one of your most valuable assets and it’s imperative to take care of it by doing necessary repairs and upkeep to prevent more costly fixes when you get ready to sell your home. Consider a home equity line of credit to have cash on hand, rather than dipping into savings or using a credit card to repair your roof or replace your siding. It’s also a time to consider the cost of your home and interest rates, especially if you have an adjustable-rate mortgage or if rates have gone down since you last locked in your rate. Is it the right time to refinance your mortgage or downsize if you have grown children who are moving out soon? A Rockland Trust mortgage specialist can help.

Estate Planning

There’s a point in life where you will need to plan for the time when you may no longer be here to support your family. This is especially important if you have children, but everyone should have a will to protect their assets. Designating a health care proxy and power of attorney is also a must. Consult an estate planning expert who can help you create a plan that reflects your wishes.

There’s a lot to think about in your 40s but it’s also a great time to enjoy the financial milestones you’ve hit!

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