Experts: Top 5 Money Lessons To Learn by 40
There are certain financial lessons everyone should master by the time they are 40. Some of these may appear to be a bit obvious while others are tailored for this specific stage of life. Let’s look at the top five money lessons you need to learn by the time you’re 40.
Put Retirement Savings at the Forefront
Those in their mid- to late 40s are roughly 20 years from retirement. Now is the time to put the pedal to the metal on your retirement savings, said Heather Winston, CFP and director of financial planning and advice at Principal.
“You’re at a stage in your life where you’re likely in peak earning years, which affords you the ability to start saving exponentially and max out your 401(k),” Winston said.
It’s time to stop saying “I plan to save for retirement” and start doing it if you haven’t already, said Mark Henry, founder and CEO of Alloy Wealth Management. Make regular contributions to a 401(k) or another employer-sponsored retirement plan and fund after-tax accounts like a brokerage or a Roth IRA.
“You should be done trying to become an overnight millionaire,” Henry said. “By this stage of life, you should have learned that you’re an investor, not a Wall Street trader. You are a long-term investor, riding through the ups and downs looking for long term appreciation, and meeting with a trusted financial advisor regularly.”
If you haven’t quite caught up yet, Winston said don’t dwell on where you could have saved previously. Instead, ask yourself today if there are places you can potentially cut back or make adjustments to ensure you’re well set up for the future.
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Get Strategic About Paying Off Debt
By the time you’re 40, you should be able to have certain types of debt, like credit cards, paid off in full. Those with any other debt, like home or auto loans, should set a game plan to pay it off.
Henry recommends starting with the smallest debts and paying those off first before tackling larger debts. This helps debt feel much more manageable than if you try to jump into paying off several large debts at the same time.
As you work to pay off and stay out of debt, consider using this time to track your spending habits, said Sam Palmer, head of digital wealth planning and advice at J.P. Morgan Wealth Management. You can use online tools to determine your major categories of spending and what your effective cash flow is each month, quarter or year.
Have an Emergency Fund
This is good financial advice at any stage of your life, but those who are 40 or in this age range must build an emergency fund. Henry said before you pay down debts or tackle other financial goals, you’ll want to make sure you have funds set aside as a safety net.
“The goal should be to save enough to cover monthly expenses for three to six months,” Henry said. “If you don’t have an emergency fund because you’ve been spending all your extra money trying to pay off debts, you’ll go into even more debt next time unexpected expenses pop up.”
Work Alongside a Professional
Those who still struggle with money and practical personal finance concepts shouldn’t feel as though they need to go it alone at this age.
Winston recommends working with a financial professional. “They can be really helpful in these circumstances to ensure you understand your own personal retirement plans and where you can course correct today to be in good shape for the future.”
Spread the Wealth of Knowledge
Many individuals are married by the time they’re in their forties. Some may already have children, are thinking about starting a family or have nephews and nieces.
Palmer recommends using this time to have open conversations about money with the people you care about and to help teach the younger generation about financial health. “It’s never too early to start the financial journey and instill good habits early on.”
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