40 Things Every 40-Something Needs to Know About Money

The financial challenges you face in your 20s and 30s are very different from those you’ll have in your 40s. Instead of landing your first job, navigating student loan payments or even starting a family, your 40s are all about setting the stage for retirement, playing the market a little safer, preparing to put your children through college and supporting your aging parents.

But that doesn’t mean you should just settle in and coast into your golden years. You still have a decade or two until you retire, and what you do now can have a significant and lasting impact on your financial future. Read on for 40 things every 40-year-old should know about money.

“In your 40s you have much more financial responsibilities than your 20s and 30s,” said Jeff Rose, “Soldier of Finance” author and CEO and founder of Alliance Wealth Management. “Procrastination is no longer an option, and having a solid understanding of where you are financially is crucial.”

Rose says procrastinating about getting a handle on your financial responsibilities is like getting into your car for road trip without a destination — no plans, no hotel reservations … nothing. “That vacation will most likely end in disaster — Griswolds anyone?” he said. “You’re in denial if you think a financial plan is a waste of time.”

Ryan Inman, a financial planner with Physician Wealth Services, says loaning money to friends or family is one of the biggest financial mistakes someone in their 40s can make. “In your 40s, you are nearing your top-earning years and if you have been planning properly and have accumulated assets, you should have a six-figure net worth,” he said.

Lending money to family and friends puts your hard-earned net worth at risk, which can threaten your long-term goals like retirement or paying off your house. If you really want to give someone a loan, then follow conventional wisdom and never lend more than you can afford to lose.

Inman also said he sees too many 40-somethings “investing more aggressively than they should and trying to hit home runs instead of singles and doubles.” It can be tempting to jump on a hot new stock or invest in an innovative new idea, but according to Inman, “trying to find the next hot ‘investment’ usually ends up in large investment losses.” He added, “It’s much smarter to stay the course rather than trying to achieve outsized returns without properly thinking through and understanding the risks.”

With that in mind, your 40s are a good time to assess your current asset allocation and make sure it matches your life stage and future goals. That means ensuring that your portfolio is diversified and makes sense for your risk profile.

Are you dreaming of traveling the world during retirement? There are plenty of arguments for traveling now instead. For example, you are probably still young and healthy, and there’s no guarantee you will be able to take adventurous trips when you are older. Also, it’s important to have payoffs during your peak earning and saving years. Traveling is a great reward for all your hard work.

Finally, this is a great time to share experiences with your kids. “Travel seems to be a big priority for people in their 40s, as they want to experience life before they get older and more settled in, and they want to generate the memories with their kids,” Inman said. According to him, travel might also set you up for a better financial future. “This goal revolves around the concept of saving, which is a main driver of financial success and achieving all the possibilities one might want out of life,” he said.

“Approaching retirement with no clear financial plan will set you up for disaster,” Rose said. “Retirement no longer feels light years away [in your 40s], and [your kids’] college costs will soon be impacting your savings account.”

Rose recommended spending some time thinking about what you really want your life to look like during retirement — what you will do each day, goals and hobbies you might be interested in or even working a part-time job. The more specific you make your destination, the more targeted your financial plan will be and the more likely you’ll be able to make those dreams happen.

“If you have credit card debt, stop all spending and focus on paying it off immediately,” Inman said.

If your budget already feels tight and paying down a mountain of debt seems impossible, Rose said consolidation through a personal loan is worth considering. “Many offer fixed interest rates and set monthly payments […] you might be able to pay down your debt with a lower fixed rate than you’re currently paying,” he said. “Depending on your repayment term and rate, you could pay it off potentially faster.” There are many lenders who offer personal loans, but Rose recommended a lender like Discover Personal Loans because Discover doesn’t charge origination fees.

Parents in their 40s who are behind on retirement savings often make the mistake of putting their children’s college savings accounts first. “College savings shouldn’t come before debt [or] saving for retirement,” said Vicki Cook, founder of the blog Make Smarter Decisions. “You can put some small percentage aside to help your kids with college, but you can also help them in non-financial ways by […] making a smart college plan.”

Ryan Inman agreed. “The best advice I can give is to make sure that you and your retirement are taken care of first,” he said. “Once your financial house is in order, then you can worry about your kids and their education. Kids can always get student loans to cover their education and you can help pay off their debt in part or in full after your finances are taken care of.”

Twenty-somethings are constantly reminded to keep their credit scores in check, but once you’ve gotten your first credit card, rented your first place or even purchased a house, it can be tempting to put your credit on auto pilot. According to Inman, credit scores matter wherever you are in your financial journey. “In your 40s, if you are looking to refinance your home, acquire rental properties, apply for a new credit card with excellent rewards, etc., having a high credit score will absolutely impact your credit terms or if you are accepted or denied credit,” he said.

Per FTC regulations, the three major credit bureaus — Experian, Equifax and TransUnion — are required to offer free annual credit reports. If you stagger your requests from each throughout the year, you can get one every four months. That way, you can make sure your scores are consistent and keep an eye on any major changes. The credit reports don’t always include your actual credit scores, but you can request additional information if you notice any fluctuations.

Children model good behavior, including smart financial decisions, so now is the perfect time to pass along your smart money moves to the next generation. It’s never too late to teach your kids the basics of personal finance. Try budgeting a weekly allowance or learning how earning and paying interest works.

Older kids can work at a part-time job to pay for their own car insurance. You might even include the kids in a discussion about a financial decision of your own. Not only will this teach them how to make smart choices, you’ll be setting them up for financial independence when they become adults — and your retirement funds won’t take a hit from supporting adult children later on.

Can someone in their 40s safely make a career change? “Absolutely!” Inman said. “With proper planning and a long-term outlook toward your personal finances, nearly anything is possible.”

Inman said he works exclusively with physicians who, after spending their entire lives dedicated to one field, find themselves burned out. When they are ready to make a change, he helps them plan for a smooth financial transition, which means ramping up the savings first. “They need to build up higher reserves than typically recommended in anticipation that they will earn less or have some periods with little to no income coming in,” he said. “My best tip is to try and anticipate the desire to switch careers as early as possible and to set aside additional reserves prior to making the switch.”

If you get hurt or sick and can’t work temporarily, you might not have enough income or savings to see you through. In that case, you might have to pull from your retirement accounts or deplete your cash reserves. That would be a huge setback this late in the game, especially as you start to benefit from compounding interest in your retirement accounts. Disability insurance can help protect you during this time by providing some or all of your income while you are recovering.

You can get disability insurance through your employer, or you can buy a plan on your own. Many major insurance companies offer coverage directly to consumers, or you can use an insurance broker to help you choose the right plan. You get to decide how much coverage you want and how long you want the plan to last — ideally until your target retirement date.

“When’s the last time you’ve reviewed your investment strategy?” asked Rose. “Do you know how much you have in stocks vs. bonds? Are you financially on track to reach your goals? Just like your car needs an annual tune up, your investment portfolio will benefit from the same TLC.”

Admittedly, these questions aren’t helpful if you aren’t on your money management A-game, but that doesn’t mean you have to just hand over your accounts to a financial planner. Many will sit down with you, assess your current situation and help you map out a strategy that will get you to retirement and beyond.

The peak earning years for workers come in the early 50s, according to a study from The Federal Reserve Bank of New York. To make the most out of this peak, you should spend your 40s ramping up your skills and building on your strengths so you can maximize your pay before your 50s even begin.

Begin by creating a plan to leverage your skills into higher earnings. “Write down your top five strengths on one side of the paper,” Inman said. “On the other side, write down five or more inefficiencies in your field that you are an expert in. Try to find a way to blend your strengths into an inefficiency or gap that needs to be filled in your field.”

If your financial checkup and retirement goals aren’t aligned, it’s not too late to get back on track. There are limits to how much you can contribute to retirement savings accounts, but once you get out of your 40s, those rules change.

Starting at 50 years old, you can make “catch up” contributions, which range from $1,000 to $6,000 more per year than you are allowed to put in most retirement-specific savings accounts. If you have the extra income now, consider putting aside money in preparation for these contributions later. Once you turn the big 5-0, you can start stuffing your IRA, 401k and 403b plans to the max. Even if you aren’t behind on your retirement savings, this is a great way to bulk up your nest egg.

Financial success isn’t built alone; you need a team of people who have your back, like a financial planner, CPA and insurance agent. “Having a well-qualified CPA that can help you mitigate your tax liability is a must,” Inman said. Ask friends and family for referrals and work from there. “You will need to interview several (maybe dozens) until you find the right person to fill this roster spot,” he added.

If hourly advice from a financial planner isn’t going to cut it, consider a fee-only financial planner that specializes in your field of work. Inman, who works of a fee-only basis, said, “Less than 3 percent of advisors are fee only, which means that the only income they make is from their clients, not commissions or kickbacks from other financial companies they recommend.”

“Some parents claim they’ll pay for their kids’ entire college tuition but are in for a rude awakening when they find out how much they are on the hook for,” Rose said. “A quick analysis on rising tuition costs will remove the sticker shock from later on. That way you’ll quickly see if paying for any of your kids’ college tuition is a real possibility or a pipe dream.”

There are college cost calculators online to help you predict future education costs based on today’s prices. It’s better to have a realistic plan now than to shatter any dreams later.

Solid tax planning can save you a lot of money now and later. Your CPA, a key member of your financial dream team, can help you figure out a strategy to lower your tax burden and make sure you aren’t paying more than necessary. More importantly, he or she can also make sure you aren’t breaking any IRS rules that could land you in hot water. From lowering your tax bracket to maximizing deductions to planning investment distributions, a CPA (or other tax professional) will make sure you keep more of your hard-earned money.

“While some financial experts may not agree with me, I do think there is such a thing as ‘good debt’,” Rose said. “Good debt can be several things, including investments that you can afford, such as a mortgage, or paying for a necessity — if you don’t have enough savings — with a loan that you can repay. Consolidating higher interest debts with a loan that has a lower interest rate can also be a smart move.”

Before you take out any new debt in your 40s, do your homework on different loan products. For example, compare the rates and payments on things like unsecured loans versus fixed loans, and always shop multiple lenders.

It can be tempting to cover every potential catastrophe the future might hold, but it’s a waste of money to invest in a life insurance policy that isn’t the right fit for your specific needs. “There are several types of insurances out there, but with respect to life insurance, the only type of life insurance that nearly every person on Earth would ever need is term insurance,” Inman said.

Term insurance is the most basic type of life insurance, where you pay a set amount each month over a specific period of time, or “term,” like 10, 20 or 30 years. Once that term is over, you can decide to extend the policy, but the monthly payments usually increase. You can also convert this coverage to a permanent life insurance policy, which covers you as long as you live.

If your financial plan doesn’t include your parents, it should. At the very least, you might need to help them keep tabs on their own funds. If they do not have resources or a plan of their own, you might need to assist with the cost of their medical care or housing as they age.

Cook, whose parents are 79 and 87, is right in the middle of this situation. “The best thing we did was to make sure that our parents had simplified their accounts to just two credit cards and two bank accounts,” she said. “I look at their credit card statements online to make sure activity looks legitimate. We also talk to them about spam phone calls and giving to charities.”

According to Inman, the earlier you can talk to your parents about their own retirement plans, the better. “Have conversations early as to how stable they are during retirement and find out how much assistance they may require,” he said.

In addition to helping your own parents manage their finances, your 40s are a good time for you to get your own estate planning help. If you have significant savings, investments or property, a trust could be a good choice for you. If you plan on passing along your assets and wealth when you pass away, you might want to consider gifting that money for added tax benefits. You’ll also want to make decisions about power of attorney and healthcare choices. A qualified estate planning professional can help you make all these decisions.

If you’re expecting to receive an inheritance after your aging parents or relatives pass away, it could be beneficial to receive that money as a “gift” instead. For example, your parents could gift you up to $14,000 a year tax-free, $28,000 a year for married couples. In theory, they could give you this gift each year for the rest of their lives. If their estate is large enough, this might help you avoid paying estate taxes later.

If you don’t need the money now, cash “gifts” can also be used to help aging parents pay for their own care — they gift you the money, and you pay for the care.

Cook advised people in their 40s who are behind on saving or planning for retirement to start with a zero-based budget. This method involves tracking your every expense to make the best use of every dollar, and to ensure that your maximum expenses for the month are never more than the income you’re bringing in (so your balance sheet equals zero). If you earn $4,000 a month, all your spending, saving and investing should also equal $4,000. Every single dollar has a purpose, whether it’s buying food, paying for housing, going into a retirement account or knocking out debt.

If mortgage rates have dropped since you purchased your home, you might consider refinancing your loan. However, people in their 40s should avoid going into another 30-year loan, which would leave them paying the mortgage well into their 70s. Ask your mortgage broker if you can lock in terms that are similar to what you already have left on your loan, so you’re saving on interest. And avoid the temptation to cash out any of your home equity, as that can extend the length of your loan and how much you owe on your house.

If you don’t own a home but are considering jumping into the market, it’s not too late. “If you buy your home in your 40s, having it paid off by retirement (which should be everyone’s goal) will require a payoff in roughly 20 years,” Inman said. “A 30-year loan will have lower payments, but you would be making payments for 10 years into retirement, which is not ideal. Making additional payments will be necessary, or taking out a 15-year loan (which means higher monthly payments) will be critical to a successful transition into retirement.”

If you are in your 40s, you’ve probably seen significant life changes since you opened your first retirement accounts. Take some time to review your 401k, IRA, life insurance, annuities and any other plans with designated beneficiaries. This is especially critical because even if you have a will, your beneficiary designations trump anyone listed in that document. So, if your ex is still the beneficiary on your 401k, your current spouse will be out of luck. And if you don’t have anyone listed as a beneficiary on these accounts, do that now. In the event that you die without designating a beneficiary, your state laws determine who that money goes to. Put the control of your money in your own hands.

Just a little deferred home maintenance can have a big impact on your finances down the road. If you own a home, keep appliances up to date and in working order, make sure your heat and air conditioning work, fix any plumbing issues, replace your roof as needed, and complete all unfinished projects. Keeping up with the care of your home now is easier and cheaper than waiting 15 years when a major expense could put a damper on your plans to retire. Deferred maintenance also eats into your home’s value, which is a huge part of your net worth — especially if you’re planning on selling it to help fund your retirement.

Passive investing is not a get-rich-quick scheme. Instead, a passive investing strategy looks to maximize performance over a long period of time. With passive investing, returns are maximized by keeping activity, like buying and selling, to a minimum. This avoids excessive fees and the inevitable drag a portfolio can see from frequent trading. Passive investors hold onto securities for many years and ignore short-term price fluctuations or trying to time the market.

There’s a chance that you might need long-term care when you get older. Whether you need help with basic daily tasks or more skilled care for medical issues at home or in an inpatient facility like a nursing home, the costs can add up quickly. According to statistics from the 2016 Genworth Cost of Care Survey, the average monthly cost of a home health aide is $3,861, assisted living is $3,628 and a nursing care private room is $7,698 a month.

If your retirement fund won’t cover this kind of help, you can buy a long-term care policy to help cover the costs. According to the American Association for Long-Term Care Insurance, the best time to purchase this coverage is in your mid-50s, but you should be researching options and budgeting for this expense now.

Hopefully, by the time you’re in your 40s, you’ve built an emergency fund. Advice on how much cash to keep on hand varies, but ideally, you’ll have enough to cover your cost of living for at least six months. As you go through your 40s, consider increasing how much you save to cover things outside of emergencies, like a child’s wedding, a dream vacation or a new car.

If your emergency fund has grown significantly, consider moving some of that money to something like an investment account. This will give your money more room to grow, and as long as you still have enough cash available for true emergencies, you won’t be taking on too much risk.

Your 40s should be about building on the solid foundation you started during your 20s and 30s. It’s not the time to make any drastic moves or risky investments. “Don’t get sidetracked or throw your finances into chaos by trying to be creative and ‘outsmart’ the system,” Inman said.

If you love to keep tabs on the stock market and see all the action, do so from a distance. Analysts always have conflicting points of view and stock market behavior cannot be predicted, so consider it a spectator sport.

“Pay raises are great!” Rose said. “Unfortunately […] as your pay increases, so does your spending.” Rose suggested treating yourself to one or two nice things, but to avoid blowing it all or falling victim to lifestyle inflation. “The smart money move is to pay off any outstanding debt, increase your 401k contribution or get aggressive on your kids’ 529 college savings plans,” he suggested.

If it’s too tempting to spend your hard-earned pay raise, try having that portion of your paycheck automatically transferred to another account. That way, your pay stays the same, and you won’t have to make any cutbacks to increase your savings rate.

Once your finances are organized and you start building your wealth, it’s critical to protect all your assets. “Other than mandatory insurance plans, like home, auto, and health, it’s important to have ample life insurance to take care of your family if something happens to you,” Rose said. “Another inexpensive and often overlooked insurance policy is an umbrella policy. It is designed to help protect you from major claims and lawsuits and, as a result, it helps protect your assets and your future.”

Don’t forget the previous advice of not over-insuring, however. Protecting yourself doesn’t mean buying every insurance policy available. Identify the areas you need coverage, and tailor your plan to best protect your assets.

“The financial challenges in your 40s are different because you may be earning higher wages and your kids may be getting older,” Cook said. “Higher wages can lead to lifestyle inflation, and older kids can bring bigger costs (computers, activities, cars, etc.). This is in addition to trying to increase the amounts you save for retirement too. All can be a stress on your budget!”

Some major mistakes people in their 40s make are draining retirement accounts to pay for their children’s costs, like weddings, cars, down payments on first homes and college educations. It’s hard to avoid the pressure, but it’s okay if you can’t afford to financially support your children through their own life stages. Nothing should come before preparing for your own big life changes, like retirement.

There are some amazing things about being in your 40s, including having a big chunk of life and work experience under your belt. At this point in your life and career, you are an asset to your company, so it’s time to take things to the next level. Your kids might be getting older and more self-sufficient, which means you have more time to dedicate to your career. Moving up the ladder will help you set the bar higher for your future income.

Before you approach your boss about a promotion, research available positions and what they pay. List your accomplishments over the past year, and ask your co-workers for feedback on your performance. Data, backed by firsthand accounts of how awesome you are, will help increase your chances of landing a pay bump. If you’re turned down, ask your boss for a detailed plan on how you can move forward, and make sure you check in frequently to update your progress.

Investment fees can creep in slowly and start to eat away at your nest egg without you even realizing it. It’s not unreasonable to pay fees for actively managed funds — they account for the investors that are managing your money, as well as administrative expenses — but understanding fees, how and when they are applied and how they impact your bottom line will help you make better choices.

For example, load fees are a charge for buying shares of a fund from a broker or investment advisor who is paid on commission. You could save that money by bypassing the broker and purchasing shares of a no-load fund directly from the mutual company instead. Fees can be hard to understand or find on your statements, so try a free service like FeeX.com to help you figure out what you’re actually paying.

By the time you are in your 40s, you’ve hopefully built up some significant equity in your home. It’s tempting to get a loan and use that money for things like improvements, paying off other debt or putting a child through college, but these might not be the best investments.

If you decide to use money from home equity, think carefully about what you are going to do with it. Will that new bathroom significantly improve the value of your home? Is there another way to pay down debt? Are student loans a better option? Compare the costs of a home equity loan or line of credit against your retirement goals to see if it’s really the best deal.

Part of estate planning includes drafting a will. If you don’t have one, get one. If you have one, make sure it’s current. A will ensures your assets are dispensed in the way you want and keeps any potential family drama at bay. Plus, you’ll have peace of mind knowing the fruit of your life’s hard work will end up exactly the way you see fit.

You don’t need an attorney to craft a will, but an experienced lawyer can offer valuable advice on estate planning strategies, establishing things like living trusts and providing guidance on how to handle joint property with a spouse, ex or children from different relationships. There is also DIY software to help you craft a will if you want to avoid paying an attorney. The laws governing wills vary by state, so as long as your will covers your state’s requirements, it’s enforceable.

Your retirement plan should involve both your financial and your physical health. Securing a gratifying future means taking care of yourself today. If you haven’t already, find an exercise plan you can stick with for the long haul. Get control of your diet, and kick any lingering bad habits from your 20s and 30s.

Make sure you’re also taking care of your mental well-being. Challenge your mind, address any potential issues, and learn to manage stress. The healthier you are now, the more you’ll be able to enjoy retirement.

As you go through your 40s, make it a point to learn how to do something new every few years — especially when it comes to technology. If you can keep up with tech changes now, it will be easier to adjust to more changes as you get older. Learning new skills also increases your earning potential and keeps your mind sharp. As you wind down your working years and enter retirement, your newfound knowledge will keep you busy and maybe even inspire a career change or side job.

In your 40s, retirement no longer feels like some intangible concept — it’s just around the corner. When the markets shift, you face financial hardships, or realize you’re behind in savings, it’s difficult not to panic. It’s especially important during this decade to keep a level head. Don’t engage in panic selling, don’t run and cash out your investments and don’t lose control just because you hit some rough water. That will only lead to bigger problems later. You can always stop, re-evaluate your plan and come up with new solutions that will get you where you want to be.