Strategic Financial Moves for Your 40s

The 40s bring increased financial responsibility, and along with it, an opportunity to make key financial moves that will set you up for long-term success.

If you haven’t already, this is the time to design a comprehensive financial strategy, based on your unique goals and priorities, which will guide your decisions and keep you on track as you continue to build wealth. Having a solid financial foundation ensures you’re positioned to handle the ups and downs of life, to weather the storms.

As always, you should be aggressively saving for retirement, periodically checking to see that your insurance coverage and estate plan suit your current needs, and continuously expanding your financial knowledge.

Additionally, here are a couple of things to do, avoid doing, or take into consideration during this decade to set yourself up for financial success:

Increase Your Savings

The 40s are a great time to scale up your savings rate. Since these are likely some of your highest earning years, you’ll want to make sure a nice chunk of what you bring in is being invested.

15 to 20%, minimally, is a good savings rate. One of the best ways to achieve this is to pay yourself first, to take out what you intend to save immediately upon receiving income, then spend from what remains.

You’ll want to fund your 401(k), but it’s important to also have a personal brokerage account for significant future expenditures. This is a place where you can invest money for expenses that are more than a few years out (5-20) but will occur prior to having penalty-free access to your retirement accounts.

The standard saving benchmark for your 40s is 4x your annual earnings. In other words, if you’re making $100,000 a year, by the time you turn 50, you’ll want to have $400,000 in savings and investments. If you’re preparing for the possibility of early retirement, this should be closer to 8 to 10x.

Prepare for College

If you have children, they are likely growing up too quickly. Depending on what they plan to do after graduation, you might want to consider opening each child a 529 plan, investment accounts that offer tax-free withdrawals, provided the funds are used to pay for qualified educational expenses.

Decide How to Handle Long-Term Care

Although most people get Long-Term Care Insurance (or LTCI) policies in their 50s. This is a good time to think about your options and consider whether your family history warrants purchasing a policy sooner. For those with enough in savings and investments, this is the time to weight the pros and cons of insurance vs. funding the cost of care out of pocket.

Check on Your Parents

The 40s are a good time to consider whether your parents could use help now or may need it eventually. Talk to your siblings and spouse about how to best meet their specific needs.

Offer your assistance with daily living and money management. Talking to parents about health concerns and the loss of independence isn’t always easy, but it’s important to have open and honest conversations on these topics.

It’s better to address concerns sooner rather than later, before life-changing decisions must be made.

Don’t Spread Yourself Too Thin

The 40s are referred to as the “sandwich decade” for good reason. It’s hard to know what to fund, when in addition to retirement you have to save for home repairs, children’s college, and/or parental care.

At times, it can become overwhelming. There’ll be tough decisions to make and many financial moves to consider. Unfortunately, there will almost certainly be times when you simply won’t be able to have it all.

Invest in Your Health & Wellness

Focus on living a balanced life and be sure one of your biggest investments is in your health. Like making key financial moves, taking care of yourself will pay dividends down the road.

You’ll want to be in tip-top shape to enjoy that wealth you’re building, once you become financially independent.

I remember changing my diet a few times when I was 40-something. One of the biggest shifts was toward more home-cooked meals. By the end of the decade, I’d reduced my meat consumption and was becoming more plant based.

Keep Lifestyle Creep at Bay

You’re probably making more than you used to, and watching others buy things you’d love to have. Perhaps your kitchen could use a remodel, or your car is over the hill, and you really need a vacation.

Life was meant to be enjoyed along the way, but be sure you’re not prioritizing the present at the expense of the future.

I’ve found that the best way to do both is to get intentional about where my money’s going. To make sure I’m using my savings toward what I cherish most, when it comes to spending, I go for quality over quantity.

For my husband and I, one of the biggest mental shifts has been to save for everything over $500, prior to purchase, instead of charging or borrowing first, then figuring out how to pay later.

Looking Ahead

Use your 40s to kick your saving and investing into high gear. There are large expenses on the horizon, but if you make the right financial moves now, you’ll be ready for them.

Try to strike a balance between treating yourself now and preparing for the future. Once you’ve established your highest priorities, and put plans into place, relax! You’re on track and ready for the next phase of life.

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