Experts: Top 5 Money Lessons to Learn in 40 Years
There are certain financial lessons that everyone should master before the age of 40. Some of them may seem a bit obvious while others are tailored to this specific stage of life. Let’s look at the top five money lessons you need to learn before you turn 40.
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Put retirement savings first
Those in their mid to late 40s are about 20 years away from retirement. Now is the time to accelerate your retirement savings, said Heather Winston, CFP and director of financial planning and advice at Principal.
“You’re at a point in your life where you’re probably in your highest earning years, which gives you the opportunity to start saving exponentially and maxing out your 401(k),” Winston said.
It’s time to stop saying “I plan to save for retirement” and start saving for retirement if you haven’t already, said Mark Henry, founder and CEO of Alloy Wealth Management. Make regular contributions to a 401(k) or other employer-sponsored retirement plan and fund after-tax accounts like a brokerage or a Roth IRA.
“You should be done trying to become a millionaire overnight,” Henry said. “By this point in life, you should have learned that you are an investor, not a Wall Street trader. You are a long-term investor, going through the ups and downs in search of long-term appreciation and meeting regularly with a trusted financial advisor.
If you haven’t quite caught up yet, Winston said not to dwell on where you could have saved before. Instead, ask yourself today if there are any places where you can potentially cut back or make adjustments to ensure you are well prepared for the future.
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Be strategic to pay off your debts
At 40, you should be able to have certain types of debt, such as credit cards, paid off in full. Those with other debts, such as home or auto loans, should make a game plan to pay them off.
Henry recommends starting with the smallest debts and paying them off before tackling the biggest debts. This helps the debt feel much more manageable than trying to pay off several large debts at once.
As you work to pay off and avoid getting into debt, consider using this time to track your spending habits, said Sam Palmer, head of digital wealth planning and advice at JP Morgan Wealth Management. You can use online tools to determine your top spending categories and your actual cash flow each month, quarter, or year.
Have an emergency fund
This is good financial advice at any stage of your life, but those in their 40s or in that age bracket need to build an emergency fund. Henry said that before you pay off debt 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 spent all your extra money trying to pay off your debts, you’ll go into even more debt the next time unexpected expenses arise.”
Work alongside a professional
Those who still struggle with money and the practical concepts of personal finance shouldn’t feel like they have to go it alone at this age.
Winston recommends working with a finance professional. “They can be very helpful in these circumstances to ensure that you understand your own personal retirement plans and where you can of course correct today to be in good shape for the future.”
Disseminate the wealth of knowledge
Many people are married by the time they are in their 40s. Some may already have children, plan to start 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 financial health to the younger generation. “It’s never too early to start the financial journey and inculcate good habits from the start.”
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