Best Financial Goals To Build Wealth In Your 40s
Today’s article is about financial planning in your 40s. Because there is no better time to think about achieving important financial goals.
By now, your life is full of responsibilities. And time is passing quickly.
So, let’s not waste a precious minute. And jump into the building blocks of financial planning for 40-year-olds.
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
Fundamental Tips For Financial Planning In Your 40s
Here is a summary of what we are going to cover today. Specifically, 12 financial goals for your 40s.
Financial goals that build wealth for your future. And protect the wealth you have created.
- Maximize your income
- Assess your life insurance
- Look over your disability insurance
- Consider a health savings account
- Watch your budget
- Payoff all non-mortgage debt
- Save for kids college education
- Focus on retirement savings
- Consider long-term care insurance
- Invest outside of retirement accounts
- Put an estate plan in place
- Assess your parent’s money status
Next, I want you to consider how to think about these financial milestones…
How To Build Wealth In Your 40s And Protect It
Let’s first step back and look at the big financial picture. Keep the following things in mind when planning financial goals by age 50 that you want to complete.
Here are the 4 themes to focus your financial activities. Ground yourself in these concepts when you are not sure what to do next.
The first theme is to maximize your upside. That’s your earnings potential.
Secondly, it’s important to safeguard your downside risks. Meaning protecting yourself from disastrous financial events.
The third is to allocate your cash wisely. This means making smart decisions about what you do with your extra money. In other words, your discretionary savings and investments.
Lastly, is to think about and plan for the inevitable. Because aside from taxes. Death is the only other certainty in life.
And this last theme is bigger than just you and your immediate family. It includes your parents too. I’ll have more on that a little later.
The Right Tools For Managing Finances In Your 40s
Furthermore, you are going to find there are a lot of moving parts to finances in your 40s. Specifically, budgeting, expense management, investments, and more.
And you need the right tools. We handle all of our activities in one place. And we do it online. This saves a lot of time.
Specifically, we like Personal Capital for this chore. Best of all Personal Capital is free to sign up and use.
You can learn more about Personal Capital here.
Next, let’s explore each of the 12 tips for financial planning in your 40.
Starting with our first big theme. Making the most of your earnings potential.
Maximize Your Income
Most people enter their peak earning years in their 40s. For some, it will extend into the 50s.
So, now is the time to make the most of your job or career. This is one of many key performance indicators when building wealth in your 40s.
And, there are several ways to go about it.
Make More Money From Your Current Employer
First of all, make more money in your current job. One way to do this is to ask for a raise.
Another way is to climb the ladder. And earn a promotion to a higher-paying job.
Financial Planning For 40-Year Olds: Change Employers If Necessary
Lastly, consider changing employers. If your current employer won’t pay market value for your skills, find one that will.
Changing employers can be risky. Since the “grass isn’t always greener on the other side”.
But your 40s are a good time to do it. Since changing employers is often the quickest way to make more money.
Resource: Polish up your resume with MyPerfectResume
Maximize Profit From Your Business
On the other hand, perhaps you are a business owner. Then look for ways to grow your business profitably.
And funnel those increased profits to yourself. Through higher wages. Or, profit-sharing arrangements.
Financial Goals By 50: Evaluate Your Side Hustle
Did you start a side hustle earlier in life? To improve your finances in your 20s or 30s?
If so, take a hard look at it. Does your side hustle make money? If yes, consider ways to make more.
Or, is your side hustle a money-wasting time suck? When this is the case, drop your side hustle. And focus on your job, career, or business.
Okay. That concludes our first theme. Maximizing your upside. In other words, making the most of your earnings potential.
Next up, our second theme. Financial planning in your 40s means protecting your downside risks.
Assess Your Life Insurance
If you have people dependent on your earnings. To sustain their lifestyle. You need life insurance.
The most likely reasons are a spouse that doesn’t work. And your children.
So, take a good look at your life insurance. And put an adequate death benefit in place.
To allow your dependents a smooth financial transition. In the very unfortunate case, they have to carry on without you.
Look Over Your Disability Insurance
Disability insurance is important too. Why? Because you are more likely to become disabled.
And not be able to work in your 40s. Rather than suffering an untimely death.
But the same principles apply here. As they do with life insurance.
If you have loved ones that are dependent on your earnings. You must protect your earnings in the event you become disabled. And are can not work.
Consider A Health Savings Account
Odds are you have had pretty good health to this point. Maybe you were able to skimp on health insurance to make the most of your finances in your 30s.
But as we age, health issues become more prevalent. So, make sure you have health insurance in place that makes sense for your situation.
Furthermore, consider a Health Savings Account. With a high deductible health insurance plan.
Thus, you can choose to self-insure some of your health costs with a higher deductible. In exchange, your premium costs will be lower.
Many employers offer high deductible plans. And a high deductible health insurance plan has a couple of advantages.
First, you can open and fund a Health Savings Account (HSA). Like a qualified retirement plan, you invest money in this account pre-tax.
And, your money grows without being taxed thereafter. Finally, if you withdraw the money for qualified health care expenses, it is never taxed!
Health savings accounts are an excellent way to save for health care expenses. And save on taxes too.
That concludes 3 finance in your 40s tips to protect your downside. Sorry if it was a little depressing.
But better to be prepared than sorry. Next, we are onto our 3rd theme in today’s article.
About making tough decisions on how to allocate your disposable income…
Watch Your Budget
First of all, don’t let lifestyle creep eat into your disposable income. Keep an eye on your budget.
Watch your spending and close any gaps where money is leaking unnecessarily. Especially in your 40s, it’s important to max out your excess cash flows.
You simply do this by making more money. And monitoring your expenses.
So you make more than your spend. Because you have some critical decisions about how to allocate any excess cash.
Here’s some financial advice for 40-year olds you may want to consider when it comes to your budget…
Financial Planning In Your 40s: Where To Live
If moving is in your future. Be selective and choose an inexpensive place to live in. Because if you’re not careful, housing costs can eat up a budget.
Here’s another point to consider. More and more people are working remotely. So, do you have the choice of where to live now? And can move if you want to?
If yes, consider a low-cost state with no taxes. You can stretch your dollars by maximizing the money aspects of a move like that.
Financial Planning In Your 40s: Get Cash Back
How about this easy way to save money. By getting cash rebates on all your online purchases.
We use the cashback app, Rakuten. And receive money back on everything we buy online.
You can learn more about Rakuten here.
Okay. Next, the following 5 points illustrate where you should be putting your most precious resource. That is the extra money from watching your budget closely.
Payoff All Non-Mortgage Debt
One of the most critical short-term financial goals by 50 years old is to eliminate all of your non-mortgage debt.
You don’t want to hit your 50s with a load of debt. Because in your 50s, your focus will be three-fold.
Taking your retirement savings to the ultimate level. Becoming mortgage-free. And positioning yourself for a secure retirement.
Debt Payoff Priorities For Financial Planning In Your 40s
So put a plan in place to wipe out your debt. Here is a good order to set your priorities on debt payoff:
- Credit card debt
- Student loans
- Automobile debt
- Personal loans
- Home equity lines of credit
The debt payoff rule of thumb is easy to remember. Payoff the debt with the highest interest rate first. Then move on to the next highest.
Save For Your Kids College Education
When you have kids, the increasing cost of college is a big challenge. And making this a savings priority. Is the only way to ensure your child will get the education he or she deserves.
Hopefully, you started a child college fund in your 30s. Regardless, it’s time to get serious about your student’s financial goals. And the challenges that come with paying for them.
Make sure that you take a look at 529 plans. Investing in a 529 plan is one of the most efficient ways to save for your kids’ college costs.
Focus On Retirement Savings
Financial planning in your 40s means you are halfway through your working life. Since you will pass the mid-point of the traditional working age range.
Time is getting shorter to fund a comfortable retirement. But it’s not too late. So, consider the following things as part of the financial goals for your 40s.
How To Build Wealth In Your 40s: Retirement Account Options
First, maximize contributions to your employer-sponsored retirement plan. Second, open and fund an IRA.
Either a traditional IRA where you make pre-tax contributions. Or, a Roth IRA where contributions are made after-tax.
Have you been putting off opening that IRA account? If yes, get one opened up today. In my experience, you will be glad you did.
Invest Outside Of Retirement Accounts
Do you still have some money burning a hole in your pocket? Then congratulations!
You are doing great. So, start investing outside of the retirement accounts we just discussed.
First of all, open an online brokerage account. And expand your investments and investment management capabilities.
Do it yourself investing doesn’t have to be complicated. As long as you are getting good advice about investments that fit your situation.
Furthermore, keep your investment costs low by using a zero-commission stockbroker. I use the Webull app.
Signing up for a Webull is fast and free. And the app is easy to use.
Then invest in stocks or low-cost exchange-traded funds. And never pay a commission when you buy or sell.
Doing so will keep your investment costs super low. Which is important when learning how to build wealth in your 40s.
You can learn more about Webull here.
Okay. That concludes our third theme. Specifically, the best options to consider for excess cash in your 40s.
Next, our fourth and final theme. Planning for the inevitable. Old age and death.
These represent some important long-term financial planning topics.
Consider Long-Term Care Insurance
First of all, there is a fairly high probability that you or I will end up needing long-term care in our advanced years.
Furthermore, long-term care is very costly. Fortunately, there are insurance-based solutions that can be put in place in your 40s to pay for long-term care later in life.
Specifically, long-term care insurance. It can be expensive. But the earlier in life you insure, the cheaper it is.
Another point to consider is the level of wealth you expect to have in your senior years. Most financial advisors suggest that people with more than $1 million net worth. May not need long-term care insurance.
Those lucky folks can afford to self-insure. On the other hand, regular people like you and I should consider insuring for long-term care expenses.
Put An Estate Plan In Place
Now that you are in your 40s, it’s time to start thinking about an estate plan.
Financial Planning In Your 40s: End Of Life Documents
At a minimum, most legal experts suggest getting the following documents in place:
- Last will and testament
- Power of attorney for financial matters
- Power of attorney for health care
But there are more advanced methods of estate planning to consider in your 40s. Depending on your situation and financial goals.
Financial Planning In Your 40s: Advanced Estate Work
First of all, a will is the cornerstone of estate planning. But some people find setting up a trust can be beneficial.
A trust can be set up for the benefit of a minor. And, professionally managed.
Another important factor to consider is the size of the estate. Especially if its value may exceed the federal estate tax exclusion. Requiring taxes to be paid at the time of death.
Furthermore, some states also assess estate taxes. Adding more complexity to preparing an estate tax minimization plan.
Finally, there are other good reasons to implement an advanced estate planning strategy. First, to minimize the expenses and delays associated with the probate process. Also, to protect against privacy concerns.
It’s best to consult with an estate planning attorney. They have the knowledge and skills to put the right plan in place to meet the financial goals for your 40s.
One more bit of financial planning for 40-year olds. Then I will wrap up.
Assess Your Parent’s Money Status
It is important to assess your parent’s financial situation. Because it may have an impact on yours.
There are 2 ways this can go. That will impact financial planning in your 40s. And how you go about setting your financial goals at any age.
First of all, you may be one of the lucky ones expecting to receive an inheritance. Even more, perhaps there is a family business with goals to be addressed in the future. Whatever the case, congratulations!
Consider how that money can help you. With the big expenses, you should be planning for in your 40s. That we have previously discussed.
On the other hand, you may have to provide financial support to one or more of your parents. If this is the case, don’t turn a blind eye.
Because you must consider these needs. As part of planning your financial milestones.
Okay. That concludes the fourth theme of today’s discussion about financial planning in your 40s. Specifically, planning for the inevitable.
And it also concludes 12 financial planning tips for 40-year olds. So, let’s wrap up with a summary.
Financial Planning In Your 40s: Wrap Up
First of all, think about the big picture when planning financial milestones by 50.
They are:
- Maximize your upside potential
- Protect your downside risks
- Allocate your cash to the right financial goals
- Plan for the inevitable
Then tackle these specific financial goals in your 40s. To make the most of your financial planning activities:
- Maximize your income
- Assess your life insurance
- Look over your disability insurance
- Consider a health savings account
- Watch your budget
- Payoff all non-mortgage debt
- Save for kids college education
- Focus on retirement savings
- Consider long-term care insurance
- Invest outside of retirement accounts
- Put in place an estate plan
- Assess your parent’s money status
More Reading About Financial Goals By Age & Timeframe
- Best ways to set and achieve your goals
- Other financial goals you may want to consider
- Our complete menu of personal finance articles
My Favorite Financial Planning Resources
Throughout this article, I mentioned several valuable tools, apps, resources. They can be a big help when learning how to build wealth in your 40s.
I have summarized them here for your convenience.
- Save on all of your online purchases with Rakuten
- Improve your resume using MyPerfectResume
- Invest in stocks using the Webull app
- Get investment advice from Motley Fool Stock Advisor
- Monitor your money with Personal Capital
Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.