If you’re been following along this year, you may remember that as my husband and I turned 40, we paused and took a moment to think about the next couple of decades of our life. And since money is the tool we use to live the life of our dreams, we talked a lot about money over the course of three months. How are we doing, what could we do better? How could our money work harder for us? How could some smart money moves in the next ten years lead us to our goals of retiring early?
So when Valentina offered to share some key areas that 40-year-olds should focus on when looking at their finances I jumped at her offer. Check out her advice below and grab a couple of ideas to focus on!
1. Start by paying off all your high-interest consumer debts
Paying off all high-interest consumer debt should be one of the most important things you can do in your 40s. It is common to have student loan debts, car loans, a mortgage, and huge credit card debt at the age of 40s. But, this is the time, you should try to eliminate your debts especially the debts with the highest interest rate. To become debt-free, you should have a solid debt repayment plan for how to eliminate high-interest debts like credit cards and auto loans.
Here are a few ways to get out of debt:
● To repay the highest-interest debt, follow the debt avalanche method.
● Consolidate your debts to multiple debts. If you are struggling to pay off multiple bills, you can consolidate your bills.
● If you have too many debts and you are unable to repay the total debts, then consider settlement to get out of debt.
● You may need to consider professional debt relief help to become debt-free sooner.
2. Protect your emergency fund
Did you know that emergency expenses may arise during old age? You need to gradually enhance the emergency reserve based on the lifestyle inflation levels and change in your expenditure levels. If you have a sufficient emergency fund, you’ll tend to have a sense of security and this will keep you from touching all your other investments during an emergency financial situation. Also, don’t forget to refill your emergency fund once you withdraw money from it.
3. Increase your retirement contributions
Try to increase your retirement contribution at the age of 40. Contribute more to your 401(K) plan at work. You can also open a Roth IRA or a taxable investment account to secure your financial future. If you don’t know how to increase retirement contributions, you can seek an expert’s opinion regarding it.
4. Find ways to boost your income
At the age of 40, you are in your prime earning years. What skills, knowledge or experiences can you monetize?
If the income from your primary job is not enough to save more, you may have to look for part-time earning opportunities. You can also ask for a raise from your employer showing your potential towards the work. You need to show your eagerness to take additional responsibilities at your workplace to increase your income.
5. Consider side gigs
You may even consider a side hustle to boost your income. So, think about where you can excel to improve your income. You can take advantage of your hobbies and your spare time to earn more money.
● You can do freelancing, blogging, online teaching, pet sitting, and volunteering jobs to earn a little more extra.
● If you have space in your garage, rent that portion.
● If you have a pile of unused or mild-used items, you can arrange a garage sale to sell them out.
Also, don’t spend the entire amount that you earn from the side hustle you have considered. keep aside the money. You can save it or invest it to grow.
6. Consider baby steps to attain your financial goals
Setting bigger goals can make you unmotivated since you can’t see the result easily. So, to stay motivated, you need to consider baby steps to achieve your financial goals.
First of all, you should practice some good financial habits to see changes in your financial health. for example:
● Following a budget
Most of us think that budgeting is a daunting task. But in reality, it is one of the simplest things. You just need to download a budgeting app from the Internet to track your income and expenses through budgeting. This will help you to get an idea about how much money you can save every month.
● Living within your means
At the age of 40, you should try to secure your financial future, thus, living on less can help you save more. Spending more than you earn can increase your debt load. Thus, attaining financial goals can be difficult for you since you need to spend your income on repaying debts.
● Automate your savings
Automating your savings can help you see the results faster. Try to divert the money by automating it after receiving the paycheck. Set aside a certain percentage toward your goals.
● Plan budget trips
Heading to 40 doesn’t mean you will have to stop living a fun-filled life. To become focused on your goals, you need to enjoy your life to rejuvenate your energy. For example, if you love traveling, you shouldn’t stop yourself from exploring new places. Try to Plan more budget trips instead of one super expensive trip. This will help you to fulfill your desire for traveling zeal while spending less.
7. Gradually developing a withdrawal strategy
How are you planning to withdraw your funds during your retirement years? Is it annually, quarterly or monthly? If you have chosen a Systematic Withdrawal Plan for mutual funds, you have to decide the way you’ll withdraw, whether through dividends or through interest. All such decisions will play an important part in the amount of money that you’re able to accumulate as a whole.
8. A house for your family
Owning a home remains people’s top desire. Thus, try to pay down your mortgage. Remember, paying off your home equity loan is no way less important than saving in your retirement plan and in the emergency fund. However, it might take you a little longer to achieve this financial goal. Pay off the loan without missing a single payment.
9. Diversify Your Investments
If you’re into an investment, make sure you diversify your assets to avoid the ‘amine effect’. Create a good relationship with your financial planner so that he may help you throughout the process of retirement planning and help you in making the best decisions. Discover your monetary needs and consult them to avoid further financial discrepancies.
Lastly, achieving financial goals is a simple theory but can be demotivating especially when you have a lot of expenses. In your 4s, you have a lot of expenses that are necessary. So, you need to be very patient with your plan. Work slowly and continuously. Determine your financial needs in a particular month so that you can easily allot your money for each goal. Make sure you work flawlessly towards achieving your goal so that you don’t have to take any further steps that can waste your dollars in the long run. If possible, you can even hire a financial advisor who can help you set your financial goal as per your age and income. This will help you to reach your financial goals properly. Remember, nothing can be easily achievable, we all have to work hard to become successful. Your effort and consistency will make you perfect and help you achieve your goals.
Valentina Wilson is a personal financial blogger. She loves to analyze personal financial matters and help others manage their finances in a better way. Traveling is also her passion. She loves to travel and explore different places all by herself.