Financial Planning Tips for 40-Year-Olds: Books, Budgets, and More Resources
The dream for any 40-year-old is financial stability. You want to own a nice home, be able to take care of your children and parents, drive a nice car, have your insurance in check, and have a few thousand dollars saved in the bank. But is this always the case? According to a Business Insider article, the average 40-year-old is stuck in debt with little to no savings and an uncertain financial future.
Although this doesn’t apply to all 40-year-olds in America, most of them could benefit from financial planning. Generally, financial planning for 40-year-olds involves accounting for your finances, saving, and diversifying your investment options. This article explores several financial tips for 40-year-olds and reliable financial planning resources. Read on for more information.
Top 5 Financial Planning Tips for 40 Years Olds
Financial planning isn’t as complex as it sounds. With the right resources and a commitment to changing your financial situation, you can achieve financial independence. Below are a few tips to give you a head start on your journey.
1. Prioritize a Retirement Plan
Turning 40 is a turning point for many people because they realize that retirement is right around the corner. It’s normal to worry about saving for retirement, and if you don’t have a retirement plan in place, this is a crucial time to create one. Retirement savings ensure you enjoy a comfortable retirement with peace of mind and exciting returns on investment.
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You should look beyond company retirement plans and invest in IRA plans, cash-balance plans, and guaranteed income annuities. After all, you can create several retirement accounts, depending on your financial capability.
2. Get Out of Debt
Many 40-year-olds are behind on their financial goals due to all kinds of debt. This can be credit card debt, auto loans, student loans, or consumer debt. In fact, according to a 2021 report by the website Debt, the average debt for a 40-year-old is approximately $140,643. This is higher than any other generation. The sooner you can pay off your debt, the better.
You can start with high-interest debt like credit cards and student loans and work your way to low-interest loans like mortgage and auto loans. Don’t forget you can always seek the services of a financial advisor to understand your payment options.
3. Save as Much as You Can
If you didn’t prioritize saving in your 20s or 30s, you’d have a lot of ground to catch up in your 40s. Saving allows you to make smarter decisions and offers financial security. If you have children, you’ll also need to start saving for your kid’s college education and save you and them from further debt.
In addition, you should create an emergency fund, which ensures you’re protected in case of emergencies and unforeseen life circumstances. You can also open several savings accounts for short-term and long-term goals like buying a new car, birthdays, new appliances, and more.
4. Invest Wisely
Once you turn 40, you may start feeling like you’re late on your investment planning. Keep in mind that it’s never too late to start. You should also remember that investing wisely allows you to earn income in retirement and gets the ball rolling on creating generational wealth. Start by defining your investment objectives, doing your research, and laying out an effective investment plan.
If you’re unsure of where to start, seek out the services of an investment advisor who can help you with your investment strategy. Don’t forget to align your investments to your resources and prioritize other necessities like insurance and day-to-day living expenses.
5. Take Advantage of Tax Benefits
Many Americans wait for the annual tax refund to benefit from paying their taxes. However, you can still optimize your taxes beyond the tax refunds. Review your tax situation regularly to ensure you’re saving more of your taxable income. For example, you can save more of your taxable income by contributing to a tax-free Health Savings Account (HSA) or Flexible Spending Account (FSA).
5 Financial Mistakes to Avoid in Your 40s
Considering that this generation accounts for a large percentage of debt in America, it is safe to say that financial mistakes are a large contributor. That doesn’t mean that you make these mistakes on purpose. Here are five of the common mistakes you can avoid in your forties.
1. Avoiding Insurance
Insurance is an important part of financial planning, which can help you limit debt or unexpected expenses caused by emergencies. Whether you’re employed or unemployed, make a point to invest in health insurance, disability insurance, auto insurance, homeowner’s insurance, and life insurance. Find an insurance company that offers adequate insurance coverage to ensure you save more money.
If you have elderly parents, you can also apply for long-term care insurance, which reduces healthcare costs in nursing homes or home healthcare. Most insurance policies don’t cover elderly family members, so finding one that does is important.
2. Having Unhealthy Spending Habits
Unhealthy financial habits often result from a lack of financial planning. According to a Charles Schwab wealth survey, only 33 percent of Americans have a written financial plan. You need to monitor your finances, create a budget, and maintain an emergency fund. Avoid impulse buying or investing, and seek help from a qualified advisor if you can’t stay on track.
3. Postponing Your Will
By 40, chances are you either have a family, or you’re preparing for one. Life is unpredictable, and a will makes it easier for your family to move on peacefully in the event of your death. You need to outline everything from a life insurance policy to estate planning. You should also create a power of attorney, which comes in handy in case you’re incapacitated.
4. Prioritizing Where You Invest
Owning a home is the dream for every adult, but that doesn’t mean you should prioritize your mortgage over other financial obligations. Instead, save up for your kids’ college education, invest in insurance, save for retirement, and find investment opportunities.
You can negotiate a suitable mortgage rate by improving your credit score, reducing your debt, or taking time to save for your down payment. Homes are nice, but aligning your priorities secures your financial future, making it easier to eventually own your dream home.
5. Dipping Into Your Retirement Savings
Dipping into your retirement savings is never a good idea. You will take away time from your savings plan or incur penalties, which will set you back. More specifically, taking money out of your 401(k) plan before you’re 60 means that you will incur a 10 percent penalty plus income taxes, which reduces your savings significantly.
Be patient and find other financial options while your retirement account contributions generate interest. You can opt for emergency cash reserves when you need extra cash.
How to Make a Budget in Your 40s
As mentioned above, budgeting is mandatory for proper financial management. You can track your expenses and make more educated money moves, allowing you to save more. Below is a sample budget for a 40-year-old who earns $75,000 per year.
40-Year-Old Sample Budget
| Expenses or Income | Amount |
|---|---|
| Income | $6,250/month |
| Housing | -$1,080 |
| Utilities and Bills | -$580 |
| Debt Payments | -$864 |
| Food | -$520 |
| Insurance and Contributions | -$656 |
| Entertainment | -$250 |
| Transportation | -$192 |
| Childcare and Education | -$680 |
| Total Remaining | $1,428 |
Financial Planning Resources for 40-Year Olds
No matter your age or experience, you can always benefit from financial planning resources. Whether you read a financial planning book, download an application, or attend a class, there’s an opportunity to learn something new and find tips that’ll make financial planning easier. Below are 15 vital resources that could impact your financial future.
Financial Classes for 40-Year Olds
- Financial Planning for Young Adults. Coursera offers this 20-hour course for young adults to understand basic financial planning concepts and money management. This course focuses on financial goal setting, investing and different types of investment plans, saving, financial risks, and building credit.
- Master Your Money. Business Insider offers the Master Your Money bootcamp to help you make smarter decisions and build your financial wealth at any age. You can learn about worthwhile investments, building a business for generational wealth, and achieving your retirement goals.
- 90 Day Budget for Beginners. This is a free bootcamp by Busy Budgeter to help beginners learn the importance of budgeting, reducing expenses, and strategies for saving more.
- Financial Modeling Career Advancement Bundle. Simplilearn offers this specialized course for individuals with little to no financial background. You’ll learn core financial principles and learn how to make better informed financial decisions that impact can your financial health.
- Data Analytics Bootcamp. Thinkful offers a four to six month data analytics online bootcamp where you can learn statistical analysis, advanced Excel, Python, and other skills that come in handy for financial planning. Data analysis in financial planning helps you analyze investments, track your finances, and rely on the right information before making money decisions.
Financial Planning Books for 40-Year Olds
- The Everything Personal Finance in Your 40s and 50s Book. This book outlines detailed financial strategies that ensure you achieve a comfortable life in your retirement. Jennifer Lane touches on budgeting, investments, helping your kids overcome debt, and saving for retirement and your children’s college education.
- The Little Book of Common Sense Investing. In this book, John Bogle, a renowned mutual funds pioneer, takes you through the ins and outs of index investing. You can learn why it’s a beneficial investment strategy, as well how to implement it. It is a detailed book for investors, and even Warren Buffett recommended it to investors in his annual shareholder letter of 2014.
- I Will Teach You to be Rich. Author Ramit Sethi bases this book on the four pillars of personal finance, including banking, saving, budgeting, and investing. He also touches on negotiation skills, managing money, and myths around credit cards.
- The Millionaire Next Door: The Surprising Secrets of America’s Wealthy. At 40, the goal is to accumulate wealth, and what better book to read than The Millionaire Next Door. This book highlights the seven traits consistent with most, if not all millionaires. It also debunks the myth that wealthy people live affluent lives in Beverly Hills and other high-end neighborhoods.
- The Total Money Makeover. Written by New York Times bestselling author Dave Ramsey, this book takes you on a journey of financial fitness. You can learn about budgeting, designing a successful debt repayment plan, creating a secure nest egg for emergencies, and how to recognize dangerous money myths in his book.
Financial Planning Software for 40-Year-Olds
- Nerd Wallet. Nerd Wallet is a personal finance company that offers several personal finance tools. You can visit the website to find the best credit cards, checking accounts, scholarships, savings accounts, and mortgage rates for you.
- Personal Capital. This budgeting and investment app allows you to track your spending and investment performance. You can link your bank accounts, IRAs, loans, credit cards, mortgages, and 401(k) plans.
- Quicken. Quicken software helps with personal finance and money management. You can use the app to create monthly budgets, track your investments, organize your loans, and prepare for retirement. You can use the 30-day free trial to determine the app’s performance before committing to it.
- MoneyGuide. MoneyGuide is an Internet-based financial planning software that offers personalized financial services. It uses a goal-based approach to create and achieve several separate financial goals. It also offers insurance analysis to help you select the right policies.
- Financially Happy. Financially Happy is a finance-based website run by Alan Thomlinson, who offers his perspective on various financial topics. You can read about his experiences with investing, saving, debt payment, and everything money-related.
Meet Your Financial Goals at 40 in 2022
2022 is still in its first quarter, giving you ample time to set achievable goals and start overcoming financial mistakes that you may have made in the past. Invest in a financial planner or create a financial board.
Give yourself an end of the year goal, and don’t give up if things don’t go your way at first. Remember that you can rely on a qualified financial advisor to help with your investment decisions and overall financial planning.
Financial Planning for 40-Year Olds FAQ
No, it’s never too late to change your financial situation. Invest in financial planning resources and learn as much about personal finances as you can to gain more insight. However, it is also important to prioritize a retirement plan when you turn 40.
You can find financial planning resources anywhere from bookshops to in-person classes to the internet. You can find books on Amazon, Kindle, or the nearest bookshop, download money management apps, visit websites like NerdWallet, or attend a financial management course. The resources are at your disposal, and all you have to do is research.
No, you don’t need a financial advisor. You can use the resources at your disposal to learn about financial planning and make smarter decisions. However, if you’re having a hard time with money management or investing, finding a qualified and reliable financial advisor will work for you.
Yes. A will facilitates clear estate planning and ensures your family is protected in the event of your death. Additionally, you can nominate a power of attorney, which allows your confidant to oversee your estate and make decisions in case you’re incapable of doing so yourself.
