For many people, entering their 40s is a pivoting moment in their life. You have already built a lot of things, but you may not feel at the place you want to be, especially with how to save money in your forties.
Don't worry. We've got you covered. The following tips are some of the most important actions you need to be safe with your money. And, you'll still enjoy your life and prepare for the future.
The Top 6 ways to be Smart with Money in Your 40s
- Maintain a balanced budget
- Family budget
- Manage your investments
- Manage your possessions
- Assess your career
- Prepare for the future
Maintain a Balanced Budget
The most important part of managing your finances is to keep a balanced budget. You want to ensure a certain degree of financial security and have money to enjoy your life and take care of your family.
You probably have a decent income in your forties, and it may be time for you to set different saving goals. These goals may include setting up separate accounts for each to stay organized.
Grow your Emergency Fund
You may already have a house, a car, and a little (or big) family around you. These responsibilities mean more risks of unpredictable expenses. Sometimes reaching a hefty amount!
You may have to repair your house roof, buy or lease a new car, or maybe you face health expenses (let's cross fingers you won't!).
These events can happen anytime, and you must have enough money aside to face them without worrying. Be more prepared than the 36% of Canadians without a plan!
How Much Should you Have?
It depends on what you have. With more possessions come more risks of having to spend money suddenly. The bare minimum is between 3 to 6 months' worth of expenses. Aim for 12 months if you have a bigger house or family.
But don't panic. If you haven't already started, it is not too late! Dedicate a good part of your income (20% or more) to this emergency fund, and you will soon feel more secure.
Choose a high-interest saving account to avoid losing too much money due to inflation. Many banks offer these types of accounts.
Manage your Loans
You may have one or several loans (mortgage, auto loan, or otherwise). It may be an excellent time to reevaluate the interest rate, compare it to the competition, and negotiate a better deal.
Don't forget there is competition between banks and they all want you to spend money with them. That's how they make their profit, and there is always some room for negotiation.
Try to find a quick way out of your small loans. It is not suitable for your financial health and credit score to maintain them in the long run.
Pay off your Credit Card
Credit cards are great, but they are also loans in disguise.
Pay off the expenses before you reach the end of an interest-free grace period. A grace period is a time running from the date of your expense where you don't pay any interest.
If you can't do that, at least pay on time to avoid any extra fees. This will show responsible financial management and help build up your credit score.
Build or Maintain a Good Credit Score
If you follow the tips below for your credit card, you will get a good credit rating over time. It works the same for any loan you may have.
- Make sure you always pay on time
- Use direct debit to never be late with your payments
- Don't want to borrow too much because this signals that you are not properly managing your budget
- Check your credit regularly and set alerts so you know how you're doing over time
Saving Money in your Forties for “Wants” and Projects
Consider creating more saving buckets once you are comfortable with your emergency fund. Everyone has “wants” in life: travelling, buying a van, or even settling on a farm to make cheese (why not?).
Whatever your dreams are, you can make them happen by learning to save money in your forties. After that, it is a matter of planning: how much do you need to put aside to buy the wonderful holiday you are dreaming of? And when do you want to do it?
Then, plan backward and see how much money you need to put aside each month. Finally, deposit that money into a bank account. By the time your chosen purchase date arrives, you'll have enough saved up to pay for your vacation.
Give Back to Others
Personal finances seem to focus on you, but you have the power to help others. That is if you manage your money carefully.
Charities need donations to help people live a decent life or have food each day. You are lucky to live a comfortable life with a good job. So why not share with those in need?
You can easily save 5% of your income for donations. Or 1%, if you can't save more. It is not a significant effort for you, and it can make a positive change for many people!
Your budget may not only concern yourself. For example, if you have a partner or children, you have to take a broader view of your financial situation.
Discuss Money with your Partner
It would be a good idea to have regular discussions with your partner about money. It may not be the most pleasant topic, but it is necessary to keep the couple's healthy finances.
Don't worry if you don't have the same views about budgeting. Clear and open communication will help you find the best arrangement between you. After all, you already did it for many other aspects of your life. Then, you can find a solution that satisfies you both.
And if your partner doesn't want to deal with the budget at all (not a good idea, in our opinion), why not propose to take care of it yourself since you are the one reading this article.
Then, with time and a bit of patience, you can educate them and share this vital part of your everyday life.
Saving for Education
Your children may be grown by now. Or, they are close to starting (or finishing) secondary education and preparing themselves for a career. If you haven't already saved some money for that, you should consider doing it right now.
An intelligent way to do it is to deposit money in a Registered Education Savings Plan (RESP). It will also help apply to education grants down the road.
Manage your Investments
You may have already thought about investing money in your forties. Or, you took the plunge, and you're already putting money every month into an investment fund or stocks.
Whatever the situation, you should consider having more than one investment asset.
Diversify your Assets
Don't put all your eggs in the same basket! As the story goes, if the basket falls apart, your eggs will break, and you can say goodbye to the omelet!
It works the same with investments.
There are many ways to invest your money, from mutual funds to high-risk stock options or even the recent wave of NFTs (if you are into digital assets).
Take the time to educate yourself on the different possibilities and decide within your budget. But, then, don't chase the next shiny object!
Hiring a financial advisor could be a good idea if you are not savvy with investing.
Manage your Possessions
One fundamental thing to do is to distinguish between assets and liabilities. Here are two examples you certainly have to consider.
A car is a liability. You can only lose money with it. If you buy a new one, the moment you start driving it, its value has decreased already.
Buying a used car can be wiser in that sense if you choose well and don't spend your time at the garage. Being informed will help you make the best choice.
Finding the right home, investing in it, and maintaining it is just like saving money in your forties. You get to live in the account while you do it, and it usually has a great interest rate.
Housing can be both. You can invest and rent. Or you can buy in a location where prices tend to go up and resell it for a higher price. This is an asset.
On the contrary, if you buy in an area where prices go down with time and don't do much with it, you will lose money. With time, the home becomes a liability. You will continue to pay bills, taxes, and interest on your mortgage for a property that loses value.
Assess your Career
Your career is likely about to peak. But maybe you are not where you would like to be. So being in your forties is a good time to reflect on where you are now. And where you want to be.
Time for a Change?
A mid-life crisis is a real thing. But we are not here to talk about what you should change in your life to feel more fulfilled. Instead, the point here is to review your career trajectory and see if you can make any adjustments.
It is not too late for a change. After 50, it will become more complex.
Level up your Income
You may want more responsibility, for example. You now have a lot of experience in your field.
This is valuable for your employer, and you should get a proportionate value for it in return. You can also join a new company that offers a higher position (with a higher income!).
Prepare for the Future
Solidify your Retirement Savings
At this age, you should ideally take advantage of tax-sheltered savings options like the Registered Retirement Savings Plan (RRSP) or increase your annual contribution. However, remember that this is a retirement account, so you should not plan to withdraw early.
For the average Canadian or American, a good indicator of your readiness for retirement is having seven times your annual income by the age of 55. We admit we like the simple approach, but this number is not entirely realistic when you are trying to prioritize savings, living expenses, and re-hashing debts.
The reality is there is no magic number to show where your retirement savings should be at 40. But that doesn't mean you can't use a numerical approach to preparing for a healthy retirement from the moment you are in your 20s and 30s.
You probably have a family by now, and you want to protect them. You should consider subscribing to life insurance if you don't have coverage already. Carrying life insurance is just as important as saving money in your forties.
There are age limits, and it is a good time to still benefit from it. You can estimate how much you can cover using a calculator.
Make a Will
Death is not something you want to think about too much, but it will happen eventually, and it is better to be prepared.
As with taking out life insurance, creating a will is a good way to protect your family. A will gives control over what happens to your savings and assets when you pass.
Some laws will decide for you if you don't make an official declaration. Of course, you may be okay with them, but making a will can facilitate the arrangements even in that case.
Saving Money in Your Forties Doesn't Mean Being an Expert
You don't need to be a financial expert to manage your money correctly. However, you need to make smart decisions.
Savings and investments are the foundations of healthy personal finances. But you can (and should) do more! Preparing for your retirement and protecting your family should be part of your priorities now that you are in your forties.
Don't forget to enjoy your life!