Topics:budgeting and financial planning
Guest Post by Bryce Welker
Are you in your 40s and starting to worry about the state of your finances?
Maybe things are looking a bit better than they did in your early 20s, when you were living off ramen noodles and struggling to pay your rent — but now you’re thinking about your pension, paying off your mortgage, or other big goals.
We can’t all become CPAs and manage our finances seamlessly (CPA exam costs aren’t exactly cheap as this article shows) … but we can all get on top of our finances.
Here are six key goals to aim for in your 40s:
If you’re carrying credit card debt or student loans that you’re still paying off, then your 40s are a great time to aggressively pay down that debt. You may want to look into options for refinancing, especially if you’re paying off a high-interest student loan from the 1990s. You can find some great tips on refinancing here.
If you’re in a position to pay off your debts over time, you may find the “debt snowball” technique helpful. Pay off your smallest debt first, which will give you a sense of momentum and help you to pay off larger debts — just like a snowball that grows as you roll it down a hill.
If you have a lot of debts, though, and you’re struggling with multiple high-interest payments, consolidating your debts into a single monthly payment could be the easiest way forward. Even if takes a while to pay off, it’ll be a lot simpler to handle than tracking dozens of different debts.
Finally, if you’re really struggling to pay back your debts, you’ll want to consider settlement. This means making an agreement with your creditors that you’ll pay less than the full debt; they’ll then write off the remainder. This can have a serious negative impact on your credit score, though, so consult a financial advisor before taking this step.
Hopefully, you already have an emergency fund of some sort — with easy to access cash stashed away for sudden unexpected problems, like medical expenses or a job loss.
In your 40s, you may well own a home and have dependent kids, so it’s particularly crucial to have an emergency fund. It should contain at least three months’ living expenses; a year’s worth of expenses is ideal.
If you hit 40 with nothing saved for retirement, it’s not too late. Putting away $650 a month is enough to net around $1 million in retirement savings by age 67. Aim to save around 8 percent to 15 percent of your salary.
Retirement plans, including a 401(k) and a Roth IRA, have special tax benefits and will earn compounded interest — increasing the value of your savings over time. The sooner you start putting money aside, the sooner that interest can begin to accumulate.
Many people find that their 40s are when they hit the peak of their career. They’re at a stage in life when they’re still in great health, but probably also at a point where their children (if they have any) are in school — so sleepless nights and childcare arrangements aren’t taking such a toll.
This can be a great point at which to push for a promotion or pay raise at work, or even to start hunting for a new job that pays more. If that’s not the right option for you, then it might make sense to take on a side gig — starting up your own business that you can run in the evenings and/or weekends. This can, of course, introduce financial responsibilities; you may want to invest in software like QuickBooks that can help you keep on top of things.
College doesn’t come cheap, and when you’re in your 40s with kids rapidly entering their teens, it’s easy to want to put aside every penny you can for their education. Don’t fall into the trap of paying for college at the cost of your own retirement savings, though.
Obviously, the earlier you can start saving for college, the better — but do keep in mind that your child will have other options open to them, like scholarships and loans. You don’t have nearly as many options available to you when it comes to your retirement savings.
If your teen wants a credit card (an important tool for them to build their own credit history), then they might well ask you to cosign their application. The same goes for auto loans or any other loan agreement.
The danger here is that if your child misses a payment, your credit rating will take a hit. Only cosign if you’re absolutely sure your child is responsible enough to be on top of things. You may want to insist on access to their monthly statements so you can check that they haven’t run into problems that you’re unaware of.
You’ve likely got a lot going on in your 40s, and it’s easy to push financial issues aside if they’re not causing day-to-day problems. By staying on top of these goals, you’ll put yourself in a great position for your 50s, 60s, and beyond.
Bryce Welker Bryce Welker is an active speaker, blogger, and tutor on accounting and finance. As the Founder of Crush The CPA Exam, he has helped thousands of candidates pass the CPA exam on their first attempt
July 22nd, 2022
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