In two previous articles, we have gone through the money concerns that people in their 20s and 30s have. Now, let us go further a decade by discussing your financial issues once you reach the age of 40.
A study done by Bankrate about the income gap in the country mentioned that the prime earning years for most people happen in their 30s and 40s. According to the article, this is the time when people can set themselves up to have a good position of wealth in the future. Your 20s is a time of exploration about the career that you will have. Your 30s is a time for you to start building up a name for yourself. That leaves your 40s as a time when you have both experience and expertise on your resume. That means you should be in a stable financial situation right now. That places you in a perfect position to grow your personal net worth.
That is what we will concentrate on this article. Since it is the Gen Xers that are are in their 40s at the date of this article, we will be referring to their financial situation from time to time.
Three financial issues to take care of in your 40s
We all know that our money concerns vary as we age but what does that mean for those in their 40s? That means you need to take care of three important financial issues in your life.
Financial Issue 1: Paying off your debts
First of all, you want to make sure that your debts are under control. It is important to note that debt freedom is not necessarily a prerequisite to financial success but you have to keep your debt amount within your capabilities to pay it off.
When the recession happened, the Gen Xers had a lot of trouble because they were in the midst of several debts. As we’ve mentioned, they are at a point in their life when they are in their prime earning years. That makes them quite confident about taking on credit to invest on a home, a business or to simply provide for the entertainment needs of their family. As the economic collapse pushed a lot of people out of their jobs, this left a lot of people in their 40s with so much debt to their name.
Unlike those in their 30s, people aged 40 and above will have a harder time to look for a job. They will be overqualified for some positions or under qualified in some. That can be a problem. Since the economy is doing great at this point, you need to take advantage of that and seriously pay down your debts. Money concerns about debt should always be a part of your priority. You have to take care of your home loans and car loans. If you still have student loans, make sure this is paid off. And if you have credit card debts, you need to pay that and keep the balance down.
Here is a video from National Debt Relief that will teach you an option to help you pay off your multiple credit accounts.
Financial Issue 2: Increasing your savings
Money concerns in your 40s also include your savings. You need to check out just how much you have saved at this point. Does your emergency fund have enough money in it? If not, you need to concentrate on that too. It may be best to pay the minimum of your debts for now so you can put the maximum extra money that you have in your emergency fund.
Ideally, you want to be able to save 20% of your income. If you cannot do this, find a way to end your 40s with this saving percentage. You either have to lower your expenses or increase your income.
As you build up your savings, you should also learn how to define what is an emergency or not. This is to protect your emergency fund from being used on unnecessary things. Try to control yourself from doing that.
Financial Issue 3: Investing for the future
The third financial concern that you need to work on is investing for your future. Of course, the first thing that comes to mind if your retirement. According to a study published on Fidelity.com, the retirement readiness of Americans, especially Gen Xers leaves a lot of room for improvement. The data revealed that 43% of Gen Xers only put aside 6% of their income towards retirement. Although the Millennials have the highest since 51% only save the same percentage, they have more time to improve their retirement contributions. The same is not true for those in their 40s. They do not have enough time to save up in time unless they contribute a bigger percentage towards their retirement.
If you haven’t started on your retirement fund yet, you need to sit down and think about it. Do not start in your 50s because that only spells trouble. The high cost of living and the rising healthcare costs will really give you a huge sum to save up for.
12 habits that will help you increase your net worth in your 40s
Apart from the three money concerns that we just discussed, there are other habits that you need to work on in your 40s. These will really help you increase your net worth as you get older.
According to a study done by Pew Charitable Trusts on May 2013, the Gen Xers took the hardest hit when the recession happened. The data found on PewStates.org mentioned that Gen Xers lost 45% of their personal wealth when the economic collapse happened. That amounted to an average of $33,000.
If you are in your 40s now, the chances of you being a part of this statistic is high. To help you recover, you need to start paying attention to your net worth. Start by calculating how much you are worth right now. If you have a home, make sure you only calculate the equity and not the whole value of the property. At least, this is true if you still have mortgage payments to make.
Once you have done that, you are encouraged to work on these 12 habits to grow your wealth and also take care of other money concerns in your life.
Check your financial goal progress. Any financial goal that you have setup in the past should be reviewed once you reach this decade. If they are already fulfilled, then you may want to set up new ones.
Know your financial personality. At this point, you should have acquired a lot of experiences related to your spending and saving habits. For instance, are you a budget person or a spender? Utilize this knowledge so you can grab the right opportunities as they pass by and avoid the pitfalls as you see them.
Re-evaluate your budget. As you grow older, your priorities change and your goals will adjust accordingly. Budgeting converts your life goals into a reality so make sure you know how to use this tool.
Put your expenses in order. Since you are already working on your budget, you may want to check out your expenses. Maybe there are those that you can give up already. Even your financial responsibilities grow more complex as you age so keep an eye on this.
Monitor your credit score. There is no excuse if you still do not know what a credit score is at this point in your life. Go figure it out and make sure you learn how to keep your credit score high.
Review your investments. Time to be a bit more cautious and smart about your investments. Learn how to rebalance your portfolio and make sure your funds are still diversified.
Keep an eye out for your parents and children’s financial situation. For your parents, make sure they are on track when it comes to their retirement. For your kids, check out their college fund and help them save up for it.
Understand your taxes. You should also learn how to maximize your taxes. There are tax breaks for people providing for homes with both elderly and children in it. Be aware of these because it can help increase your net income.
Assess your career and compensation. Are you getting paid what you are worth? If not, then you need to consider your options to get a higher pay. It could mean talking to your boss to ask for a raise or shifting careers.
Take care of your health. It is also important that you start thinking about your health too. Do not abuse your body because you are not getting any younger.
Get insured. Life insurance can be cheap but only if you get it early. Since you are probably married now and living with kids, you need to consider protecting them too. This way, they will not be left financially incapacitated in the event that something happens to you.
Talk to a lawyer about your will. Some people may think that this is still too early but you really never know. Get your documents and asset in order and draw up your will. That should help take care of your family too once you are gone.
All of these money concerns in your 40s is a great way for you to build up your wealth as you approach retirement. It is not really the pursuit of material things but the fulfillment that comes with seeing what you have accumulated so far in your life.