Well hello and welcome to your 40s. While you may consider yourself part of parent ‘generation X’ it’s just as likely that you consider yourself also a baby boomer but, either way, this is the time of your life that you most likely putting youthful adventures aside and digging in to your future (and your family’s future) by way of some keen financial planning.
Today, the typical person in their 40s is under quite a bit of financial stress. At the same time that they may be saving for their child’s college tuition and looking to increase their retirement account, they also are buying homes later and thus either just starting a mortgage or possibly still saving for one. If you are in a situation and you don’t have a financial plan, it’s definitely a good time to get one.
The fact is, if you don’t have a financial plan what you actually have is just a bad financial plan. With that in mind, if you don’t have a financial plan or if you don’t feel that yours is adequate, this blog will give you some financial planning tips that should be quite valuable. Enjoy.
1) Fund your emergency account.
We’ve talked about this many times here on our blog. Typically, no matter if you are single or married with children, you should have approximately 6 months’ worth of money in a secure savings account so that if an emergency arises and you can’t work, you’ll have money to pay the bills until you can. Also, if you know that your house is going to need a new HVAC system, for example, putting aside money over a few years’ time to pay for that large expense is an excellent idea.
Indeed, there’s really no right or wrong amount of emergency money to have, just that you have some in case something happens and you suddenly need it.
2) Reduce your debt as much as possible.
The matter what type of debt that you have, whether it’s from your student loan, credit cards or medical bills, one of your priorities should be to reduce this debt as fast as you can and eliminate it completely so that any money that you’re using to pay it down can be channeled into other investments and savings accounts.
Even if you don’t have a huge amount of debt but you still have some, you should use some of the money that you’re putting aside for savings to pay that debt off quickly rather than taking your time and paying the extra money for interest.
3) Make the most of your employee benefits.
When you’re in your 40s your 401(k) is your best friend and, if your employer matches your donations, you may not make a profit on the 401(k) itself but you’ll instantly double your money. Since most employers have retirement plans that differ, it’s your responsibility as a consumer to find out what the maximums are, what your contributions can be and use those limits to your advantage.
4) Start saving for their college. Those people who have children have possibly already started saving for their college tuition but, in most cases, it’s an excellent idea to start as soon as possible. If it’s possible to start putting away money as soon as your children are born you should, even if the amounts aren’t all that high. As your income rises you should be able to save more.
One of the best savings plans available for people have children going to college is the 529 college savings plan. There are also many colleges that offer prepaid tuition plans today that allow you to login tuition at today’s rates even if your children won’t be attending for several years.
5) Reevaluate your insurance.
It’s quite vital that anyone in their 40s reevaluate their insurance on a regular basis, at least once a year. People in their 40s typically need a bit more life insurance because they have young children at home and, if one parent was to pass away, the cost to take care of the children would be extremely high. The fact is, it’s extremely difficult for most people to save enough money to take care of an emergency that big.
If you’re healthy person, term life insurance is relatively inexpensive and definitely worth looking into. The problem is, many people think that they have adequate insurance with their policies but, when a disaster occurs, we find out that they’re wrong.
Checking your health insurance, home insurance, auto and life insurance policies on a regular basis and making sure that you have the right coverage, is just a smart idea and makes good financial sense. Adding an umbrella insurance policy as an extra protective layer is an excellent idea as well, especially if your assets are worth more than $1 million.