7 Key Money Tips for 40-somethings
While you might have struggled with paying student loans or credit card debts in your 20s and buying your first family home in your 30s, you’ll be faced with an entirely new set of financial obstacles in your 40s. These can prove to be quite scary, but your wealth of experience overcoming the financial challenges decades ago and the following tips should help you overcome the new challenges that 40-somethings like you now face financially.
Boost cash reserves.
Save three to six months’ worth of your income in a bank account to stay liquid. Treat it as your emergency fund, but that savings account should also contain money for your expected expenses, such as for home renovation or college tuition for your kids.
Pay off debts.
After paying off student loans, you might still have to grapple with credit card debts. Pay them off as fast as you can. You can use a percentage of your monthly savings to get rid of these debts.
When you’re on solid ground financially, it might be best to control lending money to loved ones. Although you might have about over a decade before retirement, your financial status could be in jeopardy if you keep lending money. If some of your loved ones really need financial help, loan them only the amount that you’re comfortable letting go without compromising the money you need to pay for your expenses.
Maximize your contribution for your retirement plan.
Determine the biggest amount of contribution that your employer can match for your 401(k) to essentially double your savings for retirement. It would be better to start with your aggressive savings approach in your 40s than in your 60s.
Educate kids on finances.
Now that your kids are a little older, help them understand money matters more. Push them to be financially literate and responsible. Give them more of a challenge than just budgeting their allowance by helping them save up for a car once they learn how to drive. Motivate them to apply for a part-time job so they can use their own money to buy the latest gadgets and stay “in.”
Develop your own retirement plans.
On top of saving to retire while working, you can also contribute to a traditional individual retirement account or a Roth IRA. In 2013, people in their 40s can contribute as much as $5,500 in.
With Roth IRA, you get taxed for your contributions but enjoy lower taxes later. If you’re expecting tax rates to increase, a Roth IRA would be perfect for you.
Anyone can contribute to a traditional IRA, which isn’t the case with the Roth IRAs, which are only available to couples earning a gross income of as much as $183,000 and individual filers earning up to $116,000 in 2015.
Getting insured in your 40s is necessary if you want to have the peace of mind that your kids will be cared for no matter what may happen to you. If you’re healthy at your age, an insurance policy will usually be less costly than someone with medical issues. Monitor all your insurance policies for your home, car, health, and life insurance.
Establish an estate plan.
Draft trusts and wills as part of your critical estate planning. It is good to wrap these things up while you’re still relatively young, healthy, and mentally alert. Your will ought to dictate how the finances you’ve accumulated all your life and prevent family disputes from erupting in case something happens to you.