Financial Planning in Your 40s: Six Moves to Make
This is the decade that sets the stage for your long-term goals.
Your forties can feel like a momentous decade for several reasons, one of which is that it may be the time in your life when you truly begin to feel financial pressure. Your retirement could be looming in the distance, you may be sending children to college soon, and you might begin focusing more on building your net worth. With the economic fallout and market volatility caused by the novel Coronavirus, you may be feeling the pressure even more than expected.
As you navigate this consequential decade, here are six steps to take that are designed to help you prepare for your financial future.
Step 1: Get a Lay of the Land
Day to day life is so busy for most of us that it’s difficult to find time to focus on long-term needs and goals. Do you know how much you’ll need to save for retirement? Do you know where your savings stands right now? With the lockdown in place, now is the perfect opportunity to finally sit down and reflect on your personal finances. It’s time to get specific with the numbers and determine what steps you need to take in order to meet your goals. If it feels overwhelming, just remember that small steps forward still represent progress.
If you need help assessing your true retirement needs, try using a retirement calculator tool like this one.
Step 2: Make the Most of Your 401(k)
If your employer offers a 401(k), 403(b) or TSP plan, do your best to begin maxing out your contributions. If that’s not in the cards just yet, focus on incrementally contributing more. If your employer offers a matching contribution, it’s ideal to contribute at least as much as is needed to maximize the match. Otherwise, you’re leaving free money on the table.
If you aren’t sure about all the retirement plan options your company offers, it could pay – quite literally – to speak with your HR department to learn more.
Step 3: Make an Investment in YOU
Too many people mistakenly believe that taking classes and learning new things is best left to twenty-somethings. In truth, learning a new skill can be valuable at any age, especially a skill that might give you more career momentum. Use this free time to look into ways that you can expand your portfolio and skillset for future opportunities. Is there a certification that could make you more marketable? As the world continues to change rapidly, think of skills and training that can help you remain sharp and adaptable in your profession.
Step 4: Be Attentive to Lifestyle Inflation
When you’re in your 40s and feeling comfortable and established both at work and at home, it’s easy to stop focusing so much on your budget. It’s also very tempting to begin upgrading – new car, bigger home, more expensive vacations. There isn’t anything wrong with treating yourself and your family to nicer things, but don’t lose sight of your major financial goals. For instance, if you aren’t maxing out your 401(k) contributions yet, it’s probably not a financially sound decision to take on a bigger mortgage.
Step 5: Revisit Your Asset Allocation
Do you look over your investments periodically? Once you enter your 40s, it’s worth revisiting your asset allocation in order to properly balance your risk. When you’re younger, it makes sense to take on more risk. If COVID-19 has taught us it anything however, it’s how important it is to be sure you don’t have too much risk in your portfolio as you get closer to retirement. You want to ensure your portfolio is diversified and that you’re managing your risk in a way that feels comfortable to you.
Through your 40s and beyond, it’s a good idea to rebalance your portfolio annually. Shoot for having a healthy mix of stocks, bonds, and cash.
Step 6: Get Professional Assistance
Now that you likely have a more consistent income and your biggest family and career shifts are behind you, it’s a great time to begin working with a financial advisor. When it comes to making important decisions regarding your personal finances, saving, and investing, it can sometimes become overwhelming and difficult to keep your emotions, fears, and stressors out of your decision making. A professional can help you plan the strategic moves you’ll need to take in order to accomplish both your short- and long-term financial goals.
If you’re interested in learning how we can assist you, let’s start a conversation today. With your unique goals in mind, we can create a financial plan that will serve you in your 40s and beyond.