Smart Money Tactics When You Are In Your 40s

by Neal Frankle, CFP ®

When I was in my 40s there were times when I felt a sense of financial desperation. I was saving like a banshee and working my “tush” off but I didn’t have a comprehensive plan. That’s pretty embarrassing for a financial advisor to admit but it was the truth.

Anyway, it’s sort of a shame because I felt a lot of needless anxiety. Does my story resonate with you? If you are in your 40s and feel a little behind the eight ball, here are a few steps you can take to put your own financial life together and vanquish that worry once and for all.

1. The “P” Word

Creating a financial plan isn’t as difficult as it sounds. You can do this yourself or connect with me. (shameless plug) to do this. All you have to do is assemble your banking, investment and insurance documents. Then, figure out roughly how long you plan on working, how much you’ll save and how much it costs you to live. If you have that information, you can follow the link above and run your projections for free.

Don’t worry about having the exact numbers for saving and spending. For now, just use educated guesses if you have to (then implement a tracking system to ascertain how valid your numbers really are).

This is a process and it will get better over time. Play around with it. Have fun.

If your plan doesn’t work don’t let your brain do the “wa tu si”. You have plenty of time ahead of you and you can make minor shifts now that will pay off big time. For now, don’t worry about the results. Just get into the process of creating and updating your plan. We’ll get to the remedies later.

The most valuable result of doing this exercise is that it identifies what is most important for you to focus on. When I ran my plan, here’s what I learned:

  1. It was imperative that I hit my monthly savings number if I wanted to achieve my goals. As a result, I automated my savings and crossed that off my “worry about it” list.
  2. Spending wasn’t really a problem but it was an important area to focus on. Manageable spending made my automated savings possible. For that reason, I asked my wife to get involved in tracking the outflows. That brought her into the process and I felt that was really important to do.
  3. My goals were long-term so I needed to stay on target with a good solid long-term investment strategy. My strategy was more important than any one investment pick. That’s because strategy leads to repeatable results. If the strategy is fundamentally flawed (like speculating) my chances of financial success would be significantly reduced. No Bueno.

Run your own plan and see what you learn. I think you’ll find it enlightening.

2. Life Insurancefinances at 40

When you are in your 40s your need for life insurance is often at a peak (assuming others rely on you). The good news is that term life insurance is still inexpensive at that youthful age.

I started buying 30 year term policies in my 30s and bought more every few years as my needs increased. This worked out great because I ended up in my 40s with my peak coverage. And starting at age 60, my policies will start dropping off when I won’t need as much insurance. This is known as laddering and it’s a strategy that might be great for you as well.

Do you have any questions about term life insurance? Let me know. I’d be happy to try to be of service.

3. Debt

At this stage of the game, any debt you carry (other than a mortgage and possibly a car loan) is going to weigh you down big time. I’m sure this is something you already know. If you are in debt, I want you to get really angry at that debt. Hate it. Kill it. Tear it to pieces. No mercy. Slash your spending, get a second job and/or rent out rooms in your house. Do whatever it takes to make debt a thing of the past.

4. Family Continuation Plan

My parents didn’t plan on dying in their 40s but they did – within 2 years of each other. Unfortunately for me and my siblings they did no planning. It was a very unpleasant experience I know you want your family to avoid anything remotely like it.

The sad truth is that we’re all going to die and we don’t know when. That sucks. (Group hug.)

That being said, let’s take care of our loved ones. I spoke about insurance. Now let’s talk about estate planning.

Depending on the state you live in, you need a will or a trust. I recommend using an attorney to draft your documents. But if you don’t have the stacks to pay a lawyer to create your estate plan you still have options. You might pay for an hour or two and get a consultation. Then, you might use a legal prep service like LegalZoom to actually prepare and produce the trust or will. It’s certainly an option and far better than doing nothing.

Finances in your 40s are a matter of creating a dynamic plan and updating it every year. Make your foundation strong by having the right amount of life insurance and putting an estate plan in place. It’s a simple as that.

What other concerns do you have? What has been the most effective financial move you made so far? What can you share with us?

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