Also see… Smart Money Moves to Make Before You Turn 30
So many things happened during the previous decade-you got married (or decided never to), had children, or made life-changing career shifts. It was one roller coaster ride that taught you countless valuable lessons. Now that you’re about to turn 40, expect more bumps and humps, particularly where money is concerned. But to ensure stability and security for yourself and your family, here are tips for smart financial planning in your 40s.
Build a reliable emergency savings fund
Do you think you can manage without cash reserves? But what if unexpected expenses arise? What if you suddenly find yourself without a job? If you say that you’ll simply rely on your credit card, then you’re making the same mistake that over half of the American population is making all the time.
Having an emergency fund of ideally three to six times the amount of your monthly expenses saves you from taking on a large credit card debt that can leave your financial health seriously hurt. According to financial expert Jean Chatzky, “…an emergency cushion is insurance against debt.”
Start paying your debts
Speaking of debts, now is the time to start clearing your debts whether medical bills, credit card debts, or any other that you’ve taken on in the last few years. Eliminating debt is the first step in making sure that your income gets to the right places and these are into savings and investments. If you have too many debts up your sleeve, then you might need to find lower interest rates or consider debt consolidation. Becoming “debt-free at 40” is a huge achievement.
Pump up your retirement savings
To make it easier (and compulsory) for you to save money for retirement, make the decision to automate your retirement savings. That means a portion of your money will be automatically taken out from your paycheck to go into your retirement savings account. Most companies’ opt-in programs start at 3 percent.
Save up for your kids’ college tuition
If you have kids, this is a necessary step to undertake. Most financial experts would advise you to start as early as possible. Saving even just a small amount right after your kids are born can go a very long way. Another way is to start on a 529 college savings plan. There are also prepaid tuition programs offered by some state universities that you would want to check out.
Get sufficient insurance coverage
People don’t like to talk about or even think of insurance policies. After all, it’s that one thing that you need to buy but would never want to use. But taking out the right policies can save you from financial disasters.
First, conduct an “insurance-needs analysis” which you can avail from an independent financial adviser. Make sure that you are amply covered in your home, life, health, and auto insurance policies. For those with more than $1 million assets, an umbrella insurance policy is a must for added protection.
Take advantage of company benefits
Open up your eyes to the many benefits that your company offers. Some of those that you need to know more about include wellness plans, assistance programs, financial planning, health savings, pretax transportation allowance, tuition reimbursement, and many more.
Learn how to invest
It’s about time that you get over your fear of investment. Talk to a financial expert and get to know the ins and outs of the stock market. Find out your options on investments and long-term savings. Either take a personal finance course in a community college, or do a self-study online using sites such as the Smart About Money, or both.
Becoming financially savvy may not happen overnight but make no mistake about it, now is the time to start thinking about and planning for your finances. Smart financial planning in your 40s start with these fundamental techniques.
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