An Essential Money Checklist For Your 40s
Your peak earning years won't last forever. Here's how to make sure your savings, investments and debt strategy are working toward your long-term goals.
Your 40s aren’t just another decade — they’re a critical pivot point for your wealth. While it's tempting to keep your finances on autopilot, especially if you're crushing your goals, this is the time of your life when moving from doing things the same way to intentionally building financial security becomes paramount.
Why? Because it forces you to analyze your finances to ensure your money works as hard as you do. Whether it's budgeting for a down payment on a home, paying off high-interest debt or making sure you're on track to reach your retirement and savings goals, now is the time to flip the switch.
Here are essential money habits to master now to ensure your wealth continues to grow as your career does.
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1. Create a personal finance statement
Your personal finance statement is a big-picture overview of your net worth. In it, you should include your assets, such as how much money is in your bank/retirement account(s), real estate you own, the cash value of your life insurance policies and any other assets you own.
You'll also have a section for liabilities. These include outstanding debt obligations you have, like credit cards, mortgages, taxes owed, etc. Then you add up your assets and subtract your liabilities to calculate your net worth.
But I would add another critical section: Goals.
Goals give your finances direction and a purpose. Write down three financial goals you would like to attain. Make one a short-term goal for the next year, such as building an emergency fund.
Also, set a mid-range goal you want to achieve in the next two to five years, such as buying a bigger home or paying off debt. Lastly, set a long-range goal for retirement, such as achieving Work Optional status.
This is where you build a portfolio that generates enough passive income to cover 75% to 80% of your essential living expenses, giving you the freedom to choose your work based on what you love rather than what your financial needs dictate.
If you need help in tailoring a strategy to achieve this in the next 10-15 years, or want a fresh perspective, use this Bankrate tool to find a reputable advisor:
2. Automate your retirement savings
The next step is to pay yourself first when you receive your paycheck. If your company offers a 401(k) with a company match, take advantage of this for several reasons. One, it's free money. Two, if you stay long enough to gain 100% vesting, you can take that money with you when you leave your company.
And three, you can earn tax credits for your contributions through the Saver's Credit. The Saver's Credit allows you to earn a credit of 10%, 20% or 50% of up to $2,000 of your contributions ($4,000 for joint filers), depending on your total income. Those earning less are entitled to higher tax breaks.
Meanwhile, if your company doesn't offer a 401(k) match, consider going with a broker. A broker can help you make sense of your finances, suggesting attainable goals and investment vehicles to reach them. One of our readers' perennial favorites is Fidelity, which offers low fees, responsive customer service, easy-to-use research tools and high satisfaction scores.
Along with building wealth for the future, you should also save money to cover you if an immediate need arises.
3. Save with intention
The other way to pay yourself first is to open a high-yield savings account. I recommend them because they're among the few savings accounts with returns higher than inflation. Plus, many come with no monthly fees and low or no minimum balance requirements.
It's also a smart way to build an emergency fund since cash is easily accessible. Aim to save at least six months of essential expenses, and closer to a year if you work in a specialized field or are self-employed, since it might take longer to find employment if a job loss occurs.
Automate your savings by setting up automatic transfers from your checking account to your savings account on payday. I recommend keeping this savings account separate from your regular account to help prevent impulse purchases.
Use this Bankrate tool to find and compare savings options fast:
Along with building healthy savings behaviors, you'll want to help your future self by tackling debt now.
4. Leverage debt strategically and pay down bad debt
There's good debt and bad debt. An example of good debt is taking out a mortgage on a home. We did this and have already seen sizable gains in our home's value in the short time we have had it.
Good debt gives you the flexibility to finance a purpose that brings more wealth over time.
Sean Jackson
Meanwhile, there are plenty of examples of bad debt. Carrying balances on high-interest credit cards or having a car loan where your vehicle's value is far less than what you owe are examples.
If you're carrying bad debt, the key is paying this off as quickly as you can without sacrificing your savings and retirement goals. There are two strategies you can use here:
The Avalanche Method: This is where you tackle your debts with the highest interest first. I favor this approach because it allows you to tackle debt that's causing more budget restrictions while still making minimum payments on your other obligations.
The Debt Snowball Method: With this method, you pay off the smallest balance first while making minimum payments on other debts. The goal here is to build momentum to tackle higher balances once you pay off the first one.
Beyond choosing a repayment strategy, there are other ways to manage debt wisely and reduce borrowing costs over time:
- Paying an extra $100 in principal on your mortgage can reduce payoff time by as much as five years
- Don't buy a brand-new car unless you can afford to pay it off in four years; instead, look for certified pre-owned, where you gain many of the benefits of a new car without the higher price
- Treat extra debt payments like a fixed monthly bill to accelerate repayment.
5. The automation paradox: Why human oversight matters
Automating your finances can help you stay on track with savings, investing and debt repayment, but automation shouldn't replace regular check-ins with your money. Budgeting tools such as Monarch Money, Simplifi by Quicken and YNAB (You Need a Budget) can make it easier to track progress and monitor spending, but it's still important to review your finances regularly.
Consider scheduling a quarterly money check-in with a spouse, partner, parent or another trusted person who supports your financial goals. Use the conversation to discuss progress, celebrate wins, identify challenges and make adjustments as needed.
Ultimately, your 40s can be a defining decade for your financial future. The habits and decisions you make now may have a lasting impact on your ability to build wealth, reach retirement goals and create greater financial flexibility. By shifting from a reactive approach to a proactive one, you can put yourself in a stronger position for the years ahead.
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