7 Financial Moves Everyone Should Make in Their 40s

I confess that I thought I would be much further along financially when I reached my 40s. However, between my lack of financial planning, being laid off, and one financial emergency after another, I found myself in a place I never imagined I would be — starting all over again. Honestly, it’s scary how fast your finances and credit can get derailed, and at this stage in life it’s vital to get things back on track as quickly as possible.

My experience has motivated me to put my financial puzzle back together and help others learn from my mistakes and do the same. So, I spoke to Jessica Jones, senior financial advisor at BOK Financial, a financial services holding company, for advice on the top things everyone should do in their 40s to reach their financial goals.

Being laid off due to budget cuts and the rise of AI has made me realize the importance of diversifying and finding ways to boost my income. Many industries are changing rapidly, which is why it’s important to have more than one income stream. 

You can bring in more money by starting a side hustle and working on creating passive income streams, such as selling printables or ebooks. Another way to quickly increase your income is to ask your employer if you qualify for a raise.

High-interest debt can wreck your finances and quickly become unaffordable. Jones says that one of the most common questions she gets is whether you should pay off debt or invest.

“Credit card balances at 20% or more should be eliminated as fast as possible, because no investment reliably beats that rate,” she explains. She recommends listing every debt with its interest rate and prioritizing paying down the highest-rate balances first.

Maybe you have a decent amount saved for retirement, but is it enough? Your 40s are when you should take a hard look at what you have versus what you will need to retire comfortably. Jones says that a good rule of thumb is to compare your total retirement savings to your salary.

“Entering your 40s, you want to have roughly 1.5 to 2.5 times your salary set aside. By age 49, that number should be somewhere between 3.5 and 6 times your salary. If you are below those ranges, you are not alone, but you also do not have the luxury of waiting,” she informs. “Time is the ingredient you cannot buy back, and every year you wait is a year of compounding you never recover. A dollar invested at 20 has the potential to grow to roughly $88 by 65. That same dollar invested at 30 grows to about $23. The gap only widens from there.”

I can not stress the importance of an emergency fund enough — especially if you have pets. One unexpected surgery for my cat cost over $8,000, and most of the balance ended up on a credit card. 

An emergency fund is essential for covering unexpected costs like this and can be a lifeline if you lose your job. Jones says saving enough to cover several months of expenses can also prevent you from making an unplanned retirement withdrawal.

Unfortunately, health tends to decline with age, and sometimes it happens when we least expect it. Even if you are healthy, a medical emergency can incur catastrophic costs and ruin you financially. Your 40s may bring more medical costs, so it’s best to review your health insurance policy to ensure you have the coverage you will need for your unique situation.

Jones also says you should use a health savings account. “If you have access to a health savings account, fund it. It is one of the few accounts that offer tax advantages on both deposits and withdrawals when used for medical costs.”

Jones states that your 40s are often your highest-earning years so far, and that is exactly when spending quietly expands to fill the space. “Lifestyle creep is one of the biggest obstacles to retirement readiness because it is invisible. Nobody decides to save less. They just upgrade the car, the house, the vacations, and the subscriptions, and the savings rate never moves,” she warns.

She says you can combat this by automating your savings increases so they happen before you can spend the money. “Do a line-by-line review of recurring expenses once a year. Unneeded life insurance policies, memberships, and services you have stopped using add up faster than most people expect.”

Take some time to put your affairs in order legally. “Review your will, powers of attorney, and beneficiary designations, and update them after any major life event. It takes an afternoon, and it is the difference between your wishes being followed and your family sorting it out in court,” Jones advises. 

If you don’t have assets, then at least get life insurance or funeral insurance to keep your loved ones from hefty burial expenses.

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