Let’s face it: getting into your 40s costs a lot of money. You’re probably making the most money you can right now, but you have a lot of responsibilities and can see retirement coming up far in the future. I’ve been helping people get through this tough decade for years, and now I’m going to tell you the most important things you should do with your money right now.
Your 40s are a turning point when money choices are more important than ever. Whether you’re making a lot of money ($250,000 a year) or building your wealth slowly, these tips will help you manage your money well and set you up for a safe future.
Why Your 40s Are So Financially Critical
I can’t stress this enough – your 40s are the financial turning point between your early career and retirement. It’s when you’ve got some serious earning power but also need to get serious about your future.
At this stage, you’re likely
- At or approaching your peak earning potential
- Juggling multiple financial responsibilities (mortgage, kids, aging parents)
- Needing to boost retirement savings
- Dealing with competing financial priorities
Let me share a personal story My client Sarah turned 40 last year and realized she’d been so focused on paying for her kids’ activities and her mortgage that she’d neglected her retirement planning We had to make some major adjustments to get her back on track, Don’t let this happen to you!
10 Essential Financial Moves to Make in Your 40s
1. Supercharge Your Retirement Savings
This is non-negotiable in your 40s. You should be maxing out your retirement accounts wherever possible.
For 2025. you can contribute
- $23,500 to your 401(k)
- Additional catch-up contributions of $7,500 if you’re 50+
- Consider a Solo 401(k) or Cash Balance Plan if you’re self-employed
If your employer offers a match, make sure you’re getting every penny. It’s literally free money! And if your plan allows for mega-backdoor Roth contributions, this could be a game-changer. You might be able to sock away an additional $46,500 each year into the Roth portion of your 401(k).
Just think: putting this much money in from 20% to 45% could potentially grow to over $3 million, which you could withdraw tax-free at age 70, assuming a 10% net return. How fabulous is that?!.
2. Build a Rock-Solid Emergency Fund
Life happens, and it rarely sends an invitation first. Your 40s are when you need financial stability more than ever.
Your emergency fund should cover at least 3-6 months of living expenses. If you can stretch it to a year, even better. This isn’t just about peace of mind – it’s about protecting everything you’ve built so far.
I had a client who lost his executive job at 43 with two kids in private school and a hefty mortgage. His 8-month emergency fund gave him the breathing room to find the right next role without panic-accepting the first offer.
3. Craft a Strategic Debt-Elimination Plan
By the time you’re 40, you probably have some debt, like credit cards, student loans, a mortgage, or car loans. Now’s the time to get serious about crushing it.
Start with high-interest debt first (usually credit cards), then work your way down. Consider these strategies:
- Debt snowball (smallest balance first for psychological wins)
- Debt avalanche (highest interest first for maximum savings)
- Refinancing to lower rates
Remember: becoming debt-free by retirement should be a top priority!
4. Review and Optimize Your Asset Allocation
Your investment mix probably needs adjusting in your 40s. You still have 20+ years until traditional retirement age, but it’s time to gradually shift toward more stability.
Consider:
- Increasing your bond allocation slightly
- Focusing on tax-efficient ETFs and index funds
- Using municipal bonds for tax-advantaged income
- Exploring dividend growth stocks
But don’t get too conservative! Inflation is still your enemy, and you need growth assets to combat it.
5. Level Up Your Insurance Coverage
Your 40s are the ideal time to ensure proper protection is in place:
Life Insurance: If you have dependents, make sure your coverage is sufficient. Term life is usually most cost-effective.
Disability Insurance: Your income is your most valuable asset right now. Protect it! Many employers offer disability insurance, but you might need supplemental coverage.
Long-term Care Insurance: Consider this now while premiums are lower. The cost of long-term care can devastate retirement savings.
Health Insurance: Make sure your coverage is comprehensive and understand how it works with your financial plan.
6. Create or Update Your Estate Plan
I know, nobody likes thinking about mortality. But your 40s are when estate planning becomes crucial, especially if you have children or significant assets.
At minimum, you need:
- A will (naming guardians for minor children)
- Powers of attorney (for healthcare and finances)
- Living will/advance directive
- Beneficiary designations (updated on all accounts)
If your assets are substantial, consider establishing a revocable trust to avoid probate and ensure smooth asset transfers.
7. Get Smart About Tax Planning
Tax optimization becomes increasingly important as your income rises. Some strategies to consider:
- Maximize pre-tax retirement contributions
- Explore backdoor Roth IRA strategies
- Consider donor-advised funds for charitable giving
- Tax-loss harvesting in your investment accounts
- Health Savings Accounts (HSAs) for triple tax advantages
If you have self-employment income, the tax-saving opportunities multiply exponentially. I’ve seen business owners in California save tens of thousands annually through strategic tax planning!
8. Prioritize Your Physical Health
This might seem odd in a financial article, but hear me out. Your health is your most valuable asset, and healthcare costs are the biggest threat to retirement security.
Investing in preventative care, fitness, and stress management now can save you enormous amounts of money later. Plus, what good is all that retirement savings if you’re not healthy enough to enjoy it?
I recently worked with a client who realized his 60-hour workweeks were wrecking his health. We adjusted his financial plan to accommodate a less demanding role with slightly lower pay – but the long-term benefits to his wellbeing and healthcare costs will far outweigh the income reduction.
9. Maximize Employer Benefits
Many people leave thousands of dollars on the table by not fully utilizing their workplace benefits. These can add 30-40% to your base compensation!
Look for:
- Retirement plan matching
- Health Savings Accounts
- Dependent care FSAs
- Education reimbursement
- Stock options or purchase plans
- Wellness programs with financial incentives
Take the time to understand everything available to you – it’s literally part of your compensation!
10. Evaluate Housing Plans
Your 40s are a good time to assess whether your current housing situation aligns with your long-term goals.
If you’re renting, consider if buying makes sense (but don’t rush – sometimes renting is financially smarter depending on your location and future plans).
If you already own, consider:
- Refinancing to a 15-year mortgage to be debt-free before retirement
- Whether downsizing might accelerate your financial goals
- If you should relocate to a lower tax state before retirement
One client of mine moved from California to Nevada in his late 40s, saving over $25,000 annually in state taxes alone!
Common Money Mistakes to Avoid in Your 40s
While we’ve covered what you SHOULD do, let’s talk about some pitfalls to avoid:
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Prioritizing college savings over retirement – Your kids can get loans for school; you can’t get loans for retirement.
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Lifestyle inflation – As your income rises, avoid the temptation to upgrade everything.
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Neglecting spousal retirement planning – Make sure both partners are building retirement security.
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Taking on new debt – Be very cautious about adding new liabilities at this stage.
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Failing to rebalance investments – Don’t set and forget your portfolio.
Final Thoughts: Create Your Personal Financial Roadmap
Managing money in your 40s isn’t one-size-fits-all. Your specific situation – income, family structure, goals, and risk tolerance – all influence the right approach for YOU.
This is why working with a financial advisor can be incredibly valuable during this decade. They can help you create a personalized roadmap that balances your current needs with future goals.
Remember: Your 40s are a financial sweet spot – you’ve got earning power, some experience under your belt, and still enough time for your money to grow significantly before retirement. Don’t waste this critical decade!
Now I’d love to hear from you – which of these strategies are you already implementing, and which ones do you need to focus on more? Drop me a comment below!
Disclaimer: This article provides general information and shouldn’t be considered personalized financial advice. Everyone’s situation is unique, so consult with a qualified financial professional before making significant financial decisions.
8 Major Financial Milestones to Accomplish in Your 40s
FAQ
How much money should a 40 year old have in their savings?
As a general rule of thumb, you’ll want to have saved three to eight times your annual salary, depending on your age: 40: At least three times your salary. 45: Around four times your salary. 50: Six times your salary.
Where should I be financially by 40?
While many experts say that you should have three times your salary saved by 40, the average U. S. household headed by those 44-49 has only $81,347 saved for retirement according to the Economic Policy Institute. All is not lost, however.
What is the 7% rule in finance?
The expectation is that your investments will earn at least 7% a year after taking into account inflation and that you’ll be able to keep your costs, market conditions, and life expectancy stable.
What should you do with your money in your 40s?
Here are four steps certified financial planners recommend taking with your money throughout your 40s. 1. “Focus on the intermediary.” If you didn’t open a taxable brokerage account in your 20s or 30s, Andrew Fincher, a CFP and financial advisor at VLP Financial Advisors, says your 40s are a good time to do so.
Should you invest in your 40s?
Investing in your 40s can carry higher stakes than it did when you were younger, made less money and had more time to recover from any mistakes. “As the [investment] portfolios get bigger, the mistakes also can get bigger,” says Joe Conroy, certified financial planner and author of “Decades & Decisions: Financial Planning At Any Age. ”.
Should you invest in a retirement plan in your 40s?
An excellent retirement plan will give you the money to change your plans and keep enjoying life wherever your heart desires. Your 40s are a golden time to secure your financial future. By implementing these strategies, you can accelerate wealth-building, lower your tax bill and lock in the freedom to retire early on your own terms.
What are your financial priorities in your 40s?
In your 40s, financial priorities can range from taking care of aging parents to funding the activities and futures of your kids. You probably feel more settled than you did in your 20s or 30s, but may not know which money moves you should be making as you coast closer to 50.
Should you invest in a brokerage account in your 40s?
While focusing on short-term financial goals like building an emergency fund or long-term ones like saving for retirement are important, Fincher encourages people in their 40s to “focus on the intermediary” as well. A brokerage account allows you to buy and sell stocks and bonds and take out money at any time, unlike a retirement account.
Should you invest in bonds in your 40s?
In your 40s, you still have enough time on your side to stick with investing in high-return, high-volatility stocks rather than getting conservative with bonds. In the perpetual low-interest environment that has become the new normal in recent memory, bonds simply can’t generate high enough returns for someone still years away from retirement.