Start Making These Smart Money Moves Before 40 For A Comfortable Financial Future

Editors note: This story was originally published on July 12, 2023.

Turning 40 is a milestone that brings a mix of emotions, including reflection on one's financial situation. It's an ideal time to take stock of your financial goals and make necessary adjustments to secure a stable future. To help you navigate this critical phase, here are five money moves you should consider making before you turn 40.

Deal with consumer debt

Consumer debt, particularly high-interest credit card debt, can be a significant obstacle to financial stability. Before your 40th birthday, it's essential to create a plan to tackle and eliminate this debt. Start by evaluating your debt situation and exploring various strategies for repayment.

As mentioned in WiseBread, you can opt for traditional methods, such as paying as much as possible each month. Alternatively, consider using the debt snowball or debt avalanche methods, which focus on paying off smaller debts or tackling higher-interest debts first, respectively. Another option is to apply for a balance transfer credit card that offers a 0% APR for a limited time.

Ideally, your goal should be to have no debt other than your mortgage by the time you reach 40. Eliminating consumer debt frees up more money for saving and investing in your future.

Maximize your retirement savings

As you approach your 40s, it's crucial to maximize your retirement savings. While it may seem unnecessary in your younger years, you'll realize the importance of a robust nest egg as you near retirement age. Start by contributing the maximum allowable amount to your retirement accounts.

By setting up automatic contributions from your pre-tax income, you'll reduce your taxable income and potentially lower your annual income tax bill. If contributing the maximum is not feasible initially, aim to increase your contributions gradually each year.

Additionally, take advantage of any employer match offered in your retirement plan. This match represents free money and significantly boosts your retirement savings. Remember, time is a valuable asset when it comes to compounding returns, so the earlier you start, the better.

Automate your finances

Automating your finances can help you streamline your money management and avoid unnecessary spending. As mentioned by clever girl finance, set up automatic transfers to a high-yield savings account or a brokerage account. Automate your retirement contributions through payroll deductions, ensuring a consistent and disciplined approach to saving.

By automating your financial transactions, you reduce the risk of overspending or lifestyle inflation. Automating your investments ensures that your money is put to work efficiently and effectively, even when life gets busy.

Purchase insurance based on your future finances

As you approach your 40s, it's essential to reassess your insurance needs and plan for the future. Don't base your coverage solely on your current income and net worth. Instead, consider your future earning potential and financial aspirations.

Take into account where you see yourself in the next 10 years and purchase insurance based on that financial picture. This forward-thinking approach ensures that you have adequate coverage as your career progresses and your financial situation evolves.

While the specific types of insurance you need will vary, remember to go beyond the basics of homeowners and auto insurance. Consider additional coverage, such as umbrella insurance, which provides extended liability protection. Additionally, securing life insurance is crucial if you have dependents or are planning to start a family.

Build an emergency fund

An emergency fund is a vital safety net that provides financial security during unexpected events or job loss. If you've struggled with debt or financial challenges, it's likely due to the absence of an emergency fund. Take action before turning 40 by creating a separate account specifically for emergencies.

Financial experts recommend saving three to six months' worth of living expenses, or even more if possible. Start by saving what you can, even if it's a modest amount. Place your emergency fund in an interest-bearing account and continue adding to it regularly. Having an emergency fund provides peace of mind and protects you from potential financial hardships. It serves as a cushion when facing unexpected expenses or income disruptions, allowing you to maintain stability and avoid falling back into debt.