Taking the Mystery Out of Financial Planning in Your 40s

Taking the Mystery Out of Financial Planning in Your 40s

financial planning

To many, financial planning is a scary endeavor. And that’s okay! We’re all inclined to be afraid of things we don’t understand. Planning for your future is important, especially as you enter your forties, so you must learn to overcome this fear. To help, we want to take some of the mystery away from saving, investing, and managing your finances.

Ready? Let’s get started.

Get Savings in Order

Investing for your future is always a great idea, but you should start with the money you already have. A savings account should be the first thing you focus on, because you want to prepare for any and all potential situations.

Deciding how much to save is different for everyone. Many suggest three to six months of income, while others would recommend a full year. Still others believe a savings account with enough to cover emergency expenses is all you need, especially if you have a robust investment portfolio.

The truth is, there’s no right or wrong answer—just what’s right for you. You want to be prepared for anything, from the need for emergency flights to visit family members to the ability to sustain your household in the event of a lay off. Don’t put off organizing a savings plan.

Work to Reduce Debt

As you get older, you’re likely to incur more debt. It’s only natural to make more purchases as your income increases. However, the end result is often that you have larger debt, which could pose a problem as you near retirement age. Now is the perfect time to focus on your debt—especially those credit cards.

Your first step is to identify the interest rates for all debtors. If you have especially high rates, work first on eliminating that particular debt. This is most commonly an issue with credit cards. Even those with low interest rates can really add up, especially if you keep a high balance on them.

If you can find lower rates and transfer balances, do that, too. However, you should only transfer balances if you know that you can pay off the card before the rate goes back up. Don’t get in the habit of moving your debt from one card to another but never paying off the balance.

Contribute More to Retirement

If your employer offers a 401(k), you should take full advantage of it. Find out how much your pretax contributions will affect your cash flow. Make sure you take advantage of free money. That’s the money that your employer contributes to your 401k. Contribute the amount that insures you’ll receive the maximum match from your employer.

Then maximize your Roth IRA contributions. These will lead to tax free income with no required minimum distributions when you retire. Only after you have maximized the match and tax free income producing vehicles should you increase your contribution to your 401k.

At The Hopman Group, we know everyone’s situation is different. What works for one family doesn’t necessarily translate to the family next door. We can help you develop a financial plan that is right for your specific needs, and we may even have a few other ways to generate tax-free income in retirement to share with you. Just give us a call, and we can get started right away.