Top 5 Money Lessons To Learn by 40

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Pacic/Getty Images

Everyone should learn some financial lessons by the time they turn 40. Some of these may seem a little obvious while others suit this particular stage of life. Let’s take a look at the top five money lessons you need to learn by the time you turn 40.

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Make retirement savings a priority

Those in their mid to late 40s are about 20 years from retirement. Now is the time to put the pedal to the metal on your retirement savings, said Heather Winston, CFP and director of financial planning and advice at Principal.

“You’re at a point in your life where you’re in your high-earning years, which gives you the ability to start saving quickly and max out your 401(k),” Winston said.

It’s time to stop saying, “I’m planning to save for retirement,” and start doing it if you haven’t already, said Mark Henry, founder and CEO of Alloy Wealth Management. Make regular contributions to a 401(k) or other employer-sponsored retirement plan and fund after-tax accounts such as a brokerage or Roth IRA.

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“You should try to become an overnight millionaire,” said Henry. “At this point in life, you must learn that you are an investor, not a Wall Street trader. You are a long-term investor, going through ups and downs in search of long-term appreciation and meeting regularly with a trusted financial advisor.”

If you haven’t quite caught up yet, Winston said don’t dwell on where you could have saved earlier. Instead, ask yourself today if there are any areas where you could potentially cut back or make adjustments to ensure you’re well set up for the future.

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Get strategic about paying off debt

By the time you turn 40, you may have certain types of debt, such as credit cards, paid off in full. Those with other debt, such as a home or auto loan, should set up a game plan to pay it off.

Henry recommends starting with the smallest debts and paying them off first before tackling the bigger ones. This helps the debt feel more manageable than if you try to pay off several large debts at once.

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As you work to make payments and stay out of debt, consider using this time to track your spending habits, said Sam Palmer, head of digital wealth planning and advice at JP Morgan Wealth Management. You can use online tools to determine your major spending categories and what your effective cash flow is each month, quarter or year.

Have an emergency fund

This is good financial advice at any stage of your life, but those in their 40s or in this age range should build an emergency fund. Before you pay off debt or tackle other financial goals, you need to make sure you have funds set aside as a safety net, Henry said.

“The goal should be to save enough to cover monthly expenses for three to six months,” Henry said. “If you don’t have an emergency fund because you’re spending all your extra money paying off debt, you’re going to end up in more debt the next time unexpected expenses pop up.”

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Work with a professional

Those who still struggle with money and practical personal finance concepts should not feel the need to go it alone at this age.

Winston recommends working with a financial professional. “In these circumstances they can be really helpful in making sure you understand your own personal retirement plans and where you can course today to be well positioned for the future.”

Spread the wealth of knowledge

Many individuals are married by the time they are in their forties. Some may already have children, are planning to start a family, or may have nephews and nieces.

Palmer recommends using this time to have open conversations about money with those you care about and help teach the younger generation about financial health. “It’s never too early to start the financial journey and start building good habits.”

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This article originally appeared on Experts: Top 5 Money Lessons to Learn by 40


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