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Managing Money in Your 40s: how to prioritize your finances

Managing Money in Your 40s: how to prioritize your finances

December 07, 2020

By the time you reach 40, you’re probably making more money. You may also be spending more money! This stage of life often comes with big expenses, such as second homes, children’s college educations, vacations, vehicles, and more! Financial advisors may also tell you your 40s are the perfect time to save and invest for retirement. We’re continuing our series with the Des Moines Financial Advisors at Compass Financial Services to find out what people in their 40s can be doing with their money to adequately prepare for the future.


The 40s can be a turning point in one’s finances. How does your advice differ when speaking to a 35-year-old vs. a 45-year-old?

Caleb Pearson: “The financial issues a 35-year-old faces can be drastically different from a 45-year-old. At 35, people could still be dealing with student loan debt, solidifying their career choices, growing a family, etc. At 45, you’re probably more settled in your career, family dynamics are set, and you are in your prime wealth accumulating years. Salaries tend to be getting higher and therefore disposable income can be higher and decisions need to be made about paying for kids’ college, how much they should be saving, upgrades to their living situation, vacation planning, etc.”

Guy Leman: “45-year-olds typically have kids in school, and are now moving into leadership roles professionally. They also have a higher chance of being settled in their location and profession. There is a lot of transition that happens in those 10 years.”

Kurt Pearson: “A 45-year-old needs to know that they are on the cusp of the top earning years of their life. The next 10-15 years will bring the most cash flow. The best question then is this: Will your cash flow habits capture enough of that excess cash flow to meet your long-term goals? At the end of the day, it is not about how much you earn, but how much you keep!”

Steve Conard: “This is the time to really start focusing on clients’ savings habits. Have they been disciplined savers up to this point or not? If they still have dependent kids, we have to help them prioritize allocation of resources to multiple goals of funding college/higher education costs and getting/staying on track in funding their retirement.”


What should someone in their 40s be doing when it comes to saving and investments? What is your #1 piece of advice to build wealth?

Justin van Houten: “As those peak earning years approach, make sure you’re using that money in productive ways so it doesn’t fly away. Contribute heavily to retirement and non-retirement accounts to build wealth. 

Caleb: “I would recommend really beginning to dig in to HOW you are invested and understanding the risks and potential rewards of those decisions. Increasing contributions into your different investments is key as well as diversifying the types of investments accounts as well (pre-tax vs. Roth vs. non-retirement).”

Michele Bjorkgren: “Many people plow all of their retirement funding into employer-sponsored plans (401K, etc.) and don’t realize there are different ways, or ‘buckets’, to pay themselves first for retirement. A Roth IRA or simply a mutual fund non-qualified account are treated differently from a tax perspective in retirement. A person’s 40s are a good time to make those adjustments.”

Kurt: “Invest according to your comfort level. Usually by our mid-40s we have survived that infamous ‘midlife crisis.’ So, you can examine your priorities and embrace things that really matter. This process often sheds some light on your outlook and perspective, and leads to clarity about risk tolerance, time horizon, and general investment personality traits. Use an Advisor who can listen through this process and help you begin to implement the proper allocation and investment strategy that fits you.”

Guy: “My #1 advice is to set your investing up to be automated. Buy monthly into something fairly aggressive and then look at the balance once or twice a year. The best investors pick a path and stick with it through thick and thin. They don’t get too excited at the highs and don’t get discouraged at the lows.”


Besides investing, what are some other things that people in their 40s should be doing to work toward financial stability?

Steve: “Making sure they are protected against events that could derail the progress they’ve made. Are they properly insured in the event of premature death, disability, etc.?”

Caleb: “A big one is life insurance and making sure your family is taken care of if you were to pass away suddenly. Life insurance is still relatively affordable in your 40s, assuming you don’t have any major health conditions.”

Guy: “I’d add that proper protection also includes having appropriate cash reserves, for example an emergency fund.”

Steve: “This is also the time to start attacking debt, including your mortgage. Being debt-free by the time college bills come due provides a great deal of flexibility in funding those expenses.”

Kurt: “It really is vital to examine all crucial areas of a good financial plan. Net worth analysis, is your net worth growing, if not, why? How much life insurance do you need? Estate planning, who gets what and when?”

Justin: “I’d really advise working with their advisor on that overall financial plan. It will identify risks to financial stability and eliminate or manage the known risks.”


What is the biggest mistake someone in their 40s may make with their money?

Steve: “A common issue I see with this age group is debt-funded lifestyle expansion as their income grows. A tell-tale symptom of this is having little to no equity in their home.”

Caleb: “Overspending can definitely be an issue. It’s always tempting to spend more as your income grows. But, just because you can afford a major purchase like a fancy car or bigger house, doesn’t necessarily mean it’s the best decision for your financial future.”

Guy: “It’s letting your lifestyle creep up to consume all and more than they make. Getting ahead is a long, slow, steady process. Keep track of your numbers and know where your money is going.”

Kurt: “Yes, life can be fairly hectic in your 40s. Busyness tends to crowd out the important. One good strategy is to hire professionals who can help you prioritize finances.”


The common theme in this conversation seems to be if you’re making more in your 40s, saving more is the next step. Now more than ever, is the time to keep an eye on the future and work to mitigate risk and take care of your family should something happen to you. Here are four financial goals to consider meeting during this stage of life:

1. Pay off debt and start saving

2. Put your money in different investment “buckets” and know your risk level

3. Buy adequate insurance

4. Turn to a financial advisor for guidance

Compass Financial Services will listen to you and work with you to make a plan for your unique situation. We want to know what you want your money to do for you, your family, and your future. Give us a call at (515) 327-1020 or Contact Us for a free, no-strings-attached financial planning consultation.



The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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