Personal Financial Plans for 40: Examples

The concept of financial planning may seem daunting and complicated to someone in their 40s. Retirement, investment, and debt planning are rooted in financial planning and strategy. Financial planning in your 40s can be challenging, particularly now that the economic outlook is uncertain. According to the Federal Reserve, only 34% of Americans between the ages of 30-44 are on pace with their retirement plans, and 71% have some retirement savings . 40% of Americans in the 45-59 age group are on track with their retirement savings, with 83% having any retirement savings. In fact, Americans save $73,100 on average in retirement accounts. When you consider that you want to retire by the time you are 65, this doesn't seem like a lot of money. This article will examine personal financial strategies for people in their 40s and give examples of how you can create an effective financial plan for your 40s and beyond. 

Establishing Financial Goals at 40

When we reach our 40s, it is often a phase in our lives when our financial goals become a bit more focused and more tangible. It’s a time when people are typically more established in their lives and careers and have a better understanding of their long-term financial needs. However, plenty of opportunities exist to improve that financial planning and your long-term financial goals. In this section, we will look at some of the most common financial goals for people in their 40s and how they are more attainable than you think.

Build a Solid Retirement Fund

Retirement is probably on your radar by the time you are in your forties. Prioritize retirement savings and consider possibilities like 401(k) plans, Individual Retirement Accounts (IRAs), or other forms of investment like real estate, stocks, bonds, and high-yield savings accounts. Increase your contributions to make the most of employer matching programs, if applicable, and compound interest on what you are putting into the account. Always check your portfolio to make sure you’re getting the most return on investment and building your accounts the right way.

Continue to Pay Down Debt

Many adults in their 40s still owe money on mortgages, auto loans, credit cards, or student loans. Make it a goal to concentrate on paying off high-interest debt and developing a strategy to eliminate debt altogether. You'll have the flexibility and financial freedom as a result in the future and allow yourself the ability to save in other areas of your finances, including retirement and education for your children if you have them.

Save for Education

Speaking of children, college isn’t cheap. You know this because you might still be paying off your own student loans! If not, congratulations (some people are still envious of you)! You might want to get started if you’re in your forties and don’t have a college savings fund started for your child or children. Explore different options to save for school, like the 529 college savings plan, which offers tax advantages and investment growth potential. It’s important to create a balance between saving for your retirement and saving for your children’s education, as both of these things are important for your future.

Creating an Emergency Fund

Things happen in life, some expected and some unexpected. In the event of an unexpected event, which can occur at any time, people in their forties can benefit greatly from having an emergency fund set aside. When planning out your emergency fund, aim to save for about three to six months’ worth of living expenses in a separate savings account. This fund essentially acts as a safety net during financial emergencies such as the loss of a job, unexpected car issues, medical emergencies, home improvements, or the loss of a loved one. 

Diversified Investment Portfolio

We talked a little bit about building a strong retirement fund, and part of that is having a well-diversified investment portfolio. As we get into our forties, it’s important to evaluate your investment portfolio and make sure it aligns with your risk tolerance and long-term goals. Consider diversifying your investments across multiple asset classes to spread out the risk and potentially maximize your investment returns. The help of a financial adviser can help you ensure that you’re getting the most out of your portfolio.

Estate Planning and Insurance Coverage

When we reach our forties, it’s important to make sure that you and your loved ones are covered and taken care of in the event that something unfortunate happens. Reevaluate your insurance policies like life insurance, disability insurance, and health insurance. Make sure that you have the correct coverage to protect you and your family, just in case. Additionally, it’s important to start planning out your estate. Create a will or update your existing one, establish powers of attorney, and consider setting up a trust if it’s necessary. This can help protect your assets in case of an event. 

Example Personal Financial Plans for People in their 40s

Our forties are meant to be a time of enjoyment with our families and continuing to build for the future. While you probably have a solid financial plan, there are always ways to improve it. If you don’t have a financial plan and are in your forties or quickly approaching them, this section will provide some examples of how to financially plan for certain situations. 

Example 1: Karen Wants to Retire Early

Karen is a 45 year-old software engineer who has been in her position for over 20 years. She loves her career but dreams of retiring early to pursue her vision and passion: traveling the world. She has created a financial plan to focus on achieving early retirement by age 55. Here’s her plan:

• Building Retirement Savings: Karen makes the most of her employer's match by increasing her 401(k) plan contributions. In order to diversify her retirement assets, she also opened a Roth IRA. She intends to make the annual maximum contribution to both accounts. This allows Karen to maximize her retirement funds so she can reach the amount she needs to retire and travel comfortably.

• Aggressive Investment Strategy: Karen chooses an aggressive investing strategy, allocating a sizable portion of her portfolio to stocks and other high-growth assets because she has a longer investment horizon. She keeps an eye on her investments to make sure they fit her risk profile and retirement objectives for the long term.

• Living Within Means and Saving: Karen realizes that in order to reach her goal of retiring within her ten-year timeframe, she has to adopt a frugal lifestyle. This means focusing on reducing any unnecessary spending and taking a more aggressive approach to saving her money. She tracks her spending meticulously and identifies areas where she can save as much as possible. By saving a large portion of her income, Karen will have a substantial nest egg within her timeframe. 

• Side Hustles and Extra Income: To maximize the amount of money coming in, Karen explores side hustle opportunities related to her skills. She takes on several freelance software development projects and teaches online coding courses, generating extra income that goes directly into her retirement savings. 

• Regularly Assess Progress: Karen sets milestones for herself and regularly checks her progress toward her goal of early retirement. She adjusts her plan if necessary, making sure she stays on track. She is motivated by envisioning all the amazing trips and adventures that await her in retirement!

Example 2: Michael’s College Savings Strategy

Michael is a 44-year-old accountant and father of two kids, aged 10 and 14. He wants to make sure that he can provide a quality education for both of his children without burdening them with excessive student loans. He decides to create a financial plan that revolves around saving for their college education. Here’s his plan:

• 529 College Savings Plans: Michael opens up a 529 college savings account for each of his children. He regularly contributes to these accounts, which carry significant tax advantages. By doing this, he is taking advantage of potential state tax benefits. He chooses investment options in the plans that align with his risk tolerance and will help maximize the amount of money his kids will have for college by the time they graduate from high school.

• Maximize Growth Potential: Realizing that time is on his side, Michael invests a significant portion of the 529 plan assets into growth-oriented investment options. He diversifies the investments across various assets, including stocks, bonds, and mutual funds, to help maximize the potential growth over the long term. 

• Automatic Monthly Contributions: To make sure that the savings in the account are consistent, Michael sets up automatic monthly contributions to the 529 plans. He makes sure to adjust the contribution amounts every so often to account for inflation and the changing education costs. He also encourages his family to contribute to the accounts on special occasions like birthdays and holidays. 

• Explore Scholarships and Grants: Michael teaches his kids to excel in their academics and actively pursue scholarships and grants when the time comes for them to look into college. He encourages his children to participate in extracurricular activities and community service, which can increase their chances of receiving financial aid from scholarships and grants. By reducing the amount of money required for their education, Michael is stretching the 529 plan savings further. 

• Monitor and Review Savings Progress: Michael continues to monitor the growth of the 529 plans and compares them against the future costs of college education. He stays current about the changes in education costs and adjusts his strategy accordingly. By staying proactive, he makes sure his kids will have the necessary funds to get the education they deserve without taking out student loans.

Example 3: Lisa Wants to Retire Debt-Free

Lisa is a 48-year-old marketing executive who finds herself with multiple financial obligations. She wants to make sure she retires debt free, so she is prioritizing paying off her existing debts while also focusing on her retirement savings. Here’s her plan:

• Using the Snowball Method for Debt: Lisa begins by making a thorough inventory of all of her debts, which includes outstanding credit card debt, a car loan, and a smaller personal loan. She uses the debt snowball strategy, making minimum payments on each bill while tackling the smallest debt first. She accelerates her progress by rolling the payment amount from one loan into the next as it is paid off.

• Budgeting and Expense Reduction: Lisa makes a thorough budget to keep track of her income and expenses, including her debts. She pinpoints expenses she can reduce, including eating out and entertainment. She can save more money for retirement and debt repayment by cutting back on discretionary spending.

• Debt Consolidation and Refinancing Existing Loans: In order to refinance or consolidate her high-interest debts, Lisa looks into what options are available. She explores shifting credit card debt to a card with a 0% introductory APR and refinances her auto loan to get a reduced interest rate. With these actions, she can cut her interest payments and pay off her debt sooner.

• Increasing Retirement Contributions: Lisa continues to make contributions to her retirement accounts despite her attention being on debt repayment. She utilizes the business match to contribute a portion of her income to her employer's 401(k) plan. She also makes contributions to a traditional IRA, which lowers her taxable income and may result in tax breaks.

• Seek Professional Guidance: Through advice from a financial advisor, Lisa is able to make the most of her strategies for saving for retirement and repaying debt. In order to keep Lisa on the right path, the advisor offers personalized advice based on her particular financial situation and goals.

• Celebrate Milestones: In order to remain motivated, Lisa celebrates each loan that gets paid off. She acknowledges her accomplishments and dedication to financial freedom by rewarding herself with a small gift or a special outing.

Hire a Financial Advisor

Working with a financial advisor can be a great approach to ensure that your plans for the future are as sound as possible if you are in your 40s or are soon to be in your 40s and need assistance achieving your financial goals. To assist you in achieving your financial objectives in your 40s and beyond, Expertise.com offers an online directory of the top financial experts in your local area. These financial advisors can help you create and maintain a solid financial plan to get you back on track or help you better prepare for the future, including retirement savings, college fund preparation for your kids, and stock portfolio building. Find the financial advisor of your dreams right now, and begin making plans for your financial freedom.