How to Get Financially Fit in your 40s (or 30s or 50s)


How to Get Financially Fit in your 40s (or 30s or 50s) on

These tips can help whip you into financial shape at any age.

You could be 30, 40, or 50– maybe you have a decent job, and you’re responsible, but you’re not where you wanted to be financially. When you look toward retirement, instead of seeing margaritas and sunsets, you see unpaid medical bills and a looming property foreclosure. In the stress of it all, you might want to give up. After all, if you’ve gone this far without saving, planning, and investing, what could you possibly accomplish this late in the game?

The answer, surprisingly, is a lot. With life expectancies rapidly expanding for many, even those who are 55 and older stand to gain a lot by properly saving, investing, and planning for the future. For example, if a 55-year old individual plans to work until age 70 and begins investing today, they have an entire 15-years to grow a nest egg. Those funds can supplement government benefits like social security aid them with retirement costs, medical bills, and other expenses.

In that period, an investor who starts with less than $5,000 and saves an additional $5,000 a year can finish with more than $100,000 if they earn 5% interest– a rate well under the historic 10% annual returns of the S&P 500. Beginning at age 30 with the same retirement, the savings would yield nearly $700,000– and that’s simply from investing an amount each year that’s less than 10% of the annual household income in the U.S.

Little steps can turn into big results over long periods of time.

Like we’ve said, even if you’re older, due to the power of compound interest, time is still on your side when it comes to saving and investing. When thinking of investing, it might help to understand the concept of kaizen, a Japanese business philosophy that encourages continuous improvement over time. Even if you can only save a few dollars a week at first, it can add to over a hundred dollars in several months– enough to begin purchasing investments like stocks, bonds, and mutual funds that can set you on the path to financial freedom.

Get smart with expenses– if you don’t absolutely need it, ditch it.

One of the best ways to free up money for savings and investing is to stop spending as much. Analyze your expenditures, either using a free or paid budget tracking app, or by simply analyzing credit or debit card statements. See where you can make reductions– whether it’s staying home and cooking instead of eating out, shopping less for clothes, ditching a landline, or canceling an expensive cable subscription and getting Netflix instead.

It may help to apply the concept of minimalism to your spending patterns. To minimize spending, see what expenditures bring you the most long-term happiness. In many cases, you might find that the expensive items aren’t giving you as many long-term benefits as you might have expected. It may feel more gratifying to contribute to your financial future rather than to reward yourself with the fleeting pleasure of an overpriced meal, piece of clothing, or magazine and newspaper subscriptions that you might not even use.

Pay off bad debt, but don’t use paying off good debts an excuse to avoid saving.

If you’re behind on credit card debts or other high-interest loans, you’ll want to pay those off before beginning to implement your saving and investing strategy. However, if you have safe, secure, and healthy debt (that you’re also up to date on) like a mortgage for a home or investment property or even a small amount of government student debt, you may want to pay as you go and focus on saving and investing rather than exhausting all your expendable income on repaying debts as quickly as possible.

Often, smart investors will be able to get a rate of return from an investment that is higher than the debt they are paying on a mortgage or loan. If this is the case for you, then you’re literally losing potential investment profits by rushing to pay off a loan as quickly as possible. Of course, you can never truly predict how investments will perform, but it pays to do some calculations if you’re debating between saving your money or using it to pay off a relatively low-interest loan.

Set aside 10 percent of every paycheck to contribute to your retirement account.

Setting aside 10% of each paycheck to invest is one of the best habits someone can constantly perform if they want to maximize their financial fitness. Much like other good financial practices, a saver can slowly work up to this over time; for example, starting by investing 2% of their income each month, and increasing that by an extra 1% every month or two for the next 8-16 months, thereby allowing them to slowly and gradually find ways to reduce their spending and generate extra cash on the side.

Maximize your tax advantages with Roth IRAs, and 401(k)s if available.

Everyone knows that taxes can seriously eat into your saving and investing profits, but fewer people take action by opening up tax-protected accounts like a 401k or Roth IRA (if their employer offers one). These kinds of accounts both reduce your overall annual tax burden and help to maximize the benefits of compound interest, allowing you to generate significantly greater long term profits.

A 401k, which almost anyone can open, allows a maximum pre-tax contribution of $18,000. Employees do not have to pay any taxes until they withdraw money from the account, which most don’t do until retirement. Roth IRAs are plans offered by employers to workers, and employee account contributions often come with a limited employee match. For example, a firm may match an employee’s annual contributions up to $3,000, helping to encourage employees to save early and often.

Carefully track and record expenses if you freelance, work as a contractor, or own your own business.

If you work for a company as a full-time employee, your taxes may often be relatively simple. However, if you work for yourself, or do significant freelance work outside your job, things may begin to get more complex. Cut down on this complexity by taking pictures of all your receipts and recording them on a smartphone app, especially when you’re purchasing something that you may later be able to deduct from your taxes as a business expense. If you drive a lot as part of your self-owned company or freelance jobs, you may also want to purchase an app like MileIQ. This can be used to record miles, estimate expenses, and create customized invoices and records for both yourself, your accountant, and the IRS.

Start investing in products appropriate for your retirement age and associated level of risk tolerance.

An investor’s tolerance for risk often depends on how many years you have until retirement. Those who are younger can afford to take greater risks, while those who are about to sell their investments appreciate qualities like greater stability and liquidity. For example, unless you’re in your mid to early thirties and have a good knowledge of the market, individual stocks may not be the best choice. Mutual funds may be beneficial to individuals at nearly all ages, but those with only 2-3 years until retirement may wish to place investment money in even safer investments like bonds, money market accounts, or C.D.s.

Start small to profit big and let the power of compound interest, tax-sheltered accounts, and a little discipline begin to transform your financial future.

All that’s needed to become financially secure are good habits and enough time. With lifespans in the developing world constantly increasing, U.S. savers and investors will have more time than ever to develop good financial habits. Simply do your research and don’t be afraid to consult experts who can teach you more about a variety of processes, products, and strategies that may make it easier to save for retirement and other life expenses.

To learn more about saving and investing at every age, contact the experts at Avante Insurance today for a free consultation.