Finance Money Saving Tips

How to Save Big in Your 40s

How to Save Big in Your 40s
Written by Irina Vasilescu

During your twenties, you would have been busy getting a job, an apartment, a means of transportation and basically striking it out on your own without the help of your parents.

In your thirties, your job would be more or less stable along with your income, you might have started raising a family, buying your own house and taking on other challenges in life.

By the time that you are in your forties, the kids would be heading to college and your financial focus should be on building your wealth. Read on to find out why this is so and how you can actually start saving money in your forties. If you don’t know how to save big around this age, we’ve got it covered!

Forties: A Crucial Decade for Building Wealth

Why is your forties such a crucial decade for building wealth? Those who may not have been religiously putting away money on a retirement fund would realize that it is only a couple of decades away. When they see that the money they saved up is not enough to retire comfortably, that is the only time that they would start seriously saving up for retirement.

If you are already in your forties and retirement is only less than two decades away, do you still have time to pump up your savings? Yes, but the key is not to panic.

Financial experts say that if you are in your forties, you should not stress over how much you haven’t saved during your 20s and 30s. Instead, clear your head and get the facts straight.

Considering the amount of time that you still have, you can make a plan to iron things out so that you can meet your short-term and long-term goals, while giving your retirement fund a boost. When combined with big and small ways to save money in your forties, you can get your finances back in order.

Top 8 Ways to Save Big in Your 40s

If you would like to reach your fifties in a financially sound manner, you need to get your act together and start getting serious about saving money in your forties. This is especially true if you barely have any money saved on your retirement fund, for whatever reason.

As mentioned earlier, the key is not to panic and simply focus on the years ahead. Make a solid plan on how you can go about saving enough money for retirement with the years that you have left.

In the process of making a plan, here are also the top eight ways on how you can save money in your forties so that you can reach your retirement and other long-term financial goals:

1. Determine how much money you actually need for retirement, and gauge your progress

You’re forty years old and you know that you do not have enough money saved for your retirement years. The first thing to do is make an assessment of your current financial situation. Determine how much money you actually need to retire. Remember that Americans are actually living longer, so you may want to increase the actual amount of your nest egg.

If you were able to start saving money for retirement during your twenties or thirties, a rule of thumb to follow is to save 10% to 12% of your take-home pay. Since you are already in your forties, you need to bump it up so the ideal amount to save is 15% to 20% of your income. This may sound too daunting especially if you have other expenses to think about.

However, you only need to come up with a certain amount upon retirement through investments. You don’t necessarily have to earn every cent of it. By diversifying your investment portfolio, you can gauge how aggressive a savings strategy you should have in order to come up with the end amount upon retirement. There are still a couple of decades to go so through compound interest, you can actually double or triple your money and still come up with a decent fund to use upon retirement.

2. Also make it a priority to pay off those credit card debts

The fortysomethings are actually in deeper credit card debt as compared to those who are in their thirties. It could be because of all the family expenses piling up.

If you would like to get serious about saving for retirement, remember to make it a priority to pay off these credit card debts as well. Make it a point to not just pay the minimum amount, but a significant chunk of your main debt amount. Not only can you free up the money to save more on your retirement fund, but you can also save money on the interests and late fees for your credit card bills.

3. What about the kids’ college tuition?

Ideally, parents should be saving for their kids’ college tuition from the time that the children are born. If you used up the money for other expenses, you can probably make a little room in your budget to look for a college fund for the kids. But this is something that you have to be very careful about.

Sure, you’d want your kid to get started on the right path in life – but it should never be to the expense of your retirement savings. Never take on more debt than what you can easily repay. Consider low-cost alternatives for your kid’s college tuition and if all else fails, your child can always apply for scholarships or get a student loan.

4. Evaluate your current and future income sources

Physically, your forties is that decade in your life when you can still do some heavy physical work. At the same time, you would have acquired enough skills to become valuable to prospective employers. If you feel that your current salary from your employer simply is not cutting it to help save for your retirement fund, think about augmenting your income.

Even small amounts from part-time freelancing jobs can add up to a lot. This is especially true if you will dedicate the money solely to your retirement fund. Look for other ways to earn extra money if you know that your current income source is insufficient for you to meet your financial goals in the near future.

5. Decide if you need to delay retirement

This may sound like an undesirable notion for some, but most people who reach their forties without having enough funds for retirement find the need to keep working. With around twenty years still left until your retirement date, you can hold it off and decide to keep working if that is what it takes to build a nest egg that you can comfortably retire in.

6. Invest in your own health and take measures to protect your wealth

Medical expenses take up a huge chunk of the average retiree’s pension money. You don’t want all your retirement money to go towards hospitalization or medical costs, so while you are still in your forties, invest in good health. Make sure that you have adequate health insurance and see to it that your home, car and other valuable properties are properly insured as well.

7. Relocate or downsize

If you married young, it could be that your kids are moved out by the time that you reach your late forties. If this is the case, you can easily relocate or downsize your home. There’s no need for you to maintain a three-bedroom house in the suburbs if it is only you and your spouse that will be living in it.

By downgrading or relocating to an area where the cost of living is lower, you will save a lot of money on living expenses. Whatever amount you can tie together using this method can be added onto your retirement fund.

8. In investments, do not be too conservative

One of the biggest misconceptions that those in their forties have is thinking that they should be ultra conservative in their investments because of the short time span that they have. Fifteen to twenty years can still be considered as a good time frame to grow your investments. As long as you know how to carefully research your investments and diversify your portfolio, you can still realize your financial goals.

Playing catch-up when you’re saving up for retirement in your forties may prove to be a challenge. But as long as you keep your focus set on building up your nest egg, you can still save enough money for retirement. There are new laws which allow those who are over 50 years old to contribute a little extra cash to their 401(k) or IRA funds, so this is something that you can take advantage of as well.

The older that you start seriously saving up for retirement, the harder you need to work at it. But it is perfectly doable, as long as you set your sight on the goal which is to save up enough funds to live off your retirement years comfortably.

About the author

Irina Vasilescu

Irina Vasilescu is our crafty designer. She joined the team three years ago and is also involved in the writing process.

5 Comments

  • My goal right now is to get out of debt so that I can focus on building wealth. I am following The Debt Snowball method that I read about in a book. Once you are done paying off a debt, you add that payment to the payment on your next debt and so on thus creating a snowball effect. Before you know it, you’re debt is shrinking and you can see the light at the end of the tunnel.

    • The snowball method is a really good way to pay off debt. I’m trying to pay off student loans and a few credit cards that have higher balances. I’m focusing on the higher APR’s, and once those are paid off then I can focus most of my payments into my loans.

  • I agree about the statement in making sure you invest wisely in your forties for your retirement. I think a Roth IRA is a good option for young people and those in their forties too.

  • I can’t agree with you more about not being too conservative in your investments even as you get closer to retirement. I went to a series of retirement seminars offered through my work a couple of years ago, and one things the instructors pointed out was that you need that portfolio to provide funds for 20 to 40 years of retirement. You basically need it to continue earning even as you are taking withdrawals. I hadn’t really thought of it that way until they pointed it out, but it makes sense.

  • Downsizing as you get older is a great tip. Now that the kids are gone, why waste all that money heating and cooling rooms no one even uses anymore? Plus, it’s less to clean as you get older. Instead of finding ways to continue paying for all this stuff you’ve accumulated- downsize, make some money on the downsizing, and lead a more simple life. You’ll also gain time to do things you actually enjoy instead of things you have to do!

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