Financial Planning in Your 40s: 5 Tips for Money Management

Many people begin to approach their peak earning years in their 40s and may start to feel more financially settled. However, responsibilities often increase during this time as well. With children preparing for college, retirement getting closer, and possibly aging parents to care for, it’s essential to adopt the right strategies to stay on track or even get ahead.

This article explores five tips to improve your money management in your 40s.

Manage lifestyle inflation

As your income increases in your 40s, so might your spending, a phenomenon known as lifestyle inflation. While there’s nothing inherently wrong with rewarding yourself, it’s important to control this inflation. Some people increase their spending in line with or even beyond their income, which can hinder their financial goals and lead to strain.

Ensure that you cover all essential bills and meet your savings targets first. Then, evaluate how much discretionary income you have left. You can use this extra for enjoyable purchases like vacations or saving for a nicer vehicle.

Check your emergency fund

Emergency funds are meant to cover three to six months of living expenses. If your income and expenses have increased, your emergency fund may need an update as well.

Review your fund and prioritize saving more until you reach that three to six-month range again. If you have children, consider aiming for the higher end of the range, as having more people in the household can increase the likelihood of unexpected expenses.

Additionally, review your savings account to see if you can find one with a higher interest rate to help your emergency fund grow faster and keep up with inflation.

Evaluate your insurance coverage

Your insurance needs can change over time, and your 40s are an ideal time to reassess your policies. You may need to adjust coverage or explore ways to reduce costs.

For example, if you have children nearing the age of 26, they may soon need to obtain their own health insurance. This could allow you to remove them from your plan or switch to a more cost-effective option.

Other policies to evaluate include:

• Homeowners insurance
• Auto insurance
• Short-term or long-term disability insurance
• Personal umbrella liability insurance

Life insurance is particularly crucial since it helps protects your family. Many start by comparing term vs. permanent life insurance. Term life insurance is competitively priced but only lasts for a specified period, such as 10, 20, or 30 years, and lacks a wealth-building component. This causes some to wonder, “What is permanent life insurance?” when exploring their options. Permanent life insurance is generally less competitive, but it typically lasts for life and offers a cash value growth component to help you build wealth as you pay premiums. It may be more suitable if you’re considering life insurance as part of your estate planning or need to help protect loved ones for a longer period.

Explore additional ways to save and invest

While retirement accounts may be the cornerstone of your savings, higher income in your 40s may bring you closer to contribution limits. This is a good time to explore other savings and investment options.

For instance, a taxable brokerage account is a solid way to invest more. While these accounts don’t offer pre-tax deductions or tax-free withdrawals, they allow you to withdraw funds at any time. Holding assets for more than a year before selling can also qualify you for lower long-term capital gains tax rates.

These features make taxable brokerage accounts an excellent option for those considering early retirement or saving for other goals.

Another option is the cash value component of permanent life insurance, which grows tax-deferred at a rate that varies by policy type. Eventually, you can withdraw from or borrow against it.

Revisit your investment allocation

Although retirement may still be a couple of decades away, it’s closer than before. If you’ve consistently saved in your retirement accounts, you likely have a substantial balance by now.

Your 40s are a good time to revisit your investment allocation to ensure your assets are performing as needed and make adjustments if necessary. For example, you may want to shift your retirement account allocation toward more conservative or income-producing investments.

Meanwhile, you might consider using more aggressive investments in your taxable accounts to minimize potential dividend-related taxes and balance stability with growth potential.

Working with a financial advisor can help. They can review your allocation and investment performance, then develop a plan to reallocate assets if needed.

The bottom line

By their 40s, many people start to feel more financially stable, making it harder to determine their next financial moves. Focus on managing lifestyle inflation, replenishing your emergency fund, and evaluating your insurance coverage. Then, seek additional ways to save and invest, but revisit your investment allocation before making any moves. Consulting with a financial advisor is wise. They can help you outline your situation and goals, and then work with you to create a plan that can help to move you toward those goals.

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.

Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, Aflac coverage is underwritten by American Family Life Assurance Company of New York.

Aflac life plans – A68000 series: Term Life Policies: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68200, A68300 & A68400. In New York, Policies NY68200, NY68300 and NY68400. Whole Life Policies: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368100. In Delaware, Policy A68100. In New York, Policy NYR68100. B60000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Not available in Delaware. Q60000 series/Whole: In Arkansas & Delaware, Policy Q60100M. In Idaho, Policy Q60100MID. In Oklahoma, Policy Q60100MOK. Not available in Virginia. Q60000 series/Term: In Delaware, Policies Q60200CM. In Arkansas, Idaho, Oklahoma, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C. Not available in Virginia.

Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY, VA or VT. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations, and exclusions.

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