The financial tools Linda Bessette recommends for people in their 20s and 30s — skepticism and realism — are still important in your 40s. But with approximately half of your working life behind you and life changes you can't control starting to happen, your 40s are the decade for serious and regular assessment of all things financial.
Bessette recently retired as chief administrative officer for Aptus Financial of Little Rock, and she has been walking The Work Wife readers through a lifetime of best financial practices. She says 40-somethings who came to her for initial consultations have something in common: "Everyone I've ever seen in that decade comes into the office looking like a deer in headlights."
Big life changes early in adulthood are generally made by choice — which career to pursue, when or if to start a family, where to put down roots. A lot of major financial decisions have been made by then as well.
"In your 40s, you've probably taken on as much debt as you are going to be able to handle. You probably still have a mortgage, but you probably haven't paid much attention to it."
Suddenly, she says, "it all comes to them in the middle of the night. And most of them are pretty damn terrified."
What's weighing on minds during those years aren't just dollar signs, Bessette says.
"In the decade of the 40s, there's a lot of psychological things going on. You are getting older; you're trying to still be young. You're feeling under a lot of pressure because your parents are getting older, and you're starting to see that. Your kids are no longer little, and their college is starting to loom."
On top of that, at least half of 40-somethings will start to accept that they have lost 20 years of opportunity to save more than they did.
"This is the decade when everything comes out in black and white and you can't deny it," Bessette says. "It's also the decade when families panic and make really bad decisions."
Here are tips for getting or staying on track in your 40s:
1. Assess your current situation. Gather up all the financial information you have and put it in one place, whether a sheet of paper or a spreadsheet or a budgeting application. Get a handle on your assets, liabilities, expenses and the realistic cost of your aspirations, and make a date to assess again every year.
Do a deep dive into your expenses and make sure your money is going where you really want it to go. Get rid of expenses that aren't contributing to your well-being or goals.
2. Assess your future expenses. "One of the few things you do have power over is getting your money straight for the future," Bessett says. Parents in their 40s often need to hear this: "You can borrow money for a college education, but you can't borrow money to be retired."
Parents need to resist the temptation to use money they will need in retirement to pay for a child's college education. And they need to make sure their children have a realistic idea of which kind of college education the family can afford, because 18-year-olds don't fully appreciate the burden of college loans.
Bessette encourages families to take advantage of low-cost community college for general education requirements to minimize the cost of a bachelor's degree. And while having a child accepted to a prestigious school is flattering, the cost can be a bad decision for both generations.
"The only profession out there that actually cares where you went to school is if your goal in life is to be a college professor," she says.
3. Assess your retirement savings. In your 40s is a good time to get comfortable with a retirement calculator. There are many free online tools. Bessette's favorite is at Bankrate.com. AARP also has a good one.
"Find a good retirement calculator and start throwing those numbers in. Choose a date every year to throw those numbers in and see where you are."
All retirement savings calculations involve three factors — money, rate of return and time — and by your 40s, about half of your time to save for retirement is past. And investment returns are not guaranteed. But you can control how much you are saving, and a good calculator will help you determine how much that should be.
"Just keep contributing, no matter what the volatility of the market is," Bessette says, and she strongly recommends investing in low-fee target date funds.
In your 30s? Read this.
In your 20s? Read this.