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5 tips for building wealth in your 40s

2nd September 2021 Print

The sooner you start making smart decisions with your money, the easier it becomes to build wealth. And though it’s ideal to start saving and investing in your 20s and 30s, don’t assume it’s too late if you’re past the age of 40.

This is a critical decade for your finances. If you make sharp decisions over the next few years, you’ll set yourself up for significant success in the decades to follow.

This article will cover some of the specific steps you can take to build wealth and win with money.

Five Wealth-Building Tips for 40-Somethings

People naturally hope for a secret key to building wealth. We want a specific formula, hack, or technique we can use to generate massive funds in a short time.

In reality, 99 percent of wealth building is boring. It’s about doing the small things right, over and over again. With that thought as your foundation, here are several wealth-building tips or habits you could implement in your 40s to ensure you’ll be able to accumulate substantial funds for years to come.

1. Ensure Your Emergency Fund is in Place

It’s tempting to start investing as much money as you can to supercharge your wealth building efforts, but it’s better to slow down. If you don’t have an adequate emergency fund in place, for example, you’re asking for trouble.

The first step is to make sure you have at least three months’ of expenses saved in the form of liquid cash. (Ideally, you want five or six months’ worth of expenses in cash.)

This ensures that, should anything drastic happen – such as losing your job, having your car break down, undergoing a surprise trip to the emergency room – you’ll have the cash to cover the expense and won’t have to go into debt.

2. Avoid Bad Debt

The second step is to avoid taking on any new bad debt. (And if you have existing bad debt, pay it off!)

A car loan would be an example of bad debt. If you’re paying $500 a month to drive a car you can’t afford, you’re essentially robbing yourself of $500 in monthly investments.

A few hundred bucks a month might not sound like much, but if that were invested over 20 or 30 years, it would turn into hundreds of thousands of dollars. Don’t get distracted by shiny objects. Drive a car you can afford and then invest the amount you’ve saved.

3. Max Out Retirement Accounts

Start with basic retirement accounts. If you have a 401k with a matching contribution at work, max it out. If you’re self-employed and have a Roth IRA, max that out.

Whatever the case may be, you want to take full advantage of these opportunities. Not only do they help you expand your money, but they offer tax advantages that could save you tens of thousands of dollars in the long run.

4. Invest in Income Streams

If there’s still money left over after you’ve maxed out your retirement accounts, look for smart ways to create long-term income streams. Annuities are one option.

You invest in these products for a set period of time. Once the account reaches its annuitization phase, you begin to receive checks on a monthly basis. Depending on how the annuity is set up, the payments may last for a limited period of time or indefinitely, at least until the end of your life.

Real estate is another option. Done well, you can invest in income-producing properties and enjoy monthly cash flow for years to come.

Start with one property and add new ones over time, as you can afford them. Not only will you get monthly income, but you’ll also enjoy tax breaks and other financial advantages.

5. Load Up Your HSA

The final suggestion is to open a health savings account (HSA) and start loading that as much as possible. Anyone is qualified to invest in an HSA, so long as you have a high-deductible health plan in place.

The money you contribute is tax-deductible. Plus, earnings and distributions are tax-free. Currently, a family can contribute up to $7,100 per year. 

Adding it All Up

You can’t build a seven-figure net worth overnight. But you’ll never reach that seven-figure net worth if you don’t start making the right decisions fairly soon, and stick with them day in and out.

It might feel like you’re way behind where you need to be at this point in your life, but there’s still plenty of time to get on track. Use your 40s to grab control of your finances and put yourself on a wealth-building trajectory. It’ll take time, but the results will compound.