Money Moves to Make Before You Turn 40

Before Turning 40 is often considered a significant milestone in life. By this age, most of us have a clearer picture of our career trajectory, family goals, and personal aspirations.

Financially, it’s a crucial period to ensure stability and plan for the future. From building savings to investing wisely, here are essential steps to consider before reaching this pivotal age.

The essential money moves to make before you turn 40, with practical tips and a lively, engaging approach to help you navigate your financial journey.

21 Money Moves to Make Before You Turn 40

Turning 40 is a major milestone. Ready to take on the next chapter of your life? If you’re feeling a little unsure about your financial situation, don’t sweat it – we’ve been there.

But what if we told you there are seven financial power-moves you should make right now to set yourself up for success?

From investing in your future to getting rid of dangerous debt, these strategies will have you feeling like a financial rock star before you blow out those 40 candles.

Not all these tips may work for you, but some of them will, so read them all.

1. Build a Robust Emergency Fund Before You Turn 40

Why It’s Important

Life is unpredictable, and having a financial cushion is crucial. An emergency fund can cover unexpected expenses like medical bills, car repairs, or job loss, preventing you from dipping into your savings or accumulating debt.

Creating an emergency savings fund can prevent you from relying on a credit card and going into debt when unexpected costs strike, says “Today” show financial editor Jean Chatzky. “You’ve got to watch it with the debt,” she warns, adding that most people lack emergency funds. “Lack of savings and debt go hand in hand … an emergency cushion is insurance against debt,” she says.

How to Do It

• Set a Goal: Aim for three to six months’ worth of living expenses. This should cover rent/mortgage, utilities, groceries, and other essential costs.
• Automate Savings: Set up an automatic transfer to your savings account each month. This ensures consistent growth of your fund without relying on your discipline.
• Use High-Yield Savings Accounts: These accounts offer better interest rates than traditional savings accounts, helping your money grow faster.

2. Pay Off High-Interest Debt Before You Turn 40

Why It’s Important

High-interest debt, like credit card debt, can quickly spiral out of control. The interest rates are often so high that you end up paying significantly more over time.

If you have credit card debt, discuss the outstanding amounts and interest rates with your financial advisor. Depending on the interest rate you’re paying, you might want to divert a sizable portion of cash flow to paying off those cards before funding other plans.

Every dollar you pay to a credit card company in interest is a dollar you cannot save or invest for another goal. Try to be debt-free before you turn 40 and your birthday.

How to Do It

• Focus on High-Interest Debt First: Use the avalanche method to pay off the highest interest debts first while making minimum payments on others.
• Consider Debt Consolidation: If you have multiple high-interest debts, consolidating them into a single loan with a lower interest rate can simplify payments and reduce costs.
• Negotiate with Creditors: Sometimes, creditors are willing to lower interest rates or settle for a lump sum payment. It never hurts to ask.

3. Maximize Retirement Contributions Before You Turn 40

Why It’s Important

The sooner you start saving for retirement, the more time your money has to grow. Compounding interest is a powerful tool, and contributing regularly to retirement accounts ensures a comfortable future.

Retirement may still seem far off in your thirties, but the earlier you begin saving, the more you will benefit in the long run. If your employer offers a retirement plan such as a 401(k) or 403(b), consider contributing the maximum amount allowed each pay period. The IRS raised the maximum contribution limit by $500 for 2024.

The money you defer will not be taxed in the year you make the contribution; instead, it will be taxed when you withdraw the funds. If you are investing in the plan each month, and your employer offers a match, consider increasing your contribution so you are investing enough to take full advantage of their matching program.

How to Do It

• Contribute to Employer-Sponsored Plans: If your employer offers a 401(k) or similar plan, contribute enough to get the full company match. It’s essentially free money.
• Open an IRA: If you don’t have access to an employer-sponsored plan, consider a Traditional or Roth IRA. Both offer tax advantages that can help your savings grow.
• Increase Contributions Gradually: As your income rises, increase your contributions. Even a 1% increase each year can make a significant difference over time.

4. Diversify Your Investments Before You Turn 40

Diversifying investments before turning 40 is a prudent financial strategy that can help secure your future and mitigate risks. Here are some key considerations and strategies to achieve a well-diversified investment portfolio:

Why Diversify?

Diversification involves spreading investments across different asset classes, industries, and geographic regions. The goal is to reduce risk by not putting all your eggs in one basket. Here’s why it’s crucial:

1. Risk Management: Different types of investments react differently to market conditions. Diversification helps cushion losses from a poorly performing asset with gains from others.
2. Steady Returns: A balanced portfolio tends to generate more consistent returns over the long term, even if some investments underperform at times.
3. Capital Preservation: By spreading investments, you lower the risk of losing a significant portion of your capital due to volatility in any single asset.

Why It’s Important

Diversification reduces risk by spreading your investments across various asset classes. This ensures that if one investment performs poorly, others can balance the loss.

How to Do It

• Mix Asset Classes: Include stocks, bonds, real estate, and other assets in your portfolio.
• Consider Index Funds: These funds track market indices and offer broad market exposure at a low cost.
• Rebalance Periodically: Review your portfolio regularly and adjust to maintain your desired asset allocation.

5. Establish Multiple Income Streams Before You Turn 40

Why It’s Important

Relying solely on one source of income can be risky. Building multiple income streams can provide financial security and increase your wealth. Consider creating both active and passive income sources to diversify your earnings.

How to Do It

• Start a Side Hustle: Turn your hobbies or skills into a profitable venture. Whether it’s freelancing, consulting, or selling handmade goods, side hustles can boost your income.
• Invest in Real Estate: Rental properties or real estate investment trusts (REITs) can provide passive income and long-term appreciation.
• Explore Dividend Stocks: Investing in companies that pay regular dividends can generate a steady income stream.

6. Improve Your Financial Literacy

Why It’s Important

Understanding personal finance is crucial for making informed decisions about your money. The more you know, the better you can manage and grow your wealth.

How to Do It

• Read Books and Articles: There are countless resources available. Some popular titles include “Rich Dad Poor Dad” by Robert Kiyosaki and “The Total Money Makeover” by Dave Ramsey.
• Take Online Courses: Platforms like Coursera and Udemy offer courses on budgeting, investing, and other financial topics.
• Follow Financial Blogs and Podcasts: Stay updated with the latest financial news and tips from experts in the field.

7. Plan for Major Life Events

Why It’s Important

Major life events, such as marriage, having children, or buying a home, can have significant financial implications. Planning ahead ensures you’re prepared for these expenses.

How to Do It

• Create a Financial Plan: Outline your goals and estimate the costs associated with each event. This can help you budget and save accordingly.
• Start Early: The earlier you start saving for these events, the less financial strain you’ll experience when they occur.
• Consider Insurance: Life and health insurance can provide financial protection for your family in case of unexpected events.

8. Increase Your Earning Potential

Why It’s Important

Your income plays a critical role in your financial success. By increasing your earning potential, you can achieve your financial goals faster.

How to Do It

• Invest in Education and Skills: Pursue higher education or professional certifications that can lead to higher-paying jobs.
• Seek Promotions: Take on more responsibilities at work and demonstrate your value to the company. Regularly discuss career progression with your employer.
• Network: Building professional relationships can open doors to new opportunities and higher-paying positions.

9. Protect Your Assets

Why It’s Important

Insurance protects you from significant financial losses due to unforeseen events. It provides peace of mind and ensures you don’t have to deplete your savings in emergencies.

How to Do It

• Health Insurance: Ensure you have adequate health coverage to protect against medical expenses.
• Home and Auto Insurance: Protect your property and vehicle with comprehensive insurance policies.
• Life Insurance: Consider life insurance to provide for your family in case of your untimely death.

10. Create a Will and Estate Plan Before You Turn 40

Why It’s Important

Estate planning ensures your assets are distributed according to your wishes after your death. It also provides for your loved ones and can reduce potential disputes.

How to Do It

• Draft a Will: Clearly outline how you want your assets distributed. Include details about guardianship if you have children.
• Set Up a Trust: A trust can help manage your assets during your lifetime and after your death. It can also reduce estate taxes and avoid probate.
• Consult an Estate Planner: Professional advice can help ensure your estate plan is comprehensive and legally sound.

11. Review and Adjust Your Budget Regularly

Why It’s Important

Your financial situation and goals can change over time. Regularly reviewing and adjusting your budget ensures you stay on track and make necessary changes.

How to Do It

• Track Your Spending: Use budgeting apps or spreadsheets to monitor your expenses.
• Identify Areas to Cut Costs: Look for non-essential expenses you can reduce or eliminate.
• Adjust for Life Changes: Update your budget to reflect major life changes, such as a new job, marriage, or having children.

12. Plan for Healthcare Costs Before You Turn 40

Why It’s Important

Healthcare costs can be significant, especially as you age. Planning for these expenses ensures you have the necessary funds without compromising your financial stability.

How to Do It

• Contribute to an HSA: Health Savings Accounts (HSAs) offer tax advantages and can be used to pay for qualified medical expenses.
• Consider Long-Term Care Insurance: This insurance can cover the cost of long-term care services, which may not be covered by regular health insurance.
• Stay Healthy: Investing in your health through regular exercise, a balanced diet, and preventive care can reduce future healthcare costs.

13. Focus on Personal Development

Why It’s Important

Personal development contributes to your overall well-being and can enhance your career and financial prospects. Investing in yourself pays off in multiple areas of your life.

How to Do It

• Set Personal Goals: Identify areas where you want to grow and set achievable goals.
• Pursue Hobbies and Interests: Engaging in activities you love can improve your mental health and potentially lead to income-generating opportunities.
• Attend Workshops and Seminars: Continuous learning keeps you updated and inspired.

14. Cultivate a Positive Money Mindset

Why It’s Important

Your attitude towards money significantly impacts your financial decisions and success. A positive money mindset can help you make better choices and achieve your goals.

How to Do It

• Practice Gratitude: Focus on what you have rather than what you lack. Gratitude can reduce financial stress and increase contentment.
• Visualize Success: Imagine achieving your financial goals. Visualization can motivate you to take action and stay committed.
• Surround Yourself with Positivity: Engage with people who have a positive attitude towards money. Their mindset can influence and inspire you.

15. Give Back

Why It’s Important

Giving back to your community or causes you care about can provide a sense of fulfillment and purpose. It also helps others and can strengthen your social connections.

How to Do It

• Donate to Charity: Find organizations that align with your values and contribute regularly.
• Volunteer Your Time: Offering your time and skills can be as valuable as monetary donations.
• Support Local Businesses: Shopping locally and supporting small businesses can have a positive impact on your community.

16. Prepare for Tax Season Before You Turn 40

Why It’s Important

Taxes can significantly affect your finances. Being prepared ensures you comply with regulations and take advantage of potential savings.

How to Do It

• Organize Financial Documents: Keep records of income, expenses, and deductions throughout the year.
• Understand Tax Deductions and Credits: Research available deductions and credits to reduce your taxable income.
• Consult a Tax Professional: Professional advice can help you optimize your tax situation and avoid costly mistakes.

17. Set Financial Goals and Track Progress

Why It’s Important

Clear financial goals provide direction and motivation. Tracking progress ensures you stay on course and make adjustments as needed.

How to Do It

• Define Short-Term and Long-Term Goals: Include specific, measurable, attainable, relevant, and time-bound (SMART) goals.
• Create a Financial Plan: Outline steps to achieve each goal, including deadlines and milestones.
• Review and Adjust Regularly: Regularly check your progress and make necessary adjustments to stay on track.

18. Prioritize Financial Wellness Before You Turn 40

Why It’s Important

Financial wellness encompasses your overall financial health and well-being. Prioritizing it ensures a balanced and stress-free financial life.

How to Do It

• Practice Mindful Spending: Be conscious of your spending habits and make intentional choices.
• Build Financial Resilience: Prepare for financial setbacks by maintaining a healthy emergency fund and insurance coverage.
• Seek Professional Advice: Consult financial advisors for personalized guidance and support.

19. Explore Passive Income Opportunities

Why It’s Important

Passive income provides financial stability and freedom. It allows your money to work for you, creating income streams with minimal effort.

How to Do It

• Invest in Dividend Stocks: These stocks pay regular dividends, providing a steady income stream.
• Real Estate Investments: Rental properties and REITs can generate passive income through rent and property appreciation.
• Create Digital Products: E-books, online courses, and other digital products can generate ongoing income once created.

20. Plan for Big Purchases

Why It’s Important

Big purchases, such as a car or home, require significant financial planning. Proper planning ensures you can afford these expenses without compromising your financial health.

How to Do It

• Save in Advance: Start saving early for big purchases to avoid taking on excessive debt.
• Research and Compare Options: Take the time to research and compare prices to get the best value for your money.
• Consider Financing Options: If you need to finance a big purchase, explore different options and choose the most favorable terms.

Conclusion on  Money Moves to Make Before You Turn 40

Before Turning 40 is a pivotal moment in your financial journey. By making these money moves, you can build a solid foundation for a secure and prosperous future.

Remember, financial success is not just about earning more but also about making wise decisions, planning ahead, and continuously improving your financial literacy.

Take these steps seriously, and you’ll be well on your way to achieving your financial goals and living a fulfilling life.