5 Best Money Moves to Make in Your 40s

Money moves in your 40s
Wow, what a great 40th birthday cake!

Yes, I know the title of the blog is Retire By 40. However, many of our readers are in their 40s and 50s and they are planning to retire soon. You don’t have to be under 40 to read this blog. Maybe I should rename the blog to Retire between 40 and 59…

*Originally written when I was 41. Now that I’m almost 50, it is time to review this post.

Being in your 40s is a bit strange. I don’t feel young anymore, but I don’t feel old either, except when I’m trying to keep up with our son. Life should be a little smoother at this point. The 20s and 30s can be very hectic as we try to figure out career, family, and money. Hopefully, our 40s will be a little calmer and we can just stay the course. All this is assuming you’ve got it figured out, of course. If you’re still struggling with money and life in your 40s, then you might need to get some professional help.

I’m trying to figure out how I should prioritize our finance over the next decade and I thought this would be useful to many of our readers too. As I alluded to above, we won’t have to make many big changes in this decade of our lives. Here are the 5 things I’ll be working on in my 40s.

1) Minimize Lifestyle Inflation

It’s so easy to spend more money in your 40s. We’re not starving students anymore and we have grown accustomed to a more comfortable lifestyle. Most people enter their peak earning period in their 40s and it’s natural to spend more money at this point in our lives. It takes a lot of money to maintain a house, kids, cars, social life, and entertain ourselves. However, you’re not young anymore and you need to seriously plan for retirement.

Retirement can last 30+ years these days. In my case, I’ll be in semi-retirement for 20 years and then full retirement for another 20+ years. If you minimize lifestyle inflation, then you’ll have more money to use later. Also, your core expenses will be more affordable. Over the last few years, we saved over $50,000 per year in our tax-advantaged accounts, so we just need to focus on minimizing lifestyle inflation. If we can keep lifestyle inflation down, then we will continue to save and we’ll be in a great financial position in 15 years.

*Update – We have been very successful at minimizing lifestyle inflation. We moved into our rental duplex and reduce our housing expenses. I drive very little and cook our meals mostly at home. Covid kept us in locked down for 2 years now and we haven’t spent much. Our annual expenses are less than in 2015! Of course, back then we had to pay for preschool and various other childcare-related expenses.

2) Increase income

It’s easy to increase your income when you’re in your 20s. I got a 20% raise one year and it was fantastic. I think most of us probably are in a comfortable spot in our 40s and it will be harder to increase our income much year over year. Although, some people will be in their prime earning years and make a lot more money in their 40s.

For us, I’m hoping to at least beat inflation every year. Mrs. RB40 is still working and she’ll see a little raise annually. She is still making good progress in her career so she will probably get one or two promotions this decade. My online income on the other hand can be up and down. It will be tough to increase it much unless I invest a lot more time and money into the business. I think when RB40 junior starts school full time, then I’ll be able to focus better and try to earn more money online.

Also, don’t forget passive income. Invest all the extra money you can and get your passive income streams rolling. Here are our plans for passive income.

  • Real estate crowdfunding – We invest in commercial real estate projects through CrowdStreet. This is a great way to generate passive income. Real estate is a great diversification from the stock market.
  • Dividend income – We grow our dividend income through additional investment, dividend reinvestment, and dividend growth. Dividend income is great, but I’m slowing down on new investment because Mrs. RB40 plans to keep working for a while.
  • Rentals – Theoretically, this one should be easy. Rent is increasing and more money goes toward the principle in our mortgages every month. However, repair and maintenance can get expensive too. The rental income growth is difficult to measure year over year because every year is different. In the long term, the rentals should increase our net worth significantly.
  • Side gigs – I’ve taken up a few side gigs. I don’t make much money, but these gigs get me out of the house.

All these should be enough to surpass the inflation rate. We’ll have some up and down years, but our income should be growing steadily in our 40s.

Our household income took a big hit when I retired from my engineering career, but it recovered nicely.

3) Reduce debt

Personally, I think everyone should pay off all their debt before they fully retire. In particular, high-interest consumer debt will sabotage your retirement saving. You need to get rid of those first and then work on mortgages and other low-interest rate loans.

I hope to pay off the mortgage on our primary residence before we turn 50. That will decrease our monthly expenses and enable us to splurge a bit more. I’m ambivalent about the mortgages for the rentals. As long as they are making a little money, I don’t really care about owing some money there.

*Update – I am not paying off our mortgage early. The interest rate is so low, there is no point paying it off early. That’s the only debt we have, though.

4) Protect your loved ones

If you have a family or dependents, it’s extremely important to make sure they are protected in case something happens. You need life insurance and a will. I got term life insurance after I left my old job so I just have to make sure there are at least $25 in the checking account every month. Here is the checklist if you have dependents.

  • Get life insurance and make sure to pay the premium every month.
  • Make a Will and update it whenever there is a significant life change.
  • Make a Trust to minimize estate tax.
  • Make sure all your accounts have the correct beneficiaries.
  • General durable power of attorney, medical power of attorney, and living will? What the heck are these? I guess I need to figure them out.

*Update – We made a Will in 2021.

5) Define your own retirement

As mentioned earlier, you’re not young anymore and retirement is on the horizon. Many of us will have fewer working years ahead of us than behind. Thank goodness! At this point, you need to figure out if you want a regular retirement or something else. Since you’re here with me this far, I will assume you’re working toward early retirement. You need to make sure you can survive without a day job, but you don’t have to be completely financial independence to leave your corporate career. You just need to be creative and figure out how to make some income after early retirement. It’s better to work a bit anyway. You’ll be bored if you stop working 100%.

It’s even more important is to figure out what you’ll do after “retirement.” I’m in a unique position here at Retire By 40 because I’ve met quite a few people who left their day jobs. The fact is that none of them are sitting around the pool and playing golf all day. Early retirees have a lust for life and we love the freedom to do whatever we want. Whether that’s part-time work, traveling, raising the kids, or something else, it’s best that you make some kind of plan before quitting your corporate job. The idle retirement isn’t the right fit for early retirees.

The best decade is ahead

The 40s is the best decade for us at the RB40 household. We are in the groove financially and our family life is stable. Of course, there are some challenges. Covid, my mom’s dementia, RB40Jr’s hearing disability, and various other things. But that’s just life. We are still having a great time. I think life will be even better in our 50s. We’ll be better off financially, our son will go off to college, we’ll have more time to travel, and we’ll still be pretty healthy. I’m really looking forward to it.

What do you think of my plan? What’s your plan for your 40s? I can’t believe I’ll turn 50 next year. Time flies.

*Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Photo credit: flickr by Pickersgill Reef

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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22 thoughts on “5 Best Money Moves to Make in Your 40s”

  1. I am in my 40s and want to retire early. The only debt I have is student loans and mortgage. I am working to pay off both hopefully in 5 to 8 years. I am have been to downsize my home since it is just me now but everything so far is more expensive than my current mortgage. I want to ensure I am making appropriate financial decisions as well as what would make me happy. I am ready to make some changes.

    Reply
  2. Regarding P2P lending, I think this is a great way to generate passive income.
    If you take into account the principal pay offs, one could get about 20% return.
    Even if one were to reinvest 50% of the income back to P2P lending, one can expect 10% steady income every month.

    Reply
  3. My plan is not so different. Engaging in lifestyle deflation so that I can hit FI sooner, increasing my income, and reducing debt are my priorities. I’m definitely in the “retire between 40 and 55” crowd, so I’ve got some time yet.

    One thing about becoming a little more financially literate is that I’m excited for the future. I think my 40s will be great!

    Reply
  4. I am close to my 40’s, too, and your plan here looks very appealing 🙂

    We currently have no debt, so we are just focusing on our family and growing our small business.

    Reply
  5. It was when I turned 40 that I made the decision to retire early and set my 10 year plan loose. I didn’t think about it much before that while raising kids and climbing the corporate ladder to lead engineer. I think reaching the top of my career goals and all the BS that came with it is what made me think there is more to life than this. Lifestyle creep wasn’t much of an issue in my 40s as I was super FI motivated at that point in my life. I did retire with a low (under $900) monthly mortgage but have since paid it off. When I left that career at age 51 everyone thought I was nuts. Best move I ever made. Opened things up to start a second career until I decided to retire again at age 56. Now its following my passions and the occasional side hustle. Life is an adventure so who knows if I will start another run at something.

    Reply
    • Thanks for stopping by. I’ll drop by your site again to read more about your second career. Are you still working in some capacity now or are you full retired?

      Reply
      • Hey Joe, I started what I am calling an early retirement side hustle in Mid-October that was to end at end of year reverse engineering and documenting some telecom billing systems code. Best gig I have every done and they decided to keep me through until this until May when I told them that would be my limit before returning to non-paid retirement. I transitioned from career #1 as a Telecom Network Operations Engineer to an encore career as an IT Systems Analyst in the cable video world which opened up this latest side hustle after months of retirement bliss. I am not looking to restart my Telecom or IT career so this short gig is perfect. I may or may not pursue anything again longer-term but I never rule out another career run if something super cool comes my way.

        Reply
  6. Like Money Beagle this is good timing for me as the big 40 is just a few months away. I think I’m ready for this decade both mentally and financially. All my debts, have been paid, housing is secured, lifestyle inflation is kept at bay and now that I’m self-employed, I have the option of increasing my income as needed. All in all I feel pretty comfortable going into this decade.

    Reply
  7. I am 50 and consider myself semi-retired and having a great time pursuing a physically active lifestyle, developing relationships and spending more time on my hobbies. Avoiding life-style creep was the biggest factor in helping me walk away from an extremely well-paid but demanding and stressful executive job in corporate America. Many of my peers were trading up to bigger cars and houses and taking exotic vacations but I saved about 40% of my take home pay in order to achieve the lifestyle I now lead.

    Reply
  8. Do you really believe that debt-free includes no mortgage debt? I suppose that, psychologically, it may be helpful, but maintaining some very low-cost (potentially negative in real terms) leverage allows for one to continue to grow their cash assets in higher appreciating vehicles.

    Just my thoughts. Thanks for the article!

    Eric

    Reply
    • I really think it’s better to pay off the mortgage before you fully retire. Low interest mortgage is good when you’re working, but there is not much advantage when you’re retired. You can’t deduct the interest. Also, you need to withdraw more money from your tax protected accounts to pay the mortgages. You’ll have to pay more tax when you do that.

      Reply
      • Joe is spot on here with respect to tax implications of having to pay a mortgage with after-tax savings/investments. The more you can keep in your investment accounts and growing in retirement when the “pay check” stops, the better off you’ll be.

        Every dollar that needs to come out of investments to pay off the mortgage off is likely taxed (typically 15% FED if long term capital gains, maybe more if short term gains or dividends + STATE in some cases). On top of this, your mortgage payment is typically paying interest (in addition to principle).

        With no interest deduction (no earned income in retirement) your effective cost of that loan is actually quite a bit higher than the APR of the loan. Also, very few of today’s mortgage rates are running higher than inflation thus the “negative real rate” is incorrect.

        Finally being totally debt free and owning your primary residence in retirement is also a nice way to protect your family (spouse) if a tragedy were to hit (eg… law suit, bankruptcy, illness or death) due to the typical legal protection tied to preserving one’s primary residence (versus, say, the money in an investment account which becomes fair game to all creditors, etc etc.)

        Reply
  9. Your plan sounds very similar to ours. I especially agree that lifestyle inflation can really delay retirement plans, and I don’t see those expenses as adding much to life anyway. Also I love your point about defining what you want your retirement to be about. Having a reason behind your goals is so much more motivating.

    Reply
  10. I’m still over a decade from my 40s but I can still benefit from this as I think anyone can as they’re planning and thinking about retirement.

    Reply
  11. I think lifestyle creep is the most important part of the equation for this age group, provided the individuals in question already have the basics of saving for retirement down. Read a study a few weeks back indicating that expenditures actually rose for some in this age group even as kids were leaving the nest. More free time plus a higher income makes for a tantalizing reason to spend more money. Lifestyle creep is dangerous without specific goals in place, especially this close to retirement. Plenty of time to spend money after you reach your goals.

    Reply
    • I guess once you’re accustomed to a certain level of spending, it’s hard to reduce your expenses. They probably have money burning a hole in their checking account when the kids became independent.

      Reply
  12. As I just turned 40 a few months ago, this is a very well timed post from my perspective. I’m in agreement about being debt free before you retire. Right now, our mortgage is scheduled to be paid off when I’m 52, and it would be very nice to be and remain debt free at that time or even sooner!

    Reply
    • We still have over 20 years left on our mortgage, but we’re moving into our rental home in a couple of years. Once we moved, then we’ll concentrate on paying that mortgage down. It’s a smaller mortgage so we should be able to pay it off relatively quickly.

      Reply
    • I don’t agree that it’s wise to pay off mortgage on our primary residence.
      As long as we have some income, with the tax break we are looking at around 1% mortgage.
      For eg my 15 year mortgage rate is 2.625% and after tax break, I am looking at 1.3%.
      I am sure I can get more than that in other investments.

      Reply

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