Lifestyle

5 Best Money Moves to Make in Your 40s

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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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