How to build wealth in your 40s – now seems like a good time to start with a few key actions.
So the big 4 Zero has been reached and maybe even passed.
Maybe its been a pleasant ramble to this age or a rocky road to a midlife financial crisis.
You have probably done one of two things.
You have saved enough for the lifestyle you want now and building towards the future you want.
You have not.
Either way, what could you do now to build wealth in your 40s.
1. Work out what good looks like to you.
Is it an amount of money? Is it what life will look like? Will it be how you feel?
Without knowing what good looks like you are stumbling about in the dark.
You need to have a reasonably good idea of what an ideal life will look like, so you have something to aim for and judge what you need to do to get there.
“If you don’t know where you are going, you’ll end up someplace else.”
Here are a few areas you might want to have well thought out.
- What do you want your health to be like – active and mobile?
- What will you be doing – working full/part-time or pure leisure time? Will you have hobbies? What will you be doing to education and ongoing personal development? What will you be doing for fun and relaxation?
- Who will you be with – kids or grandkids, family and friends or meeting new people out and about?
- Where will your money be coming from and how much might you need to live the lifestyle you want – will you still be working to earn money, investments like a pension, rental property or other side hustles?
- Where will you be living? Here, abroad in the city or countryside, in a flat or a house?
- And how much might you need, hundreds a month, thousands, hundreds of thousands for a dignified, independent and comfortable lifestyle?
2. Sorry not sorry, its time to start saving
If you have got no savings, now is the time to start not in another ten years. Each month/year that goes by without you accumulating savings is storing up trouble for later life. The longer you leave it, the more painful and steep your savings will need to be.
Save what you can consistently and more if you can every month.
Save first and then spend what’s left not the other way around.
You need to start finding ways to keep more of your money and give less of it away.
Away in stuff and out in taxes.
Cut the shopping apps and email updates on the latest bargains to reduce the temptation to spend. Stay away from the high street and only go shopping when you need something and off a list.
Get your emergency fund together
A savings fund of 3-6 months living costs (maybe 12 months in the case of a global pandemic) is going to help you sleep well at night and ride out lots of potential misfortune.
The crucial part of the emergency fund is that it should prevent you from going into debt to resolve the crisis of the day.
Need a new car, repair something in the house or go on an emergency trip could all be dealt with a decent emergency fund. Helping you avoid using debt as a way to make the immediate problem go away.
Start small but keep gong at putting your emergency fund together like its an emergency.
3. Track your numbers because it’s your money – the Kakeibo method
A straightforward but effective way to track your money is to use the Japanese method of Kakeibo.
The Kakeibo method of budgeting is all about tracking what comes in and goes out. The vital part here is that you take control of your finances by making conscious decisions over where you want your money to go—then seeing if you can do better next month.
The Kakeibo method has four main pillars
- How much money do you have?
- How much would you like to save?
- How much do you spend?
- How can you make things better?
Kakeibo budgeting separates your money into four distinct categories
- Expenses on living
- Culture and education
You get to decide the ratio between categories, but you need to try and keep within your income or the money you have.
You track this process with a couple of notebooks
- To track your income and plan your spending needs and wants.
- The other to track every day to day expense. And it means every penny spent.
Everything to do with earning and spending your money gets put in one or other of the books.
At the end of each month, you do your calculations in the first book to see how you got on. It’s not a pass or fail process. If you don’t manage to save anything one month, you look for ways to improve next month and so on and so on. Each month getting better and better at managing your money.
4. How are your pensions doing?
Pensions err yes I have the details somewhere I think!?
By now you likely have one or more pensions with your worked based savings in. This was money from your salary taken off monthly towards your retirement savings or your pension.
So in short a pension is savings you have built up that will payout when you can’t or don’t want to work anymore.
Pensions are, in essence, future spending power. So its good to have them. When you are not earning money any more, this may well be your primary or only source of income.
An excellent place to start is to gather all your paperwork together from your various pension/s.
Now if you think But “I don’t want to retire”. Fine, no problem you don’t have to, but you might want more choices as you get older. To work less, differently or somewhere else all of which will be easier with savings and or pensions.
Are you making the most of any employer match that your company might provide? It goes something like this you put in a percentage of your money, and the company will match it up to a certain %. This is what is often referred to as FREE money.
Do you want FREE money? (not sure a ? is needed there)
Just remember retirement is what you want it to be. The more savings you have, the more options you have for what this might look like for you.
Check your state pension
Make sure you qualify for a full state pension which is about £9k a year. Not something to be sniffed at. If you were to generate this type of income yourself, you would need a fund of something like £250,000.
So with that in mind, its good to understand how your state pension is doing. Have you got any missing contribution years, i.e. for one reason or another you didn’t pay enough tax that year, you could have been a student, travelling or just our of work for a long time.
Check your state pension forecast to see what you could expect to receive. More importantly, see if you have any missing contribution years and see if you can do anything about this.
5. It’s time to start adulting
But they didn’t teach me this at school its not my fault!
Well, we have the internet now, and your learning opportunities are endless (as well as cat videos).
Now you have reached the event horizon of 40 (the inescapable pull of middle age is more potent than your past youth, i.e. you are only getting older now) its time to take a greater interest in what and where your money is.
If you are going to afford a comfortable, dignified and independent lifestyle now and in the future, you need to start working on it asap.
Get to grips with your numbers
- Income and outgoings.
- What’s your net-worth – all your assets vs your debts.
- Do you know your savings rate – how much of your income do you get to keep, and can you increase that?
- How much debt do you have and what does it cost you? More importantly, what’s your plan for it?
- Do you have a plan to create wealth in every area of your life? Would you like one?
Once you have this info, you can figure out how far away you are from your picture of a good lifestyle.
Summary: How to build wealth in your 40s
So you are now forty, and few things are getting a little more serious. This means its time for you to make a few serious moves your self.
- Figure out what good looks like for you. Now and when you want work to become optional. This will be your goal that you are working towards or even better start creating now.
- Start saving first and spend what’s left. Keep growing your savings. This will be your safety net when things go wrong.
- Track your numbers. Know what is going on with your money. The Japanese Kekaibo might work for you to be more conscious in your money management.
- Figure out your pensions. Track them down and see what they are worth. How is this building to your work optional lifestyle?
- Take an interest in your money and what it can achieve for you now and in the future. It’s your money, and it’s your management of it that will lead to your ideal lifestyle, so it’s pretty important, don’t you think?
Good luck out there.
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