How to Build Wealth in Your 40s

Forty is a milestone birthday for many. It’s a time of reflection and perhaps realizing you need to make some changes in your financial planning. Unfortunately, many don’t capitalize on the rich opportunities when starting to invest in early life. This period is also a time in which your financial goals may be at odds with each other. Perhaps you’re saving for college for your children while still dealing with your student debt, paying for care for aging parents while possibly trying to upgrade your own home, or trying to enjoy life while saving for retirement.

Since most people reach their peak income in their 40s, you must alter your savings and investments accordingly. The consensus is that you should have an amount saved equal to your income by 30, double by 35, and triple by 40. If you have reached 40 and are not quite at those levels, it’s not too late to get going and build wealth in your 40s. 

Maximize Your 401(k) Contribution

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Maybe life didn’t allow you to make the contributions to your 401(k) that you wanted to or should have. But, now that you are in your 40s, contributing to your 401(k) needs to be one of your top priorities. The benefits are twofold: Your contributions reduce the amount of taxable income and increase your wealth in a tax-advantaged way. As of 2021, the annual maximum contribution to your 401(k) is $19,500 if you’re 50 or younger. According to Forbes, this limit will increase to $20,500 in 2022.

Balance Your Investment Portfolio

Early on, it’s typically advisable to gear your investment strategy to high-risk, high-growth stocks to garner quick increases to leverage the time you have for your investments to grow. Once you reach your 40s, you need to balance and diversify your investments a bit more. Diversification doesn’t just involve having many different investment instruments like stocks, bonds, or annuities. You also need to balance the risk and returns within each of these categories.

Invest in financial instruments that invest in companies that offer variety in the type, size, market, geography, and industries. This strategy helps if one segment, market, location, or whatever takes a hit and begins to drop. The diversification of your investments can withstand a drop in one area. You can also mix in some high-risk, high-reward investments to rapidly increase your portfolio’s worth while being better suited to absorb a loss if it doesn’t pan out.

Build Your HSA

The chances are reasonably good that your health care expenses could be your most significant expense in your retirement years. You can get ahead with a triple tax-advantaged health savings account (HSA). The only requirement is that your health insurance is an HSA-qualifying high-deductible plan to open an HSA. Every dollar you contribute is tax-deductible, and the earnings grow without being taxed. When you need this money for qualified medical expenses, those withdrawals are also not taxed.

Those three aspects are why it’s considered a triple tax-advantaged account. Current annual contribution limits as of 2020 are $3,550 for an individual and $7,100 for a family. The nice part about an HSA is that it doesn’t need to be spent in its entirety each year as an FSA does. You can contribute to your HSA and let it grow until you need it after retirement.

Refinance and Take Advantage of Low Interest Rates

For approximately the last decade, interest rates have remained at or near record lows. They continue to stay low. If you plan on remaining in your home for the foreseeable future, calculate what a refinance could save you over the long term. 

Refinancing does come with some upfront costs, but if you can recoup them over the time you plan to remain in your home, refinancing would be something to consider. Find the break-even point, and if it’s before when you plan to sell your home and move, then this plan is a good one.

Be Fiscally Responsible When Purchasing Vehicles

Even if you have been overall frugal and keeping tabs on your expenses, one large-ticket purchase, like a car, can wipe out all that work. A vehicle is probably a necessity even though it can be a substantial diversion to building wealth. Nonetheless, you can still get the safety and comfort that comes with a luxury car without having to cover a luxury price tag. Do the research and determine the annual repair costs for the models you are interested in and use this cost as part of your decision-making process.

It’s almost cliche to say never buy new, but this statement has merit. You can save several thousand dollars by opting for a vehicle that’s a year old. Either way, shopping around, having good negotiating skills, and choosing a model that holds value can help you get what you want at a price you can afford without derailing your wealth-building plans.

Keep Spending on Children in Check

A great life skill to teach your children is what wants versus needs means. The older your kids get, the more expensive their tastes become. The increasing costs to play club sports, buy brand-name clothing, and get the latest technology can derail your investment and wealth-building goals. One great way to curtail this spending is to have your kids pay for a portion of the cost. This real-world life lesson helps them learn what is important and not waste money on unnecessary items. What is essential will take precedence, and anything that isn’t will fall by the wayside.

Contact Hawaii Partners 3D Wealth Advisors Today!

While the best time to start investing is when you first begin working full time, the next best time is right now. It isn’t too late to start building your wealth. It just takes a little work and some discipline, and you can still enjoy life while building a nest egg for your post-retirement life. If you’d like more information about investing in your future, reach out to the knowledgeable team at Hawaii Partners 3D Wealth Advisors. You can call us at 808-707-8068 or contact us via our secure online messaging service. One of our team members would be happy to answer any questions you may have.