Everyone’s financial advice seems to be, “Start saving and investing as early as possible.”
That would be helpful if you were 18. But what if you’re older?
Just because you aren’t “young” anymore doesn’t mean you don’t have time.
There are plenty of ways to build wealth in your 40s, and the best time to start is today.
Dispelling the Common Myth
“If you don’t build wealth early, you’re screwed.”
Sure, starting early is great. And the power of compounding interest is real.
But the idea that you can’t build wealth later in life fails to miss four critical truths about getting ahead financially.
- Saving money won’t make you rich. Saving money can help you build up extra cash, but it won’t make you rich. The people who actually generate wealth bet on themselves, their ideas, and their investments. You can do that whether you’re fresh out of high school or approaching retirement.
- The power of compounding doesn’t suddenly disappear on your 40th birthday. If you start investing now, you can still see the benefits of compounding over time.
- Money is only the result of your efforts. It doesn’t care about your age. And it isn’t the goal itself — it’s just a result of taking action, making smart decisions, and truly caring about your financial future.
- People make more money when they’re older. Statistically, most people see peak earnings in their 40s and 50s. Even with no foundation, people in those age groups are actually advantaged.
TL;DR: Yes — you can still build wealth in your 40s. It’s all about making smart financial decisions, being more aggressive with investment opportunities, and having a clear plan for your future.
So, how can I build wealth in my 40s?
Now, let’s take a look at how you can make the most out of your peak earning years.
1. Create an emergency fund.
Unexpected expenses happen all the time, especially as you age.
- Health issues
- Expensive home and auto repairs
- Company downsizing that costs you your job
- Children’s expenses
All these things should take precedence over investing—navigating potential chaos requires some financial stability.
An emergency fund remains a top priority throughout life, but it’s especially important as you reach your 40s.
Aging adults have more people relying on them, and a reservoir of three to six months of living expenses is imperative. Ideally, your fund would be able to hold you off for a year.
2. Create a debt-free plan.
Over half of Americans over 40 have credit card debt. And 19% have student loan debt.
The Experian 2020 State of Credit report shows that the typical non-mortgage debt owed by Gen X consumers, including credit card debts, personal loans, student loans, and car loans, amounts to $32,878. Meanwhile, Gen X homeowners have an average mortgage balance of $245,127.
Of course, you don’t have to pay off your mortgage right away (although increasing your mortgage payments does help). But you should create a plan to get rid of any high-interest debt, such as credit card balances, as soon as possible.
Before moving to the next step, budgeting and changing your spending habits can help you tackle debt faster.
Deciding whether to pay off debt or invest really depends on the type of debt. I have more on this in my free investing class, but for now, let’s assume anything over a 10% interest rate is a high-interest rate and is a debt that should absolutely be prioritized.
3. Start (or keep) saving for retirement.
You should have been putting money into a retirement plan (401(k), IRA, or the like) since you first started working. If that hasn’t been the case, now’s a great time to start.
Retirement accounts have tax advantages for those who invest:
- Retirement contributions are tax-deductible
- You won’t pay taxes on any capital gains until you withdraw the funds
- Withdrawn funds are taxed at a lower rate than earned income
If your employer offers a retirement plan, take advantage of it and make sure you contribute at least enough to get any available matching funds. Talk to your company’s HR department to make sure you’re taking advantage of everything they offer.
If you work for yourself, look into setting up a retirement account through a financial institution or online broker.
In all cases: Switch to an automatic funds transfer and never worry about it again.
4. Inveset outside of traditional retirement accounts.
Federal laws (significantly) limit how much you can put aside in tax-advantaged retirement accounts.
- 401(k) contributions max out at $22,500 per year (for 2023).
- Traditional and Roth IRAs are limited to only $6,500 (for those under 50) or $7,500 (for those over 50) annually.
After (or before) maxing that out, you need to make investments elsewhere.
You may want to set up a 529 plan for your children’s educational expenses, which offers its own set of tax benefits and compound growth.
Here are a few other excellent places to put your money:
- Mutual funds
- The S&P 500
- Real estate investments
- Taxable brokerage accounts
- Money market funds
5. Make smart decisions when it comes to insurance.
Your 40s are a great time to review your insurance policies, as life changes and family needs evolve quickly in the next decade. From health coverage to life insurance and home and auto, there are lots of moving parts to consider.
First, prioritize your “investment” policies.
- Life insurance. While health insurance covers medical expenses, life insurance provides financial security for your family in case of your unexpected death. Whether you choose term or permanent life insurance, the death benefit can help pay for household bills, education costs, and mortgage payments.
- Disability insurance. While some companies offer this as a work benefit, you may want to consider additional coverage or purchasing your own policy if you are self-employed. That way, you’ll have a safety net for you and your family.
Next, think about the “protection” policies (i.e., health, home, and auto insurance). Several criteria might qualify you for more favorable rates, and you can always shop for better ones elsewhere.
6. Max out your company’s benefits.
Company benefits add up to 30% to 40% of your base pay. These benefits may include:
- 401(k) matching
- Tuition reimbursement
- Tax-advantaged accounts for healthcare and childcare expenses
- Pre-tax transportation benefits
- Gym memberships
- Discounted insurance plans
Take advantage of these perks and contribute the maximum allowed. Not only will you save money, but it’s an easy way to give your finances a boost without much effort.
7. Take calculated risks with investments.
I believe this is actually the only REAL way to build wealth. You can’t save your way to wealth.
Once you’ve got a good handle on savings and retirement accounts, you can think about actively building wealth.
Here are a few of the easiest, lowest-risk routes to take when building wealth in your 40s:
- Investing in the stock market. You don’t have to be a day trader or stock expert to get rich. Most people see better returns by letting their money sit in the S&P 500.
- Real estate investments. Buying an investment property provides means you’ll have a stable, in-demand asset that can provide a steady stream of income.
- A side hustle. You can start most side hustles online with little or no money. Consulting, freelancing, and digital products are all potential sources of income. Think about your career thus far: What do you wish you knew 5, 10, or 20 years ago? Productize that.
Most importantly, bet on yourself. There are plenty of people who rebuilt their finances (and lives) in their 40s, and you can be one of them.
8. Develop financial literacy to increase earning power.
To really make your money work for you, it pays to invest in yourself by developing financial skills and knowledge. This can give you an edge over the competition when it comes to negotiation and salary negotiations in particular.
It can also help you think strategically and stay ahead of the curve when it comes to market trends, technology changes, and economic conditions. Knowing what’s coming can be a powerful tool in building wealth.
A few of my favorite personal finance blogs for Gen X’ers:
- Debt Discipline: Everything you need to know about getting your family out of debt
- Mint: Budgeting tips for everything from family finance to travel
- Route to Retire: Achieving financial independence in your later years
- Chief Mom Officer: Financial tips for working moms
The key is to focus on learning something new every day, from investing basics to advanced programming languages—whatever helps you stay competitive in the modern economy.
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