Three steps for managing your personal finances in your 40s

Published at 18 December 2023

Three steps for managing your personal finances in your 40s

Now that you’ve reached your 40s, have you found financial freedom? Or do your finances have you stressed? Money can get complicated in your 40s, with credit cards, kids, mortgages, and plenty more. Consider these three steps to take control of your finances so you can enjoy today as you save for tomorrow.

Did you assume your finances would be so much easier when you reached your forties? If that’s not how things are going, you’re not alone—Canadians in their 40s and lower 50s are more likely to be unhappy with their financial situation than those who are older and younger.¹ The top three worries that Canadian workers in their 40s and lower 50s have about their personal finances are:

• • • 42% are worried about credit card debt
    • 34% are worried about their emergency savings
    • 33% are worried about their retirement savings

If any of that sounds familiar, these three steps can help you take control in your forties.

1 – Tackle your debt

When you’re in your forties, you’ve probably accumulated debt, such as credit cards, a mortgage, or student loans for example. Even though some debt may seem like a fact of life, interest payments could be eating away at money you could put to better use. It’s a good time to look at your debt, monthly payments, and interest rates to see how you can lighten all of it.

Credit cards generally have the highest rates of any of your personal debt, so try to get rid of your credit card debt as quickly as possible. You can tackle it from a few angles:

• • • See if you can negotiate a lower rate on your credit cards and other debt.
    • Pay it off in full, or commit to paying off more than the minimum monthly amount due until it’s gone—and then pay it off in full every month.
    • If you have a credit card with a low rate, could you consolidate all your credit card debt into that account to get the lower rate and have just one card to pay off?
    • Shop around for credit cards with lower rates. Some even offer zero or low interest or other favorable terms on balances you transfer from other cards.

If you have a mortgage, home equity line of credit or student loans, take a look at the interest rates you’re paying. Similar as with credit cards, see if you can:

• • • Lower your interest rate, or
    • Consider paying more of your principal each month so you can pay it off sooner

And if you can’t find debt with lower interest rates or consolidate your debt, consider paying off the debt with higher interest rates first, then move on to the debt with the next highest rate, and so on.

2 – Prepare for emergencies

Even though you don’t know what the emergency will be, you can expect emergencies will eventually come along. So it’s best to be prepared. Having cash set aside can reduce the strain on your finances and your stress levels when you have an unplanned expense, such as a major household repair, job loss, or medical emergency. Creating an emergency savings fund can help you avoid using your credit cards, borrowing money, or tapping into your retirement savings.

An emergency savings fund is a separate account that you don’t touch unless you have an actual emergency need. Keeping it separate—rather than just keeping it in your chequing account—makes it easier not to dip into it for nonemergencies.

Generally, it’s recommended to have between three and six months’ worth of expenses (or three to six months of salary) saved to tap into in an emergency. Of course, you don’t have to start with that much. Set your savings goal and decide how much you can put aside every month. Even if it’s a small amount, stick to your plan and keep saving until you’ve built your buffer.

3 – Check in on your retirement

Whether you like to admit it or not, you’re getting closer to retirement. Are you taking advantage of a group plan you might be offered at work, such as a registered retirement savings plan (RRSP) or tax-free savings account (TFSA)? If not, are you setting aside money into an RRSP or TFSA on your own? If not, it’s time to start. Look at your budget and find ways to trim your expenses so you can start saving for retirement, when you’ll need your savings to help support your lifestyle.

Check in on the investments in your retirement accounts from time to time to make sure they’re still in line with your goals and your timeline. The general guidance is to invest with more potential for growth the farther you are from retirement—as those investments also tend to come with more risk. And the closer you are to retirement, typically you’ll want more conservative and gradually less risky investments.

If you would like to have your investments remain age-appropriate over time without having to adjust them yourself, you might consider investing in a target-date fund, which manages the mix of investments according to your expected retirement date.

Fortify your finances in your 40s

At this point in your life, you’ve probably got some assets (perhaps a house, group savings plans, some other investments) and some debt (maybe credit cards, a mortgage). It’s time to take stock and make sure you’re laying the foundation for a strong financial future. Consider taking these three steps to help free up your finances and lighten your stress.