Financial Planning in Your 40s
Posted on Jun 11, 2021
You’ve reached your 40s and while you’ve gained some wisdom in your years, you’re still learning and growing. Unlike your 20s and 30s, saving for your future in your 40s is different because you’re different now too. No matter how far off retirement may still seem, it’s important to make sure your financial planning is in order so that you feel financially secure when the time is right to finish your professional career.
The financial advisors at First Hawaiian Bank can help you save as much as possible while still enjoying the next few decades. Here are a few tips to guide your financial planning:
What Does Retirement Look Like for You?
There’s no textbook rule that states you must retire at 65 and in fact, many people can’t afford to. Every professional has a different path and needs. Some are hoping to retire early in their 50s and others hope to work as long as they can—it all depends on the person. And important first step is to determine where you ideally fall in this timeline to identify how much money you should set aside for retirement.
Next, it is important to know what your retirement goals are. Will you be spending your retirement relaxing on a waterfront property? Traveling the world? Are you aiming to spend more in retirement, or do you want to have a similar lifestyle as today? No matter your goals, identifying them early on will help you reach them financially.
No matter your goals, identifying them early on will help you reach them financially.
Once you have an idea on what retirement will cost, you can better understand if your savings is on track. If you have not begun to set aside money yet, have no fear – it’s still possible to prepare yourself for a comfortable retirement if you’re diligent. This is an important time to know what you need to save in order to reach your goals and to make the changes needed to achieve them. First Hawaiian Bank offers many tools and resources to help.
Do you have a retirement plan through your employer? Take advantage of employer-provided 401(k) or IRA match programs so you can make the most of your retirement savings. Companies will match up to 6% of your retirement contributions, depending on the program.
Focus on Your Emergency Fund
A sudden job loss or medical emergency can take a toll on your savings account. Make sure you’re prepared for the worst and financially stable enough to handle anything life may throw at you.
An emergency fund is especially important in your 40s, when many of you are financially responsible for other people in your life like children or even your parents. If you are raising a family, be sure you have enough money saved to support your children as well. By creating an emergency fund, you can safely stow away savings for a potential emergency. We recommend creating a separate savings account that is solely dedicated to emergencies that is easily accessible. Avoid relying on stocks or bonds as a form of emergency money since it is not an immediate way of withdrawing funds if necessary.
According to Bankrate.com, most Americans don’t have enough of an emergency savings to cover $1,000. Ideally, you should have around three to six months’ worth of living expenses tucked away in your emergency fund. That way your groceries, routine medical expenses and even your mortgage can still be maintained in the event of an emergency.
The average American in their 40s spends almost $6,000 a month on both essential and nonessential items. Therefore, the average American in their 40s should have around $18,000 to $36,000 stowed away in an emergency fund.
Use Automatic Saving
Take advantage of setting up recurring deposits to your First Hawaiian Bank savings account. Automatic transfers like these can make it easier to save. Consider saving a healthy portion of your monthly paycheck to set yourself up for future success.
Be Smart About College Expenses
If your kids are headed to college, it’s important to find a balance between helping fund your child’s education and saving for retirement. Like retirement, the sooner you start saving for college, the better. Start a college fund as early as possible and calculate what you are able to afford and whether you might qualify for financial aid. It’s important to be realistic about the cost of tuition, so encourage your child to seek out scholarships or grants to help defray the cost.
Create an Estate Plan or Will
No one wants to think about what will happen to our families after we’re gone, but it’s important to have a plan in place. Proper documentation can ensure your family is taken care of. For this reason, it’s imperative to have an estate plan at hand, which identifies who will inherit your money and possessions after you pass away. A simple document can be drawn up online, but your trusted attorney will be a better resource for help.
Your estate is comprised of everything that you own, whether that is a car, home, checking and savings accounts and so on. Having an estate plan ready in case of an emergency is a great way to ensure your estate is delegated to those whom you’ve decided are fit to acquire. It’s important to have your estate planning in order to ensure that your financial assets and property are well taken care off after you are gone, to set help set your family up for success.
Financial planning in your 40s is important to your future and the future of your family. At First Hawaiian Bank, one of our many financial advisors can help guide you toward your goals. Contact us today or stop by one of our local branch locations to get started.
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