The secrets of personal finance you must know before you turn 40

Master the basics to make your journey through adulthood easier.

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Adulthood milestones are ever-changing, more so now than ever. With the traditional markers like graduating university, getting married and having kids losing traction, it may be less obvious where your finances should be at any given age.

While everyone’s journey is different, there are several personal finance basics to have nailed by 40 — no matter your path.

20 personal finance basics to know by the time you turn 40

1. The 3 basics of a solid financial foundation

  • Tackle any credit card debt you have before you hit 40. You can use tools like balance transfer cards and personal loans to help consolidate your debt and lower your interest payments to make the move towards getting those balances down to zero.
  • Maintain an emergency fund that can help get you out of a jam. You already know how hard that can be, so look into creative ways to help yourself. Using a high APR savings account may help you lock down and grow a fund, even if it’s a little at a time.
  • Get your retirement account open and growing. Your future shouldn’t be left to chance, take hold of it.

2. How to structure a budget

Without a budget, it’s unlikely you’ll achieve any of your financial goals. If you want to buy a home, pay off credit card debts or travel, you’ll need to learn how to budget your money properly. You can reduce the anxiety that comes with reviewing your personal finances over time by taking better control, and that control is founded in a well-structured budget.

3. Track your monthly income and expenses

This ties into crafting your budget. Calculate how much income you receive from your job and any other hustles you have. After you’ve got your income, tackle the more intimidating part — your expenses.

Once you have both, you can work out your net income each month.

4. Know what your ideal retirement will cost

Several retirement calculators exist online to help you crunch the numbers and figure out how much you’ll need to earn for your perfect retirement. When you reach 40, you’ll need to know what you want from your retirement and what’s reasonably achievable.

Older couple with walking poles resting on driftwood on black sand beach during hike

5. Know what you’ve saved for retirement

Check out your RRSP and Tax-free savings account statements and balances to get an idea of how much you’ve saved and how well your investments are performing. Choose the investments that will meet your performance needs and align with how risk-averse you are. Higher risk options return much more than conservative options, but they can also lead to much higher losses.

If you’re having trouble balancing your retirement portfolio, find a specialist to help you sort it out. It may cost a little up front, but it’ll likely save you down the line.

6. Communicate with your significant other

Open communication with your partner is vital in virtually every area, and finance is no exception. Be honest about your finances, and be direct when asking them about the same.

Some talking points you might touch on can include:

  • Your careers and where you want to go in them
  • If further education is something either of you are considering
  • Whether you want kids and how time caring for them would be shared
  • If experiences like travelling are more important than buying a house
  • What each of you are comfortable with when it comes to tracking your bank accounts
  • Whether you’re naturally “savers” or “spenders”
  • Investments you both may want to make

7. Check your parents’ financial situation

Talk to your parents about their finances and who is going to be helping them in their twilight years — likely you. Having them give you their passwords, or where to access them, and anything else you need to access their accounts can be part of that process.

You’ll also likely need to help them with insurance for health and long-term care. It might be a tough job to do, but it can help ease financial pains for your parents later on.

8. Learn how to invest

Before putting your money into the market, learn the basics of investing. You almost certainly need to seek professional help before investing, even if you’ve mastered the basics. While you can invest on your own, it’s a lot riskier if you have less-than-thorough knowledge of the market.

Before you get started with your investments, also make sure you have emergency funds so you can keep your retirement on track.

9. Get and keep a good accountant

It can be really easy to get overwhelmed by all the tricky parts of managing your finances. Try sitting down with a financial professional to help manage your finances and taxes.

If you feel comfortable handling it all on your own, this may not be necessary — but it can be good to sit down with a financial planner at least once to comb through the finer details.

10. What not to do when you buy a home

Although renovating and upgrading is a lot of fun, they might not be the smartest projects to jump into directly after getting a mortgage. Instead, set realistic expectations, be conservative with your estimates and fully budget before undertaking a renovation.

young couple in front of home

11. The basics of rebalancing

In finance you want to make sure that your financial portfolios are in a position to grow while still protecting you from losing all your money in the event of a market crash. Experts suggest you diversify your portfolio by having a variety of assets so you can avoid unnecessary financial risk.

12. Take out life insurance

This is another heavy topic to talk about with your family, but an important one. Life insurance is designed to replace necessary income due to loss of life, and cover end-of-life expenses.

When you take out a life insurance policy on yourself, you’re really protecting your family. It’s important to consider whether you need it and how much to get if you decide you do.

13. Tame your little splurges

Take a hard look at your expenses and look for little everyday costs that may be adding up and working against your savings goals.

But remember part of budgeting is knowing what you need to keep your quality of life up. That may mean keeping your biweekly designer coffee but cutting out a streaming subscription you hardly touch, or splitting the cost with some friends.

14. Master the art of the TV dinner

By 40, you should be pretty adept at cooking for yourself. You probably have a signature dish that you like to stun your dinner guests with, but on the off days you may need a few cheaper suggestions.

Any cheap TV dinner can do the trick, but make sure you have them on rotation to avoid burning out. A hearty beef and potato stew, pasta and a jar of sauce and chicken and rice are a few cheap and easy meals. Just try to steer clear of the old university special of daily instant noodles if you can.

15. How to ask for a pay raise

The best way to financial freedom is growing your income. Saving more than you spend will help, but you should also try asking for more money.

To do so, research what the average rate is for your position and account for any additional responsibilities you’ve taken on. Sometimes your job title can start as one thing, but you end up doing the work of a whole other position on top of it. Make sure you’re earning what you’re worth.

Two woman in an office meeting

16. Craft a will

There are two types of wills: a last will and testament, and a living will. Each has its place, and you should consider drawing them up to make sure your wishes are followed.

The last will and testament is a legal document which details what needs to happen to your belongings once you pass away. On the flip side, a living will is a healthcare initiative that gives instructions on how to care for you if you can’t communicate — such as if you’re in a coma.

17. What role taxes play in your retirement

How and when the funds that go into and come out of your retirement accounts is taxed depends on several factors, including the account type. Talking with a retirement advisor and doing some cursory research can help you understand what’s taxable and what isn’t so you can have a full understanding and control over your tax bracket.

18. Learn everything you can about interest

When it comes to savings accounts, simple interest is money you can receive depending on the amount of funds you deposit and time period you leave those funds at the bank. Compound interest is calculated more often so that it continually grows and earns you more money.

Do some research on your bank and see what interest rates it offers for your accounts, as well as if there are any fees eating into your earnings. You may also want to compare savings accounts to make sure you’re getting the most out of your money.

19. How your money can affect others

Socially responsible investing can make a positive impact on the world around you. Environmental friendly banking is also an easy thing to consider. Recycling, donating to charity, eating local and signing petitions are just a few of the ways to help out with your money.

While there’s no such thing as 100% ethical consumption, there are ways to be more aware of where your money is going. Deciding how to spend your money can really say something about your character and end up making a difference.

20. Design a full financial plan

Some people like budgets created in small stages, and that’s completely fine. However, if you plan ahead you’ll be in a better position for the future and can make your money grow faster.

Those who fail to plan are often planning to fail. Whatever path you choose to walk, creating a financial plan will help get you where you want to go — and make the journey more enjoyable.

Bottom line

It can seem like a lot to take in, but it’s best to learn these things earlier on so you have a better chance at getting on top of your finances. Avoid feeling overwhelmed, or at least minimize it, by tackling a few at a time — starting with getting your budget in line.

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