The Guide In Managing Finances For 40-somethings

5 min read By Kevin Joshua Ng on March 17, 2021

When you take a look at most personal finance related content on the internet, most of them are catered to both ends of the age spectrum. They are either for young adults who are just starting out at (real) life, or for those who are already enjoying their retirement. How about those at the middle?

Read: How To Start Managing Your Wealth In Your 20s

In this article, let us address the big gap in the middle–the one occupied by those in their middle age.

People in their middle-age are in the prime of their earning potential. There’s a big probability that they’re at the peak of their career or close to it. This is why it’s much more crucial to be able to manage their finances better because a lot can be gained and lost just by making financial decisions at this point of their lives.

Because of this, we’re going to share with you a guide in managing your finances while in your middle-age. And for this, we’ve taken a few advices from Farnoosh Torabi, an author and leading expert in personal finance that’s been featured on several leading publications, TV shows, and newspapers in the US. She’s also worked with Fortune 500 companies to offer personal finance advice.

1. Know your worth–and add 50%.

According to Farnoosh, professionals in their line of work should be aware of their market rate, meaning their actual financial worth in the market given the skill set they have, and add 20, 30, or even 50% on top of it.

As a seasoned professional, you probably have decades of experience that’s worth more than your actual skills. The years you’ve invested honing and learning from your career can save companies time and money on their fast track to success.

Here’s what she has to say about this:

Some older mentors advised me early on that the fact you’re being asked to do a job says quite a bit about your “worth.” Yes, there is a going “rate” for the mechanics of the work and the market does dictate value to an extent. But your unique skills, reputation and track record are the value add, making the final product or service you’re providing all the more desirable and competitive.

My advice: Know your day rate or market rate and tack on 20, 30 or 50%. By 40, assuming you’ve been climbing in your profession for 15 or more years, you’re worth it.

2. Ramp up retirement.

There’s a point when your prime earning years will eventually slow down. While you’re at it, learn how to make shrewd investments and actually make moves. Retirement and old age will get to you within the next few years so prepare for it while you have the time, money, and energy to create wealth.

One popular rule of thumb is to have roughly three times your current salary saved by 40 years old.

I could hold off for a few years, until my kids are in school full-time and I’m no longer spending as much on childcare. But I’m not going to wait to contribute more to retirement. Having maxed out all my tax-deferred savings options, I’ve begun investing more in a brokerage account to supplement savings.

3. Invest in alternatives.

Your late 30s to 40s is a good time to actually dabble into “alternative” investments that will enrich your life more so in enjoyment and fulfillment rather than what’s practical.

By this time, you’ve probably set up a foundational plan A that can support you all the way to retirement. This might be your savings or investments you’ve made while you were young. This time, try to venture out more and take a few risks here and there–invest in art pieces, start-up companies where you can get equity, and most importantly: yourself.

Learn a new skill or upskill further.

I’m completely aware of the huge risks, but I find supporting artists and founders to be very fulfilling. And I want my 40s to be defined by doing more of what I want and enjoy, rather than what’s always “practical.”

My friend Karen Rinaldi, author of It’s Great to Suck at Something, would say I’m on the money. She took up surfing in her 40s and despite many falls has stuck with it. That’s the point. “It took me five years to even catch a wave,” she told me. “But what kept me going back was … I thought, ‘This is the one thing in my life…that I don’t have to be good at.’ There was so much freedom in that.”

May we also add that getting an insurance early like life, health, and maybe even car insurance, can help you enjoy your retirement without having to spend your savings, or even worse, your children’s.

4. Pretend your 30-year mortgages ends in 20.

If you have long-term mortgages such as house payments, it’s best to set up a plan to accelerate finishing it off at the soonest time possible. One way you can start is to invest in the stock market where your money has a chance to grow beyond inflation. You can use your earnings in that to pay off your mortgages or debts earlier. That way, you can save on thousands of pesos on interest.

There’s also a good effect on paying your mortgages or debts much earlier: this gets you on the good side of your bank or loan provider because it makes you a good paying client and they love good paying clients.

Also, try to find better deals in loans, for whatever use they might be. There are plenty of loan providers that offer the same payment terms with low interest rates.

I took on a 30-year mortgage soon after my 40th birthday. Since I’m not a fan of having housing payments well into my 60s, I’m taking steps to accelerate paying it off starting now.

Of course, I don’t advocate for prioritizing your mortgage above other financial interests, like saving for retirement or a child’s college fund.

I’m confident my money will be better served growing in the stock market over the same 30-year period. For context, the S&P 500 has grown an inflation-adjusted average of 8% annually since 1991.