Your 40’s Is The Time To Ramp Up Your Financial Goals
If you want to increase wealth you have to plan ahead and your 40’s is the home stretch before life settles down.
Leaving a legacy for our son is part of our retirement plan as well as making sure our lives are comfortable at the end.
I’ve been told that by the age of 45 we should have saved at least 3 times or yearly income in savings.
Thankfully we are on track but it has taken discipline and finding ways to earn income above net pay from my employer.
Even if you are in your 40’s and haven’t been working to increase wealth in your 20’s and 30’s there’s no better time to start then now.
YES, you need one and no you don’t need a year’s worth of savings but it’s nice to have for that extra padding of comfort.
It is recommended that you save 3 to 6 months of your net income in a savings account or Tax-Free Savings Account for emergencies.
You may not see the urgency now but in the future you will thank yourself for going the extra mile to save.
Estate Plan and Legal Will
If you’re in your 40’s and still don’t have a legal will I’d suggest getting one especially if you have dependents.
We didn’t go frugal with our legal will and hired a top lawyer in town to make sure we didn’t miss a thing.
Our complete legal will cost us $1000 but it’s worth it to help our son figure things out when we are gone.
By not having a will it can cause complications that will end up costing your estate money.
Leave your life hassle-free for the person dealing with your death as it’s already a time of sadness for them.
Ways To Increase Wealth In Your 40’s
You’ve been working hard up until your 40’s and know that in approximately 25 years or less (or more) you’ll be retiring.
In order to increase wealth during our 40’s, we’ve learned that we need to make some changes to the way we spend, earn, and invest our money.
A budget will forever be on our list of financial tools that we must use to help us increase wealth.
Anyone who does use a budget will notice that year over year there will be changes that occur.
Sometimes for the good and other times, not so good.
The game is to make sure that you can balance your budget and incorporate savings and investments while paying off debt.
Even though you may think to save a few dollars here and there is nothing, it will be something.
There are many types of passive income streams where you can earn money while you sleep.
In 2012, I decided to start a blog and learned that I could monetize years later.
That meant that I wasted passive earning potential due to a lack of knowledge.
Now that I know better I’ve been monetizing CBB over the past 5 years and earn a 5-figure income from this blog.
As I have a full-time job I’m limited to the amount of time I spend on the blog although I’m considering outsourcing help.
However, some full-time bloggers earn hundreds of thousands, and even millions of dollars in passive income every year.
In the past, we’ve also rented a room to students and took in international students for a month at a time for cash.
If you have space in your house this may be something you want to consider to earn extra cash on the side.
Another popular passive income stream is renting out a parking space or garage on your property for a monthly fee.
If real estate investing intrigues you buying a rental is a powerful way to pay off a mortgage using someone else’s money.
Keep in mind that owning a rental home comes with headaches but if you’re up for the challenge it’s money in your pocket.
- Start a blog or other hobby that you can monetize
- Purchase rental real estate
- Rent a room
- Parking space rental
Maybe another day I’ll dive deeper into passive income streams to explore how many ways we can all increase wealth.
Reduce Spending To Increase Wealth
As we age it will be apparent that you don’t need as much stuff as you thought.
In your 40’s take the time to slim down the stuff you own so it’s less work as you age.
Not only that it’s a large burden to leave on your children or power of attorney when your home is filled with stuff.
Also during your 40’s and into your 50’s reduce spending to increase wealth for future endeavours.
When you watch where your dollars are going it’s far easier to save especially when you limit buying what is not needed.
Life insurance is a must and if you don’t have it then consider your body worth nothing if you die, financially.
There are many ways you can incorporate life insurance into your budget starting with Term Life-Insurance or Whole Life Insurance.
Permanent Life Insurance
We transitioned over from term life insurance at the beginning of 2020 to a permanent life insurance plan.
Permanent insurance can be very attractive to those who have discretionary cash flow, especially the tax-free accumulation of cash values.
Converting policies to permanent plans make senses for a number of reasons:
- Estate Planning: Your life insurance is guaranteed to be paid out at some point in time in the future (tax-free, btw) whereas term insurance will terminate at age 80
- Long term cost: Converting your term life insurance now will avoid costly, unaffordable increases in premiums at the renewal points
- Medical Reasons: If your health is compromised and no longer qualify for standard life insurance, converting your term insurance to a permanent plan will ensure your coverage remains in place for life
- Investment Diversification: Some permanent policies feature the ability to accumulate tax-free cash values; The growth rate of these cash values are similar to fixed income (bonds) investments except that you can never have negative returns; That’s why some investors diversify part of their investment portfolio (normally allocated to bonds) to tax-free, positive-return permanent life insurance policies
Critical Illness and disability insurance are two other insurance products you should consider especially if you are the breadwinner in your home.
In the event, something happens to your health or you sustain some form of disability at least you will be covered.
It’s always best to be safe than sorry.
Debt Reduction Plan
In your 40’s you should have a better understanding of personal finance especially if you’ve budgeted and saved money.
During your 40’s you may likely have a mortgage, vehicle loan, school loans, and other debts as it’s not uncommon.
You should also consider eliminating any further debt if possible while paying off what you already owe.
During the ’40s is when couples sell to buy a forever home with a larger mortgage or downsize based on future goals.
Consider how the increase of mortgage payments tie into your retirement goals and whether they are necessary.
Often times we think we need a bigger house when all we need is to just enjoy what we already have.
If you’re someone who plans on using the equity in your home to fund retirement keep in mind you’ll need to sell.
This also means that you’ll need to relocate which could possibly cost you more in the end.
Ramp Up Retirement Investments
Lots of people contribute something to their retirement savings but have no idea what is going on.
The set it and forget mindset is not something you want to settle with when it comes to your golden years.
Once you hit 40 years old it seems like retirement is around the corner, at least it did for us.
We started to talk more about how we could increase wealth using other financial products.
This is the time to focus on maxing out your retirement portfolio including that of your employer if available.
Ideally, try to save at least 15% (or more) of your before-tax income and put it into retirement savings.
Once you max out your retirement funds turn to non-registered investments that continue to increase wealth for you.
To do this we had a full financial analysis completed by our financial advisor with Manulife Canada.
We learned that we were on track to meet our retirement goals including ensuring our son’s education was fully funded.
As happy as we were there are always possibilities of market volatility as we’ve just recently seen during Covid-19.
It’s critical that you meet with your advisor to review your retirement portfolio especially if you are near retirement.
Your financial advisor should explain to you what is happening with your portfolio and any suggestions for changes.
New Career or Wage Increase
Professional growth is somewhat graduation through the ranks of your career which may also include a wage increase.
Even if you aren’t cascading up ask your employer for a wage increase if they are not implementing one.
In your 40’s you’ve settled on a career, you like however some people change careers or even go back to school.
Whatever your financial and personal goals are it’s important to find a balance of what you love and fits your lifestyle.
Overall, we feel we’ve been doing a decent job with our finances to increase wealth in our 40’s even though we’ve seen a slight decline since Covid-19.
The moral of this story is that no matter what we do there is always the possibility of something going wrong.
Be prepared with a backup financial plan and plan ahead the best you can to protect yourself and your assets.
Discussion: What steps are you taking in your 40’s to increase wealth?
Share them below.
Net Worth Losses and Gains
What happened to our money in June?
Well, there wasn’t any one thing to blame this time for such a dismal net worth result.
There was an unexpectedly high maintenance cost on our vehicle and yet nothing got fixed.
It was just routine maintenance that needed to get done to keep the warranty on the vehicle.
Personally I feel more like I got done instead.
Additional expenses went to, or should I say ongoing expenses to the basement project going on in the house, which is almost near inspection (yes, it’s being done by the book).
Then, there are the unexpected house maintenance costs due to unforeseen circumstances.
Do you know when you open something to renovate and find another problem, well that’s what happened?
Finally, Mrs. CBB got a little carried away with clothing sales although the long-term savings will be worth it.
Why not when new clothes are cheaper than second-hand?
That’s all for this month.
Let’s hope next month is a positive month.
P.S- A house similar to ours on our street sold last week for $749,000.
Understanding Net Worth
What Does Individual Net Worth Mean?
Net Worth is a snapshot of your financial health sort of like a picture or debt to net assets.
In simple terms, it’s a total of the value of your assets minus your liabilities.
We credit the growth of our net worth due to patience, perseverance, using a monthly budget, and not giving up.
Your numbers may go up and down but don’t let the numbers scare you rather understand why and move on.
If you would like to use our budget I offer a FREE downloadable budget which I created and that you can use.
I don’t charge for it because I want you to save money not spend more!
There are tonnes of other free resources at Canadian Budget Binder to help you build your net worth.
Calculate Your Net Worth
Do you know how to calculate your own Net Worth?
We like to calculate our net worth every month so we know if we are still on track.
Some people calculate it yearly or quarterly but it’s up to you and how informed you want to stay.
Net Worth is only an estimate and not everyone uses the same type of figures to tally it up.
Some of you may not include vehicles like we do or leave out assets inside the home as we have.
You might be that person that believes that your house should be excluded.
It depends on what you want to calculate or what you can sell today and make money for tomorrow.
Figuring out net worth is fairly easy as long as you know your monthly financial numbers.
Net Worth is adding up all your assets (what you own) then taking away your liabilities (what you owe) which will give you a net worth number.
Understanding your net worth will help you determine if you are on track meeting or beating your personal financial goals.
It doesn’t get any easier than that.
Determining Net Worth
Net Worth = Assets – Liabilities
Why not go ahead and calculate your own using our Free Money saving Tool Net worth Calculator (Canadian Budget Binder 2012)
When budgeting anything is possible, we are proof of that although we still have a long way to go in our journey.
These are our numbers and our goals, not a means of comparison towards your own goals to others’ target goals.
We don’t care how much money others earn or if they have a high net worth or if it is lower than ours as it’s not a competition.
I hope our experiences will help guide you along your financial path working towards debt freedom.
Not everyone has the same path in life.
Some of you may have had to start over like I did or go to school a second time and now have OSAP loans to pay back.
Others may have divorced, lost money in the stock market or other investments, suffered job loss, fell ill or injured on the job and so on but you can’t let that stop you from achieving your financial goals.
You may have been given trust funds, paid-for homes, educations, or other perks that give you a financial kick-start and that’s OK too.
Earn It, Save It, Invest It, Build It
Remember what I said, “It’s not about how much money you make, it’s how you save it”.
The reason people accumulate wealth is that they know how to save or invest even if inherited or a lottery win.
The smallest improvements should mean big strides in working towards reaching your goals.
Sometimes we have to fail to learn and we’ve all been there.
Money can be evil for some people especially those who have a negative attitude towards their financial situation.
Be optimistic and little by little with determination you too should see improvements if you want that to happen.
Canadian Budget Binder Net Worth Updates 2020
Click the links below to read our net worth updates for the year.
- January 2020 Net Worth Update
- February 2020 Net Worth Update
- March 2020 Net Worth Update
- April- Oops I forgot
- May 2020 Net Worth Update
That’s all for this month’s net worth update but please check in the middle of August 2020 to see how we made out in July 2020 with our financial portfolio.