Work & Money

Money in your 40s: How to make it work harder for you

The most important part of this decade is to start preparing to be out debt by the time you’re in your 50’s.
(Credit: iStock/Getty Images)

This article was originally published April 26, 2017.

In Canada, life during the decade that is your 40s looks different from person to person. Many families delay having kids until their late 30s and even early 40s. Perhaps your mortgage is well on its way to being paid off and you're getting closer to your peak earning years, while high home prices mean others of you in your 40s are still hanging on to (record amounts of) debt. Always keep a present view of your financial situation instead of comparing yourself to where others at your age may be. The most important part of this decade is to start preparing to be out debt by the time you're in your 50's, and a big part of that means being strategic about your earnings and having your money work hard for you.

Optimize your finances

In your 40s it's time to take a holistic view of your finances. Your debts, your assets your investments. All of them should be working for you. If you work with a tax professional or financial planner book an appointment with them. When you meet, plan to go over any changes you could make to your financial situation to save you money. This can include rebalancing your investment portfolio to better manage your current risk. This can also mean selling any risky assets and investing more conservatively for any upcoming big expenses you might have.

Renegotiate your cost of borrowing

If you're carrying debt, call your bank to renegotiate the interest rate to save you more money. This is particularly effective if you do it close to the end of your mortgage term. If you have any outstanding consumer debt, talk to your bank about consolidating it into a lower cost loan to get it paid down faster. If you have equity in your home you can do this by applying for a home equity line of credit. Be aware, though, a HELOC is borrowing from your home and should not be done without careful consideration.

Make sure your retirement is on track

While optimizing your finances, be critical of your retirement savings. Are they at the level you wanted them to be by this point? Use the CRA Retirement Calculator to see what kind of income you are looking at if you keep saving at this level. This calculator will help you adjust your savings rate to reflect how much you need to put away each month to get to where you want to be. Don't worry too much about the size of your nest egg, focus more on the guaranteed monthly income you can expect in retirement.

Renovate rather than upsize

As your kids get older the house you bought 15 years ago might start to feel too small. As much as you can, resist the urge to upsize. Instead, renovate your home to accommodate whatever needs you might have. An extra bathroom, a more spacious kitchen if you have the room to make it happen, this will be a much more economical choice than moving. There are a couple reasons why. If your kids are teenagers chances are they will be moving away to university in the next 5-6 years. By making a move now to a big house, you may find yourselves as empty nesters in a much bigger house in only a few years' time. As well, a bigger house probably means extending your mortgage beyond where it is now. That can stall any big financial plans you had, as your money will be going towards mortgage payments for many more years than if you stayed put.

Career planning

Your 40s is the best time to make a leap in your career to a more senior role. By now you are approaching two decades of expertise in your field and this can be valuable to many different companies that specialize in what you do. Take a look around at what you can do to improve your career prospects. Maybe it's time to join a new company in a bigger role. At your own company look for promotion opportunities, ask for a better salary or a more responsibility. Make a move in your 40s that will help you move towards your top earning potential in your 50s.