How to manage your money in your 40s, according to CFPs: As your investments grow, ‘mistakes can get bigger' too

In your 40s, financial priorities can range from taking care of aging parents to funding the activities and futures of your kids. 

You probably feel more settled than you did in your 20s or 30s, but may not know which money moves you should be making as you coast closer to 50.

Here are four steps certified financial planners recommend taking with your money throughout your 40s.

1. 'Focus on the intermediary'

If you didn't open a taxable brokerage account in your 20s or 30s, your 40s are a good time to do so, says Andrew Fincher, a CFP and financial advisor at VLP Financial Advisors.

While focusing on short-term financial goals like building an emergency fund or long-term ones like saving for retirement are important, Fincher encourages people in their 40s to "focus on the intermediary" as well.

A brokerage account allows you to buy and sell stocks and bonds and take out money at any time, unlike a retirement account. But you will have to pay taxes on earnings from your brokerage account.

It can also be useful to attach goals to the money you're investing for the next five years or so years, Fincher adds.

Goals could include "home renovations, maybe a big vacation that you want to go on, some things that you've been really wanting to buy," he says. "There's just so many opportunities and just having that intermediary bucket so that you have the flexibility…That can be huge."

2. Make sure your investments are positioned correctly

Investing in your 40s can carry higher stakes than it did when you were younger, made less money and had more time to recover from any mistakes. 

"As the [investment] portfolios get bigger, the mistakes also can get bigger," says Joe Conroy, certified financial planner and author of "Decades & Decisions: Financial Planning At Any Age."

That's why your 40s are a good time to do a check-up on all of your investments, whether that be by yourself or with a financial advisor.

Evaluate the performance of your holdings — as well as how your assets are allocated — and determine whether your investment strategy still fits your goals, like saving for retirement or covering your kids' education.

3. Check your insurance coverage

If you have kids or dependents in your 40s, you'll want to shop around for a life insurance policy to support them, says Fincher. 

"Make sure that you have enough life insurance that if you were to pass away, [your kids] can cover any expenses that you would have paid for your children up to age 18," he says.

You generally have two options for life insurance: term or permanent. Term life insurance provides coverage for a set amount of time, often somewhere between 10 and 30 years, while permanent life insurance, also known as whole life, provides coverage for the rest of your life.

Term life insurance is generally fitting for people looking for affordable, temporary coverage, while permanent life insurance is more flexible and can earn interest. Term policies tend to be cheaper, while whole life policies tend to be more expensive.

As you make more money in your 40s, you might want to also consider personal umbrella liability insurance on top of homeowners and auto insurance. Personal umbrella liability insurance helps protect your assets and pay for legal fees if you're sued for an amount exceeding your existing insurance coverages, Fincher says.

This type of insurance can help cover your assets if someone gets injured at your home and decides to sue, for example.

"Typically for $100 a year — so very cheap policies — you could have up to a million dollars in coverage, just to make sure that you're not going to be held liable at an extreme amount and really hurt your family," Fincher says. 

4. Resist lifestyle inflation

You want to be able to enjoy your hard-earned cash in your 40s, but beware of lifestyle inflation, which occurs when individuals begin spending more as their income increases. 

Lifestyle inflation is more common among people in their 40s, says Conroy, and can hurt your ability to save for the future. He encourages people to find a balance between what they want and what they need.

"If you have groceries that are getting more expensive and you're upgrading cars because you got a raise at work, all this stuff does is create a higher standard of living, which is more difficult to sustain later," says Conroy. "Just because you can afford a payment, or a bigger house, is that really a part of your plan?"

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