Mastering your finances in your 40s can play a pivotal role in building wealth for your future. As you hit the big four-zero, you may be juggling responsibilities like family, a mortgage and considering your retirement fund for the future, while also wondering how to take the next financial steps in life. If you’re feeling unsure about whether you are putting the best foot forward — financially speaking — don’t worry, we’ve got you covered. Loqbox takes a look at the 7 best ways to build wealth in your 40s.

7 best ways to build wealth in your 40s

It’s natural to find yourself thinking about financial planning and future-proofing your money in your 40s. So here’s a checklist you can use to plan, budget and save towards a more financially secure future. This is how your finances should look in your 40s:

1. Budget to grow wealth in your 40s

A budget is the best way to get a firm grip on your finances in your 40s. Budgets are actually super simple to create and extremely useful. First off, gather all of your income and expenses in one place. Grab all of your bank statements from the previous few months. Be sure to include the income from anybody contributing to your household.

Take a look at your expenses and categorise them into those that:

• you have to spend money on, and
• those that you maybe just like to spend money on.

Necessary expenses include mortgage, rent, and energy bills. Whereas unnecessary expenses could be made up of things like entertainment and luxury items and services.

Now your income and expenses are mapped out, it’s time to build your budget. There are lots of budgeting rules to consider, you can read about some of them here. But we’ll focus on the 50-20-30 rule. 

Aim to use: 

• 50% of your income for the things you need (mortgage, rent, bills), 
• 20% for your financial goals (savings, retirement, for example –  more on that below), 
• 30% for the things you want.

Your necessary expenses should make up half of your income. If they are more than that, you should look at comparison sites to make sure you’re getting the best deals on your utilities. 

Once you have the essentials sorted, you can put the remaining 20% into your financial goals. This is where you can start to plan and build for your future. Whether you want to plan for your retirement, pay off outstanding debts, or build a nest egg for your family, a budget is the most important first step to set you on your way.

If your entertainment and luxury expenses exceed 30% then it might be time to trim your spending. Be honest with yourself about where you could make some sacrifices.

2. Personal finance in your 40s is about reducing your debts

As you aim to grow your wealth, it's crucial to deal with reducing any existing debts. While saving money in your 40s is important, if you want to build your wealth, getting your debts off your back will boost your saving power. Remember, it’s likely that the interest that you pay on your debts will far outweigh any interest that you earn on your savings.

There are different ways to approach debt payments. One is known as the ‘avalanche method’, which prioritises your highest-interest debt first (while continuing to pay the minimum payments on your other debts). Clearing your high-interest debt first slowly eases the pressure on your other debts and eventually allows you to clear them all.

The alternative is known as the ‘snowball method’. This is where you focus on the debt with the lowest balance first (again keeping up your minimum payments on all of your debts). This lets you clear the total amount that you owe quicker and slowly increases your debt-paying power. 

Whichever method works best for you, know that clearing debts isn’t a quick fix, but it is an important one. 

3. Saving money in your 40s is about building an emergency fund

Once you’ve cleared your debt, you can focus on saving. When you’re in your 40s, maybe even more so than when you’re younger, it’s important to prepare for unexpected financial challenges. 

That means creating an emergency fund if you don’t already have one. A pot of money that you can use to safeguard your financial stability in case life throws any curveballs at you. 

Whether it’s urgent car repairs or urgent dental costs, your emergency fund is there to ease the pressure. Think of it like a financial safety net. You should aim to save between three to six months' worth of your income or living expenses. But if that amount seems like too much, start by aiming for £500, then £1,000, and build it from there.

4. Retirement plans and finances in your 40s

While it may still seem like a distant issue when you’re in your 40s, planning for your retirement is crucial. When your emergency fund is in place, it’s time to start thinking about what your life will look like after you finish your working career, whether that’s at State Pension age or maybe even before. 

While you might still need to save money for short-term requirements, your pension plan is potentially a more tax-efficient way to save for your future, as the government can add money in tax breaks. So, if you have the money to put into your retirement plan now, it might give your future options a big boost!

‍Be sure to track down all of your pensions. You may have them held with different providers from where you have worked with different companies. Consolidating them into one plan can simplify your finances, though it's essential to compare the costs and  benefits of doing so to ensure you choose the best option for you. If you're unsure, consulting a financial advisor could help determine if consolidation is right for your situation.

5. Investing money in your 40s

OK, so if you’ve managed to secure your emergency fund, pay off your debts, and built a plan for your retirement, you now might be wondering how to grow your wealth in your 40s. Well, with a steady income and a clearer understanding of your long-term goals, now might be the ideal time to grow and diversify your investment portfolio. 

Consider seeking expert advice to make informed decisions and choose investment options that align with your appetite for risk and your financial goals. But investing now could pay off down the line, including adding to your retirement plans. Whether it’s stocks and shares, or wine and art, investing can have much higher returns than your savings.

But there is always a risk with investments. You should be willing and able to commit to at least ten years for significant growth, and you should be aware that there is a chance that you will ultimately have less than you started with. This is why it is a good idea to spread your investment across several options to lower the risk of losing it all.

6. How to make money in your 40s: Additional income streams

If you find that the 20% chunk of your budget is falling short of your objectives, it might be a good idea to consider an additional income stream. Maybe freelance work, consultancy, or teaching online courses. This is where you can turn your hobbies, interests or skills into extra cash. 

Adding income streams gives you extra security when it comes to your finances, as well as helping to boost your wealth growth. Whether it’s putting a spare room up for rent, peer-to-peer lending, or capitalising on one of your skills — remember that extra income streams can come with their own responsibilities and obligations.

7. Boost your credit score

By the time you’re in your 40s there’s a high chance that you’ve already had to check in with your credit score. Maybe when buying a house, applying for a credit card, or taking out a personal loan. You’ll likely know what your three credit scores are, but if you don’t, check them using one of these free services — and they won’t hurt your credit scores either:

ClearScore (uses Equifax data)*

Credit Club (uses Experian data)

Intuit Credit Karma (uses TransUnion data)

*For transparency, we wanted to let you know that ClearScore pay us a small commission if you sign up using this link.

Because your credit score gives you an idea of how creditworthy you appear to potential lenders, it makes sense that you’d want it to be as high as possible to secure those lines of credit to help you reach your financial goals. But you also want to have good credit to get the best possible deals on whichever financial products you use.

Getting a better interest rate on something like a mortgage, even just by a couple of percent, can save you £1,000s by the end of your contract term. That’s why having a great credit score is worth it. Not to mention that you can improve your financial options with different credit cards and loans.

For a super simple, fast, and effective way of improving your credit score, get started with Loqbox. For £2.50 per week, you can sign up today for our Full Loqbox membership and unlock all of our products with no fees, no hard credit checks, and no worries!

Improvements to your credit score are not guaranteed.

Finessing your finances is a journey, not a race

‍As you navigate the complexities of personal finance in your 40s, remember that building wealth is a gradual process that requires effort, patience, and resilience to stick to your plans. By implementing these strategies, you can establish a strong financial foundation that will support you through the decades ahead of you. You’ve got this!