Your 40s could be one of the best decades of your life. You may have found your career or family or found yourself more comfortable with yourself. But you're also about halfway to retirement. Whether you've been saving since you were in your early 20s or are just starting to think about retirement: it's not too late.
Building wealth in your 40s is a challenging yet achievable goal. With the right strategies and prioritizing your future self, you can create a solid foundation for a secure financial future.
Below you'll find nine powerful ways to build wealth in your 40s, which will help you overcome the hurdles and capitalize on the opportunities that come with this pivotal decade. Read on to learn how to build wealth in your 40s, starting this year.
How Much Wealth Should a 40-Year-Old Have?
There's no one-size-fits-all answer to this question, as wealth accumulation depends on various factors, including income, expenses, and investment strategies. According to 2022 data from the Federal Reserve — the most recent available — the median net worth for Americans between the ages of 40 and 49 is $134,730 to $212,800. The average net worth is higher, between $590,718 and $781,923. This includes assets such as savings, investments, and home equity.
If you're in your 40s and haven't reached those numbers, it's not too late. It's never too late to start building wealth. Although starting earlier can make it easier, with an aggressive savings plan, you can start building wealth in your 40s.
The numbers above are just an average, and your specific financial goals and circumstances will determine the appropriate wealth target for your 40s. Regardless of your current net worth, the key is to take proactive steps toward building wealth during this crucial decade.
9 Ways to Build Wealth in Your 40s
Wealth building in your 40s starts with getting the basics automated, then can branch out to more creative opportunities.
1. Maximize Retirement Contributions
One of the most effective ways to build wealth in your 40s is to prioritize retirement contributions. Take advantage of tax-advantaged accounts like 401(k)s and IRAs, and aim to contribute the maximum allowed amount each year. Compounding interest can work wonders over time, and the earlier you start, the more significant the impact will be on your long-term wealth.
For the 2024 financial year, you can contribute up to $23,000 to a 401(k) or up to $7,000 to an IRA (Individual Retirement Account) or Roth IRA. If you're over 50, you can add $1,000 in makeup contributions for the IRAs. You can also consider contributing to a health savings account (HSA) if you qualify.
For 2024, the limits are $3,850 for self-only coverage and $7,750 for family coverage. These tax-advantaged accounts allow your investments to grow tax-free, and depending on the type of account, either offer upfront tax savings or tax-free withdrawals. You can find some of the best retirement planning apps or best Roth IRA accounts.
2. Pay Off High-Interest Debt
Carrying high-interest debt, such as credit card balances or personal loans, can significantly hinder your ability to build wealth. Make it a priority to pay off these debts as quickly as possible. By eliminating high-interest payments, you'll free up more money to invest and grow your wealth.
3. Invest in Income-Generating Assets
Diversify your portfolio by investing in assets that generate passive income, such as rental properties, dividend-paying stocks, or interest-bearing bonds. These investments can provide a steady stream of income, which can be reinvested or used to supplement your current income. Likewise, income-generating assets can help to diversify your investment portfolio.
Your 40s is an excellent time to invest in income-generating properties. Even if you have to take on a second mortgage to buy the property, you could have time to pay it off before retirement, setting yourself up for a new income stream later on.
4. Start a Side Hustle
Consider starting a side business or freelancing to supplement your primary income. Not only can this provide an additional revenue stream, but it can also open up new opportunities for growth and wealth creation. Explore your passions and skills to find a side hustle that aligns with your interests. You could start a blog, or a YouTube channel, or sell something you make on Etsy.
With side hustles in your 40s, it's important to be clear on whether you want to pursue an activity as a hobby (for fun) or to earn revenue. Not all hobbies need to be side hustles — relaxing and pursuing your passions is important too — but investing in one that could offer new income streams over time can be a smart move.
5. Reduce Unnecessary Expenses
Many Americans earning a comfortable income are still living paycheck to paycheck. If that's been you until now, it's time to take a close look at your monthly expenses and identify areas where you can cut back. Eliminating unnecessary costs, such as subscription services you rarely use or dining out frequently can free up funds that can be redirected toward savings and investments.
You can find tips to save money fast, the best budgeting apps, or budgeting tips for young adults (that still work in your 40s)!
6. Invest in Your Career
Your 40s are often a prime time for career advancement and earning potential. Consider investing in professional development, earning additional certifications, and degrees, or taking on leadership roles that can increase your earning power and open up new opportunities for wealth creation.
In some cases, your company may be willing to pay for some or all of this continuing education. You can check with your HR department about opportunities to earn new certifications or degrees.
7. Build an Emergency Fund
Having a solid emergency fund can protect you from unexpected expenses and prevent you from dipping into your investments or going into debt. Aim to save at least six months' worth of living expenses in a liquid, easily accessible account.
8. Consider New Income Streams
In addition to real estate investing or side hustles, consider other opportunities to build multiple income streams. Remember, the more income you have, the easier it will be to save substantially each month. Multiple income streams can offer greater stability long-term as you're not reliant on a single source of income. You can learn how to build multiple income streams or get passive income ideas.
9. Seek Professional Financial Advice
As you navigate the complexities of building wealth in your 40s, consider seeking guidance from a qualified financial adviser. A professional can help you develop a comprehensive plan, optimize your investment strategies, and ensure you're making the most of your financial resources. Be sure to choose a fiduciary financial adviser. Consider also whether you need a financial adviser or a financial planner.
You can learn what questions to ask a financial adviser, and then find the best financial advisers, or robo-advisors.
Unlock Your Financial Potential: Building Wealth in Your 40s
Building wealth in your 40s requires a combination of discipline, strategic planning, and a willingness to explore new opportunities. By implementing these nine strategies, you can overcome the challenges and leverage the unique advantages of this decade of your life. Remember, it's never too late to start building wealth, and the actions you take today can pave the way for a secure and prosperous future.
Using a combination of tax-advantaged retirement accounts, brokerage accounts, and a diversified investment strategy, you can start saving more, watch your wealth grow, and start hitting new financial freedom milestones.
About Alison Plaut
Alison Plaut is a personal finance writer with a sustainable MBA, passionate about helping people learn more about financial basics for wealth building and financial freedom. She has more than 17 years of writing experience, focused on real estate and mortgage, business, personal finance, and investing. Her work has been published in The Motley Fool, MoneyLion, and she is a regular contributor for Benzinga.