If you're wondering how to build wealth in your 40s, don't worry! You're certainly not alone.
In fact, the average net worth of a 40 year old is around $80,000 according to FinancialSamurai.
If you're planning your retirement, trying to become debt free and pay off your mortgage, or perhaps trying to buy a new car – building wealth is key.
In this post, I'll explore how to build wealth in your 40s, personal finance tips to save money, and methods to grow your income. Let's get started!
Best Ways to Build Wealth in Your 40s
If you want to learn how to build wealth in your 40s, use some of these methods. Whether your goal is to save for retirement, fully fund your emergency fund, or pay off your mortgage, these options are a great place to start.
Grow Passive Income Streams Investing in Stocks
Passive income is essential if you want to build your retirement savings and better your financial situation.
The good news is that you likely already have a passive income stream through your investments.
For example, investing in retirement accounts or the stock market is one way to grow your passive income.
So, what exactly is passive income?
In short, it's a way to make money without having to work for it as you would with a normal job. In some instances you might have to work a considerable amount upfront before you start making money passively. You'll tend to need either a significant amount of time or money upfront if you want to make a fortune with passive income.
Some examples of passive income include:
- Investing in the stock market with dividend stocks
- Investing in real estate
- Publishing a book
- Starting a blog
- Growing a YouTube channel
If you haven't started investing yet – this is your chance. The longer your investments have to grow, the more you can take advantage of compound interest.
I recommend using an app like Acorns to start investing. The app allows you to invest in all of your favorite stocks, index funds, ETFs, and more with no commissions. Plus, you'll get $10 completely free!
Invest in Real Estate to Build Wealth in Your 40s
Real estate is another great way to grow your wealth and make money from your investments.
If you want to increase your net worth – using real estate is a superb way to do so.
There are many ways you can invest in real estate which can overwhelm new investors.
My favorite method is through crowdfunded real estate like Fundrise. With this platform you can easily invest in real estate without have the headache and stress of managing tenants and a property to keep up with.
The minimum investment is low and it's a smart move to grow your net worth. Sign up below to get started!
Another option is commercial real estate. Commercial real estate can sometime be more stable than investing in residential properties because of long contracts and steady demand.
To get started, you can use a platform like EquityMultiple. You can start with as little as $5,000 (which is much lower than some other forms of real estate investing) and they average returns of around 17.4%.
If you're looking for a higher return on your investments, purchasing your own rental property could be the best way to build wealth.
This will come with significantly more work and stress, but you can also make more from your cash. You'll likely need to get a mortgage for the property which will require a 20% down payment for most investment properties.
Related: Best Assets to Buy in Your 20s
Start a Small Business to Build Wealth
Starting a small business is a great way to boost your pay and make more money if you have the right business skills and motivation to reach your goals.
One of my favorite things about starting a business is that you can make as much money as you want.
There are many profitable business ideas to help you reach financial freedom if you don't want to work anymore.
For example, starting a candle making business can be a fun way to boost your income.
Be sure to consider the costs of starting a business, however. Many business owners fail to realize all of the costs that comes with building their company and struggle to become profitable.
In addition there are other benefits you might lose if you quit your job. Health insurance, retirement accounts, and other benefits should be considered before departing your position.
If you don't have the time or energy to start a business yourself, you can also consider investing in a business through Mainvest. This online platform allows you to easily invest in small businesses across the country with as little as $100.
They have target returns of anywhere from 10% to 25% making it a lucrative investment option for anyone.
Cut Living Expenses to Save Money
Building wealth will require you to spend less money than you make. While this might seem simple, it can be more challenging for some.
Cutting your expenses is a great way to save money each money so you can reach your financial goals.
Curbing your spending habits can take some work, but it will be well worth it to reach your savings goals.
So how can you begin saving? Take a look at some of these common expenses and see if there are any areas you can reduce spending.
- Rent or mortgage
- Car payments
- Entertainment expenses
- Gym memberships
If you're having trouble saving money – I recommend using Truebill to automatically reduce your bills by negotiating with cell phone, utility, and medical companies. Register below to get started!
Switch Jobs to Make More Money
Switching jobs is a great way to make more money and build wealth in your 40s.
With the additional income you can boost your savings rate, increase retirement contributions, reduce debt, and more.
Switching jobs is not always easy. You'll need to spend some time searching for jobs, preparing your resume, and interviewing with companies.
Be sure to consider the benefits as well as the salary before committing to a new position. For example, retirement benefits, health insurance, and other benefits can all come into play.
Pick Up a Side Hustle to Build Wealth
Side hustles are another great way to boost your income and reach financial independence.
There are thousands of potential side hustles for almost anyone to make more money – it's all about finding the right one for you.
Some of my favorite side hustles include:
- Delivering food with Doordash
- Pet sitting with Rover
- Taking paid focus groups with SurveyJunkie
- Getting paid to take surveys with Swagbucks
- Delivering groceries with Instacart
The amount of money you can make from your side hustle is practically limitless.
It's possible to earn over $20 per hour with many side gigs which can be a great way to pay down your mortgage or save for retirement.
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Pay Down Debt
Debt can crush your ability to reach retirement and enjoy the later years of your life. Between student loans, your mortgage, personal loans, credit card debt, and any car payments – it's extremely easy to get out of control with debt.
It's important to have a plan to become debt free so you don't have to deal with the stress and anxiety that comes with it.
If you want tor each retirement debt free try a few of these ideas:
- Don't dig a hole. Just because you're currently in debt, doesn't mean you won't be able to get out of it. Instead, learn from your mistakes and try not to make them again.
- Consider consolidating debt at a lower interest rate. If you have numerous other debts with high interest rates, try consolidating them into one debt with a lower overall interest rate.
- Pay off the debt with the highest interest rate first.
- Reduce credit card debt by taking advantage of a balance transfer offer.
Debt reduction is a major part of building wealth in your 40s and reaching your financial goals.
Take Advantage of Retirement Accounts
Retirement accounts are a great way to boost your savings and prepare for retirement.
These accounts offer many tax advantages. For example, a 401k plan from your employer offers you the ability to invest pre tax income into the stock market and it grows tax free until you reach retirement age.
But that's not the only advantage. Many companies will offer an employer match to your retirement contributions. After all, what's better than tax free, free money??
Be sure to check your retirement plan as these benefits are often capped at a certain percentage of your income.
Another type of retirement account – an IRA can help you to build wealth using pre tax income. An IRA (like a Roth IRA) is the second best type of retirement plan.
Because of the tax advantages these accounts offer, the IRS limits the amount of money you can contribute to these accounts.
The maximum contribution for a 401k account is $20,500 while the max for a Roth IRA is $6,000.
Utilize Alternative Investments
While most people know about the stock market and real estate investments to build wealth in your 40s, many people often overlook alternative investments because they deem them to be speculative.
But that's not always the case. There are several alternative investments I would recommend allocating a small portion of your investment strategy towards.
Both cryptocurrency investing and investing in art are a great way to grow your money.
For cryptocurrency, I recommend using Coinbase to grow your wealth. Register below to get started!
Investing in art is another alternative investment to grow your wealth in your 40s. I recommend using MasterWorks to invest in a variety of art pieces.
Don't Skip Out on Free Money
There are many free money hacks you can use to score some free cash. This free money can be used for debt reduction, retirement savings, or to build an emergency fund.
For example, opening a new bank account can be an easy way to make $300 fast without much work required.
You can also try opening a new credit card to make $100 fast.
Finally, I recommend registering with the Neilsen Panel to score a free $50.
Make Use of High Interest Savings Accounts
High interest savings accounts are a great way to build wealth in your 40s.
When compared to a traditional savings account at your local bank – a high interest savings account will often pay 10 times the amount of interest.
My favorite account is through CIT Bank. It's completely free to join and allows you to reach your savings goals faster. Register below to get started!
Invest in Peer to Peer Lending
Another investment option to build wealth in your 40s is peer to peer lending.
Peer to peer lending is a form of investment where individuals can loan money to other individuals or businesses without going through a financial institution.
With this investment, you can choose the amount of risk you're willing to take on, as well as the return you're hoping to earn.
The more risk you take on, the more money you can potentially make.
You can also decide how much money you want to invest, which makes it a great option for those with a limited budget.
There are plenty of peer to peer lending sites you can choose depending on your goals.
Personal Finance Tips for Your 40s
Below are some great tips to help you save money each month to build wealth.
Automate Saving Money
Reaching your savings plan won't happen overnight. If you're having trouble saving – automating your finances might be a good idea.
There are many ways you can have your savings automated so you don't have to think twice about it.
Just like saving money, investing can also be difficult to manage. Automating your investments so you don't have to think about them is a great way to build your retirement savings.
By having an investment account that automatically invests for you, it's easy to grow your portfolio and make your money work for you.
I recommend using robo advisor investment accounts like Acorns or M1 Finance to automate your investing and manage your asset allocation for you.
Create a Budget
Managing your money can be a balancing act between your income and expenses. This is why having a budget can improve your financial footing and help you to take control of your money.
Budgeting can help you to cut expenses, begin saving, and grow your nest egg for the future.
Take a look at your monthly expenses to get an idea on where you are currently spending your money and try to cut back on any places you might be overspending.
Build Your Emergency Fund
Do you have an emergency fund to cover unexpected expenses?
If not, it's time to start saving.
An emergency fund is critical if you want to reach retirement to save money. You can use the cash if you have an unexpected emergency like a hospital visit, car repair, or other costs.
Think About Insurance
Having a life insurance policy is one piece of financial planning that is recommended by almost any financial advisor.
Life insurance can help to cover your family in the case of a sudden death. While nobody wants to think about this situation, it's a critical step in your financial planning.
Think About Family
Do you have children that are about to enter college? Are you going to have to care for your aging parents on day? Do you plan on having additional children?
All of these factors should be considered when planning your finances.
Saving for these circumstances will put you on the right track so you don't have a financial panic when the times come.
Final Thoughts on How to Build Wealth in Your 40s
Learning how to build wealth in your 40s is a great way to take control of your finances for retirement.
While you're not quite at the youngest stage of your life – there's still plenty of time to turn the car around and reach the retirement savings you need to enjoy your later years.
Between growing your passive income streams by investing, picking up a side hustle, or drastically cutting your expenses, you're sure to start building wealth in no time.
Always be sure to consult a financial advisor and tax professional before making financial decisions.