It is never too late to build wealth. According to the Bureau of Labor Statistics, workers earn the most, on average, when they are between the ages of 35 and 54. While it's true that compound interest favors the earliest investors, there are still clever techniques to maximize your wealth-building potential in your 40s and beyond.
If you’re in your 40s and ready to boost your wealth, you’re in the right place.
1: Start Maxing Out Your 401(K) And Roth IRA
Like most people, you probably have access to an employee-sponsored 401(k) and Roth IRA. And while you might be contributing a little, chances are you’re not maxing out eligible contributions to these investments account.
With retirement about 20 years away, now is the time to flood these investment accounts with as much money as possible to help pad your retirement lifestyle with more cash.
Consider maxing out your contributions to these plans.
For 2022, the IRS has limited the amount of money you can contribute to your 401(k) to $20,500. For 2023, the IRS has increased that amount to $22,500. Remember that you can withdraw money from your 401(k) at 59 and ½ without penalty.
For 2022, the IRS has capped total IRA contributions at $6,000 (or $7,000 if you’re over 50). For 2023, the Internal Revenue Service has increased that amount to $6,500 (or $7,500 if you’re over 50).
2: Spin up a Side Hustle Business
You’ve built skills throughout your career. Now might be the time to start taking those skills to the marketplace.
Take what you’ve learned throughout your career and start your own side business. Note this business doesn’t need to be in the same industry as your full-time job. In fact, it might be safer if it isn’t – more on this in a moment.
Your side business should revolve around two primary factors:
- What you enjoy, and
- What will make money
You have nothing to lose by trying. If it doesn’t work, that’s fine. Take the learning opportunity and move on. But if it does work, you’ve just drastically increased your net worth.
Before starting your own business, especially inside the same industry as your full-time job, it’s wise to ensure you aren’t breaking any “non-compete” rules at your employer. You wouldn’t want your business to get you into trouble, drastically affecting your wealth-building potential.
3: Open a Taxable Brokerage Account
After maxing out your 401(k) and Roth IRA, a taxable brokerage account is a great way to invest even more. These accounts don’t contain any IRS limitations. You can contribute and withdraw as much as you want, though you will pay capital gains taxes on the growth.
Vanguard is one of the top brokerage companies. Fees are low, and there are various investment options to choose from. To keep your investments simple, choose index funds and ETFs instead of picking and choosing individual stocks.
REITs, or Real Estate Investment Trusts, are another excellent option to keep your brokerage investments simple. REITs allow investors to invest in commercial real estate projects without buying cost-prohibitive commercial properties.
The more you invest – yes, even in bear markets – the higher your chances of building massive wealth before retirement.
4: Switch Companies
One of the best ways to make more money at your 9 to 5 job is by switching to another company. Negotiating a bigger salary is a part of the hiring process.
Throughout my career, I switched jobs every three to four years. It was a wealth-building hack. I would get a 15 to 20% raise each time I took a new position. This was far above the cost-of-living raises I would get by staying at the same company.
Want to make more money at work? Switch jobs and negotiate a substantially bigger salary.
5: Pay Off Your Home
Paying off your home and eliminating your mortgage payment has several benefits. First, you own 100% of the equity in your home. This boosts your net worth tremendously. It also means you’re no longer on the hook for those monthly mortgage payments, saving you interest.
Secondly, no mortgage payment means additional cash flow.
You can use this cash flow for various things, like funding your side hustle or paying off other high-interest debts. It also means you’re in a better financial position to withstand an unexpected job loss because you no longer have that monthly payment.
6: Eliminate All of Your Bad Debts
Your debts will destroy your financial security. And this is especially true of consumer debts like credit cards, auto loans, and payday loans. The average credit card interest rate is over 20%, which means you’re paying 20% more for everything you buy when you run a balance.
If you’re in your 40s and have credit card debt, one of the best ways to build wealth and create a prosperous retirement is by eliminating that debt as soon as possible. Devote every spare penny to paying down your credit cards. Make it a priority.
This article was produced and syndicated by Wealth of Geeks.