From family expenses to planning for retirement, your 40s can be a time when you need your income to stretch in multiple directions. Luckily, for many people it's also when your salary peaks.
But the amount of formal financial assets people have at this age can vary significantly. Roughly 1 in 5 people aged 45-54 have less than £99 in savings, while the top fifth have more than £25,000 1.
Here are some ideas to help your money work harder.
How much should you have in savings in your 40s?
As with any age group, it's a good idea to have enough savings to cover 3 to 6 months of expenses if you can to cover any unexpected expenses.
Should you be saving or investing?
For any expenses you can foresee coming up in the near future – perhaps home improvements, university fees, or a family car – cash savings are usually the better option.
Keeping all your assets in cash can be risky though, as inflation can be more than the interest you're earning in the long term, which will reduce the total.
For any longer-term financial goals, you could be better off investing in stocks and shares – though this also carries a risk.
Should you be investing in your 40s?
While there are no guarantees (and your money can go down as well as up), historically, money invested in the stock market has grown by more over 5 to 10 years than money in savings accounts.
For first-time investors, a stocks & shares ISA is a tax-efficient starting point. Or if you're already using your full annual ISA allowance, it might be a good time to consider an investment account.
At any age, spreading your money over different types of accounts and investments will help you to avoid unnecessary risk. If you’ve been investing in higher-risk funds in your 20s or 30s, you might be starting to think about a more balanced spread.
If you’re not sure about the best way to invest your money, it can help to speak to a financial adviser for a personalised recommendation.
Making the most of your pension
If, like many people, you're hitting your salary peak, your pension should be one of your top priorities.
You may be reluctant to lock away your wages for so long. But remember, it's likely you'll have the option to withdraw a lump sum from your pension at 55 under current rules.
Plus, the tax relief benefits are significant. If you're a higher-rate taxpayer, a £100 pension contribution costs you just £60 – a far better return than most investments.
Is it too late to start a pension in your 40s?
If you haven’t yet started a pension, you’re not alone. Nearly 50% of people aged 35-44 have less than £9,999 in personal pension wealth 2.
But don’t worry, it’s absolutely not too late. You’re likely to be working for another 20 years or more, so contributing every month during that time will make you significantly better off in retirement.