By Jennie Phipps
WWR Article Summary (tl;dr) From having proper insurance to knowing how to properly handle and monitor your credit, there are a few pretty important financial strategies you should have a handle on.
If you’ve hit 40 and managed to avert a midlife crisis, congratulations. That sporty red convertible at the dealer showroom can wait if you want to be smart about money management.
Here are five money lessons that everyone should learn by age 40. Young adults who adopt these lessons early will not be sorry, and late learners still have time to catch up.
Know how to budget
The backbone of a sound financial plan is a budget. Budgeting helps you make the most of your money and reach your financial goals.
To create a budget, you first need to know how much money you’re bringing in. Some people choose to use their net income as their starting figure, while others like to use their gross income. Then, list all of your expenses so you know where your money is going. After that, track your spending for a month and see how it compares with your budgeted amounts. This will allow you to look for places where you can cut back on spending.
Once you have a budget in place, stick to it.
Understand the importance of an emergency fund
Do you already have a fully funded emergency fund? That’s great, because only 41 percent of Americans say they would cover an unexpected expense with their savings.
Your emergency fund should be able to cover four to seven months’ worth of expenses.
You should keep the money in an easily accessible place. No, not your mattress or a safe. Think about storing the money in a savings or money-market account. These types of accounts offer a return on your money, and you’ll have access to it if an emergency strikes.