6 Personal Finance Rules to Live By in Your 40s

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Your 40s can be a stressful time. Your children might be moving on to college, changing the dynamics of your household. Your own parents are aging and might need to move into a nursing home or assisted living facility. And you might be feeling extra pressure at work to move up to higher-paying positions as a way to maximize your earning potential.

But your 40s can also be a time to secure your financial health and pave the way toward a brighter retirement. You can increase your odds of achieving this goal by following the personal finance rules below.

1. Focus on building your retirement savings

The main goal in your 40s should be to boost your retirement savings as much as possible. Retirement might still seem a long way away, but it's closer than you think.

If you are saving money in your company's 401(k) plan, be sure to maximize your regular contributions and take advantage of any company match. Do the same with any investments you make in a traditional IRA or Roth IRA. The more you save today, the brighter your retirement years will be. (See also: 7 Retirement Planning Steps Late Starters Must Make)

2. Don't let college costs derail your retirement savings

You want to help your kids pay for their college educations. That's understandable, but don't let your desire to help your children derail your retirement savings.

If you spend too much money helping your kids pay for college, you'll struggle to build your retirement savings. In your 40s, saving for retirement should be your top priority, outweighing even your goals of chipping in to pay for your children's college education.

Remember, your children have options for paying for college. They can borrow money. They can choose less expensive schools. They can seek out scholarships or attend a community college for two years. You don't have nearly as many options when it comes to your retirement savings. (See also: How to Keep Student Loans From Wrecking Your Retirement)

3. Reduce your debts

Nothing ruins your plans to save money quicker than debt. And no other is as costly as credit card debt. Do everything you can in your 40s to eliminate it.

Some debt is better than others. Auto loans and mortgages, for instance, generally come with lower interest rates. And you are receiving a benefit — a house to live in, a car to drive — while making those monthly payments. But credit card debt is another story. This debt comes with sky-high interest rates that can snowball by hundreds of dollars every month. That's why it's so important to pay it off as quickly as possible. (See also: The Fastest Method to Eliminate Credit Card Debt)

Remember that your primary goal in your 40s is to build your retirement savings. Think of how many additional dollars you could save if you weren't sending so much money each month to your credit card providers.

4. Grow your emergency fund

Another thing that can quickly derail your efforts to save for retirement is an unexpected emergency. Say your roof springs a leak or your furnace conks out in the middle of January. You must fix these problems, and that won't be cheap.

That's where an emergency fund comes in. As the name suggests, this type of fund is filled with dollars that you only tap when an unexpected financial emergency pops up. By having a well-stocked emergency fund, you won't have to resort to credit cards to pay for unexpected home or auto repairs, or even a surprise medical bill.

Financial experts recommend that you have enough in your emergency fund to cover at least six months' to a year's worth of daily living expenses. That might seem daunting, but even starting an emergency fund with small payments every month can build up. Say you deposit $200 every month in an emergency fund. After a year, it will grow to $2,400. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

5. Avoid the co-signing temptation

When you're in your 40s, your children might be ready to apply for auto loans or credit cards of their own. It can be challenging for young adults with limited credit histories to earn approval for these loans. It's not unusual for them to ask their parents to co-sign on an application.

While it might be tempting to want to help your kid, be careful: If your son or daughter makes their payments late, your credit score will take a fall, too. That's because when you co-sign, you become equally responsible for a debt. If your children default on a loan, you're on the hook for making those missed payments — putting you in a dangerous financial predicament that could completely derail your retirement savings.

Don't co-sign unless you're positive your children won't miss any payments. Even then, it's probably not in your best interest to be a co-signer. (See also: Should You Co-sign Your Teenager's Credit Card Application?)

6. Make sure you have enough life insurance

What would happen to your children or spouse if you suddenly died? Would your spouse be able to pay the monthly mortgage? Would your family have to move to a new, less expensive home?

Life insurance can prevent financial stress for your family if you should die unexpectedly. Make sure that you have enough life insurance coverage to protect your loved ones. Your 40s is a good time to review your life insurance coverage and make changes if necessary. (See also: Why Your Group Life Insurance Is Not Enough)

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