Personal Finance Lessons to Master by 40

Figure out your net worth (opens in a new tab) and, after you get over the shock, have a recovery plan. You don’t have to be wealthy, but you do have to have enough that you aren’t a slave to the shortfall.

After getting on a budget, a lot of people feel like they’ve gotten a raise even though their income hasn’t changed.

Some no-brainer personal finance lessons that most people can follow: Do a written budget every month before the month begins. Give every dollar of income a name so you know where it is going. Include a line for how much you want to save each month. Then, stick to the plan.

No relationship is perfect

Working it out is usually cheaper than calling it quits. Even after the relationship is long over, getting along with your ex is cheaper than fighting over the kids or whether or not both spouses are paying their share.

Divorce isn’t good for your pocketbook. It is a long, messy and expensive process. Research has found that, on average, divorce drops a person’s wealth overall by 77%. Wealth starts declining well before the final decree, and after divorce, people don’t suddenly start with a clean slate.

In other words, it’s cheaper to keep her (or him).

You can’t buy security

Insurance can help, but it wasn’t meant to pay routine costs. Its purpose is to cover devastating financial losses.

Many people tend to purchase coverage with low deductibles, which can be costly. Because states have low liability limits, people think they should start there. But for most individuals, those limits are woefully inadequate, so they end up paying a lot for insurance that doesn’t cover enough.

Someone with lots to lose – a home, a car and future income – is better off picking a plan with high deductibles and planning only to claim when there is a devastating loss that the insured can’t pay for otherwise. In other words, you collect when the house burns down or the car is totaled or the accident causes major injury.

Assess what you can afford with high limits of loss and then add a personal umbrella policy (opens in a new tab), which can be cost-effective and provide protection if you are faced with tens of thousands of dollars in losses.

Becoming an expert at using credit will improve your life

At this stage, you’re likely dealing with a mortgage, car loans and children entering college. A healthy credit score is vitally important to you.

If you examine your credit score and you don’t like what you see, chances are you haven’t paid your bills on time. Paying on time counts for about 35% of your score.

Committing to paying everything on time is the obvious solution to this problem.

It also pays to check your credit reports carefully for credit killers, such as identity theft or inaccurate reports. There are a lot of those problems out there. You can check your reports at all three bureaus for free every week at annualcreditreport.com (opens in a new tab).

Finally, at your age, you ought to be working to pay off debt and keep balances low. Focus on power-paying those balances and getting rid of them as fast as possible.

This will give you more credit flexibility if you really need to borrow because you have a health emergency, want to start a business or need to replace the roof. A solid-gold credit score will make borrowing for any of these easier.

Keeping up with the Joneses is a no-win

As the saying goes: Too many people spend money they haven’t earned to buy things they don’t want to impress people that they don’t like.

Envy was once considered one of the “7 deadly sins” and a route to hell. Yesterday, envy was a sin; today, it is one of the fundamentals of our consumer-driven society.

People think the sky is the limit. When they get what they want, they want the next step up. People have never-ending desires, and they are never satisfied.

Is that bad? It keeps our economy moving, but it doesn’t make people any happier.

You can count on uncertainty

Trust us: Jobs don’t last forever, and neither does excellent health.

The best hedge against poor health, job loss or other unforeseen setbacks is a financial plan that will help you navigate the shoals until you get back on your feet.

If you don’t have a plan, you keep doing more of the same, and you never have anything to show for it. To get around this conundrum, you have to have an awareness of where you are now, an understanding of what it will take to get there and the determination to work your plan.

Everybody needs an ace in the hole

You need a financial plan B that doesn’t count on another person – not even the love of your life. It’s not disloyal to figure out an answer to the question, “How will I support myself if X happens?” whether X is divorce, death, disability or something else.

If you don’t have a will, you’re tempting fate. Having a will, savings and insurance matters. Anybody who is dependent on somebody else to make ends meet – or even if you just depend on yourself – needs a plan for what to do when that goes away.

Working forever isn’t a retirement plan

Many people say they love what they do and plan to work forever. Ask yourself what you are going to do if your mind or your body won’t allow you to keep working.

Having a retirement savings plan is key. The earlier you start, the longer your money works for you and the greater your chance of amassing a nice nest egg. It’s a snowball effect. You start small and it builds.

It is never too early or too late to start saving.