There are a handful of money concepts you should master before you turn 40.They include knowing how to budget, planning for retirement, and building an emergency fund.Adopt these best practices even earlier and you'll be in good financial shape.If you've hit 40 and managed to avert a midlife crisiscongratulations. 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 know by age 40. Young adults who adopt these lessons early will not be sorry, and late learners still have time to catch up.1. Know how to budgetThe 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 theirgross 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.2. Understand the importance of an emergency fundDo you already have a fully funded emergency fund' That's great, becauseonly 41 percent of Americanssay 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 funds in an easily accessible place. No, not your mattress or a safe. Think about storing the money in a savings account 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.Compare rates onsavings accountsandmoney market accountsto find the right place to stash your emergency fund.3. Working forever isn't a retirement planWhen you hit your 40s, you should understand that saving for retirement is a critical part of your financial strategy. If you're behind on retirement savings at this point, consider ratcheting up how much money you'recontributing to your retirement accounts.The maximum contribution amount for 401(k)s is $18,000 in 2017 and $18,500 in 2018. Outside of your workplace plan, you can contribute an additional $5,500 to an IRA.Unsure if you're on track with your retirement savings' Check out Bankrate'sretirement calculatorto see what itwill take to reach a secure retirement.4. Credit is a toolAt this stage, you're likely dealing with a mortgage, car loans and children entering college. "A healthy credit score is vitally important to you,"says Bruce McClary, vice president of communications at the National Foundation for Credit Counseling.If you examine your credit score and don't like what you see, chances are you haven't paid your bills on time. "Paying on time counts for about one-third of your score,"McClary says.Committing to paying everything on time is the obvious solution to this problem.It also pays to check your credit report carefully for credit killers, such as identity theft or inaccurate reports. Check your credit report for free atmyBankrate.Finally, at your age, work to pay off debt and keep balances low, he says. "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,"McClary says.5. You need insuranceFrom your health to your home, it's important to have insurance to cover devastating financial losses."Many people tend to purchase coverage with low deductibles, which can be costly,"says Robert Hoyt, who heads the risk management and insurance program at the University of Georgia. "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 losea home, a car and future incomeis better off picking a plan with high deductibles, he says, 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, which can be cost-effective and provide protection if you are faced with tens of thousands (of dollars) in losses,"Hoyt says.SEE ALSO:8 things you can do today to be richer next yearDON'T MISS:7 things people think are terrible for their finances that actually aren'tJoin the conversation about this storyNOW WATCH: Here's what losing weight does to your body and brain
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