We will not all come out of college, land our dream job, and buy a house shortly after. Finances look different for everyone, but there are still some financial milestones worth achieving before turning 40.
It is never too late to start taking action towards a solid financial future. Small steps can lead to significant changes. If you start as soon as you can, it will ensure that by the time you turn 40, you are on the right track and have fewer financially based issues to stress about and you will reach your financial milestones.
Have a Solid Budget
Having a budget established to keep track of your monthly expenses is crucial. By the time you are 40, you should not only have a solid budget, but you should be in the habit of following that budget.
Your budget needs to include your home expenses such as rent or mortgage, utilities, insurance, car payments, gas, and insurance. You should also include your monthly bills, such as your phone bill, internet, and cable, as well as any monthly payments you make towards your debt.
A budget should also include what you spend on groceries, medical expenses, toiletries, entertainment, and incidentals such as clothing. Having your budget as planned out as possible will help you guide your spending in a more responsible direction.
It is also good to track what you should be spending in each category versus what you spend. This will help you recognize any excess spending you might need to rein in, especially if you find yourself without money at the end of the month.
Have an Emergency Fund
Having a healthy emergency fund is crucial. Things happen, and an emergency fund that you only touch when there is a genuine emergency will help you get through unexpected financial burdens. By the time you are 40, you should have an emergency fund established at the bare minimum.
It is generally recommended that your emergency fund has between three to six months of monthly expenses saved. This includes everything from your typical bills, mortgage or rent, grocery budget, gas money, and anything you might typically buy every month.
All that being said, you might not have the flexibility in your budget to build up this much of an emergency fund by the time you reach 40. This should not discourage you from starting one right away. Apart from your retirement, an emergency fund should be one of your top priorities for saving.
Have a Retirement Savings Plan
By the time you reach 40, you should have a retirement savings plan established. You should have already started contributing to this. Even if your workplace offers you a pension, it is still a good idea to save on top of that.
A financial advisor would typically recommend that by age 40, you have three times your salary saved in your retirement savings account. If you are not anywhere near that, it is okay. Any savings is better than no savings at all. At 40, you still have time to continue contributing towards your retirement.
Additionally, if you have a retirement saving account that your employer also contributes to, your priority should be to ensure you contribute as much as you are allowed to be matched each year. You do not want to miss out on any amount of money your employer will put towards your retirement.
It is worth chatting with a financial advisor if you don’t already have your retirement savings account open. This will allow you to learn about your options based on your location. Furthermore, it is worth exploring these options, as some ways you can save will help you grow your money, while others will have just had your money sitting there until you withdraw it.
Gain Control of Your Credit Score
By the time you are 40, your credit score is an essential aspect of your financial health that should be under control. If you have made some financial mistakes in the past or have had some financial troubles you couldn’t prevent, now is the time to work on a plan to improve your credit score.
Your credit score is impacted mainly by missed or late payments towards debts you might owe. Some believe you do not have to have your debt eliminated to improve your credit score. You want to ensure you are making your monthly payments on time.
It is also good to get your balance under the maximum allowable credit if you have credit cards. This will help make your monthly payments much more manageable. Anything above 600 is a good credit score.
Secure Your Family’s Financial Future
Everyone’s family looks different, but you will have some inkling of what your family will look like by the time you reach 40. This might include a partner, parents, and some children.
- As soon as your family begins to grow, it is essential to start thinking about securing a financial future for them in a couple of ways.
- If you have children, you should start a savings fund for them when they are young. This could be for college or for purchasing their first home.
Even if you save a very minimal amount each month for each child you have, there will be a nice little safety net for them already established by the time they become an adult.
Additionally, it would help if you also tried to have a life insurance policy that you are paying into by the time you are 40. This will ensure that your family will be taken care of in some financial capacity should anything happen to you.
Numerous types of life insurance policies exist, so you might have to shop around for what you think best suits your particular family unit and what options you have for where you live.
Considering all these financial milestones might be overwhelming, especially if you are already getting close to 40. However, these are guidelines for how to start securing a healthy financial future for yourself and your loved ones by this age. It is never too late to start planning for these financial milestones, even if you are already around 40 years old.
Keeping all your financial paperwork organized and consulting a financial advisor, when necessary, will help you achieve these goals in a realistic way that works for you. While you might not have all these goals completed by the time you turn 40, beginning to work on these five financial milestones will ensure you are closer to a solid financial future.
Featured Financial freedom by Nick Youngson CC BY-SA 3.0 Pix4free