Although everyone has different timelines for financial freedom, some key milestones should be at the top of your mind when you’re about to reach or are already in your 40s.
Having specific goals to achieve by this age will ensure that you can survive unexpected financial hiccups, enjoy a comfortable retirement, and provide financial security for you and your family.
This article covers the seven financial milestones you should aim to hit by age 40.
Why You Should Have Your Finances On Track By 40
You should have your finances on track by age 40 because, at this point, you’ve likely had enough experience in the workforce to earn a decent income. This age also signifies a stage in your life when retirement isn’t too far off.
Financial decisions in your 40s often significantly impact your retirement planning and your family’s economic well-being.
Financial Milestones You Should Hit By 40
1. Have A Good Credit Score
Having a good credit score is always essential. Still, as you approach 40, this becomes even more crucial since your financial obligations and needs increase, such as needing a mortgage.
Accessing financial resources is much easier with a healthy credit score. If your credit score is affected by issues such as outstanding credit card balances or late payments, address those and work towards maintaining or reaching a higher score.
2. Pay Off High-Interest Debt
The longer you carry high-interest debt, the more money you’ll lose to paying interest rates.
While this is never a good situation, it is especially detrimental at an age when one should focus on building long-term wealth.
So, as soon as possible, pay off your high-interest debt.
The debt avalanche method is a valuable debt repayment strategy because it prioritizes paying off debts with the highest interest rates before addressing those with lower interest rates.
3. Have An Emergency Fund
By the age of 40, you should ideally have robust emergency funds that are enough to cover at least three to six months of your living expenses.
This way, even if you encounter unexpected setbacks, such as falling ill, losing your job, or facing major household repairs, you’ll still have financial reserves to keep you out of debt.
4. Have A Retirement Savings Account
Assuming you’ve already started contributing to your 401(k), IRA, and other retirement accounts, you should aim to maximize your contributions in your 40s.
Even if your disposable income is minimal, just start saving, no matter how small, and pledge to increase your monthly or yearly contributions. You may be surprised at how much more you can save for retirement if you minimize unnecessary expenses.
5. Have Savings Funds For Your Children’s Education
If you have children whose education you want to support financially, you should start a savings fund.
The most common approach to this milestone is to open a 529 plan, a tax-advantaged investment account designed to save for a beneficiary’s education expenses.
Whether you want to shoulder your children’s education expenses completely or partially is up to you. Either way, it’s best to start saving for your children’s educational funds as soon as possible.
6. Have A Will
Creating a will may not be a priority when you’re young, but it should become necessary as you enter your 40s.
Writing a will ensures that your estate is distributed according to your wishes and that your dependents will be cared for in the unfortunate event of your death.
7. Create Multiple Income Streams
When you’re approaching your 40s, your career should already be in a relatively good spot. However, it’s still a good time to diversify your income streams if you haven’t already done so.
After all, if you earn more, implementing most of the milestones above will be easier to accomplish, giving you better financial stability and peace of mind.