Money Milestones to Reach by 40
By the age of 40, a person may have kids, a home and bills to pay. However, this doesn't absolve an individual of his or her responsibility to save for retirement and other future goals. Let's look at some financial milestones that a person will ideally have reached by this age and some future goals that an individual should strive for.
Aim to Pay Off High Interest Debts
As the economy continues to grow stronger, it is likely that interest rates are going to continue going higher. This means paying more for the right to borrow money. If you have credit card debt, it could mean paying hundreds or thousands of dollars in interest charges and fees. In 2017, Americans paid over $100 billion in such charges to their credit card companies. By getting rid of these debts, there is more money to save for retirement or other long-term financial goals that you may have.
Strive to Have $10,000 In the Bank
Ideally, an individual will have an amount equal to his or her annual salary in the bank by age 35. However, this is not necessarily a reasonable goal in an era where prices are increasing and wages are stagnant. Those who experienced the worst of the Great Recession may also be struggling to pay their bills let alone save hundreds of dollars each month.
However, aiming to create an emergency fund of $10,000 can provide you with the motivation to start saving whatever you can. If you are 30-years-old today, you would only need to save $1,000 a year, which is less than $100 a month. There are many easy ways to reduce your expenses by that much including getting rid of a cable television package or eating meals at home.
Having money in the bank can make it easier to pay for an unexpected medical emergency, car repairs or damage done to your home by a thief or a natural disaster. It will also allow you to avoid putting the repairs on a credit card or otherwise borrowing money when you can't afford to.
You Have a Financial Plan and Adviser
Your 40s represent the peak of your earning potential. This means that you want to negotiate raises whenever possible or change jobs if you have the chance to make more money. It is also a good time to start putting more money into your savings and retirement accounts. If you find that you don't have money to contribute to a savings account, it can be worthwhile to speak with a financial adviser.
This person can teach you how to cut back on expenses or provide tips to increase your income. More importantly, a financial adviser can craft an investment plan designed to meet your needs today and in the future. For instance, dividend stocks can be ideal for those who want a passive income stream while index funds offer stability if you are scared of market volatility.
If you have assets such as a home, car or 401k, be sure that they are accounted for in your estate plan. Ideally, you will have a will and a living trust already created by the time you turn 40. Having these items could keep your spouse and kids from being homeless or otherwise not receiving assets should you pass on.
Have Money Set Aside to Pay Your Child's Educational Costs
The sooner that you start planning for your child's college years, the easier it will be to pay for them. Tuition at a state college can be up to $10,000 or more per year while the cost of a private school can be $100,000 or more. Even if you plan on helping with only a portion of your son or daughter's college expenses, you will still need to save thousands of dollars in a short period of time. Contributions to a 529 plan grow tax-free while also offering a tax break for those who make them.
As you get older, it becomes more important to have a solid financial foundation. Even if you rent an apartment or don't have kids, you still want to have the ability to take trips, retire or otherwise live life on your own terms. By creating long-term plans and sticking to them, you increase the odds of being able to accomplish this goal.
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