Basic Money Milestones to Achieve by 40
In today’s society, when do you make the jump into actual adulthood? While some might stick with the traditional “18” answers, others would argue somewhere in the 20s or even 30s. So, when it comes to hitting 40, I guess that means you should really have your s*** together!
Although I’m still a few months away from 35, I can’t help but think ahead to that decade milestone on the horizon. And, if you’re reading this, I’m guessing you’re feeling about the same way — and wondering what financial goals you should be reaching for as that date approaches. While everyone’s fiscal situation is different, let’s take a look at a few basic money milestones you should aim to achieve by the time you turn 40.
5 Money Milestones You Should Strive to Hit By Age 40
1) Get rid of credit card debt
With most mortgages lasting 30 years, the odds of you having your house paid off by the time you’re 40 are relatively slim (although prepubescent home sales have skyrocketed in recent years according to “sources”). Meanwhile, between car loans and student loans, you may still have some other debts to your name even as you enter another decade. But, if there’s one type of debt you should certainly try to eliminate before turning the big 4-0 it’s credit card debt.
I probably don’t need to tell you that credit card debt is often expensive, with cards carrying APRs upwards of 20%. Because of this, the sooner you can pay down your outstanding balances, the sooner you’ll be able to focus on other financial goals.
Of course, going about tackling your debt isn’t exactly easy, but there are a few options. For one, you can choose to try the so-called “Debt Snowball” method that will allow you to score some quick wins and keep you motivated to take on your next credit card opponent. Alternatively, the equally snowy “Debt Avalanche” approach encourages you to focus your attack on the cards carrying the highest interest rate first. Regardless of whether you choose one of those two methods or something else, there are also apps you can use (Tally, Astra, or others) to help you painlessly set aside money that you can then use to make extra credit card payments. Hopefully, by employing these tools and tactics, you can wipe out your “bad debt” before your big milestone birthday.
2) Have a full-strength emergency fund
There’s no question that having an emergency fund is one of the most important money milestones you can achieve. In fact, depending on your situation, you may even want to prioritize this one right alongside paying off your credit card debts. With an emergency fund, you’ll be better equipped to weather a job loss, major unexpected expense, or (God forbid) a global pandemic. Thus, building an emergency fund should be near the top of your financial to-do list.
So how much should be in your emergency fund? While that answer will depend on your situation — including your marital status, job, whether or not you have kids, and ability to tighten your belt when needed — experts typically prescribe a fund that covers three to six months’ worth of essential expenses. As for where to keep all this cash, there are a few options for that as well. From high-yield savings accounts and money market accounts to CDs and perhaps even Roth IRAs, the key is to find a solution that offers a mix of accessibility and a decent return. To that point, you might want to keep the bulk of your emergency fund in a savings account while using less-accessible options like the aforementioned CDs or Roth IRAs for a “backup emergency fund.”
3) Max out your employer matching (and IRA if you can)
By the time you turn 40, hopefully you’ll have at least a sizable chunk of change saved for retirement. Of course, especially given the recent struggles many Americans have endured at the hands of the pandemic, this may no longer be the case. However, there are at least a couple of steps you should take to help you prepare for what’s ahead.
First, if your employer offers any 401(k) matching, do whatever you can to get the most out of that deal. In some cases, it will be easy to determine how to do this as your company will simply match your contributions dollar for dollar up until a certain percentage of your salary. Yet, in other cases, it may be a bit more complicated. Moreover, another symptom of the pandemic is that some companies have canceled their contribution matching until further notice.
Something else to be aware when it comes to employer matching is what’s called vesting. While some businesses will allow you to keep your matching funds right away, most require you to earn them by staying with the company a set amount of time. There are also two main schemes when it comes to vesting: cliff vesting and graded vesting. An example of the former is that you have to work for three years before you’ll be able to keep any matched funds — so you’re either getting 0% or 100%. As for graded vesting, you might be eligible to keep 20% of matched funds after one year of service, 40% after two years, etc. Make sure you know what type of vesting scheme your employer utilizes as this may dictate whether or not it makes sense for you to bother signing up in the first place. To be clear, however, vesting only applies to funds added by your employer and you’ll always be able to keep any contributions you make regardless of vesting status.
If you don’t have a 401(k) employer matching option, don’t plan on staying at your current job long enough to be vested, or just want to be better prepared for retirement, you might consider opening and maxing out an IRA as well. What’s great about IRAs is that you often have a lot more control over what your money is invested in than you would with an employer-sponsored 401(k). Also, you are allowed to contribute to both an IRA and 401(k) — and can even roll your 401(k) over to your IRA if you end up leaving your job.
For 2020, the annual contribution limit for an IRA is $6,000. Thus, striving to max out this limit may be a reasonable goal as you reach 40. But, if you want to do even more, your spouse can also open an IRA and contribute up to this same limit. Plus, with the 401(k) limit currently at $19,500, there’s also plenty of room for you to increase your contributions beyond what you’ll need to earn all of your employer matching.
4) Hold a term life insurance policy (and have a will)
Let’s get this out of the way: talking about your own mortality is rarely fun. Yet, while 40 is certainly young by today’s standards, it’s still important for individuals to have their financial affairs in order lest the unexpected occur. With that in mind, you’ll likely want to consider purchasing a term life insurance policy and preparing a will by the time you complete your second score.
First, a term life insurance will help ensure that your family remains financially secure even if something were to happen to you. Depending on the amount of coverage you need and the length of your policy, term life coverage can be relatively affordable when compared to other types of insurances you’re surely familiar with. Plus, there are now easy-to-use online life insurance options including Bestow.
As for making a will, there are also online tools you can use to get started, such as LegalZoom. However, you may want to consult an attorney who can help make sure everything is in order. Again, this might not be something you want to think about but is probably something you should at least consider.
5) Know how to manage your money
Last but in absolutely no way least, while striving for these specific financial goals and accomplishing these tasks is important, what’s even more essential is that you learn the basics of managing your money. Whether that means finding a budgeting strategy that works for you, using tricks to help you shop smarter, or just employing better money habits overall, these efforts can go a long way towards making you more financially secure. Luckily, there are plenty of books I can recommend on this subject, including Kristin Wong’s Get Money, Tanja Hester’s Work Optional, and Erin Lowry’s Broke Millennial series. Additionally, I’d recommend checking out the site Savology where you can answer a few questions and get a free, personalized financial plan. With these resources and plenty of others, you’ll be on your way to leveling up to these money milestones and many more.
Turning 40 is scary enough on its own, but it can be even more intimidating if you’re not prepared financially. Hopefully these five goals can at least help set you on the right path and set you up for a more secure forty-plus future. Of course, if you’ve still got a ways to go before that age, there’s no reason you can’t get started early. Just remember: you’ve got this!
Also published on Medium.