So guess what?
I just turned the big 4-0!
A lot of folks get depressed about getting older, but I just feel grateful to still be alive. Especially in light of the year that we’ve had with COVID claiming the lives of over 300,000 here in the United States and over 1.8 million worldwide.
Grateful is the word that keeps coming to mind.
I’m grateful for my family, grateful to have a job, and grateful to have made another trip around the sun.
In honor of my 40th birthday, I thought it appropriate to share some money goals to aim for before you reach this age.
Forty isn’t just a big milestone because of the candles on your cake, it also marks the halfway point to retirement. Twenty more years and you could be traveling the world, living somewhere else, or just enjoying life at home. Or perhaps fewer if you desire to reach financial independence and retire early.
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Before you age anymore, know the financial goals you need to achieve before age 40.
1. Create and Use a Budget
By the time you are in your 40s, you should have and follow a budget. Don’t worry if you’ve tried and failed before, try again.
Choose your favorite budgeting style and put it to the test. Remember, budgets are forgiving. You can make mistakes. If you learn from them, they aren’t bad. Pick up the pieces and try again. If you overspend, figure out why. How can you fix it? Do you need to cut expenses, change your habits, or maybe start a side gig? A budget is crucial for the financial goals you need to achieve before 40.
2. Open a Roth IRA
The Roth IRA is one of my favorite types of investment accounts. A Roth IRA is a tax-efficient retirement savings account that allows account holders to make post-tax contributions. Unlike a traditional IRA, you won’t get a tax deduction, but your investments will grow tax-free, and your withdrawals will be exempt from taxes.
Roth IRAs have strict income limits, contribution guidelines, and are not suitable for high-income earners. However, they also offer tax-free growth and income during retirement, and there are no required minimum distributions (RMDs).
To get the most out of compound interest, you’ll want to open a Roth IRA as early as possible. If you don’t have one currently, make it a goal to open one by the time you turn 40.
3. Have a Fully Funded Emergency Fund
By now your emergency fund should have at least 6 months of expenses in it. If it doesn’t, focus on it. Your emergency fund like I said before is if you lose your job or fall ill and can’t work. It’s a temporary fix so you don’t emotional stress on top of the issues you’re experiencing.
If you have 6 months of expenses set aside, you’ll feel less stress and can focus on decisions moving forward.
4. Contribute at Least 10% of your Income to Retirement
By the time you turn 40 years old, you should be contributing 10% of your income to your retirement fund. That sounds like a lot, but it’s not. If you make $75,000, that’s $7,500 a year or $625 a month.
Work it into your budget and stay consistent with it. If you aren’t at 10% yet, work your way up to it. Increase your contribution increments every 6 months or so to ease your way into the larger contributions in your future.
5. Pay off Student Loans
The average graduate leaves college with $37,000 in student loans. Many graduates defer their payments or take an income-based repayment plan to make the payments more affordable. This just prolongs the inevitable.
Instead, figure out how to pay your loans off before you hit 40. The standard repayment plan has your loan paid off in 10 years. See if you can make that work. If not, get as close to it as possible so you can reallocate those funds for retirement, buying a house, or just enjoying life.
6. Buy Life Insurance
By the time you are 40 years old, life insurance rates increase quite a bit. Before then, figure out your life insurance situation. Term life insurance is what most people need. Think about your largest expenses and who you want to protect.
If you have a mortgage, do you want it paid off for your loved ones? Do you want to leave money for your children’s college education? What about your spouse? Do you want to make sure he/she has enough money to replace your income? The earlier you buy life insurance the cheaper the rates. The rates stay fixed for the term, so if you buy when you are 30-years old, you’ll have it until you are 60-years old.
7. Invest in Yourself
Investing in yourself is a lifelong task, but one you should master by age 40. You probably spent the last 10 or 20 years focusing on others or on getting ahead in life. Now it’s time to focus on you.
Take courses, read books, or just pamper yourself. Think about your mind and body, along with your finances. The more educated you are, the better decisions you’ll make. The healthier you are, the fewer medical bills you’ll have, and the more you can enjoy life.
Maybe even use this time to explore side hustles or learn a new skill. You never know what life will throw at you, but if you have multiple skillsets, passions, and dreams, you’ll be better able to handle what life throws your way.
8. Open a College Savings Plan
If you have kids, save for their education early. Open a 529 College Savings Plan and take advantage of the tax savings. Only do this once you’re on track for retirement. If you’re playing catch up with your retirement funds, wait. But if you funded your retirement funds early and often, a College Savings Plan sets your child up for a financially free start in their adult life.
Final Thoughts
These financial goals you need to achieve before age 40 are easy to implement into your life no matter where you are at right now. If you’re unsure, take one step at a time.
Do you have a budget? If not, create one. If yes, move on to another step. Look at your emergency fund and sinking fund. Do you have one or both? If not, start now. Work your way down the list and you’ll eventually reach the financial milestones every woman should achieve by the time she turns the big 4-0.
Great tips, I’m currently 24, I’m on Baby Step 3 right now. I found your blog just by chance today, keep it up!!!
Thank you!!
What if you don’t qualify for a Roth Account? I think it’s capped for 199k for married couples. I have a 401k and My company matches at 10% when I do the minimum of 5%- which I do.
For the 525 Savings plan wouldn’t it be better to do a custodial account so the child would have more options with the money like a first time home buyer? Being taxed shouldn’t really be an issue given your child may not be at a higher tax bracket than the parent.
If you don’t qualify for a Roth you can do what’s referred to as a Back Door Roth. As for the 529 plan vs. putting money into a taxable account, each has its own advantages and disadvantages. I have 3 children and I do a little of both so that I don’t have all of my eggs in one basket.
I’m 31 and got 4 out of 7 (I don’t have any student debt so will knock that one off). I think the most important one by far is invest in yourself. We all spend money on a multitude of things, but how many of us will actually invest in something that can better ourselves, such as a course or something to give us a better chance of succeeding in whatever we are passionate in?! Seems well worth it to me.