Depending on the way you look at things, turning 40 can be one of the best things in your life or one of the worst. In a glass half empty, turning 40 means you are now over halfway to death (considering the average life expectancy in America is 78). On the other hand, turning 40 hopefully means you finally have a very good grasp on your personal finances.
Where do you currently stand? The old analogy that it’s never too early to start planning for your future is practical, but with that being said it’s never too late. Even if you are only a few years from the big 4-0 — these should be your objectives:
Your Personal Savings Should Finally Have Some Traction
There is a reason why people in their 30s generally represent the highest spenders of people with credit scores under 650. They enter a phase in their life where significant expenses begin to take hold (first mortgages, marriages, first babies, etc) and they rely on credit to get through the muck.
However, by age 40 the ultimate hope is you have built up a quality amount of personal savings for a variety of reasons:
- For a rainy day: Personal savings are the most responsible method for emergency funds.
- Ideally, emergency funds should be enough to cover 3 to 6 months’ worth of living expenses in the event of job loss or other life-altering events.
- Can also be used for dream vacations or other types of personal leisure you would have otherwise used credit on in the past.
Eliminate all Debt aside from Home Mortgage and Car Loan
Very few people ever pay off cars in full, and having no home mortgage is a pipe dream for just about everyone. Those debts are inevitable but the rest of them are avoidable by the time you reach 40.
If you can celebrate the big 4-0 with no credit card debt you are doing remarkably well for yourself considering 8 out of 10 “baby boomers” currently have some form of debt not including a home mortgage. Credit debt is the silent killer to personal finances, as it may seem unavoidable and a minor concern but think about how that interest adds up. Paying it off by 40 can help you start to focus on retirement, college tuition for your kids, and numerous other expenses in the final few decades of your career. It does involve some crucial sacrifices with your budget is well worth it in the big picture.
NEXT: Save, save and save – Why You Need 3x Your Salary For Retirement!