7 Financial Milestones to Hit by Age 40
To keep you on pace for a bright financial future, we teamed up with Discover to put together some tips. Keep these in mind as you set your financial goals.
Have a healthy emergency fund.
About 40 percent of Americans report that they can’t handle a $400 emergency. Ideally, a 40-year-old should have at least three to six months of living expenses socked away to help cover the unexpected: job loss, car failure, home repair. More than a safety net, this type of emergency fund is vital for your well-being. When it comes to financial worries, Americans report they’re more stressed about unplanned expenses than anything else. A strong emergency fund provides peace of mind.
Aim to have three times your salary invested for retirement
By age 30, it’s recommended that you save the equivalent of your annual salary for retirement. By 40, experts suggest you triple it. This, we should stress, is only a target. Everybody’s financial situation is different, and, the truth is, many younger people have trouble saving for retirement because they may be paying off their student loan debt. (Besides, the average American doesn’t start saving for retirement until they’re 31.) So, if this feels out of reach, don’t despair: Just try to save something. Your 40s are a vital time to invest because, in many cases, it’s when your income will reach its peak—and you still have at least two decades for compounding interest to work its magic.
Keep up with your credit score
The higher your score, the better your chances of landing a loan with a favorable interest rate. The average credit score of a person in their 40s is 685, but be sure to check out your credit score with the Discover Credit Scorecard. You can get your score for free in seconds and you don’t even have to be a customer.
Have Money Put Away for Your Kid’s College Education
On average, it’s said that the average parents in America have around $18,000 saved for their kid’s college education, with children 13-17 coming in at $22,000. Though tuitions vary widely from school to school, this amount wouldn’t be enough to get through a four-year school loan-free. To help you maximize your child’s college fund, think about investing in a 529 plan, which is how 30 percent of all money saved for college around the United States is stashed away. The benefits of a 529 are numerous, but most importantly, the money grows federal tax-free and can be used on vocational schools, books, dorms, and other education-related expenses.
Invest in a filing cabinet.
When you were in your 20s, chucking all of your W-2s, paystubs, and other financial forms into your junk drawer might have worked as a “filing” system. But chances are, your finances are more complicated now. You likely have more bills to pay, more insurance policies to juggle, a mortgage, and an increasingly confusing system of tax credits to understand. Organize, organize, organize! (And if you haven’t started using a money-management app to track of all of your finances in one place, start using one. There are dozens to choose from.)
Establish (and Keep) a Budget
Do you have a budget or simply a vague notion of what you can spend every month? If it’s the latter, you’re not alone: according to one study, only 41 percent of Americans actually use a budget for their personal finances. By 40, though, you should know the exact dollar amount you have available every month for rent/mortgage, utilities, bills, food, commuting costs, recreation, and savings. This will be the backbone of your financial strategy for things like paying off debt, building up an emergency fund, and saving for retirement. You can’t do any of that if you don’t even know how much money you have to begin with.
Read a Book on Finances
Pick a subject you want to learn more about—stocks, savings, global markets—and start reading. There are hundreds of books out there designed specifically to boost your financial IQ and give you the push you need to take control of your money. Having financial goals is one thing—coming up with a plan to reach them is another. With the right book, you could be on your way.
An important milestone you can monitor now is your credit score. Discover offers a Free Credit Scorecard that lets you see your credit score, and checking it won't impact your score. It's totally free, even if you aren't a Discover customer. Check yours in seconds. Visit Discover to learn more.