Although they say 40 is the new 30, it's still a good time to get an overview of your finances and make sure they're reasonably on track. Here are three milestones you should have reached by the time your 40th birthday rolls around. Birthday is around the corner.
1. Have enough money in the account to cover living expenses for 3 months
It's one thing to have unplanned expenses when you're in your early 20s and have no choice but to charge it to your credit card. However, by the time you are 40, you can no longer use the low starting salary or the mountain of student loans as an excuse for not having money for emergencies. So as you approach that age, make sure you have enough money in the bank to cover at least three months of living expenses. That money can come in handy when you might lose your job or need to pay for an unexpected car or home repair that your monthly paycheck just can't cover.
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If you don't have nearly the amount in the bank to cover three months of living expenses, cut your budget, at least temporarily, to save some money. At the same time, you should keep track of all the bonus money you receive (e.G., bonus payments). B. Commissions or tax refunds), directly into your bank account until your savings are at a healthier level. You might even consider a part-time job to raise the extra money, especially if you start with little to nothing.
2. Have three times your salary in your retirement account
There's no hard and fast rule that says you should have a certain amount of money in your retirement account by age 40 – your personal savings goal should be a function of your income, not an arbitrary number, such as 200.000 US dollars. However, investment giant fidelity recommends triple your current salary by 40. To have 40 years of life in this account. That means that when you reach that milestone and 65.000 US dollar earnings, ideally 195.000 U.S. Dollars in your retirement account should have. So if you don't have nearly that much money in your retirement account, consider it a wake-up call to change that.
As with building emergency savings, building a stable nest egg often boils down to making lifestyle decisions, and if you're willing to cut back on some spending, it will leave you with enough money for your retirement fund. In this sense, if you get a salary increase at work, instruct your employer to transfer this extra money directly to another account at an insurance company, so you don't have a chance to spend it anywhere else. If you're really behind on your long-term savings, you can always find a second job and use the money from that to pad your retirement account – something 14% of workers do with their extra income.
3. No longer have credit card debt
Being absolutely debt-free by the age of 40 is easier said than done, especially if you own a house and therefore have a mortgage. However, there is a difference between healthy debt and unhealthy debt. If you have credit card debt, you're automatically in the not so desirable latter category.
If that's the case, you'd want to pay off that debt as soon as possible and for a few reasons. First, the sooner you get out of credit card debt, the less money you will have to spend on interest. Second, if you don't have monthly debt payments to deal with, you can use that money for other goals, like retirement or maybe a college fund for your kids.
You will find that cutting some expenses works wonders to free up cash that can be used to pay down debt. You could also try transferring your existing credit card debt to a new card with a lower interest rate, which will reduce your monthly payments and help you pay them off faster. There's nothing like extra income from a part-time job to reduce some onerous debt to zero.
Let's face it: at age 40, you really should get your finances in order. This means building a solid emergency fund, having a healthy nest egg, and not having bad debt. If you reach these goals, you'll have something special to celebrate when that milestone birthday comes around.
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This article was written by maurie backman in english and published on 05.12.2018 on fool.Com publishes. It has been translated so that our german readers can participate in the discussion.
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