Financial Milestones By Age 40: How Many Will You Reach?

40 is a major milestone birthday--but have you been reaching your financial goals along the way? These are some of the most important money milestones that everyone should strive for as they reach middle age.

As you approach your 40s, how do you know if you’re on the right financial path? You might have heard a lot of conflicting recommendations about savings goals and milestones that you need to reach by your 40th birthday, and a lot of the information can be confusing. Even worse, it can also feel discouraging to be told that you’re hopeless behind the rest of your peers.

To reach all of these financial milestones by age 40 would be an amazing achievement! However, just working toward a few of them will still positively impact your life.

Balance Your Budget

budgeting on a laptop

If you reach no other milestone on this list by the time you turn forty, let it be this one. A sensible, balanced budget is the foundation of every other financial achievement. Without a plan for how to spend and save, you’ll never maximize your money. While it’s almost expected that 20-somethings will struggle with budgeting, by the time you’re nearing the end of your 30s, you should be figuring a few things out.

What if you’ve never been good at budgeting? Luckily, there are plenty of apps and programs available to help you budget like a pro. You can also take an online class to learn how to balance your checkbook. There’s no shame in not knowing how to budget–but you still have to take responsibility for your financial literacy.

Read More: Best Budgeting Apps for Couples

Grow Your Retirement Fund

By the time you reach 40 years old, you should have already established a retirement fund. How much money should you have in your retirement account at that point in your life? According to the experts at Fidelity, you should have three times your current salary saved for retirement by the age of 40. That multiplier will continue increasing as you get older, which can seem very intimidating. However, keep in mind that interest will help your retirement savings grow, too.

If you haven’t gotten around to saving for retirement for one reason or another, it’s not too late! As the old proverb goes, the best time to plant a tree was a hundred years ago–but the second-best time is right now. You will probably need to save more aggressively to reach your retirement goals, but a financial planner can help you come up with a realistic strategy.

Expand Your Emergency Fund

hundred dollar bills sitting in life raft

Saving for retirement is important–but so is establishing an emergency fund. Experts agree that three months’ living expenses is the bare minimum you need in savings. Not sure how much you need to survive for three months? Scroll back up and read the section about budgeting again.

A personal emergency fund should be able to cover housing, transportation, food, and insurance for your household. However, if you are a homeowner, you need to establish a separate emergency fund just for unexpected expenses. advises that you save 1-3% of your home’s sale price for repairs. Both types of emergency funds should be kept in a standard savings or checking account, not in long-term investments such as CDs that will face penalties for early withdrawal.

Aim for Zero Consumer Debt

As you get older, consumer debt can feel increasingly stressful. One of the best financial milestones by age 40 is to pay all of it off. The first step is to stop putting any more purchases on your credit cards. This might seem like a no-brainer, but you’d be surprised at how many people get frustrated because their debts never seem to go down–not realizing that they’re spending as much as they’re paying off.

After that, you have a few different options for tackling your debts. What you choose will depend on the amount of debt, the interest rates on each card, and your household income. If you have several different lines of credit, it might make the most sense to consolidate that debt as a single loan.

Just make sure that the interest rate on the new loan is lower than the average of your unconsolidated debts. Another strategy is to pay off the lowest balances first, while still another is to pay down the card with the highest interest rate.

Clean Up Your Credit Report

Credit report with a score of "Fair"
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When was the last time you pulled your credit report? It’s a smart money move to check your credit card statements at least once a month for any discrepancies, but you should also check your credit report at least once a year.

If you live in the United States, you are entitled to a free copy of your credit report from each of the three main bureaus: TransUnion, Equifax, and Experian. You don’t need to pull all of them at once; in fact, many financial experts advise requesting a copy of your credit report three times a year, using a different bureau each time.

You’ll likely find that your score is different with each bureau, thanks to small differences in the way each one calculates credit scores. You may also find issues on one report but not another. If you do find any problems with your credit report, follow the instructions to dispute it right away.

Start a College Fund

If you have children, saving for their futures can make all the difference. “College fund” could be a bit of a misnomer, depending on what your children want to do as they leave high school. Some teenagers might decide to take a year off to travel or work; this “gap year” is commonplace in Europe and is becoming more popular in the United States, too. Others might be awarded scholarships to a four-year university or decide to attend community college or a trade school. Your children might not even want to go to college at all, preferring to enter the workforce directly.

If you decide to start a 529 plan college savings fund for your child, which offers certain tax advantages, be aware that you may face certain penalties if the money doesn’t go toward tuition and fees. You might choose to establish a less restrictive savings account for your children instead so that they can decide what to do with the money. This is definitely something to discuss with a financial planner and your family.

Master Tax Deductions

tax deductions

The older you get, the more complicated your tax returns may become. It’s common for younger people just entering the workforce to breeze through tax season with just a 1040-EZ form. Unfortunately, life milestones like marriage, children, and homeownership can all make filing taxes more difficult. You could end up missing deductions or even facing tax penalties if you aren’t careful.

If you’re not sure how to maximize your tax deductions, an appointment with a certified public accountant might be your best bet. At the very least, educate yourself about the types of deductions you might be able to claim on next year’s taxes. Keeping careful financial records is essential, so no more throwing bank statements and receipts in a drawer! Buy a file box and organize your documents so that filing your taxes is less of a headache. Your future self will thank you.

Diversify Your Investment Portfolio

First, this financial milestone assumes that you have an investment portfolio. If not, it’s high time that you started putting your money to work for you. A simple savings account might not accrue any interest or only accrue such a tiny percentage that it’s not worth calculating. While these accounts are a good place to keep emergency funds, they aren’t the best choice for long-term wealth management.

By the time you turn 40, you’ve probably seen the stock market rise and crash at least once. Diversifying your investment portfolio helps insulate against such crashes. A mixture of individual stocks, mutual funds, bonds, and real estate (including Real Estate Investment Trusts) can protect you against potential losses while still growing your money. Because this can be a confusing and intimidating process, you might find that working with an expert is worthwhile.

Plan Your Estate

Signing Last Will and Testament document
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Nobody likes to think about estate planning, especially at the relatively young age of 40. No matter how healthy you are today, the unthinkable could happen tomorrow. That’s why it is vital to write your will. If you’re still not convinced, check out this in-depth post about the reasons you need a will as soon as possible.

Rather than worrying about an unknown future, estate planning can offer you and your family peace of mind. No matter how many (or few) assets you have to manage, a will is still necessary to make sure that your wishes are carried out. Even if you don’t have a partner or dependents, did you know that you can establish a trust to take care of your beloved pets? Don’t put off estate planning until it’s too late–and if you’ve already filed a will, be sure to update it whenever your circumstances change. Ironically, a “last will and testament” is a living document.

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