Age 40 might be the new 30, but that doesn't let you off the hook from meeting some important financial goals. Here are three key milestones you should aim to hit by the time your 40th birthday rolls around.
1. Have a healthy emergency fund
Unplanned expenses can pop up at any point in life, but the older you are, the more likely you are to own items, like a home or a car, that cost you a bundle out of the blue. Furthermore, you never know when you might get sick and rack up a host of medical bills or lose your job and struggle to find a new one for months. That's why you need an emergency fund -- money in savings to cover you for such events.
Ideally, your emergency fund should contain enough cash to pay for three to six months of essential living expenses. If you're a homeowner and have children or other dependents, it generally pays to aim for the higher end of that range for added protection.
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Building an emergency fund isn't something most of us can do overnight, so if you're nearing age 40 without much cash in the bank, start making serious lifestyle changes that allow you to boost your savings. Set up a budget to see where you're overspending, and cut back on expenses with wiggle room, like leisure and dining out. At the same time, consider a side job if your primary source of income doesn't allow you to build savings. Putting in a few extra hours a week could help you boost your cash reserves rather quickly.
2. Kick your credit card debt
Carrying a credit card balance means throwing money away on interest each month -- money that could instead be used to fund your retirement savings plan, pay for much-needed home repairs and improvements, or help put your kids through college. If you have credit card debt, you should definitely aim to eliminate it by the time you turn 40.
To accomplish this goal, start by ordering your balances from highest to lowest interest rate so that you know to pay them off in that order. Another option? Transfer your various balances onto a single credit card with a lower interest rate to streamline the repayment process and save money at the same time.
Of course, you'll need cash to pay off that debt, but that's where the aforementioned advice comes in. Cutting back on living expenses will free up money to chip away at your balances, as will working a second job on top of your primary one. Furthermore, if you take on a side gig and therefore have less free time, you may also be less tempted to spend recklessly going forward.
3. Buy life insurance
The younger you are when you purchase a life insurance policy, the more likely you are to lock in an affordable rate on your premiums. If you have people in your life who depend on you financially, or who stand to lose out financially if you were to pass, then it absolutely pays to buy life insurance.
That said, you don't need a huge policy with a $1 million death benefit. A modest policy to replace a few years' worth of income and pay off your mortgage, for example, may suffice for your family.
Term life insurance, which covers you for a limited but potentially lengthy period of time, is generally a more affordable option than permanent life insurance, which covers you indefinitely. That said, permanent life insurance accumulates a cash value that term life insurance does not. That cash value is something you can borrow against or withdraw from as the need arises, so be sure to weigh your options to see what makes the most sense for you and your loved ones.
Tackling these important money moves by the time you turn 40 will give you something to be proud of when that big birthday rolls around. Just as importantly, it'll make you a more financially secure person, which is no doubt something worth celebrating.
