Everyone goes through life at a different pace, so there's no one-size-fits-all approach to managing your finances. However, you should aim to reach certain milestones by a particular age, because the longer you wait to get started in working toward these goals, the more difficult it will be to achieve them.
By the time your 40th birthday rolls around, you should ideally have passed the following financial landmarks.
1. Pay off your high-interest debt
High-interest debt -- like credit card debt -- is one of the most toxic forms of debt out there. Left unchecked, it can wreak havoc on your finances and make it harder to reach your financial goals.
By the time you turn 40, try your best to pay off as much high-interest debt as possible so that you can free up some cash to put toward other financial responsibilities. If money is tight, it can be difficult to balance all your priorities. But if you don't pay off your high-interest debt as quickly as you can, you could rack up thousands of dollars in interest payments alone.
If you can, cut back in a few areas of your budget to put more money toward your debt. You may also choose to open a balance-transfer credit card, which will allow you to transfer your existing balance to a new card and pay 0% interest for a set period of time. That can help you pay off the principal amount faster without having to worry about most of your payments going toward interest.
It's also important to prioritize your most toxic debt first. Rather than focusing on your debt with the highest balance, start with the debt with the highest interest rate. Once that's paid off, work your way down the list.
2. Build a healthy emergency fund
People who have an emergency fund are 2.5 times more likely to feel confident about reaching their long-term financial goals, according to a report from AARP.
An emergency fund is more critical to achieving financial success than you may think. Without an emergency fund, if you're slammed with an unexpected expense, you could be forced to take on debt or tap your retirement fund to cover it. This is especially dangerous if you're in your 40s, because if you postpone goals like saving for retirement so you can pay unexpected bills, you'll need to work extra hard to catch up later.
Most experts advise saving enough to cover around three to six months' worth of general living expenses, but exactly how much you should stash in your emergency fund depends on your financial situation. If you have a high cost of living or if you're loaded with debt payments each month, you'll need to save more than if you have relatively few expenses.
No matter how much you're able to save in your emergency fund, it's better than nothing. Socking away even a couple hundred dollars for a rainy day can help protect you against unexpected expenses.
3. Have a retirement saving goal in mind
By the time you turn 40, you should have in mind how much you'd like to save by retirement age. Come up with this number strategically, though; don't just pull it out of a hat. Here's how to estimate how much you should save by the time you retire.
First, think about what retirement will look like. How much do you think you'll spend each year in retirement? At what age will you retire? Approximately how long do you think you'll live? Be honest with yourself when answering these questions, because the more accurate your answers are, the better shot you have at saving enough to retire comfortably.
Next, consider any other sources of income you'll have in retirement, like a pension or Social Security benefits. You can get an estimate of how much you can expect to receive from Social Security by creating a mySocialSecurity account, but keep in mind that if you claim before your full retirement age (which is either age 66, 67, or somewhere in between), your monthly checks will be reduced. When you understand how much you'll be receiving from other income sources in retirement, it will be easier to figure out how much you'll need to save on your own.
Finally, run your numbers through a retirement calculator to determine what you should be saving. Also, if you're earning matching 401(k) contributions from your employer, factor those in when calculating how much needs to come from your pocket.
By the time you turn 40, take a hard look at your finances and see if there are areas in which you can improve. You should be well on your way to tackling debt, protecting your finances from unexpected costs, and saving for retirement. When you reach these milestones, you'll be setting yourself up for long-term financial success.