Each new decade of life offers us the chance to reflect on where we’ve come from, what goals we’ve achieved, and which new ones we’d like to set for the future. 40 is one of those great milestone ages to set as your target for certain financial accomplishments.But what financial goals by 40 should you have achieved, or should catch up on?
Of course, everyone is on their own journey and their own timeline. So, you should never feel like you have to achieve things by a certain age or else you’re a failure. You can only do your best with what you have! It’s like that old Chinese proverb: “The best time to plant a tree was 20 years ago. The second best time is today.”
Whether that 40th birthday party for you is one year away, five, ten, or twenty, let’s take a look at nine financial goals by 40 you can strive to hit. Plus, we’ll look at some catch-up strategies if you're not on target!
9 Financial goals by 40 to set for yourself
You may have already accomplished some of these goals, in which case, give yourself a pat on the back! The more you can check off your list in the coming years, the more confident you’ll feel in your financial future. Here are some financial goals by 40 to work towards:
1. Free yourself from consumer debt
40 is a great target age to close the book on any debts you accrued in the previous decades. This may include things like credit cards and car loans, and ideally also student loans while you’re at it! Mortgages are an exception here, although you can certainly make it a personal goal to pay off your mortgage early.
Without these debts dragging down your net worth and consuming money from your budget every month, you’ll be able to step up your progress on all your other financial goals by 40.
2. Have a well-stocked emergency fund
Life has a lot of twists and turns, and an emergency fund helps you stay ready for them. A good target for an emergency fund by 40 is to have at least six months of expenses kept liquid in a savings account. This way, you can direct other money to various investments, while still keeping enough cash out of the market to hold you over in an unexpected situation.
The main purpose of an emergency fund is to help you pay your regular bills if you lose your job or are unable to work for a period of time. Six months gives you a good “runway” to make a new plan without needing to sell off investments or take out loans to get by. Emergency funds can also be used for sudden car repairs, medical bills, and so on.
3. Ramp up your retirement savings
If you started working in your 20s and hope to retire in your 60s, your 40s are the perfect midway point to ensure you’re prepared for your future needs.
Experts recommend you try to have at least 3x your salary saved in retirement accounts by age 40. That means if you make $50,000 a year, it would be best to have $150,000 stacked away in various retirement accounts like a 401(k) and IRA.
That may sound intimidating, but if you’re able to start early, even small amounts can grow quickly. For instance, if you invest a little over $10 a day starting at age 22, you’d have $150k by age 40 assuming an average stock market return of 8%. That could simply be the difference between making lunch at home and eating out.
But even if you waited until you were older to start saving, you can catch up. The number just won’t be as low as $10 a day! Play around with this investment calculator to see what you would need to save to hit your target number. Also, check out these 14 tips for retirement planning.
4. Build a great credit score
Your credit score can open doors for you—giving you great interest rates on mortgages, business loans, etc. Depending on how high your credit score currently is, you can make increasing your score one of your financial goals by 40! Try to bump yourself up a category or two, from “poor” or “fair” to “good” or “excellent.” A good credit score is typically 720 or higher.
Here’s how credit scores work and some tips for improving yours. The number one tip is simply to pay your loans (like car payments and credit cards) on time. It’s also helpful to keep older accounts open to lengthen your credit history and maintain a low utilization rate.
For example, if you have a credit card with a limit of $5,000, try not to spend more than $500 a month on it to stay at 10% utilization.
5. Re-evaluate your personal goals
Since everyone is walking their own path in life, your financial goals by 40 might not be identical to someone else’s. This goal is all about figuring out what’s important to you and making plans for those things.
Do you want to buy a house (or renovate, or upgrade to a better one)? Retire early? Take a sabbatical to travel the world? Stock a solid college fund for your kids?
No matter what your goals are, this is a great example of what sinking funds are good for. Sinking funds help you mentally categorize your money by dedicating it to a certain goal.
You can keep sinking funds in a savings or investment account, depending on how quickly you expect to need the money. Of course, if your goal is something like retiring early, you’ll put more into your normal retirement accounts instead of a separate fund. And if it’s a kids’ college fund, explore custodial accounts and 529 plans.
6. Write a will
40 is still young enough to expect many happy decades ahead, but nobody can know for sure what the future holds. Having a will gives you the peace of mind that your loved ones will be cared for and your money will be used for a good purpose if something does happen.
Learn about why it’s important to start estate planning in your 30s, then use this checklist to begin building yours.
7. Consider insurance coverage
Similarly, as you approach your 40th birthday, it’s a great time to take a look at some new types of insurance (besides the standard health, car, and home coverage).
Here are some kinds of insurance to look into:
Life insurance
If you have children or others who depend on your income, this helps support them when you’re gone. You can also buy a policy if you don’t have dependents now but expect to in the future. Life insurance is important to your family's finances if something were to happen to you. Figure out if you should invest in a Term or Whole Life insurance policy!
Long-term disability insurance
If you become disabled and it removes your ability to work, disability insurance will help cover your expenses. Long-term disability insurance can cover you for years, unlike short-term disability insurance which only covers you for a short period of time. So, it's definitely something worth checking on.
Long-term care insurance
We all hope for a long, healthy life, but many of us will need help in older age. This insurance covers the kinds of support and care that health insurance generally doesn’t.
For instance, it provides coverage in a variety of settings such as a community organization, your home, or another facility.
8. Invest in your health
Make investing in yourself and your health one of your financial goals by 40! This one is kind of a blend of a personal and financial goal! Health is one of your most precious resources, and can dramatically affect your finances for better or worse. It’s worth spending extra time and money on now, so it demands less later as you age.
Caring for your health can save you money on health insurance premiums and medical bills, in addition to enriching your life now and the lifestyle you can lead in retirement.
Now, you don’t have to spend hundreds of dollars on organic golden apples pollinated with nectar from Mount Olympus or Insta-worthy athleisure! Here are some tips for healthy living on a budget.
Depending on what type of health insurance you have, you can also save tax-sheltered money in an HSA account to cover future medical expenses.
9. Understand personal finance & investing
Sometimes, it’s tempting to just let someone else take the reins with our finances, like a spouse or financial advisor. And it’s totally fine to have that personal or professional support and advice!However, it’s also important to understand these things for yourself, so you don’t find yourself in a vulnerable situation in the future.
Maybe your financial advisor is charging unfair fees or underperforming the market—how would you know if you aren’t keeping an eye on it? Widowing and divorce are two other situations that can suddenly disrupt a woman’s life and make things very confusing if you’re trying to sort out finances for the first time while dealing with other logistics and grief.
“Hope for the best, prepare for the worst” is a relevant phrase here. Since you’re here reading this article, that’s a great sign you’re already motivated and taking steps to succeed!
How to catch up if you're not on track for your financial goals by 40
If you’re not quite where you’d like to be with some of these financial goals by 40, don’t worry! Plenty of people didn’t get as early of a start as they would have liked, or encountered setbacks along the way, but still succeeded. (Here are 25 people who became successful after age 40!)
When you boil it down to the basics, there are two main ways to catch up with your financial goals...
Strategy 1: Boosting your income
Sometimes, there just isn’t enough money left after the bills are paid to dedicate to your savings and investments. That’s why increasing your income is key in the catch-up game.
At 40, you’re well into your working life. If you feel like you aren’t being compensated fairly, it’s time to change that! Here are some tips on asking for a raise in a compelling way.
If your request is denied, finding a new job might be the next thing to consider. Data shows that job-changers receive more money than those who stay at their company waiting for raises. However, this can be dependent on where you live and the current job market. Either way, it can’t hurt to keep an eye on the listings in your field.
Now, if you do feel like you’re being paid fairly and you love your job, there are other ways to bring in extra money! Check out these 23 ideas to make an extra $1,000 a month on the side. That’s enough to max out your IRA for the year, accelerate debt payoff, stack your emergency fund, and more!
Strategy 2: Turbo-charging your savings
Increasing your income is one-half of the equation. The other half is making the most of the money you’re bringing in! Start by finding a budgeting method that works for you, so you can understand what you’re spending now and where you can cut back.It might mean tightening the belt a little, but there are tons of frugal living tips that can really help you stack up those savings.
For instance, meal-prepping at home instead of buying lunch and dinner can save $10-20+ per day. This can add up to thousands of dollars a year. Switch to only water instead of soda or juice, buy used items instead of new, sell things you don’t use anymore, etc. Little things add up, and you may even find you prefer living with a little extra minimalism!
Strategy 3: Create a debt reduction strategy
One big way to play catch up is to create a winning debt reduction strategy! This way you can work on bigger goals such as investing more money to build more wealth. The most popular ways to tackle your debt are with the avalanche method or the debt snowball method
With the avalanche method you pay down the highest-interest debt first, with the snowball method you pay off the smallest balance first and keep going until all of your debt is paid off! This way you can tackle your debt faster and work towards financial freedom.
- Financial goal setting for success
- Examples of financial goals
- 10 Good Goals To Have For Your Finances
- 5 Steps To Create And Reach Your Short-Term Savings Goals
What Are Your Financial Goals by 40?
The ideas above aren’t the only financial goals by 40 you can aim to achieve, but they’re a great starting point to help you check if you’re on the right track! You can also add non-financial ambitions to your to-do list, like these yearly goal ideas.
Learn how to create the right financial goals for you with our completely free course! For more great money tips, tune in to the Clever Girls Know podcast and YouTube channel!
