Competing priorities for your time and money is always at the forefront no matter your age but itâ€™s especially evident in your 40s. With so many to-dos, you might find yourself wondering where to focus and what should be at the top of the list. This post includes the top five personal finance milestones to hit in your 40s to keep you on track for a great financial future.
Get in a Stride With Your Income
In your 40s, you most likely have a respectable decade or two behind you in your work and you are at an established point in your career. Unless youâ€™ve changed career paths, you may be in a comfortable place with your income. It’s great if you donâ€™t have to worry about where your next check is coming from or how you will pay bills.
If you live paycheck to paycheck, take a hard look at your income and budget and figure out what you need to do to make everything work. Keep this mantra in mind as you make financial decisions: Spend less than you earn, save and invest the rest. Personal finance really is that simple.
Crank up Retirement Savings
Remembering to manually transfer funds from a checking account to a savings account is not easy, which is why many employers offer 401(k) savings plans with automatic contributions (look for a 403(b) if you work for a public education institution).
If youâ€™ve been taking a your full employer match, that is a good start. However, it’s likely below what youâ€™ll need to maintain the same living standard in retirement. Most experts suggest saving at least 10 percent to 15 percent of your gross income for retirement. If you get a 3 percent 401(k) match, for example, you would need to save 7 percent to 12 percent more of your total income to reach typical retirement goals.
Solidify Your Childrenâ€™s Education
Student loans are are a reality for many Americans. Your kids may be on track to join the student loan crowd when they enter college. If you want to help them avoid crushing student loans, make plans to help pay for their future education. Getting some savings under your belt will help you and your kids avoid student loan issues.
A 529 account may give you the motivation (and tax savings) you need for college savings and investments. Also consider saving for your kids in a regular taxable investment account. There are no restrictions should they not need the entire amount for their education.
Discuss college costs with your spouse and kids and work toward a plan that makes sense for your familyâ€™s needs. That may mean a combination of saving and borrowing but an investment in a quality degree will give your kids a lifetime payoff.
You may also want to add life insurance to ensure your kids college is paid for even if you are not around to write the checks.
Put Student Loans Behind You for Good
Speaking of paying for college, do you have any lingering student loans from your college days? Your 40s is the time to get rid of those loans for good. A 2016 Federal Reserve report found nearly 7 million adults in their 40s still have student loans with an average $33,765 balance. If you still have student loans, you are not alone.
Set up a debt snowball or debt avalanche payoff plan to get your student loans taken care of as quickly as possible. Paying off those loans means no more interest charges and no more monthly payments.
Plan for Parentâ€™s Financial Needs
The sandwich generation gets its name from the competing priorities of its own along with those of its parents and children. Being stuck in the middle, or sandwiched, means getting pulled multiple ways at once with competing time and financial priorities.
Like when traveling with small children, you have to put the oxygen mask on yourself before assisting others. You canâ€™t put an oxygen mask on your kid if you are passed out. You canâ€™t help others with financial needs if you canâ€™t handle your own.
Medical expenses alone can easily reach into the six-figure range for retired Americans. Be prepared to help your parents with long-term care needs and medical care as they age. They may start to rely on you more for support.
Focus on the Long Term
Thereâ€™s a lot of life left to live when youâ€™re in your 40s. By the end of this decade, you should be established in your finances, debt free or on track to pay off all debts and solidifying your financial needs for retirement.
The more you can save and invest today, the better. You still have plenty of time before retirement for compound interest to help your investment balances grow for years to come.
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