Your Personal Finance Checklist at Age 40

The 40-year mark is a milestone that causes many adults to take a closer look at their life and their personal financial situation. This is a time to assess what you have accomplished over the last four decades of your life and to determine where you need or want to be in the decades to come. From a financial standpoint, you have generally been in the workforce for approximately 20 years, and you may expect to continue to work for another two decades approximately. Therefore, this can be a halfway checkpoint for you from a financial standpoint. These are some of the primary steps that you may want or need to take in order to set yourself up for financial security and independence later in life.

Boost Your Emergency Savings Account Balance

One of the first steps that you should do when improving your personal finances is to take stock of your emergency savings account balance. Many adults unfortunately do not have an adequate amount of money available for an emergency. Keep in mind that this is money that is in an easily-accessible account rather than in a retirement or stock account. A smart starting point is to save enough money to pay for at least three months of your regular expenses. Once you reach this basic point, you may want to increase the account balance further. Some people reach a comfort zone by saving six to 12 months of expenses in this account.

Review Your Life Insurance Coverage

Life insurance premiums get more expensive each year that you advance in age. They also increase in cost as your health declines in different ways. If you do not already have coverage, now is the time to buy it. If your coverage is no longer adequate for your needs or if you have term coverage that will be expiring soon, consider if you would benefit by updating your coverage so that it continues to meet your needs going forward. Some people may determine that their current life situation does not require coverage benefits. If you can relate to this, you may save money by canceling your existing coverage.

Estimate Your Retirement Needs

Many people who are at least 40 years old have spent plenty of time dreaming about leaving the workforce and retiring, but this can seem like a vague and distant dream when you have taken minimal or no solid steps to start saving for this inevitable day. Meet with a financial planner, or use information from online calculators and retirement planning books to determine how much money you need in order to retire comfortably at a desired age. Then, do the math to determine how much money you need to save and invest regularly to meet your goals.

Adjust Investment Purchases

It makes sense for many middle-aged adults to invest heavily in their retirement account, but it also makes sense to make non-retirement investment purchases. Assess your goals, the health of your retirement accounts and your budget to determine if you can afford to purchase mutual funds, stocks and other investments outside of your retirement account. Remember to create a balanced portfolio that is well-suited for your risk threshold.

Pay Off Debt

If you are like many working adults, you may have balances on several credit cards. You also may still owe money on student loans, and you may have car loans, a mortgage and other debts. These are all debts that you do not want to carry with you into retirement. Develop a solid debt reduction and elimination plan. Consider taking out a consolidation loan or using other methods to make a large dent in this debt as soon as possible.

Improve Your Credit Rating

Your credit rating is a numerical assessment of your personal financial health. It takes into account your payment history, debt balances and more. If your scores are on the lower end, this is a sign that you may need to adjust your budgeting efforts and how you manage debt. Through the act of trying to improve your credit rating, you will inevitably improve many of the habits and behaviors that may be bringing down your personal finances in different ways.

People approach reaching this milestone age in different ways. Some wholeheartedly embrace being 40, and others may feel stressed or even sad. Regardless of your personal feeling about the age itself, this is a critical time in your life when you need to focus on your personal finances. Take stock of your current situation, and use some of these tips to improve your finances going forward.

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