Once you reach your 30s and 40s, financial planning becomes particularly important. If you look closely at your finances and home in on your short- and long-term goals, you’re more likely to reach a fulfilling, financially secure future and retirement. Here’s what you need to know about planning for financial milestones in your 30s and 40s.
Identify your goals
First and foremost, figure out your goals and how to reach them. Maybe your dream is to own a home. Or perhaps you want to get married or continue your education. You may also want to retire or pay for your children’s college education. Jot down your goals and put them somewhere you can easily see or reference them so they’re always at the top of your mind.
Whatever your goal is, you’ll need a plan for how to get there. For instance, if you need to save more, you can put a larger percentage of your salary into your 401(k) or lock in competitive refinance rates on your current property. Think through your goals as much as possible and adjust your plan accordingly.
Saving in your 30s: what to remember
Buying a home
Many people in their 30s set a personal goal to own a home. While homeownership is an exciting endeavor, it can also be expensive. Understanding what you can afford and the costs involved ensures your home purchase aligns with your overall financial plan. In addition to the down payment, which will depend on the type of mortgage you take out, you’ll also need to plan for one-time and ongoing expenses, such as closing costs, property taxes, HOA fees, moving expenses, home repairs, and routine home maintenance.
Budgeting and saving
A budget is a spending plan based on your income and expenses. With a realistic budget, you’ll find it easier to cover your expenses and save for the future. The pay-yourself-first budget, zero-based budget, and 50/30/20 budget are a few strategies you may want to explore.
It’s also important to build an emergency fund with at least three to six months’ worth of expenses so you have the cash to pay for unexpected expenses as they pop up. Additionally, if you have a number of short-term goals, a dedicated savings account or several accounts can help you save for them.
Paying off debt
High-interest debt, like credit cards and student loans, may cost you hundreds of thousands of dollars over your lifetime. These costs can interfere with your ability to achieve various financial goals.
By making it a priority to repay high-interest debt, you can avoid long-term financial strain and make the most of your hard-earned money. Fortunately, there are several debt payoff strategies to help you out. A method like the debt snowball, where you tackle your least expensive debts first and then move on to higher amounts, may help your situation. However, you can also consider consolidating your debt to make it easier to manage.
Investing for the future
Investing can be key to building wealth and can play a key role in saving for retirement. If you’re employed, you may have access to an employer-sponsored retirement 401(k) account. With a 401(k), you can make pre-tax contributions, and your employer may match them to a certain percentage. If you’re looking to save more for retirement, you might want to explore a traditional Individual Retirement Account (IRA), a tax-deductible account you can personally fund without an employer, or a Roth IRA, which allows you to contribute after-tax dollars.
Planning out the future in your 40s
During your 40s, your goals may shift, and you may want to focus on saving for further life or retirement plans.
Retirement savings
Your 40s can be the perfect time to ramp up your retirement savings so you can fully take advantage of the power of compound interest. For example, if you’ve been saving 10% to 15% for retirement, you may want to increase your contributions to 20% or 25%.
Life and health insurance
Review your insurance coverage, including health insurance, life insurance, and disability insurance, to make sure it’s sufficient for your current and future needs. You may find that you need to increase your coverage levels to protect your assets and loved ones. Or, you might decide that you’re paying for a level of coverage that no longer makes sense for your situation. You can always work with an insurance agent to understand your options and zero in on the right policies.
Estate planning
While estate planning may not be the most fun to think about, it’s important to have a plan. With an estate plan, you can outline who will manage your assets and how they’ll be divided when you pass away or become physically or mentally incapacitated. Estate planning typically includes a will and powers of attorney. Most experts recommend reviewing your estate plan every three to five years.
Family milestones
If you have a family, there’s a good chance you have big life events coming up in your 40s. Whether they’re weddings or college, saving for these milestones through special accounts or investment vehicles can make them less stressful and more enjoyable.
Adjust when needed
Your goals and finances are not set in stone. In fact, they’re bound to change frequently. That’s why it can be a good idea to reevaluate them throughout your 30s and 40s.
Regularly revisiting your financial goals lets you determine whether you’re on the right track and figure out how to adjust your financial plan.
Disclaimer: Article content is intended for information only. It may not reflect the publisher nor employees’ views. Consult a mortgage professional before making financial decisions. Publishers or platforms may be compensated for access to third party websites.
