Your personal finances, just like your health, should be given regular check ups. You need to make sure that your money is as healthy as it can be. That way, if you discover a problem, you can treat it to keep it from getting worse.
Just like your health, your finances will be different as you age. Your money concerns in your 40s will be different from what you had when you were in your 20s and your 30s. This is because your priorities change over time. When your priorities change, your expenses will too. For instance, when you were in your 20s, you probably spent a lot on entertainment because your social life is very important to you – being single and all. When you were in your 30s, assuming you got married, your expenses would probably revolve around your spouse and your children – if you already have them. In your 40s, well things would be different too.
It is very important that you check your personal finances even if you think that things are going well. Just like the necessary annual check ups that you need to have for your health, this is also something that you need for your financial situation. Not only will it help identify any lurking problems that you have, it will also allow you to reassess your current budget to see if they still coincide with your changing priorities.
A survey done by Gallup.com revealed that those in their 20s, 30s, and 40s are all optimistic about their financial situation. Only the age group of 50-64 are not as optimistic – probably because of their upcoming retirement. But if you are in your 40s and you are feeling good about your personal finances, you should still take time to check out your financial situation.
4 financial questions you need to ask in your 40s
Ideally, you want to check on your financial situation every year. But you may want to make drastic check ups whenever you reach milestones in your life. Turning 40 is a milestone and that means your personal finances are due for some major changes.
Before you can work on your finances, you may want to consider your overall situation at the moment.
Your 40s mark the middle of your adult life. You have gone past your 20s and your 30s and you are moving towards your 50s and 60s. This is a great time to check how far you have come and what else you can do before you reach your retirement age. Although you are not young, you still have enough time to work on your plans for the future. But to do that, you need to carefully consider what you have made of yourself at the moment. Identifying the general picture of your life will allow you to work on your personal finances easily.
Now working on your finances is not that difficult. If you make regular check ups, you should know where you stand at the moment. However, revolutionizing your finances would mean you have to ask certain questions that will involve not just the present but your past and future plans too.
Here are 4 questions that you may want to ponder on when you reach your 40s.
What progress have you made on your financial goals?
This is the question that will make you look into your past to see how far you have come. According to an article published on PRNewswire.com, only half of Americans are setting and reaching financial goals for themselves. If you do not have any goals, you need to set up one now – at least. You should have a couple to work on while you still have time. Among the goals that you can work on includes buying and owning your own house, setting up a college fund for your children and having sufficient emergency funds.
If you had financial goals back then, now is the time to check on the progress that you have made so far. What were your financial goals when you were in your 20s? What were the goals you have set when you were in your 30s? Where are you in terms of reaching these goals? If you haven’t started yet, well this question should wake you up and get you started. Create a plan that will help you achieve your goals for the next 20 years. That way, your goals can be met before you retire.
How much have you set aside for your retirement?
Speaking of retirement, that is the next question that you need to dwell on. If the average retirement age is 65, then you only have around 25 years left before you need to retire. In case you postponed thinking about retirement, well you can no longer delay it at this point. Whether your personal finances are ready for this goal or not, you need to find a way to save up for your retirement. Most people need at least a million dollars to survive retirement. If you want to reach that amount and you are starting from $0 at the age of 40, you need to contribute $18,226.72 each year (based on a 6% expected annual rate of return). That means you have to put aside more than $1,500 each month until you reach the age of 65. If you delay saving for retirement, that amount you need to put aside each month will be bigger.
Will you take your career to the next level?
The next question that you need to consider involves your career. By the age of 40, it can be assumed that you are already experienced when it comes to your career – unless you decided to switch careers sometime in the past. But if not, you should be able to take your career to the next level. The question is, should you do it? If it will give your personal finances a boost, why not? But if it will endanger your financial resources and you have a lot of obligations to meet, you may want to tread carefully before you decide. If the kids have secure college funds and you already have made good progress in your financial goals and your retirement, then taking a risk may be possible. You can think about quitting your day job to start your own business. Just make sure to consider various career tips before you finalize your decision.
Do you think you need the help of a professional?
If most of your answers to the questions above leave a lot to be desired, then you should probably consider hiring a professional to help put your personal finances in order. If you find it difficult to manage your finances, you need to think about getting financial help. You cannot afford to risk too much at this point – especially if you have a lot of work to do to stabilize your financial position. Doing it yourself is the ideal scenario. But if you do not have the time to work on it, you cannot skip the changes that your financial situation requires. Get help and get it as soon as you can. Even a financial planner can help point you to the right direction. When crunch time comes, you will be glad to have organized your finances.
Manage debt to improve your financial situation
Apart from the 4 questions mentioned above, there is one thing that you need to work on when you reach the age of 40 – your debts. If you do not want to be in debt when you reach retirement, now is the time for you to get serious about paying it all off.
In an article published on Forbes.com, reaching the age of 40 is important because you are closing in on your retirement. Making a mistake at this age in your life will have a more devastating effect as compared to making the same error in your 20s. The article listed 40 rules that will help consumers get their personal finances in order and in the number one spot involves debt. To be specific, the article mentioned that you need to finish paying off your high interest debt before you leave this decade.
Here are three tips that can help you take care of your debts so you can revolutionize your personal finances.
- Know how much you have. First of all, you need to know how much you owe. Make a list of all your debts and include in that list details like your interest rate, lender/creditor, monthly payments etc. If possible, rank them according to priority. Put the high interest debts in the top spot since these are the accounts that are costing you money because of the interest amount.
- Identify your financial capabilities. The next step is to to determine how much you can afford to pay each month. There are debt relief options for different financial situations. If you have limited finances, there are debt solutions that will allow you to lower the balance of what you owe.
- Find out how you can pay off your debts faster. Once you know your financial capabilities, it is time to determine the method by which you will get out of debt. Can you pay the minimum payment requirement easily? Can you afford to pay the balance of your credit cards in full? Check your budget to see if you can cut back on your expenses so you can allot more funds toward your debt payments.
Once you have cleared your debts, try to stay away from them at this point. If you have to use your credit cards, make sure you limit yourself to an amount that you can pay off in full once the billing statement arrives.
Here is a video from National Debt Relief that will help you stay away from debt.