Our question of the month comes in from Anonymous from Cleveland:
Hi Andy,
I just finished reading an article of yours about paying off your mortgage early. Congratulations on that. I have a 30-year mortgage and I’m not sure if I want to pay it off, but it got me thinking about where I should be with my financial goals.
I’m 35, married, two kids. I want to make sure I’m on track.
What financial goals should I have checked off my list by the time I turn 40?
Do you have any articles on that?
Thanks,
Anonymous
Thank you for connecting!
I’m glad the mortgage article got you thinking about your financial goals. Paying off your mortgage is not for everyone. It’s a little crazy and some folks would prefer to invest their money instead. To each their own.
Mortgage freedom aside, your question is fun and it got me thinking. There are so many things that could qualify as smart money moves before you’re 40!
I’m going to list a bunch of them for you to consider. Just take the ones you like and leave the rest. To support me in my answer, I’ve asked the incredible money minds of the FinCon Community to weigh in with their thoughts.
1. Learn to Pay Yourself First
“If you can get in the habit of always putting away a portion of your income every single time you get paid, you'll get so much further ahead than everyone else.”
-Amy White from Daily Successful Living
2. Develop a Healthy Emergency Fund
“The (Emergency) Fund serves as a layer of protection between you and unexpected events such as a job loss, a medical condition that requires the immediate outlay of a high deductible or dealing with an emergency travel situation.
What this does is not only help you react from a strong financial position but also from an emotional standpoint. This way you can navigate the stress that comes with unexpected situations.
It gives you greater peace of mind knowing you can positively react to a negative situation.”
-Kassadra Dasent, CFEI from Minding Your Money
Related Article: 5 Smart Reasons to Have an Emergency Fund
3. Take Advantage of the Power of Automation
“Automate all of your savings and automate your debt pay off. By automating them, you never have to worry and the goal is always achieved.
In addition, you need to automate the decision points of when you increase savings as well as when you pay off debt. (When the debt is gone), take the amount you were spending for debt and automatically add it to your saving rate.
By constantly building wealth and staying out of debt, over time, compounding works. I have made so many money mistakes over my life. It's amazing that one simple principle has allowed me to become a multi-millionaire.”
-Rocky Lalvani, Podcast Host of Richer Soul
4. Become Student Debt Free
“Carrying this high-cost debt for multiple years can be costly and take away from money needed elsewhere in your financial plans.
These payments take away from retirement savings, raising a family, and affording a comfortable lifestyle. It also adds an ongoing burden requiring you to pay for an investment in your education made almost two decades prior (assuming you completed a traditional, 4-year college enrollment directly following high school).”
-Riley Adams from Young and the Invested
5. Reassess Your Retirement Allocations
“That sounds really complicated, but it just means that you're no longer 20 or 30. At each major age milestone, you need to take a look at how much of your retirement is in stocks versus bonds.
Going over your asset allocations in your retirement accounts at various age milestones is super important to do. Let's just say, you don't want to be close to retirement age and get wiped out due to another crash like 2008 because you are over-invested in stocks.
You need to make sure you will have enough time to weather the ups and downs and get back to where you were before you want to retire, and that's why you need to make sure you have the right percentages in stocks versus bonds.”
-Amanda Grossman, CFEI from Frugal Confessions
Related Article: How Do I Find the Best Financial Advisor?
6. Know Your True Retirement Needs Based on Expenses (Not Income)
“It is hard to end up at a point if you don't know what that point is. Making it a realistic point makes it more of a psychological win towards attaining that goal.
Save at least 25% of your gross (income) into investment vehicles. For me having 1/3 (of the expenses saved in taxable accounts) at a minimum says you have been socking away more than the average person. When the time comes, compounding will work for you when you are on the back half of your career.”
-Raj Chavda from Parenting FI
7. Max Out Your 401k
“If you're working, odds are that your employer offers you a 401k retirement plan. You want to participate because of taxes.
First, your contributions are tax-deductible. The money you contribute does not count towards your gross income for the year. Lowering your taxable income means you'll owe less taxes.
Second, your money in the plan grows tax-deferred. If you saved money in a savings account or a brokerage account, you would have to pay taxes on the interest or the dividends at the end of the year. With a 401k plan, you don't pay taxes until you take the money out. Your savings grow faster this way.
I want your goal to be maxing out your contributions, meaning you want to save as much as possible. If you cannot max out your 401k right now, aim to save at least enough to get the match. Many employers offer a match which means that dollar for dollar, you can double your money.
If your company matches up to 6%, make sure you're contributing 6%. That's free money!”
-Andy Wang, CFP from the Inspired Money Podcast
8. Max Out Your IRA Too
“20 or 30 years from now you want to be able to retire and enjoy your later years without financial worry or care. Not only that, you want to be a financial blessing instead of a burden to your adult children (if you have them). The best way to get there is to stash away as much as you can now.
By the time you hit the big 4-0, you've had at least 10, maybe even 20 years, of career experience under your belt and you're very well approaching your peak earning years. So if you've played your cards right, hopefully by the time you turn 40, you've been able to craft a favorable financial situation for yourself.”
“You can max out both a 401k and an IRA in the same year. Depending on your financial situation, it may make more sense to put your money in a Traditional IRA or a Roth IRA.
“So if you're looking 40 in the face, make sure you're putting as many golden eggs into that retirement basket so they can grow tax free or tax deferred for the next 20 or 30 years until you retire.”
-Logan Allec, CPA from Money Done Right
9. Diversify Beyond Your 401k and IRA
“I do wealth management so I'm a big fan of investing in the stock market, but one of the bigger mistakes I see people make is only having one type of asset class. They only invest in stocks, bonds and mutual funds instead of investing in things like real estate or some other types of non-correlated assets.
Most people's plan is “I'm going to put my money in my 401k or my IRA and invest it in the market, retire and then pull money out as I need it.” Well, that is fraught with risk.
You should own multiple types of assets. Everything should be coordinated in such a way where everything compliments each other.
Diversifying beyond your 401k and your IRA is very important as long as it's in line with your overall goals.”
-Andrew Martin, Founder and President of Atlas Financial Strategies
Related Article: I've maxed out my 401k. Where else can I invest?
10. Diversify Your Income (Outside of Your Day Job)
“If for some reason you get laid off or lose your job in the future, you will have other streams of income to help cover expenses. The more streams of income you create apart from your job, the less you rely on one source of income (your employer) to pay your bills and earn a living. It is better to have multiple streams of income versus one (your job).”
-Rachel Hernandez from Adventures in Mobile Homes
11. Own Your Own Business
“Owning a business allows for you to have complete flexibility in your work/life balance. In addition, owning a business can challenge you professionally more than anything else you will learn working for ‘the man.'”
-Former Investment Banker and Financial Blogger Millionaire Mob
12. Have a Last Will & Testament
“For most people, by the time you get into your 40s, you have some assets collected. However, you also have a wife or kids or some other dependents and it's important that there's a clear and direct path to let the people you love easily get access to your assets if something goes awry.
The best part is that getting a will is relatively painless. However, it helps make any issues that may arise in an unfortunate circumstance a lot easier on the people who have to continue on.
It makes your wishes clear and that's something many people don't consider when they start saving money. Naturally, no one plans to pass away any time soon, especially as young as 40 but you have to be realistic and don't want to let your wealth be misappropriated or cause undue stress and anxiety on your family.”
-Jarek from Time In the Market
13. Have 3 Times Your Salary Saved for Retirement
“Let's use simple numbers and say that by the time your turn 40, you're making $100,000.”
3 x $100,000 = $300,000 saved in retirement
“Ideally, you'd have more, but I think 3x your salary is a nice barometer for that age. Don't be discouraged if you're not there yet. Just know that you'll have some catching up to do because by the time you turn 50, you're going to want 6x your income.
Here's why I think 3x your income is a nice goal to have by age 40. The income you're making now is something you're already accustomed to living on so it's probably a good indication of the style of living you're going to have in retirement.”
“If you're investing your money wisely, it could very well double every 10 years. Your $300,000 today could be well over $1,000,000 by age 60.”
–Brandon Opre, CFP from TrustTree Financial
14. Give to a Charity That Inspires You
Earning money, investing money and saving money is important, but giving it away can be lots of fun too. By 40, I’d encourage you to seek out a charity that really inspires you. A cause that lights you up.
Whether it’s the environment, endangered animals or kids affected by childhood cancer (like Brandon Opre's organization A Prom to Remember), find your charity and give.
Personally, I love charities that focus on giving kids a better shot at life. They are our future.
And really, that’s what these 14 points are all about! Investing in our future.
Thanks for writing in Anonymous!
CLICK THE PLAY BUTTON ABOVE OR LISTEN ON:
Money Master of the Week
Kyle from Kansas recently got his mortgage principal under the $100k mark for the first time! He is loving being in 5-figure mortgage land!
They paid off $88,000 on their principal in just 32 months.
Here are the top three things Kyle did to make this happen:
- Team work and financial transparency with his wife who’s been onboard since day 1
- Setting smaller short term goals with the monster goal (they celebrate each $10k and make it fun)
- Dedicating all income (including bonuses and commissions) above monthly expenses (mortgage, bills, groceries, transportations, etc.) directly to the mortgage principal
Can't wait to hear when this mortgage is paid off! I look forward to celebrating with you, Kyle!
Kyle is our Money Master of the Week!
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-Frederick Douglass
What would you add to the list of money goals before you're 40 years old?
Please let me know in the comments below.
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