Whether you’re just a few short years away from 40, or it’s still a decade away, getting your finances together before you turn 40 should be a priority for everyone. Forty years old is just a few decades shy of the average retirement age (which is around 62/63 years old). You won’t want old financial burdens keeping you tied down during your golden years, would you? Here’s how to get your finances in order before your 40th birthday.
Practice and Master Financial Discipline
Discipline is a practice that everyone should learn to master. Discipline keeps you from spending that extra $100 when you should save it. It helps you put down the cookie even though you really want it, but know you should work out instead. Discipline makes you the master of your mind, body, and, of course, your wallet.
Financial discipline is a must by the time you’re forty years old. An eighteen-year-old who just signed up for their first credit card isn’t expected to have much discipline, as they haven’t had enough financial experience (or hardship) to understand it yet. But you have. You know that you shouldn’t be recklessly spending with high-interest cards, or buying electronics or other expensive goods on credit. You know you’ve got a mortgage payment coming up and you shouldn’t pay that $200 for a night out.
Financial discipline can certainly be taught, but more than likely, you’ll learn it through trial and error. You should be paying close attention to your financial mistakes. What did you do wrong? How could you have changed the outcome? What will you do better in the future to prevent such occurrences? Reflection is the best way to achieve discipline and improve yourself on a daily basis.
Talk to an Expert
Even with all of the discipline in the world, you might not be great at managing or growing your money; which is ok. That’s why there are experts called financial advisors and planners that can help you formulate a plan to maximize your savings and minimize your overall debt. A financial advisor will also help you with your investment portfolio; gathering information and making decisions for you that are in the best interest of your money.
Even if you’re a self-made master of finance, there’s always something you may not know of that you could have missed. Having a trained eye review and/or manage your finances can ensure the best possible results. By 40, you should have at least met with a financial expert to go over your savings and retirement plans, investment accounts, and monthly income/expense ratio. Read this list of the best financial advisors to get an idea of what they do and where to find one that’s right for you.
Pay off Bad Debt
We’ve briefly touched on “bad debt” already in this article; those high-interest credit cards you use to finance electronics and other goods. These fall into the category of bad debt because they don’t provide a return of any kind. In fact, most of the time, the items we buy on credit actually lose their value over time. This makes that extra interest cost of purchasing the item with a credit card feel even more expensive.
Bad debt is like a shadow in the room. It doesn’t serve any purpose but to burden you with amounts that you definitely don’t want to carry with you into retirement, and it can make your credit report look pretty bad (especially if you make late payments or miss payments).
Get Your Credit Together
Speaking of credit reports, this is another part of your financial health that should be in good standing by age 40. If your credit score is below average and you have several negative marks on your report, it’s time to take action and clean up your report.
Start by identifying any outstanding or collection balances you may have. Pay them off, and then contact your credit bureau to petition them to expedite getting those items removed from your credit report. This will help boost your credit score and make your overall report look that much better.
Minimize Your Overall Debt
Debt is a ball and chain that keeps you locked in place when you want to move forward. Having an incredible amount of debt hanging over your head at 40 can be extremely intimidating, and it’s certainly not something you want to take with you to retirement. If postponing your trip to California until retirement means saving some money, it should be a no-brainer that your priority is to save rather than spend.
Your overall debt includes everything you’re indebted to; whether it be your car, home, credit cards, or something else. You should be paying to reduce your debt on a monthly basis, even paying more than your payment amount if possible to expedite the pay-off process. Imagine if your car, house, and credit card debt were all paid off. You wouldn’t have many expenses to take with you into retirement, which is how it should be.
Getting your finances in order starts with getting rid of bad debt, mastering financial discipline, and getting your credit together. Don’t underestimate the power of just a few dollars a month put towards your debts. This will help reduce the overall amount until it becomes a little more manageable. Every dollar counts! Don’t take bad debt with you into retirement. Although you’ve still got about twenty years at age forty before retirement, it will go by rather quickly, and you’ll want to have any and all debt paid off before that coveted final day of work.