You should also know that financial success is not a matter of luck, it is a result of several smart decisions and consistent efforts you’ve been putting into managing your money wisely.
Well, I have good news for you and the good news is that you can achieve financial success before you turn 40 if you want to. So, it’s left to you to make the decision to take control of your finances starting today.
Now, let me share 10 financial milestones that you should aim to hit before you turn 40.
Why Financial Milestones Matter
Before we dive into the milestones, let me explain why having financial goals and milestones is important. Financial milestones are like checkpoints on your journey to financial freedom and they help you measure your progress and stay motivated.
The truth is that most people do not pay attention to their finances when they are young and they regret it when they are older. You will hear people in their 40s and 50s saying “I wish I had started saving and investing earlier” or “I wish I had been more careful with my money when I was younger.”
If you are reading this article and you are in your 20s or 30s, then you have a great advantage because you still have time to build wealth and achieve financial security. But even if you are already in your 40s or older, it is never too late to start improving your financial situation.
I know that talking about money can be uncomfortable for some people, but you need to overcome this discomfort if you want to be successful financially. Money is an important part of life and you need to learn how to manage it well if you want to live a comfortable and stress-free life.
Let me share with you 10 financial milestones that you should aim to hit before you turn 40.
Milestone 1: Build an Emergency Fund of 3-6 Months of Expenses
The first and most important financial milestone you should hit is building an emergency fund. An emergency fund is money that you set aside to cover unexpected expenses like medical bills, car repairs, job loss, or any other emergency that might come up.
Just make up your mind to build your emergency fund no matter what it takes because that’s the difference between someone who is financially secure and someone who lives paycheck to paycheck. Successful people have emergency funds while those who struggle financially do not have any savings to fall back on.
Why You Need an Emergency Fund
Life is unpredictable and emergencies can happen at any time. If you do not have an emergency fund, you will be forced to borrow money when an emergency happens and this can put you in debt that will take years to pay off.
When you have an emergency fund, you can handle unexpected expenses without stress and without going into debt. This gives you peace of mind and financial security.
How to Build Your Emergency Fund
You should start by calculating how much money you spend every month on essential expenses like rent, food, utilities, transportation, and other necessary bills. Once you know your monthly expenses, you should aim to save 3 to 6 months worth of expenses in your emergency fund.
For instance, if your monthly expenses are $2,000, then your emergency fund should be between $6,000 and $12,000. If your monthly expenses are $3,000, then your emergency fund should be between $9,000 and $18,000.
I know that this might seem like a lot of money, but you should not be discouraged. You can build your emergency fund gradually by saving a small amount every month. Even if you can only save $100 per month, you should start there and increase the amount as you earn more money.
You should keep your emergency fund in a savings account that is separate from your regular checking account so that you are not tempted to spend it on non-emergency expenses.
I built my emergency fund by saving 10% of my income every month and within two years, I had six months of expenses saved up. This gave me so much peace of mind and it helped me sleep better at night knowing that I could handle any emergency that came my way.
Milestone 2: Eliminate All High-Interest Debt
The second financial milestone you should hit before you turn 40 is eliminating all high-interest debt. High-interest debt includes credit card debt, payday loans, and any other loans with interest rates above 10%.
High-interest debt is one of the biggest obstacles to building wealth because the interest you pay on this debt eats away at your income and makes it difficult to save and invest.
Why High-Interest Debt Is Dangerous
Let me explain why high-interest debt is so dangerous using an example. If you have $5,000 in credit card debt with an interest rate of 18% and you only make the minimum payment every month, it will take you over 20 years to pay off the debt and you will pay over $6,000 in interest.
That’s $6,000 of your hard-earned money going to the credit card company instead of going towards building your wealth. This is why you need to eliminate high-interest debt as quickly as possible.
How to Eliminate High-Interest Debt
You should start by listing all your debts and their interest rates. Then you should focus on paying off the debt with the highest interest rate first while making minimum payments on the other debts.
Once you pay off the highest interest debt, you should move on to the next highest interest debt and repeat the process until all your high-interest debts are paid off.
You should also avoid taking on new high-interest debt while you are paying off your existing debt. This means you should stop using your credit cards for purchases that you cannot afford to pay off immediately.
Some people do not like the idea of living without credit cards, but the truth is that credit cards are dangerous if you do not have the discipline to pay them off in full every month. If you cannot control your spending with credit cards, then you should stop using them until you develop better financial habits.
Milestone 3: Have a Positive Net Worth
The third financial milestone you should hit before you turn 40 is having a positive net worth. Your net worth is the total value of everything you own (your assets) minus the total value of everything you owe (your liabilities).
Your assets include things like cash, savings, investments, retirement accounts, real estate, and any other valuable items you own. Your liabilities include things like student loans, car loans, mortgages, credit card debt, and any other money you owe.
Why Net Worth Matters
Your net worth is the best measure of your overall financial health because it takes into account both what you own and what you owe. You can have a high income and still have a negative net worth if you have more debt than assets.
For example, someone who earns $100,000 per year but has $150,000 in debt and only $50,000 in assets has a negative net worth of -$100,000. On the other hand, someone who earns $50,000 per year but has no debt and $75,000 in assets has a positive net worth of $75,000.
The person with the lower income but positive net worth is actually in a better financial position because they are not burdened by debt.
How to Increase Your Net Worth
You can increase your net worth in two ways: by increasing your assets or by decreasing your liabilities. The best approach is to do both at the same time.
You should focus on saving and investing money to increase your assets while also paying off your debts to decrease your liabilities. Over time, as your assets grow and your debts shrink, your net worth will become positive and continue to grow.
You should calculate your net worth at least once a year to track your progress. This will help you stay motivated and make better financial decisions.
Milestone 4: Save at Least 1x Your Annual Salary for Retirement
The fourth financial milestone you should hit before you turn 40 is saving at least one times your annual salary for retirement. This means if you earn $50,000 per year, you should have at least $50,000 saved for retirement by the time you turn 40.
I know that retirement might seem far away when you are in your 20s or 30s, but the truth is that the earlier you start saving for retirement, the easier it will be to build a comfortable retirement fund.
Why You Need to Start Saving for Retirement Early
The reason you need to start saving for retirement early is because of compound interest. Compound interest means that the money you invest earns returns, and then those returns also earn returns, and this cycle continues over time.
For example, if you invest $10,000 at age 25 and earn an average return of 7% per year, that $10,000 will grow to over $76,000 by the time you are 55. But if you wait until age 35 to invest that same $10,000, it will only grow to about $38,000 by age 55.
This shows you the power of starting early. The 10-year difference in starting age results in a difference of almost $40,000 in your final retirement savings.
How to Save for Retirement
You should take advantage of retirement accounts like 401(k), IRA, or any other retirement savings plan available in your country. Many employers offer matching contributions to retirement accounts, which means they will contribute money to your retirement account if you contribute.
For instance, your employer might match 50% of your contributions up to 6% of your salary. This is free money and you should always contribute enough to get the full employer match.
You should aim to save at least 15% of your income for retirement every year. If you cannot afford to save 15% right now, you should start with whatever you can afford and gradually increase the percentage as your income grows.
I started saving for retirement when I was 25 years old and even though I could only afford to save 5% of my income at first, I gradually increased it to 15% over the years. Now I am on track to have a comfortable retirement and I am grateful that I started early.
Milestone 5: Own Your Primary Residence (or Have a Plan to Own One)
The fifth financial milestone you should hit before you turn 40 is owning your primary residence or at least having a clear plan to own one. Owning your home is one of the most important ways to build wealth because real estate typically appreciates in value over time.
The Benefits of Home Ownership
When you own your home, you are building equity instead of paying rent to a landlord. Equity is the portion of the home that you own after subtracting what you still owe on your mortgage.
For example, if your home is worth $300,000 and you owe $200,000 on your mortgage, then you have $100,000 in equity. As you pay down your mortgage and as the value of your home increases, your equity grows.
Home ownership also provides stability because you don’t have to worry about rent increases or being asked to move out by your landlord. You have control over your living situation and you can make changes to your home as you wish.
Things to Consider Before Buying a Home
You should not rush to buy a home if you are not financially ready. Before you buy a home, you should have a stable income, a good credit score, an emergency fund, and enough money for a down payment.
The general rule is that you should aim to put down at least 20% of the home price as a down payment to avoid paying private mortgage insurance. For instance, if you are buying a $200,000 home, you should aim to have at least $40,000 for the down payment.
You should also make sure that your monthly mortgage payment is affordable and does not exceed 28% of your gross monthly income. This ensures that you have enough money left over for other expenses and savings.
Some people do not want to own a home because they prefer the flexibility of renting or they live in expensive cities where home ownership is not practical. That’s okay, home ownership is not for everyone, but you should at least have a plan for your housing situation in the long term.
Milestone 6: Have Multiple Streams of Income
The sixth financial milestone you should hit before you turn 40 is having multiple streams of income. Relying on just one source of income is risky because if you lose that income, you have nothing to fall back on.
Just make up your mind to create multiple streams of income because that’s the difference between someone who is financially secure and someone who lives in constant fear of losing their job. Successful people have multiple streams of income while those who struggle financially rely on just one source of income.
Types of Income Streams
There are many different types of income streams that you can create. Here are some examples:
Active Income: This is income that you earn from working, such as your salary or wages from your job.
Business Income: This is income that you earn from running your own business, whether it is a full-time business or a side business.
Investment Income: This is income that you earn from investments such as stocks, bonds, real estate, or other assets. This includes dividends, interest, and capital gains.
Rental Income: This is income that you earn from renting out property, such as a rental home, apartment, or even a room in your house.
Freelance or Consulting Income: This is income that you earn from offering your skills and expertise on a freelance or consulting basis.
Passive Income: This is income that you earn with little to no ongoing effort, such as royalties from books, courses, or intellectual property.
How to Create Multiple Streams of Income
You should start by identifying skills or assets that you can use to create additional income streams. For instance, if you are good at writing, you could start freelancing as a writer. If you have extra space in your home, you could rent it out on platforms like Airbnb.
You should not try to create all these income streams at once because that will overwhelm you. Instead, you should focus on creating one additional income stream at a time, and once it is generating consistent income, you can add another one.
I have multiple streams of income including my primary job, freelance work, investment income, and rental income from a property I own. Having these multiple streams gives me financial security and peace of mind because I know that if I lose one stream, I still have others to support me.
Milestone 7: Invest Consistently in the Stock Market or Other Assets
The seventh financial milestone you should hit before you turn 40 is investing consistently in the stock market or other assets. Investing is one of the most powerful ways to build wealth over time because your money grows through compound returns.
Why Investing Is Important
Many people think that saving money is enough to build wealth, but the truth is that saving alone is not enough because inflation erodes the value of your money over time. If you just keep your money in a savings account earning 1% interest while inflation is 3%, you are actually losing 2% of your purchasing power every year.
Investing allows your money to grow at a rate that beats inflation and builds real wealth over time. Historically, the stock market has returned an average of 7-10% per year over the long term, which is much higher than what you can earn in a savings account.
How to Start Investing
If you have never invested before, you might feel intimidated by the stock market, but you should not let fear stop you from investing. You can start by investing in low-cost index funds that track the overall market rather than trying to pick individual stocks.
Index funds are diversified, which means they invest in many different companies, so your risk is spread out. They also have low fees, which means more of your money stays invested and grows over time.
You should aim to invest at least 10-15% of your income every month in the stock market or other assets like real estate. The key is to be consistent with your investing and to stay invested for the long term, even when the market goes down.
I started investing in index funds when I was in my late 20s and it was one of the best financial decisions I ever made. Even though there were times when the market went down and I was tempted to sell, I stayed invested and my portfolio has grown significantly over the years.
You should also educate yourself about investing by reading books, taking courses, or working with a financial advisor. The more you know about investing, the more confident you will be in making investment decisions.
Milestone 8: Have Adequate Insurance Coverage
The eighth financial milestone you should hit before you turn 40 is having adequate insurance coverage. Insurance is important because it protects you from financial disasters that could wipe out all your wealth in an instant.
Types of Insurance You Need
There are several types of insurance that you should have before you turn 40:
Health Insurance: This protects you from high medical costs in case of illness or injury. Medical bills can be very expensive and without health insurance, a serious illness could bankrupt you.
Life Insurance: This provides financial support to your family in case something happens to you. If you have dependents who rely on your income, you need life insurance to ensure they are taken care of if you die.
Disability Insurance: This replaces a portion of your income if you become disabled and cannot work. Many people overlook disability insurance, but the truth is that you are more likely to become disabled during your working years than you are to die.
Home Insurance: This protects your home and belongings from damage or theft. If you own a home, you need home insurance to protect this valuable asset.
Auto Insurance: This protects you from financial loss in case of a car accident. Most places require auto insurance by law, but you should make sure you have adequate coverage.
How Much Insurance Do You Need
The amount of insurance you need depends on your individual situation. For life insurance, a general rule is to have coverage equal to 10-12 times your annual income. For instance, if you earn $50,000 per year, you should have at least $500,000 in life insurance coverage.
For health insurance, you should choose a plan that provides adequate coverage for your needs while being affordable. You should pay attention to the deductible, copayments, and out-of-pocket maximum when choosing a health insurance plan.
You should review your insurance coverage every year to make sure it still meets your needs. As your life changes, your insurance needs may change as well.
Some people do not like paying for insurance because they see it as wasted money if they never use it. But the truth is that insurance is not about hoping you will use it, it is about protecting yourself from financial disaster if something bad happens. You cannot predict the future, so you need to be prepared.
Milestone 9: Increase Your Income by at Least 50% from Your Starting Salary
The ninth financial milestone you should hit before you turn 40 is increasing your income by at least 50% from your starting salary. For instance, if your first job paid you $40,000 per year, then by the time you turn 40, you should be earning at least $60,000 per year.
Why Increasing Your Income Is Important
Increasing your income is important because it allows you to save more, invest more, and achieve your financial goals faster. While it is important to live below your means and manage your money well, there is a limit to how much you can save if your income is too low.
The more you earn, the more you can save and invest, and the faster you can build wealth. This is why you should always be looking for ways to increase your income throughout your career.
How to Increase Your Income
There are many ways to increase your income. Here are some strategies:
Negotiate Your Salary: Many people accept the first salary offer they receive without negotiating. You should always negotiate your salary when you are offered a new job or when you are due for a raise. Even a small increase in salary can add up to a significant amount over time.
Switch Jobs: Sometimes the fastest way to increase your income is to switch to a different company. Studies show that people who change jobs every few years earn more over their lifetime than people who stay with the same company.
Learn New Skills: You should continuously learn new skills that are valuable in the job market. The more skills you have, the more valuable you are to employers, and the more you can earn.
Start a Side Business: You can increase your income by starting a side business in addition to your regular job. This could be freelancing, consulting, selling products online, or any other business that you can run in your spare time.
Ask for More Responsibility: You should volunteer for challenging projects and ask for more responsibility at work. When you take on more responsibility and deliver results, you position yourself for promotions and raises.
I have increased my income by over 150% from my starting salary by using these strategies. I negotiated my salary at every opportunity, I switched jobs twice to get significant pay increases, and I started side businesses that generate additional income.
Disciplined people are always looking for ways to increase their value and their income, they don’t just accept their current situation and complain about not having enough money.
Milestone 10: Have a Written Financial Plan and Review It Regularly
The tenth financial milestone you should hit before you turn 40 is having a written financial plan and reviewing it regularly. A financial plan is like a roadmap that guides your financial decisions and helps you stay on track to achieve your financial goals.
Why You Need a Financial Plan
Most people do not have a financial plan and they just drift through life making financial decisions without any clear direction. This is why many people end up in their 40s and 50s with little to no savings and no clear path to retirement.
When you have a financial plan, you know exactly where you are going and how you are going to get there. You have clear goals, you know how much you need to save and invest, and you can measure your progress over time.
A financial plan also helps you make better financial decisions because you can evaluate every decision against your plan. For instance, if you are thinking about buying an expensive car but your financial plan shows that you need to save more for retirement, you can make the decision to delay the car purchase and focus on your retirement savings instead.
What Should Be in Your Financial Plan
Your financial plan should include the following:
Your Financial Goals: Write down your short-term goals (1-3 years), medium-term goals (3-10 years), and long-term goals (10+ years). Your goals might include things like buying a home, saving for retirement, starting a business, paying for your children’s education, or traveling the world.
Your Current Financial Situation: Document your income, expenses, assets, liabilities, and net worth. This gives you a clear picture of where you are financially.
Your Budget: Create a monthly budget that shows how much money you earn and how much you spend on different categories. Your budget should ensure that you are spending less than you earn and saving at least 20% of your income.
Your Savings and Investment Strategy: Write down how much you will save every month, where you will invest your money, and what asset allocation you will use.
Your Insurance Coverage: Document what insurance policies you have and whether they provide adequate coverage for your needs.
Your Debt Repayment Plan: If you have any debt, write down your plan for paying it off, including which debts you will pay off first and when you expect to be debt-free.
How to Create and Maintain Your Financial Plan
You can create your financial plan yourself using a spreadsheet or notebook, or you can work with a financial advisor who can help you create a comprehensive plan.
Once you have created your financial plan, you should review it at least once a year and update it as your life circumstances change. You should also review your plan whenever you have a major life event like getting married, having children, changing jobs, or buying a home.
I review my financial plan every January and it helps me stay focused on my goals throughout the year. I also make adjustments to my plan whenever my circumstances change. Having a written financial plan has been one of the key factors in my financial success.
Additional Tips for Achieving Financial Success Before 40
Let me share some additional tips that can help you achieve these financial milestones before you turn 40.
Live Below Your Means
One of the most important habits for achieving financial success is living below your means. This means spending less than you earn and saving the difference.
Many people fall into the trap of lifestyle inflation where they increase their spending every time their income increases. For instance, they get a raise and immediately upgrade their car or move to a more expensive apartment.
You should avoid lifestyle inflation and instead maintain the same lifestyle even as your income increases. This allows you to save and invest more money and build wealth faster.
Avoid Comparing Yourself to Others
One of the biggest mistakes people make is comparing their financial situation to others. You see your friends or colleagues buying expensive cars, living in big houses, or taking expensive vacations, and you feel pressure to keep up with them.
The truth is that you don’t know the full financial picture of other people. They might be drowning in debt or living paycheck to paycheck even though they appear successful on the outside.
You should focus on your own financial journey and your own goals instead of trying to keep up with others. What matters is that you are making progress towards your goals, not how you compare to others.
Be Patient and Persistent
Building wealth takes time and there are no shortcuts. You need to be patient and persistent in following your financial plan even when it feels like progress is slow.
Life can easily break you down if you do not have the right attitude towards money. Instead of getting discouraged when you face financial setbacks, you should see them as learning opportunities and keep moving forward.
Success is not a day of work, it is a result of several smart decisions and consistent efforts you’ve been putting into managing your money wisely over many years.
Educate Yourself About Personal Finance
You should continuously educate yourself about personal finance by reading books, listening to podcasts, watching videos, or taking courses. The more you know about money, the better financial decisions you will make.
Some good books on personal finance that I recommend include “The Total Money Makeover” by Dave Ramsey, “Rich Dad Poor Dad” by Robert Kiyosaki, “The Millionaire Next Door” by Thomas Stanley, and “I Will Teach You to Be Rich” by Ramit Sethi.
You should make it a habit to learn something new about money every month. This continuous learning will pay dividends throughout your life.
Conclusion
I have discussed 10 financial milestones that you should aim to hit before you turn 40. I’m sure that as you were reading, you might have realized that you have already achieved some of these milestones and you still need to work on others.
The truth is that achieving financial success is a journey, not a destination. You should focus on making progress every day, every month, and every year. Even if you have not achieved all these milestones yet, you should not be discouraged because it is never too late to start.
Do not just read this article without taking action. You should review your current financial situation, identify which milestones you have achieved and which ones you still need to work on, and create a plan to achieve the remaining milestones.
Remember that you do not need to achieve all these milestones at once. You should focus on one milestone at a time and celebrate your progress along the way. Small consistent actions repeated over time lead to massive results.
You should also be kind enough to share this article with your friends and family so that they can also learn about these important financial milestones and work towards achieving them.
All you need to do is start where you are, use what you have, and do what you can. Every small step you take towards achieving these financial milestones is a step towards a more secure and prosperous future.
Cheers to more financial success in life.
Be a good friend, and share this wealth of knowledge with others who need it.