At 40, one reaches a significant milestone in life in both Eastern and Western cultures. As Confucius said, “At forty, I had no doubts.” Turning 40 marks a time when one should enter a clear and organized stage of life.
Personal finance expert George Kamel mentioned on his own media channel that by the age of 40, half of one’s life has passed, making it an ideal moment to pause and evaluate one’s financial status, as well as set future financial goals.
Kamel emphasized that to ensure you and your family are on the right track to wealth accumulation, by the age of 40, you should have achieved the following nine financial goals:
1. If you are in your forties and still burdened with heavy consumer debt, such as car loans, credit card debt, or student loans, apart from a mortgage, it’s crucial to pay it off as soon as possible.
Kamel gave an example, stating that if you had been paying $500 each month towards a car loan for the past 15 years, if you had invested that money instead, you would now have over $200,000, rather than just a car that doesn’t truly belong to you.
In terms of reducing debt, English Epoch Times columnist Mark Ford advised to firstly avoid debt as much as possible. Avoid borrowing to purchase assets that depreciate over time.
Additionally, Ford recommended using a debit card for daily expenses instead of a credit card. If your bank balance isn’t sufficient to buy something, it means you can’t afford it.
Ford believed only two types of debt might be worthwhile: a mortgage and leverage debt. However, both types of debt carry risks and should be handled with care.
Regarding mortgage, the premise is to buy a house at a reasonable price (so it appreciates by around 4% or more annually) and secure a lower mortgage rate.
As for leverage debt, unless you are a highly experienced investor, the only way to accumulate wealth through leveraged debt is through rental properties, turning them into a second source of income.
Ford suggested, “Starting with a single-family home, then a small apartment, and eventually a large apartment. If you understand how to play this game, leveraging debt can significantly boost investment returns.”
Contingency funds are essential in life’s uncertainties. If, by 40, you haven’t saved up funds for emergencies, any unexpected event could severely impact your financial situation.
Kamel mentioned, “In reality, you should have achieved this goal earlier.” He recommended keeping three to six months’ worth of living expenses in a high-yield savings account.
However, achieving the goal of saving three to six months’ worth of living expenses is a challenging target for some individuals in current economic conditions.
Personal finance advisor Lynnette Khalfani-Cox suggested on CNBC Select that when facing significant financial challenges, one could temporarily set aside the aforementioned old rules.
If you face a salary cut or unemployment, your savings should adjust along with your income. If this month’s income is 25% less than the previous month, your savings should also be reduced by 25%.
She recommended setting small goals for oneself, whether a fixed monthly savings amount or a certain percentage of the current income, emphasizing consistency.
Housing prices continue to rise worldwide, making owning a home an increasingly difficult dream for many. However, Kamel believed it’s a goal worth fighting for.
He said, “I understand not everyone wants to own a home…but I believe it’s a great goal.”
“The best time to buy a house is not about age but being financially prepared. Before this, you should clear debts and have emergency funds.”
Kamel advised first-time homebuyers to save a 5% to 10% down payment, sign a 15-year fixed-rate conventional loan, ensuring that the monthly repayment does not exceed 25% of monthly income, or else you could face mortgage stress.
Ford stated, “If you wish to quickly determine when to buy a house or when renting is more suitable, use this formula: never spend more than 100 times your monthly rent on buying a house.”
For example: for a $400,000 house, if it can be rented at $4,500 per month, and $4,500 x 100 = $450,000, then it’s suitable to buy. But if it can only be rented at $3,000, it’s better to rent instead of buying.
Kamel recommended putting 15% of income into a tax-advantaged retirement account. However, before doing this, one needs to ensure consumer debts are paid off and emergency funds are in place.
He pointed out that the compound growth of retirement funds requires time. By starting early and staying consistent with investments, one can become a millionaire or multimillionaire post-retirement.
Kamel said, “If you just hit 40 and are just starting, don’t panic. You have at least 20 more years until retirement, and the following decades are likely when you have the highest income, enabling you to save more for retirement.”
Industry experts noted that calculating how much funds to prepare for retirement is a complex question involving numerous factors like lifestyle, location, retirement age, government pension policies, homeownership, multiple income sources, and the choice of working during retirement.
However, for most people, to sustain their current living standards post-retirement, annual income should be around 70% of the current (after-tax) take-home pay.
This goal applies to those with children or planning to have children. Kamel advised parents to start saving for their children’s college fund before turning 40, even if they are just infants.
You can invite relatives and friends to contribute to this education fund, such as during the child’s birthday or other celebrations, by giving “educational contributions” as gifts.
By 40, you likely have been working for over 15 years, ideally moving up the ladder in your career with room for promotions and development.
Financially, Kamel believed the ideal state is where your income enables you to achieve the five goals mentioned before, with some surplus for savings, investments, and hobbies. If not, significant changes may be necessary.
By the age of 40, your financial situation should be very stable, with the capability to pay more than the minimum mortgage amount.
Kamel emphasized, “Some may tell you not to worry about paying off your mortgage early, as it’s ‘cheap debt’ with low-interest rates. But in my view, it’s best to pay off your mortgage as soon as possible.”
“The reason being, by paying off the mortgage early, you can save tens of thousands of dollars in interest payments, even hundreds of thousands.”
Kamel mentioned that the saved money can be utilized for savings or investments, and being debt-free brings inner peace.
Epoch Times columnist Mark Ford also encouraged people to pay off their mortgages promptly. He illustrated, “Suppose we consider a $500,000 house with a $400,000 loan (20% down payment), a 6.5% interest rate, and a 30-year term. With a monthly mortgage of $2,528, which you can afford, including interest, how much does this house actually cost? In the end, you will pay $910,178 for the house, with more interest paid than principal. For Canadians, a standard 25-year mortgage with monthly repayments of $2,700 for the same house means you will ultimately pay $810,249, over twice the original price.”
This goal might surprise many, but Kamel believed that hitting 40 doesn’t mean you should become a dull adult.
Kamel noted that even if you don’t have much wealth, you should always embrace the concept of charitable giving.
He stated, “I always tell people that generosity is crucial; start by giving a little before you can contribute a lot. A good benchmark is donating 10% of your income.”
Numerous studies have found that individuals who are generous and altruistic tend to be healthier. Giving doesn’t just mean monetary donations but can also include giving your time and talents.