We all go through life making different financial decisions at various points in our lives. Some of us save for college from a young age, some of us make the decision to buy a fancy new car when we turn 21, and so on. But, there are a few financial moves that everyone needs to make before they reach a certain age.
In this post, I’m going to talk about some of the crucial decisions you must make before you’re 40. Why 40? Well, by the time you reach that age, you’re really leaving things quite late to start any financial planning. The earlier you start, the more effective all these moves will be in the future.
So, here’s what you need to do.
Buy a House
Some of you may have lived in rental properties for all of your adult life. There’s nothing wrong with this at all, and it does make sense for a lot of people. If you move around a lot for work, then it doesn’t seem to make sense to buy a house as you won’t be living in it.
Having said that, getting your foot on the property ladder is essential for everyone. If you look at the history of the world, there’s one investment that always yields long-term results; property. Homes that were bought 20 years ago are far more expensive now. They can be an investment that gives you positive returns, so it’s a smart way of tying up your money and keeping it safe.
Not only that, but it’s good to have a place you can call home without a landlord breathing down your neck. There are plenty of things in place that makes it somewhat easier to buy a house now compared to many years ago. Mortgage loans are designed to make homes more accessible and provide an excellent way for you to get on the property ladder. Even if you have to keep moving around renting places, it helps to have a house as well. You can rent it out to other people, which gives you an additional source of income.
Start Planning Your Estate
Estate planning is where you plan for what will happen to your estate when you eventually die. Not the most joyous of things to think about, but there are very few constants in life, and death is one of them. Your ‘estate’ basically refers to all of your assets. By planning your estate, you decide where your things will go, who inherits them, and how to give your family as much of your wealth as possible, while reducing the tax they have to pay.
A healthy individual like yourself will probably wonder why you need to start planning your estate before you turn 40. Well, as you get older, the chances of you getting sick increases, so there’s going to be more risk. But, mainly, you want to plan from a very young age to almost protect your estate if a freak accident happens. You want to ensure that – if something terrible happens to you – then your family aren’t going to be financially ruined. They can easily access your assets and use your money to help them live a comfortable life.
Admittedly, estate planning is complicated. There are no two ways about it, you’re going to need plenty of help to get everything in order. Places like Doug Newborn Law Firm, PLLC offer estate planning services, and you can take things at your own pace. It’s recommended you start planning your estate in your early twenties, gradually making more moves as you get older. So, if the worst happens, you’ve got something in place that protects your family and ensures your assets don’t go to waste.
Achieve a Good Credit Score
It’s impossible to get to 40 without knowing what a credit score is. But, for those of you that might be unaware, it’s basically a score that shows how creditworthy you are. In simple terms, it lets financial institutions and lenders figure out if they should lend you money or not. So, if you want to apply for a credit card or get a loan, then you need a good enough credit score.
You can check your credit score by going online and using one of the free credit checking companies like Experian. More often than not, scores are put into these categories:
- Very Good
Realistically, you want to have at least a Good score by the time you’re 40. You can still get credit cards and loans with Fair or Poor scores, but aim for Good and try to get as high as you can. The better your score, the lower the interest rates you pay and the more credit you’re able to get.
Things that improve your score include paying all your bills on time, using a credit card responsibly, not taking out too many loans, and registering to vote. There’s more advice in the video below:
Get a Credit Card
Talking about your credit score, this seems like the perfect time to mention that you should have a credit card by the time you turn 40 as well. Some of you probably avoid them because they do come with a bad reputation. There’s an article on The Street that says the average credit card debt in the US is $5,331. That’s an awful lot of money, and it refers to the average for each individual with credit card debt! So, I can see why some of you are so put off that you’ve never applied for a credit card.
In my eyes, the only bad thing about a credit card is that it is easy to fall into a debt trap. But, this only happens when you don’t use it properly. If you get a credit card, make sure you set up a direct debit that pays off the full balance every month. The problem most people have is they don’t pay the balance in full. That same article I spoke about earlier said 55% of people don’t pay their entire credit card balance.
This is because you have the option to make a minimum payment, but this just means the rest of your balance gets added to next month, plus interest. If you pay your entire bill in full, then you don’t have to pay any interest at all. So, my advice is to get a credit card and ask for a low credit limit – this is the amount of money you can spend on the card, and a low figure prevents you from going overboard. Then, use it sparingly – buy one or two things every month, then pay off the balance in full.
By doing this, you will see the benefits of a credit card. Primarily, as mentioned before, the key benefit is that you grow a better credit score. But, having a credit card also helps protect your important purchases as well. Say you buy a new laptop but it arrives damaged or the company goes bust before you get your product. If you bought it with your credit card, you will always get the money back. So, don’t be afraid, get a credit card!
Set-Up a Retirement Fund
From the moment you get your first job, you need to think about retirement. That’s not some in-depth analysis of working life being so stressful that you’ll be dreaming of retirement from the very first day! Instead, it’s to do with preparing your finances for your future. When you stop working, you stop getting paid. So, where will the money come from? Government pensions might contribute a bit, but you’ll have no income anymore.
So, when you get a job, set up a retirement fund. Save money for your retirement, so you have something to fund your golden years on earth. You’ll have enough money to pay for plenty of trips and to finance things you couldn’t do when you were working. Retirement doesn’t have to be dull and boring, but you need enough money to help you out.
Most workplaces offer pensions where some of your money goes into a pension pot, then your employer matches it, and it carries on until you retire. This is an excellent way of saving, but you could also get a private one as well. This does the same thing, but you can sometimes get more benefits. If you’re self-employed or working for a greedy company with no pension plan, then you definitely need a private one.
These five financial moves all have one thing in common; they help create financial stability. If you make all of them before you turn 40, then you’re going to be in a very positive financial space. They help you plan your finances more effectively, which will benefit you and your family in the future. If you’ve read through everything and can already say you’ve done them all, then that’s fantastic! But, if you’ve not done one or two things, then make sure you tick them all off your list.