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How Much Money Should I Have Saved by the Time I’m 40?
McKenzie Cordell

As a woman in her mid-30s, I’m well aware of the fact that an awfully big birthday is just around the corner. That got me thinking: How much money should I have saved by the time I reach 40?

I turned to Priya Malani, founder of the financial planning firm Stash Wealth, to hear what she had to say.

1. You Should Have Three Months of Fixed Expenses Set Aside

Fixed expenses like mortgage, utilities and groceries aren’t optional, which is why most experts agree that you need three months of cash in reserve just in case you experience a loss of income.

Why the three-month rule? Malani explains that’s the average amount of time it takes a 40-year-old to find a new job, and interestingly, the time period increases the older you get. In fact, by 50, she recommends that most clients have six months of expenses socked away.

2. You Should be Working Towards the ‘80 Percent’ Rule

Unless you’re planning to hole up like a monk, Malani explains that, in retirement, most folks will want to live on 80 percent of the amount they were earning previously. What does this mean? Let’s say you and your spouse are making $125,000 a year. For your remaining years, you’ll want to live on something like $100,000 a year. Or a grand total of $2.5 million if you live another 25 years. Don’t freak out, though: While $2.5 million might sound like a lot, it’s actually pretty achievable if you aggressively save in a 401(k) or IRA. What’s more, you don’t need to have all that in your account when you retire—rather, your well-invested portfolio will continue to earn money for every year of your retirement. Try using an online retirement savings calculator to figure out exactly how much you should be putting aside to stay on track.

3. You Should Have $5,000 In a Splurge Account 

Reminder: Your emergency savings is for just that…emergencies. Still, by 40, we firmly believe you deserve a spontaneous luxury fund. Maybe it’s for a trip to Paris you’ve been meaning to take with your mom. Or the kitchen reno you’ve been dying to do. According to Malani, having as little as $5,000 (but as much as $20,000) stashed away for impulse buys is a popular savings goal at 40. Just think of it as the big-girl version of a little-kid piggy bank. 

RELATED: I’m a Money Editor and These Are the Best Savings Tips I Learned on the Job

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