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The first wave of millennials is about to turn 40. Time for a financial checkup

Key Points
  • The first members of the millennial generation, born in 1980, will turn 40 next year.
  • Millennials are behind where Gen X was at this age, due to coming of age during the Great Recession and student debt.
  • But they own homes and have children and need to make sure their finances are in order and in line with long-term life and wealth goals.
Clemens Porikys | Getty Images Entertainment | Getty Images

For all the hype about the upcoming presidential election in 2020, there is something coming earlier that is much bigger, and its ramifications for the global economy will last for decades. What am I talking about? The first wave of millennials is about to turn 40.

That's right. This super-caffeinated, highly educated generation is rapidly approaching — Wait for it! Sit down for it! Dare I say it? — middle age. The youngest of millennials, those born in 1980, are just completing college. Once we ring in 2020, the first millennials will reach four decades.

Much has been made of how different millennials are from previous generations. The reality is that many own houses and have kids and in many ways are as conventional as prior generations. Though it wasn't easy. They're still behind where Gen X was at this age, mainly due to coming of age during the Great Recession, an overload of student debt and the fact that many are struggling to save and generate wealth for later in life. Recent data from the Federal Reserve show that younger Americans are getting into more trouble with debt and the average American is struggling to make ends meet and build up emergency savings.

The financial services industry and Silicon Valley have tried hard to reach younger investors. Robo-advisory firms like Wealthfront and Betterment are building big asset bases — in the tens of billions of dollars between the big robos in total now — but are burning through venture capital in an attempt to become profitable and are still a speck compared to large financial services companies.

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JPMorgan Chase created a digital banking brand for young investors called Finn — it was recently shut down. Lots of experimenting will go on for a long time in financial services until businesses find the best ways to reach this generation. But make no mistake about it: While the marketing and delivery of financial products and services to millennials may be different, the actual-use cases will be similar to those of prior generations.

The 40-year financial checkup

Turning 40 is not just a milestone in life; it is a perfect time to conduct a personal financial checkup that doesn't require the assistance of any particular app or financial services company partner. On your own, it is important to take stock of your assets, liabilities and insurance needs to find out if you are on track to meet your financial goals, what adjustments you may need to make to get on track if you are not and to reevaluate your goals to make sure you are prioritizing the right ones as your life evolves.

One client of mine had the goal of opening a sports bar one day. He was 23 years old. He's now a super-successful business owner about to turn 40. The sports bar is no longer his main goal. Married with three children, a mortgage and a business changes your priorities. So it is important to prune old goals and let the new ones become your priority.

Here are a few steps to take when you turn 40.

1. Relist your financial goals. Be specific about it. Once you know your goals, work backward to the present to see what steps you'll need to take to make your goals a reality.

2. If you have a family, think about them not having you. Life insurance is very important to have. It takes a lot of money for your family to survive without you. Your death benefit will help your family survive financially.

3. Create a will if you haven't done so already. It will help line everything up in case of your untimely demise. The process of creating one will help you make sure you have updated your retirement plan and life insurance beneficiary designations.

4. Revisit the budget. I've been helping clients budget for many years. In almost every case, people's expenses are higher than they thought. Why? Because it is different when you have an outside party walk you through it — you won't leave anything out. After that, you usually can find a few things to cut out of your life that you don't even remember you were paying for — or why you were paying for them.

5. Update your investment choices. Especially for your 401(k) plan and any other retirement savings vehicles, like IRAs, it is important to make sure they are still aligned with your risk tolerance. As you age, it often makes sense to reduce your allocation to equities and increase your allocation to fixed income, or at least shift more of your equities allocation into slower-growth, higher-dividend stocks. It is important to know, though, that the old 60-40 rule (60% equities and 40% bonds) has been thrown out the window by many. Each investor's case is different, but in general, the prevailing view now is to retain significant exposure to the equities market even in a person's 60s and 70s.

6. Take a good look at credit card debt. Start paying down the highest interest balances first if you are carrying any balances.

7. Take control of student loans. Pay down the highest-interest loans first. Make it automatic, paying monthly from your checking account. Also look into consolidating loans to get a lower rate, longer time to pay and lower monthly payments.

8. Carefully weigh homeownership options. For previous generations, owning a home was equivalent to a rite of passage. But we have enough data to realize homeownership doesn't make sense for everyone. If you do not own a home but are considering buying one, make sure you factor in a big margin for error. The costs go way beyond a monthly mortgage and real estate tax payment. Basically, owning a home is a way to inflation-proof your monthly housing payment (not real estate taxes, though) by locking in a monthly payment. But you do sacrifice a certain amount of flexibility by anchoring yourself to a house. Rent offers more flexibility, but over time rents have always crept higher, subjecting renters to housing-cost inflation.

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For a homeowner with a mortgage, take advantage of the current historically low interest rates and refinance. Refinancing is like sacrifice-free money. You don't have to sacrifice dining out or other discretionary activities; you just save money by lowering your mortgage interest rate and monthly payment.

9. Make sure your health insurance is adequate for your family's needs. Make sure you have adequate health insurance coverage for your family. It goes without saying that having children is the biggest responsibility of a lifetime. You must have health insurance for your little ones, too. Millions of Americans are going without health insurance, so believe me, if you have it through your employer, consider yourself lucky. Check to see if you are choosing the deductible and co-insurance options that make the most sense for your situation.

10. Start taking proper care of yourself. I know this may not sound like a "financial" topic, but believe me, it is. You'll most likely be living longer than previous generations, which means you'll probably have to be healthy enough to work in your later years. Age 40, for men and women alike, is a time when it becomes easier to gain weight and develop health maladies such as high cholesterol and blood pressure. You need to make sure you take care of you so you can take care of everything else in your life.

Don't get down on yourself when you hit 40. It sure beats the alternative. It's a fine time to take a more active role in managing your present and future finances. Life's priorities are kind of like a moving target, so it's always important to refocus and make sure your efforts are aimed in the right direction.

Check out Ryan Serhant of 'Million Dollar Listing': 4 questions to ask before you buy a home via Grow with Acorns+CNBC.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.