Are you in your 20s and just starting your career? In your 30s or 40s juggling family life? How about in your 50s or 60s and nearing or newly retired? One of the many questions we often have is how do I balance living in the moment while planning for my future. So, whether you’re just starting out on your financial journey or later down the road this is an important question we all must address. Each stage of life offers different challenges as we continue striving toward our financial goals. Let’s talk about how to gameplan and prepare for a financially secure future.
Why is it important to set financials goals? Setting financial goals gives us a roadmap to follow. We live in a society where advertisers constantly tell us to buy, upgrade, get the latest this, don’t miss out on the newest that…it’s maddening. If we’re not carefully we’d spend all our money on frivolous nonsense trying to keep up with the Jones’. Setting financial goals help us prioritize what’s important and hold us accountable for the choices we make that doesn’t align with them. Financial goals evolve, what was important in your 20s will be different than in your 40s and 60s. Let’s look at the different stages and see how they differ in the preparation for your future.
In early adulthood you’re basically building a solid foundation. This is typically your 20s and early 30s. We’re often starting our career, dealing with student loans or trying to find the career we truly want. This is the time to embrace budgeting. This will be your financial blueprint, helping you to track your income and expenses. This will allow you to know what you have to save and invest. Apps like Rocket Money, Mint and You Need A Budget can make it easier.
It’s also important at this stage to build an emergency fund and tackle debt. Building an emergency fund of 3 to 6 months and some say up to a year is a great way to create a buffer for when life happens. And it will! You won’t get thrown off track. Kids need braces, unexpected car or home expense, you lose your job and need to a few months to find a new one. Having an emergency fund can be a life saver and prevent you from going into high interest credit card debt to cover your expenses. At this stage also we tend to have student loans and other debt associated with starting a family or business such as furniture financing or a start-up business loan. Take this time to pay down debt. A consolidation loan is good choice to get rid of some of the high interest rates and get a lower monthly payment.
In early adulthood retirement may seem like a long way down the road…but it’s closer than you think and comes up fast! Start investing early and be consistent. Employment sponsor retirement plans such as 401K or open an Individual Retirement Account (IRA). Often this is when you continue your education, professional licenses and certifications. Invest in yourself improvement and skills that will make you more marketable in your career. The cost to do this can add up but remember it’s an investment in your future so plan to pay down these through smart planning as soon as possible while not getting off your financial path.
Typically, as you enter your mid 30s and 40s you’re dealing with mortgages, family, a career…this can be quite hectic and overwhelming. This is also when you’re most focus on growing your wealth. Reevaluate your goals and make sure your budget and finances align with them properly. Make changes when needed. It’s about flexibility. Increase your retirement contributions. Perhaps you start buying investment properties. It’s important to diversify your portfolio. A mix of stocks, bonds and other assets can help reduce risk and increase potential returns.
Something that’s very important but not the sexiest conversation is getting adequate insurance. Protecting your assets and family’s future is crucial and most of us are grossly underinsured. A major life changing event can be devastating. Don’t risk it! Ensure you have adequate insurance coverage, including health, life, disability and homeowners’s insurance. Also make sure you think about estate planning and create a will. If you have children ramp up saving for their education. Options like a 529 Plan can offer significant tax advantages.
We’re now full speed ahead and our financial plans should reflect this stage in life. Your 50s and 60s you’re fine tuning your financial plans. You’re probably making top dollar in your career or chosen field by now so there are several options you have at this stage. You can max out or catch up on your retirement contributions. This allows you to contribute more than your standard limit, helping to boost your retirement savings. Pay off debt like credit cards and possibly mortgage to enter retirement debt-free.
Additionally, things you make want to address in your 50s and 60s are the following. Assessing your retirement income needs such as social security, pensions, retirement accounts and savings to ensure your needs are covered. Consider long-term insurance to protect you from soaring healthcare costs. Update your estate plan and think about your retirement lifestyle. Do you want to travel, spend time with grandchildren, pursue your hobbies or passion? Understanding your retirement lifestyle can help you set appropriate financial goals.
It’s now time to enjoy the fruits of your labor…..retirement time! Congratulations! You worked hard and now it’s about managing your finances while still creating growth. The 4% Rule is a common rule of thumb which suggests withdrawing 4% of your savings annually to ensure it lasts throughout retirement. Make sure you are monitoring your spending and stay informed about healthcare costs. Familiarize yourself with Medicare and other supplemental insurance that could be very beneficial. Often people choose to work part-time or monetize hobbies to provide additional funds and fulfillment. Finally, think about the legacy you want to leave behind. Make sure this is detailed in your estate plan and will. Consider setting up trusts to support charities, organizations and causes you care about as well.
Whether you’re just starting out, enjoying retirement or at any stage in between setting financial goals are imperative to your financial well-being. It’s not just about accumulating wealth; it’s about making informed decisions and taking control of your financial future to create a life that aligns with your values and aspirations. Ask yourself these questions. What do you want to achieve? What legacy do you want to leave for your family? Having a clear financial plan empowers you to create a strategically constructed “must do list” at every stage of your journey. This will best ensure you are living life on your terms with the financial security you desire along the way. Now go enjoy life no matter what stage you’re in!