Your Quick Guide to Getting Money Wise At Every Age
Each period in life comes with its own, unique set of priorities, challenges and benefits. When you’re young, you don’t have much money to save – but you do have time. The reverse is true as you get older: you’re making more money, but you have fewer years to build up your nest egg.
The key is to balance your needs, throughout your life, with healthy savings habits. Let’s take a look at the common issues we face in each decade and how we can handle those things, while still strategically saving for our future.
20s
As you transition from high school and college into the workforce, the top-of-mind worries tend to be finding an apartment, a reliable car and a fun place to meet people on the weekends. It’s usually not retirement. Thinking of retiring – just as you start working – is like planning your summer wardrobe in the dead of winter… it’s not going to happen.
But, there are two compelling words that might inspire you to start saving now: compound interest. If you’re not familiar with this concept, then get ready to be impressed.
GET A HEAD-START ON SAVING!
So, if you haven’t begun saving yet, start now. For people early in their careers and not making much money, you can start small. There are two benefits of this:
- You’re still saving – and every little bit counts!
- By committing to saving and your financial future, you’re creating a very valuable habit.
30s
By the time many people reach their 30s, their big priority is buying a house. According to Zillow, the average age of first-time homebuyers is 33.1
Because houses require large down payments and come with a ton of smaller – but multiple – little expenses (fix the leaky sink, buy homeowner’s insurance, replace the roof), most people at this age are not putting retirement at the top of their list of stuff to spend money on.
Couple this with having a family, paying for child care and health insurance – and saving for retirement suddenly sounds like a luxury expense.
Hope is not lost. You can pay your bills and still think about the future. It just might take a little discipline and planning. Here are three things you should do in your 30s.
- First, take advantage of employer-sponsored retirement plans, like 401ks. When you use pre-tax money to fund your account, you get to make interest off that money – so it’s kind of like turbo-charging your savings. Sure, you’ll have to pay taxes on your 401k when you withdraw money from it (after you turn 59 ½), but you don’t have to pay back the money you made off of those taxes.
- Second, now’s the time to pay off debt. Get rid of high-interest loans and credit card bills first. Next, pay off student loans and any low-interest loans. By getting rid of debt, you’ll free up money you can use to invest in your 401k or IRA.
- Finally, pay yourself first. Before you fund your kids’ college accounts, splurge on a vacation or buy a new car – set aside money for retirement. Your future self will thank you.
40s
With about two decades of work experience – and hopefully some retirement savings in the bank, you are probably making more money now than ever before. This is a great time to set some retirement goals. You might want to create an age target and set up a strategy to make sure you’re on course to meet that goal.
If you’re lucky enough to have disposable income, now’s the time to dispose of it in a 401k or IRA account.
If you make enough money to max out your 401k for the year – which is $18,0002, you can invest additional money in a tax deductible or Roth IRA.
- Set up a time to talk with a professional. Make sure you choose one who is certified, a fiduciary and comes with high recommendations.
Explain your goals and make sure he or she is willing to take an active role in achieving those goals. What that means is you probably don’t want someone who forgets about you until you call them five years later.
50s
Hoorah! You are at the home stretch. This can be an exciting – or very scary – time, depending on how you have managed your finances. If you haven’t done a great job so far, don’t worry – you still have time to avert disaster.
If you have paid off your house, try not to accrue any more debt. Don’t be tempted by a second mortgage to help you finance a kitchen remodel. Your house should be sacred as you near retirement. A paid-off house is doubly blessed as you don’t have to worry about big monthly mortgage payments – or where you’re going to live should you run low on money.
Clearly, you want to sock away as much as you can – so keep your eye on the prize, and cut out any unnecessary spending.
For those who have done a good job saving, be sure to meet with a professional at least once a year. If you need help or are looking for a second opinion, we can help with that. Why? We believe that as you near retirement, you should adjust your savings to decrease your exposure to the market.
When you’re in your 20s you can afford taking risks because you have time to recover. In your 50s, however, we believe that you should protect your principal and be more conservative with your money.
Now that you have a guide for handling your money at every age, pass it on. Share this information with your friends, children, parents and spouses. Getting money confident begins with knowledge and ends with good habits that put ideas into action.
1http://zillow.mediaroom.com/2015-08-17-Todays-First-Time-Homebuyers-Older-More-Often-Single
2https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits