Financially speaking your 30’s and 40’s can be key years to setting up a solid financial and retirement plan. Although it may still seem early to be thinking about retirement, your future, financial health will begin to take shape now. This shouldn’t scare you but encourage and excite you as you look toward the future. Consider financial planning as a road map to financial freedom.
Let’s take a brief look at some financial planning basics for 30 to 50 year old individuals. Each phase of life presents different challenges and considerations, so the recommended steps will vary depending on your age.
Financial Planning in your 30s
Most 30-somethings don’t feel “old” yet, and retirement feels eons away. What can you do to develop a worry-free financial life?
- Contribute monthly to your 401(k) or Roth IRA. Even better, set up an automatic deposit so you don’t have to think about it.
- Create a monthly budget and stick to it. Spend less money than you make. Most Americans don’t know where their money goes each month, and then they wonder why they are constantly in the hole.
- Build up an emergency fund for events such as an unexpected car repair at least a 6-8 month reserve fund is best.
- If you use credit cards, pay off the entire balance each month. Carrying a balance from month to month means paying exorbitant interest fees.
Financial Planning in your 40s
You may be starting to think seriously about retirement: how to spend your time, where to live, and how to pay for it all. Knowing what you want to do and where you will live is crucial; this will determine how much money you will need to live comfortably. Although you should have a retirement budget already in place this is the time to take inventory of your retirement and make any adjustments, compare your projected expenses to your current expenses. Don’t forget to factor in increased health care and medication costs as you age.
Hire a financial planner to run a retirement projection. Compare the results to your current savings rate; do you need to save more each month? During your 40s and 50s, try to save as much as possible, with maximum contributions to your retirement accounts. If saving more seems impossible right now, increase your saving rate gradually every few months.
Remember, a little financial planning now can reduce or eliminate huge financial headaches down the road. Be sure to find a financial planner who you trust and who has your best interests at heart.