At every stage in life, it’s imperative to think about your finances and what goals you have for each stage.
Savings for Every Stage of Your Life
Everyone needs to save money. Plans to pay for a college degree and further higher education, get married, buy a house and start a family are best accompanied by attention to the money required to get there. The good news? It's never too early or too late to find your financial path.
Begin by creating a budget and chart everything spent each day for a month. That includes money spent on that first cup of coffee to the amount you're paying for a daily lunch. It should also include your mortgage, school supplies and commuting costs. The idea is to see what's going out each day and why. If you're part of a couple, the other person should do the same thing. When each person is done, it's time to have an open and honest discussion about overall household expenses. This is a good time to think about where they can be trimmed. That extra money is money you can use to create a basic nest egg that will serve you well in the event of an emergency.
In Your 20s
Your 20s are a great time to begin saving money! This is when you're just starting out, but it's also when you have time to get good financial habits in place. A dollar invested now and left alone will pay off big time in the future. At this age, it can also be easier to save a large part of your paycheck. You may not be married yet or have kids. If you don't have to pay for childcare and don't have kids, you can opt for a much smaller living space. Aim for at least 10 to 20% in a savings account and other kinds of investments.
This is also the time when you can afford to lose money in the short term. You'll have plenty of time to make it up going forward. Think about potentially high-risk investments that have the possibility of a big payoff. It's also a time when you can think about diversifying your personal savings portfolio. Buying stocks in many fields is a great way to be part of stock market gains and the same is true of other kinds of investments. Bonds from a reputable company and even a house in your current area that you can fix up in your spare time are easier now when you might have fewer commitments.
Your 30s and 40s
As people head into this stage in life, they often begin to settle down. You may have gotten married. You might also want a house or an apartment large enough to raise a family and have room to entertain. It's also a time when you've probably finished your education and training. Now is the time when you've begun a profession or found a career that makes sense. As such, you probably have a larger salary than you've had before. In addition, your partner may be in the same situation financially and educationally. It's a great time to start saving as much as you can. Aim for at least 10% of each paycheck.
Now’s a great time to save money in a tax-advantaged account that will help you on the road to retirement. Find out if your company matches part or even all of your contributions to that 401(k). That's free money! You can put a contribution away where it will earn interest over time. Take it out when you're heading to retirement and probably living in a lower tax bracket. If you live in a high-tax state, this will increase your savings and decrease your tax bills. You can always tap into those funds in the event of a fiscal emergency.
Heading to Retirement
Retirement is a goal that many people think long and hard about. They dream of a comfortable home by the sea or traveling the world. Retirement planning should be done at every stage of your life. Calculate how much money you expect to earn in retirement. You'll want to account for all those funds including a pension, Social Security checks and dividend income from your overall savings. Now is also the time to think about shifting into venues that are less risky financially.
Shifting to a portfolio based largely on blue-chip stocks, treasury bills and income from real estate investments can provide you with a steady income once you've made the plunge. Your goal should be to minimize risk while preserving your ability to keep up with inflation or even beat it. It's also a good chance to use your savings for the great things you've always wanted to do.
It's also important to still save money when you can. Many people face increased medical expenses as they age and additional savings can help pay those expenses and the expenses of your spouse. A part-time job adds money and provides time outside of the house. At this point, you should also consider what you want to leave to others in your will as savings can be passed on in the form of a yearly annual gift. A consultation with an accountant can clear up any issues and ensure your affairs are in order.
Truliant can help you with savings and planning options for every stage in your financial life. Contact us today.