Life Stages: How to Manage Your Finances Through the Years
Life Stages: How to Manage Your Finances Through the Years
As the saying goes, “If you don’t know where you are going, any road will take you there.” In managing money throughout your life, it will be easier if you see the roadmap ahead and understand what kinds of issues you might be dealing with at different stages of life. And – breathe out – knowing you’re not alone if you
There are certain times in life when particular money management areas need special focus. The list below may remind you of areas of your finances that need special attention now or in the near future. Bear in mind that our stages are generalizations: some people are married with children in their twenties while others do not have dependents until their 50s, if ever. Whatever your situation, it’s important to plan ahead to accommodate the coming changes in your financial situation.
20s
This is a time when you probably finish your formal education and begin your first “real” job. Now is the time to start developing sound financial habits for a lifetime.
Establish credit and maintain a good payment record. Do not charge more than you can pay off in 3 months (or better yet, within the month).
Set up an emergency savings fund, typically 3-to-6 months’ living expenses. Keep this money as liquid (accessible with few, if any, penalties) as possible.
Start learning about investing and establish an automatic savings program to reach your financial goals.
If you want to, plan to buy a home, or at least start saving for the down payment.
Make sure you are taking full advantage of the savings benefits available to you through your employer: retirement plans like 401(k), 403(b), or other plans. Some employers “match” your contributions, meaning when you invest, they invest too…it’s the closest thing to “free money” you may find.
Make sure you have adequate insurance coverage (life, home, auto, health, disability, liability).
If you have student loans, understand your payment schedule and start knocking down that debt. Investigate your eligibility for special repayment programs (like Public Service Loan Forgiveness) and don’t blindly follow advice from private loan providers – what’s best for their profits may not always be what’s best for you.
30s
If you have children, begin investing in their education. State-sponsored “529 plans” have some advantages in this area, as well as certain limitations.
Continue to keep credit under control and avoid paying finance charges and annual fees.
Write a will or review the one you have.
Review your insurance coverage in light of changes in your family situation, increasing assets, or professional activities.
40s
As your income grows, look for investments and savings plans that shelter some of it from taxes.
Use a retirement planning software program or see a financial planner to figure out exactly how much you’ll need to have saved to maintain your lifestyle in retirement.
Step up personal and employer-sponsored retirement savings accordingly.
Review your investment allocation and make sure you are still well diversified.
50s
Review your will and estate plan.
Pay off your debts. Depending on the going rates for different types of investments, it may or may not be wise to pay off your mortgage now.
Maximize your savings for retirement.
Make sure your growing assets are protected by liability insurance.
60s
As you near retirement, switch a portion of your investments to low-risk types to produce income rather than higher-risk growth.
With life expectancy increasing, make sure a portion of your retirement nest egg is invested so that it continues to outpace inflation.
Maintain your health and long-term-care insurance.
Remain wary of scams aimed at seniors.
Research reverse mortgages if you are a homeowner. You may need to tap the equity in your property to supplement your retirement income.