The best things in life are free, but it sure helps to have enough money for all the things you and your family need that aren’t free. Four experts weigh in on what you should be doing in your 20s, 30s, 40s and 50s to ensure financial security.
[20s]
Build a foundation. Look for a book, blog or podcast, such as NPR’s Planet Money, that can introduce you to the basics of finance, investing and the economy.
Deal with debt. Pay off debt and build an emergency fund that provides you with a degree of protection from life’s unexpected events.
Begin retirement savings. Start contributing to a retirement account, whether through your work or an IRA. By contributing early, you get more time for tax-deferred compound growth to build your balance. The earlier you get started, the more options you’ll have down the road.
Get organized. Create a system for organizing and consolidating your information, whether through a financial aggregator, a spreadsheet, or a good old paper notebook. This decreases the likelihood that things will be neglected or fall through the cracks over time.
Pitfall: Not leaving yourself enough wiggle room between what you make and what you spend.
Whitey Holt, CFP®, CDFA™
Plaza Advisory Group
[30s]
Ramp up retirement savings. Take advantage of the maximum allowable employer-sponsored fund to your 401K program. You also can save outside of work through a traditional or Roth IRA. In addition to that, you can begin to build a taxable retirement portfolio.
Invest aggressively. Allocate up to 80 to 90 percent of your portfolio in stocks and mutual funds for aggressive portfolio growth. You have to be able to stomach volatile markets that can occasionally fluctuate, but if you look at historical trends, those who invest in markets in their younger years will have a larger portfolio than those who invest less aggressively in their 30s and 40s.
Begin to create a plan. Understand your portfolio and your expenses, which includes savings, and debt. As you migrate into your 40s, one of the biggest things you need to do is reduce debt, so you need to understand debt and know that your next goal is lowering it without penalizing your retirement and investment allocations.
Pitfall: Overspending and not managing or paying down credit card debt.
Maurice Quiroga, CFTA, CWS®, Executive vice president and director
PNC Wealth Management
[40s]
Pay yourself first. This should be the No. 1 action item for those serious about accomplishing their financial goals at any age. For someone in their 40s, a good target rate is 15 percent of gross income. If you can’t achieve this savings rate, take a hard look at your lifestyle and see what tradeoffs you can make to do so.
Save for college. Save diligently for college and graduate school for your children. This is usually the largest financial liability on the balance sheet for those in their 40s.
Draft an estate plan. Bad things can and do happen. It is especially valuable to couple an estate planning meeting with a review of your overall insurance plan. Having adequate coverage is crucial to protecting your loved ones in the event of a death or disability.
Pitfall: Not taking the time to develop a focused financial plan. Don’t let financial goals and planning get shuffled to the bottom of the list. Another pitfall: getting into the habit of matching or exceeding lifestyle with income growth.
Eric Kittner, CPA, CFP®
Principal at Moneta Group
[50s]
Take stock of debts. Many people have taken on additional debt to fund their children’s education, cars, weddings and home down payments. They may find themselves for the first time with an empty nest, but left with the bills from those glorious years.
Gauge future benefits. Sign on to socialsecurity.gov to get an updated estimate of your future social security benefits. A financial adviser can help you figure out the ideal age to begin claiming benefits based on your unique financial situation.
Retirement reality check. People often ask if they should pay down debt or add to retirement savings. The answer: It depends on your interest rates and your retirement savings options. For example, if your employer matches your 401K contributions, you may consider contributing to your company plan. If you have a lot of credit card debt, you may consider reducing those balances first.
Pitfall: Ignoring variable interest rate debt. Because of low rates, people have borrowed money inexpensively, almost at zero percent interest in some cases. When (not if) interest rates return to normal levels, their minimum payments may be difficult to manage.
Julie Gampp, Vice president/investments
Stifel