The basics of financial planning are the same at any age but the strategies that apply to those of us who are 40 or 50 years old are different. Some methods of insuring financial security take too long to mature but there are steps that the over-40s can take to secure their financial future.
My friends passed their fortieth birthdays when they woke up to the fact that they had no real financial plan in place, other than a household budget that told them where the money came from and where it went. When they talked to a financial advisor, she said that my friends were way ahead of nearly 50% of the population, who didn’t even have a budget. They were doing something right without even knowing it!
The longer you leave planning for your financial future (and your present, for that that matter), the harder it’s going to be. The older you are, the harder you’re going to have to work at it, but it is possible. Decide to start right now, regardless of how old you are, by learning some effective strategies for financial planning for 40 and 50 year olds.
But where do you start?
This is the question that stops most people in their tracks when it comes to financial planning, because they simply don’t have the answer. Do as my friends did; find a financial advisor who you like and who has experience with the over 40s. You might need to go and see a few professionals before you find the right one for you.
Here are some of the strategies that were suggested to me.
Financial Planning For 40 and 50 Year Olds
The importance of an accurate and workable household budget was reinforced to my friends, although they already had one. They learnt ways to tweak their budget to release more money, which they used to get some of their numerous credit cards paid off. What a relief that was I’m sure! Check out You Need A Budget for a solution to budgeting.
Be really aggressive and committed about saving. This means controlling spending as much as it means stashing excess cash away. The more you can put into savings now, the more comfortable your later years and retirement are going to be. Look for areas where you can cut your spending and save the difference. Even quite small amounts, saved regularly, will add up to sizable amounts over the next 10 or 20 years.
There are numerous ways to have savings that are working for you, by earning you interest, that will increase your nest egg. Ask your financial advisor which ones are the best for you and your circumstances. You may already have a 401K but is your employer also making contributions? Look at setting up a Roth IRA or other type of IRA, in addition to your 401K.
Look at the next twenty to thirty years of your life. Are there any big events looming? Maybe you still have kids to put through college; a daughter or two who may decide to get married; home renovations or additions; a new car maybe. Do you have a savings plan in place to pay for these events? No? Then add a couple of new areas into the budget by cutting down on how often you dine out. My friends discovered that they really loved to cook! And so do their kids!
Getting out of debt should be a major commitment at this age. Funding retirement is hard enough without the added weight of paying off old debts and credit cards. Make this a priority, even at the expense of some savings, as you are going to be saving money in interest in the long term. Reduce the number of credit cards you have; instead of relying on credit, allow for a regular amount within your budget to save for things you want. Read this post for help getting out of debt.
Savings alone may not be enough to give you the lifestyle you want in the future. Consider investments that will complement your savings. At this age, it is important not to be too conservative or too aggressive when it comes to investing. The best returns are always offered by the most risky investments; safe investments tend to have low returns; you need to find a balance between the two. Remember, you still have a couple of decades before retirement for investments to increase in value. Also, you can retain some investments well into your retirement years and use the earnings rather than the principle.
Don’t forget about insurance. I’ve seen too many people overlook insurance and then get burned when something happens. Make sure you have adequate auto and home insurance to cover you in case of a loss. If you have anyone depending on your income – like your family, be sure you have life insurance and make sure you have enough to provide for them should you pass prematurely. Yu can easily apply for life insurance with no exam, making the process of obtaining insurance easy. Again, many people are underinsured in this aspect, thinking that a few hundred thousand dollars will be enough. Make sure you do the math and get a policy for an amount you need.
An adjustment in lifestyle is another financial planning strategy that you might consider. If your kids have all flown the nest, do you really still need the big house and the family-sized vehicles? Could you downsize and invest the difference into your financial plan for short-term and long-term spending? This is a popular way for people to be able to travel more when they have retired. A smaller home also means considerable saving in utility bills and upkeep, as well.
It’s never too late to put a financial plan in place. Give yourself peace of mind by planning carefully for a future that allows you to continue to maintain your lifestyle now and live well in retirement.