Financial wellness means something different for everyone. While some people believe that financial wellness means having a sizeable net worth and complete financial security, others feel that it means merely having enough to pay their bills on time and getting to do the things they love.
Though there is no right or wrong way to approach financial health, individuals should strive to protect themselves against devastating risks and prepare for their long-term futures. How individuals should go about this depends on several factors, one of which is age.
A 26-year-old’s income, assets, expenses, and personal goals will be drastically different than those of a 45-year-old’s, which will look significantly different than those of a 70-year-old’s. While you don’t necessarily need to have a determined net worth by a certain age, you should be meeting certain milestones for your age group. Below is a description of customized financial strategies for each age group.
Your 20s
Most young people do not have the forethought to plan for retirement in their early and mid-20s, and many still don’t have this prudence at the end of the decade. Yet, according to almost every veteran financial planner, the best time to start saving for retirement is during this decade. If you’re in your 20s, some financial steps you should consider taking are as follows:
- Make your money work harder for you. If. you set aside just $50 a week starting at age 22, you will have $1 million by the time you’re 65, assuming an 8% compounding interest rate.
- Start building your emergency fund. Ideally, you should have six month’s worth of expenses saved, but if you put aside even $1,000, you’ll be ahead of the majority of Americans.
- Build your credit, but don’t rely on credit. Now is the time to build your credit score so that when you’re in your 30s, you can buy a home. Also, if you amass substantial debt, you will stand to pay thousands of dollars in interest over several years.
Related: Earning on the Side: Investing Ideas for Your 20s
Your 30s
You used your 20s to learn how to budget, save, and live within your means. Now it’s time to take your financially savvy up a notch by doing the following:
- Advance your career. You developed and honed a marketable skill in your 20s, and now it’s time to apply that skill to increase your earnings. Research jobs in your field that offer higher pay and better benefits. If you have realized your full potential for your education and experience, consider going back to school.
- Increase your emergency fund balance. Ideally, you should save a year’s worth of salary by your mid-30s.
- Pay off non-mortgage debt. In your 20s, you may have racked up credit card and student debt. Your 30s and 40s are a time to save for retirement, not pay off past obligations.
- Rethink your budget. In your 20s, you had you and only you to think about. Now, you may have a spouse, pets, and possibly children, meaning you can’t spend what you used to on takeout and after-work drinks. Develop a new budget that works for your lifestyle today.
Your 40s
By the time you reach your 40s, you should be fairly financially secure. However, life happens, and you may have hit some road bumps in the last decade. Use this decade to either amp up your savings or recover:
- Put aside at least $200 a week toward your retirement savings.
- Start downsizing and decreasing household expenses. Put what you save toward college funds and retirement.
- Expand your investment portfolio beyond your retirement account.
- Create a will (if you haven’t yet) and a durable power of attorney, and review your beneficiary designations.
Your 50s and Beyond
By the time your 55-years-old, you should be fairly well set. That doesn’t mean you should stop saving — don’t do that — but you should feel confident that your future will be a comfortable one. Below are a few steps to take to ensure it is:
- Create a “retirement paycheck” that amounts to no more than 4% to 4.5% of your total assets. Do not withdraw more than this annually to ensure you do not outlive your money.
- Keep adjusting your finances to account for major life events, such as divorce, death, illness, injury, etc.
- Take required minimum distributions from tax-deferred accounts beginning at age 70 ½.
Related: Tips to Help You Boost Your Retirement Savings – Whatever Your Age
For most people, planning for retirement is challenging at every age. However, the sooner you start taking steps to achieve a comfortable retirement, the better off you will be.
