You’re arrived. You have successfully navigated through the years of children-induced sleep deprivation the rigors of moving up that corporate ladder. Your middle age years are the ones that should bring you more peace and pleasure. But have you planned for the finances of these years?
Remember that putting “fun” into your life balance is key to a healthy life, healthy relationships, and a healthy outlook. It is as important to budget for fun as much as to budget for your healthcare or your child’s car.
“Fun” does not have to be expensive, but it has to be planned for in your budget at whatever level will give you balance. By planning for financial security with a sound budget, you can make these the best years of your life. A budget is simply an evergreen document that gives you a picture of your income and expenses, and helps prioritize both. It changes as your circumstances change.
If you’ve never had a budget, you’re not alone. More than half of Americans don’t use a budget regularly according to the National Foundation for Credit Counseling 2011 Consumer Financial Literacy Survey. As you enter your 40s, you’ve got important decisions and changes to make. In addition to your ordinary monthly expenses, your children may be about to go to college. Your parents may need additional care, and retirement is not very far away. No matter what stage of life you’re in, it’s never too late to begin managing your finances.
Step 1. Get the big picture first. Determine whether you need a weekly, monthly or other time frame budget based on the regularity of your income and expenses. List all the money you get in a month, from your job or business, interest on your savings and investments and any other payments you receive. List all your expenses, including taxes, housing costs, transportation, food, insurance and health care, debt and utilities. Make allowances for irregular categories, such as entertainment and recreation, clothing and miscellaneous.
Step 2. First place to start: subtract your expenses from your income to evaluate your budget health. Decide what your expense priorities are and calculate the way to get there. Track your spending with the smallest of detail (too often we overlook seemingly insignificant expenditures that end up totaling more than we think). Look for opportunities to shave money off your expenses (bundling in-home entertainment and internet, shopping around for lower-cost service companies, etc.). Start to limit your use of credit to make purchases. Save more money. Consider charitable giving now or as planned giving in your will.
Step 3. Prioritize the funding of your retirement by increasing your contributions. Place at least 10 percent of your income into retirement savings accounts and max out the contributions allowed through your employer. Talk with a financial advisor about your money needs for the future. Most Americans have an unrealistic idea of how much money they will need to live comfortably in retirement. Aim for about $1.5 million to $3 million in the bank so you don’t outlive your money.
Step 4. Review all your investing alternatives. Determine whether you’re being too conservative or on the other hand entertaining too much risk in consideration of your future financial priorities. Make necessary changes. Talk with a trusted professional help to find out if there’s a way to allow your money to grow — and last longer — without adding too much risk or instability to your investments.
Step 5. Focus on paying down your mortgage. Investment advisors agree that by the time you are in your 60’s your mortgage should be completely paid off. This is the first step in a comprehensive effort to reduce your overall debt load. Spend your 40s eliminating your entire debt burden so you can enjoy your later years.
Step 6. Analyze your insurance needs. Be sure you are budgeting appropriately to cover life, health and long-term care insurance needs. Plan your estate. No matter its size be sure to create a will, decide on power of attorney and set your medical directives. These are important adjuncts to your financial life at this stage. They ensure that all the hard work you’ve done in accumulating wealth doesn’t get intercepted as you progress toward ending your formal work life. They also ensure that your earnings and savings will benefit your loved ones.
Step 7. Budget for fun. Your 40s may seem all about responsibility; you work hard and care for your family. But you shouldn’t neglect yourself either. This stage of life offers an opportunity to pursue put-off passions with the stability you’ve built over time. Create room in your budget for travel, adventure, and that convertible you’ve always dreamed of. Now is the time to enjoy the fruits of your labor.
