Fortune 101 / Spotlight
Fortified For Forty – 10 Key Financial Doctrines Before You Turn the Corner
- By: Maktoub Magazine
- June 29, 2016
Life in your 20s and 30s may accommodate a few mistakes here and then let you get back on your feet again soon. But repeating same in your 40s can be devastating to your long-term prospects. One thing is sure: By age 40, you can’t get away with being financially clueless anymore.
In the society, people may not share opinion on a lot of things, but most agree that forty is the magic age where you’re supposed to be a ‘Methuselah’ of some sort because ‘a fool at forty is a fool forever.’
In your 20s, you may feel a rush of adrenaline in your bones, act like you’re invincible and worry little about the future. By your 30s, you sense you’ve got a whole new set of responsibilities including career and family to confront.
But as you get close to 40, the feelings change entirely because you are closing in on retirement.
Many forty something’s have responsibilities for both growing children and aging parents so it’s no wonder that the majority of 40 year olds haven’t saved much for retirement and lack some important financial basics such as an emergency fund or insurance.
It’s tough, but this is the decade though that you must start making your financial life, and particularly saving for retirement, a priority. The great news is that you’re likely earning more than ever, have some financial and life experience under your belt and still have enough time to get on track before you’re knocking on retirement’s door.
Set Your Financial Priorities and Cut the Wastages
By now, you should have a clear vision on what classifies as a financial emergency and what is not.
So you’re travelling out of the state or maybe the country for ‘an important’ wedding. That actually should be optional, no matter what your prospective in-law or best friend says.
Sure, it may have been cute to splurge on shoes and come up short on rent when you were 22. By 40, you ought to know what it feels like to have a fat six months of savings sitting pretty in your account and the only good reasons you should be dipping into it.
You must also learn how to manage budget-squandering friends. While you may love their sense of humour or style, you may hate how empty your wallet is after you hang out with them. It’s about time you learned how to neutralize these culprits.
Start Your Retirement Savings Now
It’s tempting in your 40s to want to buy the sleekest car or the newly released iPhone, especially as your salary increases, but the more you step up your lifestyle without improving your savings, the less likely you are to be able to maintain the lifestyle to which you became accustomed. But you may be on track to living comfortably in retirement if you have consistently saved 10-15% of your paycheque over the years.
You need to know where your money goes each month
You might be surprised how much you’re spending on items that really don’t mean much to you and how with some small changes you can align your spending to your goals.
Once you know where your money goes, you should make sure that 20% of your after tax income is allocated towards meeting your financial priorities. Experts recommend breaking up your income into three categories with 50 percent allocated to needs (housing, transportation, food), 30 percent allocated to wants (cable, vacations and dinners out) and 20% allocated to meeting your financial priorities (saving for retirement, paying down debt, creating an emergency fund). You choose what you spend within each pool but the key is to spend only what you have allocated to each pool.
Plan Where to Invest Your Retirement Funds
Don’t just save for retirement, you should also know the basics of investing. But before you put any money in the market, you should know how it works. Don’t get ahead of yourself, either. Don’t even think about investing until you have a fully funded emergency savings account, no high-interest debt and are on track for retirement.
Have an Emergency Fund
Unexpected emergencies are a part of life and you surely want to cover them without going into debt or relying on family. Before you begin to set aside 20 percent of your after-tax income for your retirement savings, you need to first build up enough cash reserves to cover three to six months of expenses in an account that is safe and liquid.
A two-income household (working couples) may be safe enough with three months of expenses saved, while a single person might need six months of reserves.
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