Last month's article talked about the progress you may have made if you had set up an 'Emergency fund or a Rainy-day fund' for yourself in the first quarter of this year. It also talked about the benefit of IRA's to help you get through tax season. I thought I would continue with the theme of 'investing in yourself' by giving you some guidelines you can use during different decades of your life.
If you have what is expected of you in your 20's, 30's, 40's and so on, then you can start working toward those goals in life that help you not get behind financially. We will go over the first 3 decades of your life in this article. So, let's get started!
The 20's decade
This may now be a period in your life where you are going on your own, no more living with the parents. It also maybe when you are taking on more debt; student loans, rent, and other living expenses. If this sounds like you, then we are back to my request of you starting an emergency fund or rainy-day fund. You are going to need a cushion should something happen out of the norm and you don't want to go back living with a parent or parents. Maybe it could be losing your job, or your hours are cut back, and you can't make ends meet. Maybe it's a major car repair or you lost your roommate. Whatever the case may be, you need back up cash for this time in your life. Just to let you know you are not alone, Bankrate says that only 39% of Americans have enough saved to cover a $1,000 emergency. That is a scary statistic to say the least.
An emergency fund is usually 3 to 6 months of your take home pay, your net income. An example would be let's say your expenses are $2,000/mo. The minimum cushion for this fund would be $6,000, and the maximum would be $12,000 for the 6 months. This fund is built gradually, but always with an end result in mind to build that cushion you need.
Another item to consider in your 20's is to manage your debt. You need to develop a budget, so you know where your earnings are going. You don't want to have too much debt because it will affect your ability to buy a house in the future, and/or to start saving for Retirement. It also will affect your credit score if you have too much debt to income.
Lastly, with rising interest rates that we have now, it will take you longer to pay off that debt, thereby costing you more in the long run for having that debt. Debt can snowball if you're not paying attention to it on a continuous basis.
In your 30's
This should be a period for you to start building a foundation for yourself. You may be out of college now and starting a career, or maybe you are going for an advanced degree. Where ever you are in your life, you must develop some understanding of the direction you are going. It's a time to start considering buying a home, starting a family, or getting a good feeling about the career you are embarking on. From this era in your life, you are moving forward.
Always, in all these decades, you should be setting some financial priorities for yourself. Remember the article on the 'Benefit of Time', (February's article), when it comes to investing? It's a good time to go back and reread the article so you have a better understanding of compounding and starting early to achieve financial goals for the future.
Lastly, when you're accessing your financial situation, be sure to include your insurances, especially life insurance. Even if it's just a 'Term policy' to cover the mortgage on your home. This is necessary in case something happens to you as the breadwinner. It may save your family needless stress to have this backing on probably the biggest investment you will make in your life.
In your 40's
In your 40's you begin to evaluate where you are and how far you have come. It may be a restless period for you with your job, family and finances. You may also be feeling the pressure of being behind the 8 ball with your future. Look at these things for yourself. Do you still have children living at home? Do you have children that you want to help with college expenses? Are your parents part of your responsibility, or will they soon be? Where are you with your mortgage and other debt? Is it time to consolidate so you are spending less of your earnings on debt, long-term or short-term debt? It is also a time to start evaluating where you are with your retirement savings.
Are you on target to live the lifestyle you want to live in retirement? If not, how do you play catch-up? This is the restless period I am speaking about in this decade.
All these decades are necessary for you to grow and build confidence in your life with what you are doing with it. I have said this several times with this article, and I will say it again. At no time in any of these decades do you have to make all these decisions alone. Seek support or professional advice if you're stuck or don't know where to begin. I am here for you, and I am sure you know some great people who are there for you as well.
The time is now to get started on your goals. What are you waiting for?