The middle to late stages of your career is when you are likely to find yourself juggling several financial goals, such as saving for retirement and your kids’ college educations. You can keep moving toward each goal by efficiently prioritizing and planning ahead.
The first and most important thing to remember is to pay yourself first. While that may sound wrong, especially as a parent, there are times when it’s more appropriate to be selfish. On an airplane before takeoff, for example, a flight attendant will instruct you to put on your oxygen mask before assisting others – even when travelling with a small child. To ensure you are able to help others, you must first help yourself.
Start with the essentials
As you save and invest for your long-term financial goals, it’s important that you:
- Maintain an emergency savings fund. A good rule of thumb is to build a safety net that covers six months to one year.
- Eliminate high-interest debt. Debt shrinks the pool of money available for your financial goals. And, if you don’t pay it off now, there’s a chance you carry it into your later years. Consider that 65.4% of American households in 2013 where the head of the household was aged 55 or older carried financial liabilities, according to the Employee Benefit Research Institute.
- Start investing for retirement, either in a company-sponsored plan or other retirement account. The earlier the better. A survey by MoneyRate.com found people who began saving for retirement in their 20s were 66% more likely to expect to retire by age 60 than people who waited until their 30s to begin saving. Plus, the sooner you start, the greater the potential to benefit from the impact of compounding (earnings on your earnings). Contribute at least enough to receive the full employer 401(k) match, if available. A good benchmark to shoot for is 10-15% of your gross income.
Make retirement priority #1
Financial planning for many people revolves around securing a comfortable lifestyle in retirement while also providing for the financial needs of their families.
Generally, now is the time to work toward maximizing retirement contributions. In addition to taking advantage of your company 401(k) match, if offered, contribute the maximum amount allowed by the IRS to your retirement accounts, if you’re able to do so.
Stretching your savings too thin can hinder your retirement. Retirement market research firm Hearts & Wallets found the likelihood of being retired more than doubles with financially independent children for those 65 years or older compared to people of the same age group who financially support their adult children.
That’s why, in most cases, retirement should be a higher priority than saving and investing for college and other financial goals. After all, a child can borrow money for college but you can’t borrow money for retirement.
Nonetheless, your financial decisions depend upon your personal situation and needs.
Stay focused and budget for the rest
As your salary reaches its peak, your family grows and your debt decreases, you may have the flexibility to pursue other financial dreams. Maybe you want to buy a vacation home or travel overseas. Don’t feel guilty for allocating money toward fun goals.
Incorporate these “extras” into your budget while keeping your focus on retirement and your long-term goals. Also, avoid making short-term investment decisions in hopes of reaching your goals sooner.
Putting yourself on a stable footing toward retirement can help make you more confident in your financial future. Remember, you’re better able to help others when you can breathe easier yourself.
Need help determining and attaining your financial goals? We can work with you to create a personalized financial game plan and help you execute it.