Middle-age presents a different set of financial challenges than for those in their 20’s and 30’s. With retirement looming or here and perhaps health challenges to deal with, now is the time to get a handle on your personal financial picture. We consulted a financial expert at the Meydenbauer Wealth Management Group along with the best personal finance blogs to determine six money lessons to learn before 50.
Like many baby boomers, I didn’t learn how to handle finances growing up. Money management wasn’t discussed or taught and, after making expensive mistakes in my younger days, I vowed to learn as much as I could in middle age about controlling my own financial picture. So, consulting experts and personal finance blogs, here are the money lessons I wish I had learned before 50.
1. The Importance of a Budget
According to the experts at Meydenbauer Wealth Management, the first question to ask is, “do you have a budget so that you know how much you REALLY spend?” Without knowing your monthly income and expenses, it is hard to get a handle of where you can cut back, the amount of an emergency fund to have, and what kind of retirement savings you will need to maintain your standard of living. The personal financial blog, “Budgets are Sexy,” recommends tracking your expenses for several months and focusing on the biggest categories in the budget where small improvements and reductions can have a bigger impact. For money saving tips, check out the “Penny Hoarder” personal finance blog.
2. The Importance of Emergency Savings
Nothing puts a dent in the budget like an emergency, whether it is a big car or home expense, major medical bills or a job layoff. That’s why Sean McGowan, Senior Vice President of Meydenbauer Wealth Management, recommends asking yourself, “Have you set aside nine months of emergency funds as cash?” Without such savings, you run the risk of maxing out credit cards (which affects your credit score), taking out a loan or raiding retirement accounts to handle an unexpected bill. To build up an emergency fund, treat it like an expense and have a certain figure automatically transferred to your savings account each month.
3. The Importance of Early Retirement Planning
McGowan also recommends asking yourself, “As you near fifty, based on current investments and annual savings, have you projected your assets available for your retirement?” There are some great budget tools, spreadsheets and calculators available on the personal finance blogs and sites, “How Much Can I Afford to Spend in Retirement?” and Meydenbauer Wealth Management. Financial experts recommend using caution with retirement calculators as they often can’t accurately predict rate of return on investments and don’t account for taxes. If your employer offers a 401K with match, take advantage of that free money by contributing to the maximum. In addition, for those that need to play catch up with retirement savings, the Internal Revenue Service currently allows those age 50 and older to contribute an additional $6,000 to their 401(k) plan — or an extra $1,000 to an IRA. The personal finance blog, “Money Talk News,” also recommends keeping a portion of retirement savings in the stock market and all financial experts stress that it is never too early (or late) to start saving and investing – for instance, $5000 invested annually for ten years at an 8% rate of return would yield $78,277. If you invested the same amount for 20 years, your savings would grow to $247,115.
4. Understanding the True Cost of Your Investments
Meydenbauer Wealth Management’s McGowan stresses that it is important to take into account the true cost of your investments. “According to the Investment Company Institute, the median expense ratio, or annual fee, was 1.8%.” Yet there are broad based funds available with annual fees as low as .10%. A 1% difference may seem small but that difference on a $10,000 annual investment over 20 years, earning an average return of 10%, will result in losing over $70,000. Many experts recommend using a financial planner that charges an hourly fee rather than one that works on commission – more likely to be objective and not sell you costly products.
5. The Importance of Estate Planning
No one wants to think about death but McGowan stresses the importance of, before you are 50, having a will and health directives in place as well as having a power of attorney on file with your financial institution. Without a will you will die “intestate,” meaning the laws of your state will determine how your assets are divided, not you. If you are unmarried and living with a partner, that partner will not inherit anything from your estate without a will.
Health directives are written, legal instructions regarding your preferences for medical care if you are unable to make decisions for yourself. Unexpected end-of-life situations can happen at any age and, by having a health directive in place, you can get the medical care you want, relieve loved ones of having to quickly make life and death decisions and reduce confusion or disagreement about the choices you would want people to make for you. Along those lines, financial power of attorney allows someone else to manage your finances in the event that you become incapacitated and are unable to make those decisions yourself. Especially in cases where there is not a joint account, without power of attorney, it becomes difficult for a spouse or adult children to access banking information or other financial records.
6. The Importance of Taking the Time to Put Together a Total Financial Plan
McGowan also recommends taking the time to put together a total financial plan. To assist in this, here are three financial blogs we recommend checking out:
- Get Rich Slowly – J.D. Roth blogs about his own financial journey, maximizing your personal savings, planning for retirement, and overcoming debt.
- Money Talks News – One of the most highly rated personal finance blogs, Money Talks News offers “specific advice on saving more, spending less, investing, and avoiding debt.” Recent blogs included “96% of Retirees Will Make This Costly Social Security Mistake” and “Looking to Retire? These Six Stocks Can Generate Regular Income.”
- The Meydenbauer Blog – Written by the experts at Meydenbauer Wealth Management Group, The Meydenbauer Blog offers advice on managing your investment portfolio and minimizing taxes. Blogs have covered “Four Ways to Give with the New Tax Law” and “Money Market Mutual Funds a Good Option in the Current Interest Rate Environment?”