In our previous blog post, we examined the financial habits and strategies that you can focus on in your 20s. In this post, we will build on some of these strategies for the subsequent demographic. If you are way past your 30s and 40s, maybe your kids or somebody else that you love would benefit from this, and if so, we invite you to share with them.
What to do in your 30s and 40s
Congratulations! You are already beginning to be wiser than you used to be not too long ago. Hopefully by now, you have established the habits of maintaining an emergency fund and saving a significant portion of your income as we outlined in the last post. You have also hopefully researched and selectively enrolled in your employee benefits, and your job, and are operating on some sort of budget that works for you and your significant other. This has allowed you to find the space to get the necessary life insurance and disability insurance in a place that becomes much harder to do as you get older. So where to go from here?
Get your will or trust documents in order. OK, that sounded a little bit more ominous than intended. We don't think you're about to die. But this is a great time in your life to make sure that your will or trust is updated and communicated across the relevant professionals in your world: banker, advisor, insurance agents, guardians, executors POAs and successor trustees. And if you have kids in the picture now, this should be done right away.
Guardians: Since selecting guardians is the main driver that causes young parents to get this process going in the first place, bear in mind that the guardians you select when your kids are two years old might be different than the guardians that you update when your kids are 10 years old. Life changes, your close friends might change. This is no disrespect to folks that have gone before but be prepared for this. Your attorney should be able to help you. Also, make sure to select more than one guardian or a guardian couple, in the event that the first selection is not able to serve. Be sure to communicate with these folks.
Check your retirement accounts. Are you still as aggressive in your 401(k) as when you started? Do you want to be? If your appetite for risk has changed, make sure that your investments reflect this. Check the beneficiaries as well. It sure would be awkward if you passed away and had forgotten to put your spouse on here now that you've been married for several years. Since you have updated your will or trust, you should be able to update the contingent (next in line) beneficiary line for your retirement accounts as well.
Check your emergency fund. If it has been depleted, refill it systematically. We cannot stress this enough. You will be a better investor (read: you will freak out less in bear markets) if you have a financial buffer in the form of many dollars. If you have more than six months of emergency funds in cash, give strong consideration to conservatively investing funds that are earmarked for mid-range spending, such as an eventual, vehicle upgrade, or the down payment on a home several years down the road. This type of cash does not need to be tied up in retirement accounts, nor should it ideally be as aggressively invested as something that has a longer time horizon. But this does not mean that it needs to sit in your bank earning nothing. Side note: This is also a great time to consider saving for your kids and their future, but we do not want to limit such a topic to college funding. We will devote another post to this topic, since it is so complex, with so many different options, depending on what your goals are for your kids.
Begin a basic financial plan or consider having an advisor do one for you. Depending on where you are at in your wealth building journey, this might be something that you could do on your own and get pretty close with online financial calculators. Otherwise, consider having a financial planner help you map out the likelihood of being able to afford life and retirement at your current pace of saving and investing. This process should include existing retirement account balances, as well as your savings rate and any relevant employer match to retirement funding. It should also include estimates of Social Security, although the younger you are the more likely you might be to have this number amended later on by legislation. This is another topic entirely, and we encourage you to engage with us on this as well.
Talk with your folks. If you are fortunate enough to have your parents around still, seek to contribute to good relationships with them. If one of your parents has always been the one to run the family finances, you might ask the other one how they would like this to go if the financially savvy one passes away first. Do they want your help? Do they want anyone's help? These conversations are not necessarily easy, but things like this need to be elicited and discussed sooner so that the family can adjust.
Build (upon) wise investing habits. Consider increasing your savings rate every 6-12 months. Read Proverbs. Read Morgan Housel’s Psychology of Money. Read Jim Collins’ Great by Choice. Determine your time horizon, and then evaluate all the so-called “news” you hear through the lens of whether it affects you over the time you have to invest. Learn from other wise investors, and not just the famous ones. Ask your mentors what they are doing. You might be surprised how willing they are to help you make wise decisions about money.
There is no possible way that this can be an exhaustive list of how to establish good financial discipline in your 30s and 40s. But hopefully it has been a good start. Let us know what you think we missed on this list. Who knows? We might host you as a guest writer in the future! If there are other topics that you would like to see us cover in the future, we would love to hear them.
Any opinions are those of Tim Weddle, Financial Advisor, and not necessarily those of Raymond James. Any information is not a complete summary or statement of all available data necessary for making a decision and does not constitute a recommendation. Past performance may not be indicative of future results. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. The cost and availability of life insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company. Prior to making an investment decision, please consult with your financial advisor about your individual situation.