Financial Advice for Your 20s, 30s, 40s, and Beyond
Signs continue to sprout up that this recession may finally be coming to an end. As we let out a collective sigh of relief, it's a good time to take stock of your current financial situation. Are you on financial track? Here are some rough rules of thumb that you can use to benchmark your progress through life.
In your 20s: Your key challenge is to learn to live within your means. Avoid credit card debt like the plague. Make at least the minimum monthly payments on your credit cards, on time, every month. Build a starter emergency fund of at least $2,000 and contribute to your Thrift Saving Plan (TSP).
In your 30s: Your key challenge is to build a solid financial foundation. Save for a down payment on a home, but don't bite off more house than you can chew. Check with your financial counselor about using your VA Loan to purchase a house. You should also build your emergency fund up to at least three and ideally six months of living expenses, and if you have children make sure you have term life insurance equal to 10 to 15 times your income and a will naming a guardian.
In your 40s: Your key challenge, as you enter into your peak earning years, is to avoid lifestyle creep. If you have not saved at least 10 percent of your gross income in your 20s and 30s for your retirement time, kick it into high gear by committing to save at least 15 percent. If you have kids and want to help them pay for college, and haven't already, it's time to open a 529 plan account. Resist the urge to splurge, these are your peak earning years ... and they should also be your peak saving years.
In your 50s: Your key challenge is to resist the temptation to make up for lost time by swinging for the financial fences. Check your asset allocation in your TSP or other investments ? this is the time to start easing up on stocks. If you subtract 100 from your current age, the resulting figure is good rule of thumb for the max to have in stocks at this stage for men. Women should subtract 110 from their current age is to determine the max for their stocks. Additionally, consider long-term care insurance. Make sure your will and related documents (medical and durable power of attorney) are updated for any life changes since original creation.
In your 60s: Your key challenge is to not over-nibble on your nest egg. Think long and hard about spending more than 4 percent of your annual savings once you?re in retirement. If you haven?t amassed your desired savings nest egg, time to think about working longer or part-time. You should also discuss your estate planning wishes with your children.
In your 70s: Travel, start a business, spend time with your family. If you've served your country, retired, and saved enough money - it's time to enjoy it.