By Katie Bossler
GreenPath personal finance counselor
There are two “golden rules” in personal finance that apply, regardless of how old you are: 1) live within your means, and 2) look forward to the future and save for it.
These are two very simple concepts, but very powerful. If actually applied to your everyday life, they can mean the difference between being constantly stressed about your finances, and feeling secure and in control. Below are some more specific suggestions by decade.
Tip #1: Establish a positive credit history. A good way to establish good credit is to get a credit card, use it often, and pay off the ENTIRE balance ON-TIME, every month. Paying before the due date and avoiding interest charges is critical to your financial health.
Tip #2: Don’t be in a rush to move out of mom and dad’s house. If you have landed a job, take the time to get a strong financial foundation and establishing savings, before you move out on your own. Stay focused on paying down any student loan debt you may have. This might be the last time you will not have a housing cost, so take advantage of it as long as you can.
Tip #1: The 30’s are when you may become established in a career and ready to purchase a home or finance a wedding. Before taking the next step, review your credit and current debt load. If you damaged to your credit in your 20’s, develop a plan to pay back your debt and improve your credit score. Meeting with a credit counselor can help you explore options to clear up debt.
Tip #2: If you are ready to purchase a home, determine how much you can afford to spend. A 30-year mortgage is a promise to make the payment on time, in full, every month, for the next 360 months. This is a big commitment. Make sure you take your future lifestyle into consideration, so that you do not feel cash strapped.
Tip #1: Be careful with the upgrades. You may be advancing in your career and ready to buy a bigger house, or a nicer car, because things are going well. This is a slippery slope, so be careful! If you are considering using a raise to finance an upgrade, weigh your options. You don’t want that $200 per month raise to end up costing you $500 per month!
Tip #2: Review your emergency savings. You may be socking away some money, but is it enough? There are plenty of “rules of thumb” for how much you should have in savings. Three months of expenses? Six months? This is a personal decision with no right or wrong answer. Regardless, make sure you are realistic about how much you have. What was six months of expenses a decade ago is probably not going to stretch that far today, if your family has grown and expenses have gone up.
Tip #1: As retirement gets closer, review your debt load and retirement savings. Most of us do not want to enter our retirement years with debt. This is the decade to avoid getting further into debt, paying off existing debt, and increasing retirement savings. Take stock of what you want to have paid off by retirement, determine how much money you’ll need, and then develop a budget. Take advantage of free online debt calculators and retirement planning tools.
Tip #2: Don’t overextend yourself helping others. You may have kids in college and aging parents, but you should never lend money that you need yourself. Review your budget and make sure you are hitting your financial goals, before helping others with theirs.
Tip #1: This is the decade when most people decide to retire. Before retiring, be sure to find out exactly what your income will be and review your budget. The Social Security Administration has a retirement benefits estimator available at ssa.gov that can be used to estimate income.
Tip #2: For most of us, housing is the biggest expense in our budget. If you are a homeowner, even if your home is paid in full, there are property taxes, upkeep costs, and utilities. Consider if the home you are living in is the right fit for you as you age. Consider whether downsizing or other senior living options make sense. Check out the National Council on Aging (ncoa.org) for excellent resources to help weigh this decision.
By making financial wellness a part of your annual financial review, you can help ease some of the stress you encounter! If you have questions, feel free to reach out to us at (800) 550-1961.