For your 20s, 30s, and 40s, your financial strategies must change from foundation building to accelerating growth and securing assets. Your priorities will likely change when you start investing in yourself in your 20s and learn to balance increased responsibilities in your 30s and maximize your investments by the 40s. Financial planning by age is an essential requirement that you cannot overlook if you aim to achieve long-term goals during your prime. 

Starting Financial Planning by Age 

How to invest in the 20s 

You will likely feel invincible in your 20s, but it’s helpful to learn how to prepare for financial emergencies. An emergency fund functions as your first line of defense against unexpected loss of income or significant expenses. Experts recommend saving 3 to 6 months’ worth of expenses for emergencies. Does it sound easy? You may take longer to achieve the goal, which is why you must start building that safety net sooner rather than later. 

Do not wait until you are older and have bigger expenses to manage. Instead, give yourself a head start by regularly putting away some money in an emergency fund when you are younger and have fewer financial responsibilities. 

Consider saving your money in a high-yield savings account, which can help it grow faster than traditional accounts. High-yield savings accounts pay you more interest than traditional savings accounts. 

Consider Saving For Retirement Now 

Similar to many facets of finance, by age/Lifestyle, the sooner you start acting, the better. This is undoubtedly true when it comes to investing for your retirement. Just because you are in your 20s, it doesn’t mean you cannot invest for retirement. On the contrary, you start saving for a larger retirement pot when you start saving for it in your 20s. 

You may think saving for retirement isn’t your concern because you are young, but we recommend not waiting until the 30s or 40s to start investing for your golden years. As you won’t need to touch the retirement funds until later, you can afford to invest in riskier assets that could potentially offer larger returns. 

Start contributing funds to your employer’s workplace 401(k) if they have one. If you cannot afford the maximum annual contribution of $20,500, ensure you contribute enough to receive your employer’s full match. 

After your 401(k) is cared for, consider shifting your focus to IRA accounts. You can have a Roth IRA that lets you invest post-tax money. The Roth IRA ensures that your money grows tax-free and that you won’t have to pay taxes on withdrawals when you retire. You are allowed to contribute $ 6500 to a Roth IRA account annually without the flexibility of making retroactive contributions for years when you didn’t fund the account. 

Avoid Using Credit Cards and Purchasing More Than You Can Afford Every Month 

Using credit cards is easy because it’s not real money, and you don’t see dollar bills going out of your pocket when paying for things. However, it is essential to remain cautious with credit cards to avoid accumulating a lot of debt. Credit cards charge high interest rates when you do not pay your balance in full every month, ensuring that every purchase costs you more in reality. 

In addition, carrying a big balance in relation to your credit limit lowers your credit score. It makes you liable for higher interest rates when you apply for personal loans, credit cards, or even a mortgage. 

Ensure that you don’t spend more than what you can afford to pay every month to avoid amassing a heavy credit card debt. 

Mistakes To Avoid in the 30s 

You saved some money in your 20s — does that mean you have to spend more in your 30s? 

When you get older and progress through your career, you will probably start earning more money. You might occasionally be tempted to upgrade your car or move to a fancy apartment and splurge on more nights out. However, does your personal financial status allow you to do that? 

It is crucial to distinguish between lifestyle creep and simply enjoying your higher income while pursuing your financial goals. While there is nothing wrong with spending some money on purchases that make you happy, overspending can threaten your progress towards your long-term financial goals, like purchasing a house, continuing your education, and saving for your children’s education. The best thing to do in such cases is to take steps to rein in your creepy lifestyle. 

Your kids don’t need to be 18 before you start thinking about paying for their college. 

If you are at a stage of life with young children, now it is a good time to start thinking about what their college fees may look like. If you plan to provide them with financial assistance for their entire education, you will want to start saving right away while you still have time on your hands. 

Saving your kids’ education will prevent them from having to take out student loans and become indebted for life. Do not think a high-yield savings account will help in such cases, as well, because a 529 plan may be a better option for children’s education. The 529 plan is state-sponsored and designed to fund college education. The growth is tax-deferred, and withdrawals are tax-free for qualified education expenses. 

If you are unsure how much financial assistance or institutional scholarships your child will qualify for when they start applying to colleges, it is better to have some funds set aside for them than none. 

Improve Financial Flexibility 

An optimal way to protect your financial future is to repay any existing debt. The money you spend on outstanding debt and credit card statements can be used to increase your savings by investing in the market and living your best life. 

High interest rates often make it difficult to pay off debt, and it is a familiar problem for everyone holding significant credit card debt. Consider options to seek a balance transfer credit card with zero APR for a limited time. The card lets you focus on paying down the principal of the debt rather than just the interest. 

Planning in the 40s 

Do not cease your efforts to boost your income. 

In your 40s, you must keep an eye out for opportunities to boost your income. However, if you have specific expenses to prepare for, such as supporting your aged parents financially or moving your entire family for a new career opportunity, it is helpful to have additional income to make covering the costs less stressful. 

Some common ways to make more money are to ask for a raise at work whenever appropriate or to change jobs for a significant salary increase. If you have never needed a financial planner before, the 40s are a great time to look for one. Financial planners will look at your financial circumstances and goals before offering you advice you may never have received. They can also help you plan for various events such as retirement, divorce, marriage, loss of income, increase in income, and more. 

Financial planners excel at identifying opportunities to help reach the most significant financial goals. Therefore, even if you possess a financial degree yourself, you still benefit by consulting a financial planner for additional advice. 

Money Habits by Age 

In the 50s 

Catch-Up Contributions 

Catch-up contributions are not an additional expenditure that you catch up on because you missed spending money on it earlier. It is a contribution tailored by your IRA or Roth IRA to help you save an additional $ 1000 every month from 2023. If you decide on catch-up contributions, your contribution limit increases to $7500 annually until you leave your workforce. It indicates that if you retire at 65, you will have contributed $ 112,500 over 15 years. The catch-up contributions are available only to people over 50, so it is a good time to take advantage of them to save some extra funds. 

Savings for Medical Care 

Retirees over 65 can expect to spend approximately $ 315,000 annually on healthcare expenses. Therefore, waiting until you have retired to start thinking about how you will offer medical care doesn’t sound appropriate. Instead, use the last decade of your work life to fill any potential gaps you may need in the future. 

This is another area where assistance from a financial planner helps. They can recommend specific savings plans, like a health savings account, to help you expand your nest egg for healthcare costs even faster. 

Conclusion 

People at different life stages have different financial goals they prioritize. While the lessons are fantastic starting points, it’s helpful to consider what your individual requirements are and which goals fit your circumstances. 

When in doubt, take action and reach out to a financial planner for personalized advice tailored to your financial journey. Don’t hesitate—get professional support to ensure you meet your goals.