In cased you missed it, my last article was all about how to start financial planning in your twenties (which is where I am now). But one thing I’m always aware of is how my financial plan will change throughout my life.
As you move through life, your priorities change, your career might change, and so will your finances.
Am I an expert in financial planning? No. But does that mean I should ignore it and hopes it all magically works out? No.
I found that if most plans don’t usually work out exactly how you intended, but not having a plan is worst. Many people don’t think about retirement until it’s too late. And then it feels like you’re playing catch up and always behind in life.
To avoid being in that situation, I now try to plan ahead. I have also started financial planning more because I know how much of a difference it made in my twenties.
To an extent, I got lucky. I was not raised in a home with lots of money, so I never got used to spending it. So when I entered university, I was incredible diligent and determined to graduate with zero debt. That affected the school I went to, the field I chose to study, and ultimately my career choice that would determine my income potential for my twenties and a huge portion of my life.
I didn’t know it at that time, but I was financial planning for what after graduation. And I thought everyone else was doing that too. So when I graduated and learned that many students had taken on huge loans and debts to go into careers that didn’t have salaries high enough to pay off their debt.
Financially planning isn’t just about figuring out your priorities now, it’s about thinking for the changes for your future. So this is my financial plan for my thirties, forties, and fifties.
Financial Planning In Your Thirties
In your thirties, most people have their life priorities change. Whether it’s your career or family life, your finances still go through some fluctuation but not nearly as much as your twenties. In your twenties, you graduate school and most likely start your career with an entry-level salary and work your way up. In your thirties, you probably have a better grasp on your career and possibly a career change.
a) Focus on paying down all your debt
If you have not yet paid off all your high consumer debt, it starts to need to be a priority because the interest accumulated on that debt will go much further on in your life. Other than high consumer debt from credit cards, a car, etc., it’s okay to have some debt like a mortgage. Sure, it’s great to contribute as much as possible to mortgage debt, but it’s alright to have it as well so that you can allocate money to other areas.
b) Save up for a family (if that’s something you want) or long term goal
And that brings me to the next point. I especially think it’s okay to have a mortgage if you are starting a family. Kids are very, very expensive commitments to have in your life and that decision alone will create a 180 in your financial plan. If you choose not to have kids, start saving up for a long term goal like a home, travelling or starting your own business. While many people start their careers in the twenties, it’s very common to change careers later on, so if you’re not happy where you are, start creating a savings plan to change course by starting a new career or moving to a new place.
c) Increase your contributions to your retirement
While it was fine to start a retirement account in your twenties, in your thirties it’s important to start making regular contributions. It doesn’t have to be half your income or something outlandish, but it should still be a fair amount of your income (usually 10 to 15%).
d) Invest in higher-risk or long term investments to begin creating streams of passive income
Saving is great. Investing is better. Investing allows you to make money from your money and in your twenties, retirement is your investing account. Not a lot of people see retirement as investing (because it’s not sexy to talk about), but it is an investment account, just used for a very specific purpose. However, once you’ve maxed out your contributions, it’s good to start thinking about different types of investments.
The important thing to remember in your thirties is this is the time to start long term investments so if you want to invest in real estate (and not just as your home), the stock market, etc. this is the time to start. For areas like the stock market and real estate especially, these are investments that generally have a high return over time, the keyword being time. Of course, there are spikes, but there are also drops in these markets and investing in these portfolios is a test of patience. To truly see high returns you have to be patient and not just pull the money out in a panic when the market goes down. Investing is all about being able to ride the wave of ups and downs and if you have the resources in your thirties, this is when you should start because even if it goes up or down in the next few years, you will be to enjoy the returns later in life.
This is also the time to start seriously looking at streams of passive income. While it’s something you may consider in your late twenties, it’s can be hard to achieve with competing debts and short-term savings goals. However, examine your investment situation and start to look into either investing in stocks with dividends payouts (that can gradually increase over time) or having a rental property.
Financial Planning In Your Forties
Your forties will most likely be a decade of many unforeseeable changes and the best way to approach it is being prepared for the unexpected. In your forties, it’s important to manage the challenges of life but also starts creating a solid foundation for retirement and the future.
a) Re-assess your financial and investment situation
In your forties, your life will probably continue to take tumultuous turns and you need to be prepared for it. It’s something no one wants to think about but your forties can come with a reassessment of your life. Maybe the career you worked your whole life isn’t what you want anymore. Maybe the partner you chose isn’t the right fit anymore. Or maybe you or a loved one gets sick. Or everything turns out fine. Your forties can be a very unpredictable time and it’s important to assess that financially and balance that with your investment situation.
It’s okay to stop contributing as aggressively into investments and focus on having higher cash flow for spending on your life changes.
b) Start planning retirement/insurance needs
It’s time to really think about retirement. In your twenties and thirties, the most important steps are to get started and contribute as much as possible, but you don’t have to think about the details of retirement. In your forties, you have to think about the details. Having kids and/or owning your home will be 2 big factors on how you will plan retirement. If you do not own your home (and do not plan to), how much will it cost to live in a retirement home? Will you have kids that you can live with and help support you? These are the things that you really need to assess and ensure you have the funds for.
c) Aggressively pay off your mortgage
If you do have a mortgage, it’s time to start aggressively paying into it because once you have retired, you will not be able to withstand the market changes as easily. What if interest rates go up? If you plan to sell your home, what if the housing market crashes and you’ve invested your life savings into this home intending to sell it? Start looking at how you can minimize your mortgage for the future.
d) Save for education funds for your kids or a very large emergency fund
If you choose to have kids, it’s important to start thinking about their education funds, or if they choose not to go to school, a down payment. While it’s not necessary, it’s important to think about your kids’ futures as well. And if you choose not to have kids, it’s important to remember to really start boosting your emergency fund. Kids are expensive, but the good thing about having children financially is that they will most likely be able to help you when you are older and retired. I know lots of people that help take care of their parents (and not just financially but to bring them to doctor appointments, etc). If you don’t have kids, you will need a large emergency fund because you will need to pay for future caretaker services.
Financial Planning In Your Fifties
In your fifties, your financial situation will probably see less variable change. While it’s not too late to make a career change, it’s definitely very difficult. And while a promotion could be in the works, or your business could be booming, remember that unless you want to work forever, this income change will also not last for too long.
a) Make a serious plan for retirement and contribute as much as your income accordingly
It’s time to take retirement seriously. Make a plan for your retirement and really assess what age you would like to retire. Although most people retire at 65 (because that’s when the federal pension kicks in), that may not be the case for you! Some people can retire in their 50s and if that’s something you want to strive for, start looking at what your life will look like before and after the transition.
b) Tie up loose debts including paying off your mortgage
In your fifties, it’s important to start thinking about how to pay off all your lose debts and your mortgage. Living on a fixed income, you need to stabilize as much as your finances as much as possible and debt is something you do not want to bring into your mortgage.
c) Save up for high retirement emergency fund
When you transition into retirement, you live on a fixed income which makes having a large emergency fund all that more important. If the roof of your house has a leak or you get sick or someone gets into an accident, it’s important to prepare yourself financially. It will not be as easy to get a second job (both physically and in the workforce) and your health may not allow for it. Also, while it’s great to have side income, it will have its limits.
d) Move all of your high-risk investments to low-risk bonds
It’s time to also stop investing in high-risk portfolio items. Hopefully, your investments have been paying off and you’ve transitioned more into passive income (if you own a rental property or have stocks with dividends payouts), but it’s also important to note that you should not have high-risk investments if you require the money in retirement. High risk, high reward investments or long term investments only make sense when you don’t need the money and ride out the wave too long term benefits. It’s time to move into low-risk bonds to ensure your money is secure. Be careful not to count on your investment money in retirement if you keep it in high-risk investments because if the market crashes, and you need the money, you will have to exit it a loss or wait many years for the market to increase again.
Ultimately, financial planning in your 20s, 30s, 40s, and 50s is about balancing your life from high risk to low risk and ensuring you pay off debt, increase savings gradually, and maximize your income and investments.