Anyone can make a fine mess when it comes to finances—whether it’s getting into too much debt, tapping your 401(k) like a piggy bank, or buying a house than you can’t really afford. But you can still have the opportunity for a financial makeover. There is such a thing as a second chance.
This post originally appeared on LearnVest.
And it doesn’t matter if you’re in your thirties, forties or fifties either—it’s never too late to hit the reset button. So to celebrate the spirit of rebirth on this first day of spring, we reached out to those who can speak from experience—Certified Financial Planners™—to show us how people in each decade can work to recover from a big money mistake and start anew with a clean financial slate.
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Hitting the Financial Reset Button in Your Thirties
Thirty seems to be the age of the wake-up call. Many people float through their twenties, focusing on careers, dating, traveling and generally living—and spending—like there’s no tomorrow.
The end result?
“They have racked up credit card debt, and the idea of budgeting and saving is non-existent—not to mention that repaying student loan debt is still looming,” says Melinda Kibler, a Certified Financial Planner™ with Palisades Hudson Financial Group.
Often, the rude awakening comes around the age of 30, when financial milestones—say, buying that first home and having that first baby—suddenly bring finances to the forefront.
So how do you get back on track?
“The best way to move forward from debt and poor spending in your twenties is to create a plan—and stick to it,” Kibler says.
Step One: Assess Your Finances
Review your spending habits, and focus on separating your necessities from your luxuries. If you habitually find that you have days at the end of each month and a lack of funds to properly budget for them, start reducing your discretionary spending—and also look for ways to cut expenses on your necessities list.
This can be as simple as making small moves—like switching to a cheaper cable package—in addition to big ones, such as renting a less expensive apartment. Ultimately, making both big and small changes will allow you to create a workable budget, with the goal of keeping your spending within limits for the long term.
Step Two: Deal With Your Debt
You should pay off credit card debt as soon as possible, starting with the card that has the highest interest rate. The quicker you pay these off, the sooner you can start improving your credit score—and the better off you’ll be when you apply for a mortgage or other loan.
Similarly, now is also the time to focus on your student loan debt. Despite the fact that student loans carry typically low interest rates, tackling them should also be part of your overall plan to get your debt under control.
If you haven’t taken advantage of loan consolidation yet, research the pros and cons—and also look into the various federal student loan payback plans available to borrowers. Although most people choose to repay their loans on the standard, 10-year plan, other options, like those based on income, can make repaying student loans easier on the wallet—and lower your risk of default.
As for credit card debt, the best way to break your dependence on plastic is to build an emergency fund, so you don’t need to rely on credit cards to cover expenses that you didn’t budget for. An emergency stash of at least six months of living expenses can help cure the gotta-grab-the-card-again problem. You can start that fund using your tax refund or any bonuses that you receive—and then commit to automatically deposit a set amount of money from each paycheck into your emergency fund. Even if it’s a small sum, it will build up faster than you think!
Hitting the Financial Reset Button in Your Forties
The clock is ticking. You blinked, and there you are at 40 and perhaps not so fabulous—at least when it comes to your finances.
Maybe you’ve been putting all of your efforts into paying down debt or you’ve been living beyond your family’s means. Regardless of what may have led to your shaky financial picture, the truth is that you probably haven’t gotten around to socking away very much cash for your future. Bottom line: Now is the time to change course, making saving your top priority.
Step One: Get Real About Retirement
“Retirement is closer than you think,” says Michael Kresh, a Certified Financial Planner™ with Creative Wealth Management, LLC. If there’s a 401(k) or other retirement plan at work that you haven’t been participating in—and especially if your company offers a match!—sign up today. Even in your forties, you have another 20-plus working years to grow your money.
And if there’s no retirement plan at work, Kresh suggests putting the most that you can into a Roth IRA if you qualify, or a Traditional IRA if your income is well into the six figures. “You won’t get a tax deduction, but you will thank your lucky stars when you’re able to take that money out at retirement tax-free.” Another good move: Talk to a financial advisor about how best to ramp up saving for retirement.
Step Two: Rethink Your Lifestyle
If you tend to equate success with all of the stuff that you’ve accumulated, it’s time to retool that thinking. “If you have a lot of ‘stuff’ and not a lot of investments, you’re headed for financial trouble,” Kresh says. “Stuff costs money, but it cannot be converted into future income. You can’t retire on your Beatles collection.”
You may think that you deserve a luxury car when you’re in your forties, but if you can’t afford it, be realistic. “Don’t feel good because you just got a new car,” Kresh says. “Feel good because your investments just reached a new high.”
Living for today in your twenties is one thing, “but doing so when you are 40 or 50 is asking for trouble,” he says.
Step Three: Stay Focused on Saving
“Fortysomethings often try to accomplish too much with too little,” says Travis Freeman, a Certified Financial Planner™ with Four Seasons Wealth Management. “Many families feel they can pay for college for multiple children, save for their retirement, buy adequate insurance, drive nice cars and save for a lake house—all at the same time. Typically, it can’t happen. You must prioritize your goals or risk missing all of them.”
If you’re in your forties and living some version of the above scenario, now is a good time to consider finding a financial planner who can help set you straight, get you on a budget that you can live with, map out a strategy for paying down debt—and create a path that leads to that ideal retirement.
Hitting the Financial Reset Button in Your Fifties
Instead of hitting the reset button, you may feel like hitting the panic button. Somehow, you’ve come this far—yet you’re still sucking at the credit card bottle like a newborn, and you have too little saved for emergencies and retirement.
“As retirement age grows closer, there is even more pressure now than in your forties to make up for the years you did not save for retirement,” Kibler says.
Step One: Make Up for Lost Saving Time—Stat
In a word, it’s time for drastic measures to right the wrongs.
“Making major changes to your spending will be difficult in your fifties—but not as difficult as life could be without a nest egg at 75,” Freeman says.
To get where you need to go, you may need to consider more significant changes, like downsizing your home to put extra cash away each month. And if you can’tnegotiate a raise at work, “think about a part-time job that would be enjoyable,” Freeman says. “And then save every penny of that extra money.”
The bottom line here is not only to save but save more. “Maximize your retirement account contributions,” Kibler says, adding that at 50, you can take advantage of catch-up contributions. For 401(k) and profit-sharing plans, you are able to contribute an extra $5,500 annually, in addition to the $17,500 you’re allowed when you’re younger than 50. Similarly, you can contribute an extra $1,000 annually to your traditional or Roth IRA when you hit 50, totaling $6,500 of contributions.
Another important consideration at this stage in life is to “maintain a diversified portfolio of stocks and bonds,” Kibler says. While you want investments that grow, you don’t want to go too aggressive, since you’ll have less time to recover should the market drop.
Step Two: Act Like a Grown-Up
Put the kibosh on any foolish spending in the form of too many nights out, trips you can’t afford, sticker-shock home upgrades and whatever else is on your “simply must have it” list.
Then take that money and ” consider increasing the funds you set aside for future medical expenses,” Kibler says. And be sure to review your life insurance needs and explore long-term care insurance now, since it’s far cheaper to buy in your fifties than in your sixties or later.
And if you’ve fallen short in meeting your own financial goals not because of bad habits but because of a big heart, it’s time to push others to also adopt more grown-up behavior. Translation: If you’re still helping out your adult children, realize that, at a certain point, “helping starts morphing into enabling,” Kresh says, and it’s time that they learned to fend for themselves.
At 50, you may not be able to get back that 20-year-old figure, but you can get your finances back in tip-top shape—at any age.
How to Be a Financial Virgin… at Any Age | LearnVest
If asset managers want to follow each other over the cliff with our retirement savings, let’s look for someone with more courage, writes Sharan Burrow
“It’s time to push the reset button on investment strategies.” Unions are calling on funds to be transparent about where their investments are. Photograph: FABRICE COFFRINI / POOL/EPA
Fri 5 Jul 2013 17.06 BST
The journey of re-shaping our economies for a carbon constrained future has been filled with crashes, and breakdowns. China has overtaken many countries and put in place a bold pilot carbon trading programme, meanwhile the G8 failed to provide critical leadership on climate action.
The climate crisis will affect as many people as the financial crisis, and still political leadership falls short of giving business and working people the certainty they need to plan for the future. Humanity is in uncharted territory. We have the highest ever levels of carbon in the air. The latest World Bank report, Turn Down the Heat: Climate Extremes, Regional Impacts, and the Case for Resilience, warned of a planet potentially four degrees hotter by the end of the century. It is scandalous that the world’s leaders are seemingly unconcerned.
The shocks that economies face take time to heal. The lingering effects of the financial crisis of 2007 still impact on global economic and social stability today. Imagine what devastation increased climate catastrophes will hold for investment firms that refuse to shift their assets from traditional firms pursuing business as usual to green technologies, infrastructure and energy.
With $25tn of workers’ capital, pension funds, invested in the global economy trade unions are increasingly alarmed at the “lemming standard” that orthodox investment is creating. If asset managers want to follow each other over the cliff with our retirement savings, then let’s look for some with more courage.
For all the talk of balanced portfolios, the current investment patterns are anything but. Despite a call for a shift of investment into patient capital the reality is that speculative investment is larger than it was prior to the financial crisis. There have been few lessons learned from a financial crisis that took us all to the brink. The hedge fund industry alone is worth some $2.5tn and more than a third of the total investment in hedge funds comes from pension funds
By contrast the share of pension fund investments in climate mitigation efforts barely tops 1%. With the exception of PensionDenmark which aims to have 10% of its portfolio directly invested in renewable energy, and several funds in Australia, Canada, Scandinavia and the US with a much smaller share, the field is simply vacant. The salient fact is that the overwhelming majority of these percentages are brought about through union collective bargaining, demanding that their pension funds are invested in a future where we will have jobs and a living planet. This has to change.
Unions know there are no jobs on a dead planet and we know that the risk of climate catastrophe requires an alternate approach to safeguard investments. With both these imperatives looming down on us like the proverbial train, where are the visionary thinkers? Clearly not from the current crop of asset managers and seemingly not in any collective approach from world leaders at the G8 or G20.
The fund managers will tell you that the markets aren’t mature enough. If that’s the case then where is the global strategy for governments and/or multilateral agencies to back basic returns, guarantees that will likely be never called on? If government or international agency backing is good enough for bailing out the banks, why not the planet and why not have dignified retirement savings?
It’s time to push the reset button on investment strategies. To support this shift trade unions have called on funds to make transparent where their investment is. The Asset Owners Disclosure Project is ranking funds on transparency and pension fund members can ask questions of their funds.
Workers are asking for their retirement savings to be in patient capital, balanced portfolios taking climate risk into account, with independence of thought and transparency. This is hardly radical. But with our pension funds, we’re willing to demand change.
Sharan Burrow is the general secretary of the International Trade Union Federation
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