Getting Your Financial House in Order – Part 2 (Middle Age)

In June of 2020, my colleague, Evan Macedo, wrote about taking a practical and proactive approach to taking control of personal finances for individuals at the start of their careers. That piece, linked below, was primarily geared toward people in their 20s and 30s who are starting out with savings, budgeting, and paying down debts.

A little more than a year later, I thought to add a next chapter to the generalized look at getting grips on our financial lives, by laying out some steps for folks closer to the midpoint of their fiscal journey. Moving into our 40s and 50s, many of us have more established career paths, savings and assets to maintain and grow, and families or other dependencies we need to support. But as with those just starting out, the simple act of automating a savings and growth strategy mindset often slips through the cracks of our day-to-day. With a little structure and some strategic forethought, it’s never too late or too early to make targeted financial moves to reach our shifting life goals.

Saving With a Plan and Purpose

Whatever your economic outlook, it’s time to create a savings routine for short/mid/long term goals with access money. It’s usually follows that those who make more money get used to spending more money, but budgeting and spending allowances are no less important just because you may have entered a higher tax bracket. The goal for all of us is to establish the quality of life we want now and then maintain it throughout retirement. The steps we take at this stage will largely dictate our ability to carry over those expectations for our lives into the future.

I highly recommend that you set an automated monthly savings strategy that can pull a set percentage of your household income into a growth-oriented savings account. If possible, try to set aside at least 15-20% of gross pay for savings and investment. Cutting back on unnecessary expenses is often much easier than you may expect, and relatively little things – like regularly going out to eat, paying for those four unnecessary streaming services, or forking it out for that weekly lawn service – can add up quickly. By automating and savings before you spend it gives you the freedom to spend down the rest of your income guilt free.

Tax Advantaged/Targeted Investments

It’s fair to say that extra money that’s just sitting in a bank checking or savings account isn’t putting in the work to move your financial needle. Making monthly and yearly contribution allowances to your company 401(k) or mutual fund is always a good idea. I also recommend that you put some thought into tax-favored investment vehicles and targeted savings accounts if you haven’t already done so. Distributions from your 401(k) or a traditional IRA will be taxed down the line but putting money into a Roth IRA can provide tax-free distributions in retirement. If you have children who are likely heading to college in the next decade or so, targeted accounts like a tax-advantaged 529 Plan can be a great way to designate education savings that can be passed between your children.

With a currently bullish but always volatile market, diversification in investing is a great idea more often than not. Consider working with a financial advisor to create a targeted investment strategy that matches your risk tolerance and foreseeable expenses.

Buying a Home

For many of us, this is often the point in life when taking out a mortgage and putting your savings toward acquiring physical assets, like a home, car, land or other property, becomes possible. At the moment, interest rates are still relatively low for taking out a home loan, but competition in the market is keeping prices high in many regions. The important thing is to do your research on region, school districts, potential climate-based issues, and shifting property values—and make conscious rather than emotional decisions about buying real estate or other large ticket items.

With some forethought, luck, and work over time, putting equity into a home remains one of the best ways to grow wealth. If you own “starter” property already, it may also be the time to consider tracking the market to sell and reinvest in a home that better fits the expanding needs of you and your family.

Insurance Coverage and Family Protection     

It is also the time to consider how well your dependents are protected against the possibility of you no longer being able to work. These recent years of a global pandemic have made it abundantly clear that if you are the primary breadwinner for your family, life and disability insurance should be a fundamental component of your financial plans. No one expects to get sick or have to prematurely face their mortality, but planning for that inevitable outcome, whether it shows up tomorrow or fifty years from now, is a good idea.

A new breed of hybrid, dynamic, and customizable options are changing how we interact with life, disability and long-term care insurance. Talk to an insurance professional about what might be available to fit your budget and meet the needs of your family to gain peace of mind and better protection for you and your assets moving forward.

Start and Maintain an Emergency Fund

These last years of Black Swan disruptions, like COVID, the supply-chain fallout, and natural disasters, have shown that we should all plan for the unexpected. Whether it’s an unforeseen hospital bill, car accident, downed tree, or job loss—setting money aside as an emergency financial nest egg is highly recommended. As a rule, it’s a good idea to try to set aside enough to cover 3 to 6 months of average expenses in an interest-bearing Money Market Account. Hopefully that money can be left to grow without need of use for many years to come—but there is something very reassuring about knowing it’s there, waiting in the wings, if a need ever arises.

Sapers & Wallack is Here to Help

Whatever the stage of your financial journey, now is the time to take ownership of your finances and make proactive steps to reaching your goals. Come talk to our financial planning teams to get you the information and tools you need to get you on the path you want for you and your family.

Click on this link to read Evan Macedo’s approach in Part 1 of Getting Your Financial House in Order.

And stay tuned for Part 3 – Preparing for and Managing Retirement.