Regardless of which phase you are in life, financial planning is a critical part of your life, especially with how you manage your money. Having plans for the future is good, but what about where you are now and what about plans for your kids or spouse? Here’s our guide to how to manage money at all stages in your life.
Why manage money at every stage in life
Financial experts recommend always having savings to cover living expenses for three to six months. This is not retirement savings or other assets but money to cover everyday essentials in case you lose your job or have an unexpected medical expense. However, it’s not easy to set aside that much money. Financial experts recommend prioritizing different aspects of your saving at each stage of your life. The underlying concept is the same — you must save however small the amount may be. Here’s how you can handle money as your progress in your career.
Ages 18 to 34
If you’re in this age group, paying off student loans or saving money to buy a first home will be a priority. But it’s still crucial and compulsory to have an emergency fund because this fund will protect your long-term plans — your plan of buying a home could get dropped because of a large unexpected, let’s say, medical expense. Thus, it’s essential to have an emergency fund, no matter how small the amount is. They will grow over time and save you most unexpectedly.
Ages 35 to 44
If you are in this age group, you would have made progress in your career and made more money than the previous age group. You also would have benefited from the compound interest all these years. This is the time to focus on retirement funds, paying debt, and emergency funds; all are equally important. Somehow try to set aside money for all of these every month.
Ages 45 to 54
This age group will have salary raises, savings and extra money just from the interest. This is the time to concentrate fully on retirement. After turning 50 years old, you can also make catch-up contributions to a retirement account. A catch-up contribution is a kind of retirement savings contribution that lets anyone who is 50 years old or above make extra contributions to 401(k) accounts and individual retirement accounts (IRAs).
Ages 55 to 64
Anyone in this age group will have more money than the other age groups. In fact, the Bureau of Labor Statistics says that this age category earns among the highest wages. Moreover, you would have got the most out of the compound interests. Whatever your bank balance is, open an account with high-interest rates if the amount is not going to be used for now. There is nothing like getting additional money from interest.
Ages 65 and above
If you have retired or are planning to retire, you can start using the retirement accounts for everyday expenses. However, don’t close the savings account. It’ll help you with unexpected expenses.
Increase your savings account balance
Increasing your existing savings balance by means other than your salary is crucial at any stage in life. The first step is the traditional saving method — observing current spending and figuring out ways to reduce expenses to set aside savings. Along with that, you should also set up automatic transfers and a high-yield savings account.
it is the best way to build savings. You can schedule a transfer for a certain amount from the checking account to your savings account on payday. Unless there is an automatic transfer, it’s unlikely that you would stay within the spending limits you have planned in your mind. And just save, even if it’s a small amount like $20 every month. At the end of the year, you will have $240, which is better than nothing.
High-yield savings account
An account with a high annual percentage yield (APY) will get more money for you without any effort on your part. The median savings account balance by age is just an ideal reference. Whatever your balance is, set up the automatic transfer to a high-yield savings account. This will boost your savings so that your money doesn’t decrease in value because of inflation. At the end of the day, you are prepared to best manage your money at any stage in life.