No matter where you’re at in your financial journey, following these four (or five) steps during each decade of your life can help keep you on track with your financial planning.
Financial steps to take in your 20s
Your 20s are a bright-eyed time where the world is your oyster, but financial planning for the future might not be top of mind. These financial goals for your 20s can get you in the habit of thinking about your finances early and have a huge payoff over time.
1. Invest in yourself
As you begin a career and find your place in the workforce, take advantage of personal growth opportunities, professional development courses and skills training. This will not only benefit your career, but enhance your professional value. Whether you attend college, learn a trade or establish a business, taking steps to prepare yourself for a career can help increase your earning potential for decades to come.
2. Establish responsible credit
While you don’t want to go into debt, obtaining a credit card and paying it off every month can help establish good credit and responsible financial habits. You’ll need good credit in the next decades of your life to make bigger purchases, so it’s smart to start establishing responsible credit early.
3. Avoid consumer debt
According to Northwest Mutual’s 2019 Planning and Progress Study, millennials have an average of $27,900 in debt, while Generation Z has accumulated an average of $14,700 in debt. Millennials cite credit card payments as their leading source of debt (25%), while Generation Z’s debt is largely attributed to student loans (20%).
You might need a credit card to establish good credit, but only purchase what you need and what you can afford to pay off in full every month. This is also a great time to create a budget to monitor your spending.
4. Start an emergency fund
Should you get injured, run into unexpected medical bills or be out of work for several months, it’s recommended to have between three and six months’ worth of expenses saved for an emergency. A good place to save these funds is in a high-yield savings account, CD or other low-risk investment.
5. Begin saving for retirement
Whether you have $25 or $500 a month to put toward retirement, start saving early. Kyle McCann, owner and financial advisor with Vantage Wealth Planning, says “the earlier you start saving, the smaller of a percentage of income you have to save. For example, if you start saving in your 20s versus your 40s, the percentage of income you have to save on an annual basis is less than half, or 12% versus 25%.”
Financial steps to take in your 30s
In your 30s, you’re starting to see some financial stability and can begin approaching your finances from a different perspective than your 20s. For some, this is a time to build upon the foundations you set in your 20s, while for others, this decade is a time to focus on finances and begin building wealth.
1. Eliminate debt
The average debt for millenials is around $27,900. Much of this debt comes from credit cards, car loans and school loans. Sit down and budget how you’ll eliminate your debt. It’s best to start with whichever debt has the highest interest rate.
2. Increase your savings rate
With a more steady and increased paycheck comes the ability for additional savings. Fortunately, there are a variety of savings and retirement options and even ways to earn "free" money.
Eric Gaddy, financial adviser and founder of Retirement Made Simple recommends mutual funds and Roth IRAs for young adults.
"I’d suggest a low-cost S&P 500 index mutual fund as the best investment to make when you’re just getting started,” explains Gaddy. "I’d also highly suggest Roth IRAs. With a Roth IRA, you’re putting after-tax money into a retirement account so when you withdraw it after age 59½, your earnings on your Roth are completely tax free."
If you work with an employer that offers a health savings account (HSA), IRA or 401(k) with an employer contribution, don’t miss the opportunity for “free” money. If your employer will match up to 5% in retirement, putting 5% of your income toward your retirement can yield impressive results when compounded over time.
3. Save for your children
If you have or plan on having children, now’s a good time to prepare for their education. When it comes to college, there are special college savings plans, like 529 plans, that you can start putting money into now to grow into a hefty college fund.
4. Examine housing costs
According to the United States Census Bureau, nearly 38% of individuals under the age of 35, while roughly 60% of individuals ages 35–44 owned a home during the third quarter of 2019.
Fewer millennials are purchasing homes than ever before as a result of high student debt, fewer home loan options and the inability to afford the costs associated with buying. While renting may be a good housing solution for many people, owning a home and paying down a mortgage can have long-term benefits.
Financial steps to take in your 40s
Your 40s are a perfect time to start thinking about long-term financial goals. The steps you’ve taken up until this part of your life will help prepare you for retirement and beyond. If you’re just starting to make financial goals in your 40s, it’s not too late to make life-changing choices.
1. Pay down your mortgage
At this point, your mortgage is most likely your largest debt and one you can start paying down more significantly. An easy way to pay down your mortgage faster is by paying one extra mortgage payment per year toward your principal. On a 30-year loan, this could save you tens of thousands of dollars on your home and take several years off of your mortgage.
2. Earn more
For many, this decade encompasses peak earning years and is a great opportunity to grow your skills and salary. Consider pursuing certificates or skills that can enhance your resume and increase your worth. It’s also important to check in with your industry and make sure you’re getting paid what you deserve for your experience.
3. Ramp up retirement savings
By your 40s, it’s recommended that you have anywhere from two to three times your salary saved for retirement. If you’ve been putting money into retirement up to this point, then you should be comfortable putting away between 12–15% of your income. But if you’re just starting to save, you’re looking at closer to 18–20% to catch up.
4. Discuss finances with your parents and children
In this decade, it’s important to make sure that you’re preparing your children for financial stability as they grow, while also ensuring that your parents have a financial plan in place. Investing in life insurance for yourself and your parents is a smart idea.
Create a savings account for your children and provide a way for them to start saving a small amount each month to get into the habit of smart financial choices.
5. Give back
If you have a little extra cash or time, spend it giving back to the community through mentoring, volunteering or cash donations. Charitable contributions are tax deductible, so keep track of any financial donations you make.
Financial steps to take in your 50s
This decade is a great time to contribute more toward your retirement and begin thinking about your long-term financial goals.
1. Estimate retirement income and set a retirement goal
In your 50s, retirement isn’t a distant possibility, but a life phase that’s around the corner. Fidelity recommends that you have at least six times your salary in savings by age 50 in order to retire by age 67. Estimate your retirement goal and create a plan to get there.
2. Make catch-up contributions
Starting at age 50, you can add additional money into your retirement called catch-up contributions. Up to $6,500 worth of catch-up contributions are permitted in 2020 on specific retirement plans. If you’re not at your retirement goal, take advantage of this option.
Consider shifting your money around and diversify your portfolio among stocks and bonds. Bonds are a safer investment choice, but you still want to invest aggressively early in the decade and adjust to safer investments when you’re nearing your 60s or desired retirement age.
4. Examine your insurance plans
If you haven’t locked in important insurance plans like life insurance and medical insurance, this is a good time to do so. General health insurance will not cover things like long-term care; that’s covered through life insurance or specific long-term insurance.
If you wait until you need the insurance, you won’t qualify to get it. Life insurance also assures that your family does not have to cover the finances associated with your death or funeral, which can be costly.
5. Reevaluate or create your estate plan
What do you want to happen to your estate if you pass away? Do you want it to go to your kids or another family member? Take a look at your will, investments, bank accounts and other areas to make sure your beneficiaries are in order.
Financial steps to take in your 60s and beyond
At this stage, you are nearing or past the traditional retirement age. While you may decide to continue to work, you may also want the option to spend the rest of your life sitting on the beach sipping mai tai’s or playing rounds of golf at the country club worry free. You also want to be practical about your personal and family needs before and after you retire.
1. Reevaluate or create your estate plan
Whether you’re going to work as long as you can or want to retire soon as you can, having a plan in place can help you fulfill your financial goals.
2. Manage and adjust your distributions
At some point in retirement, you’re going to need to withdraw from your accounts. Make a plan for when you’ll start withdrawing, how you’ll replace your income and when to claim social security. The later you claim, the more money you’ll receive each month.
3. Ensure you have a long-term care plan in place
Long-term care refers to the point in life when you can no longer take care of yourself. The options for care become in-home care, assisted living facilities, residential care facilities, adult day care, or a family or friend who will take care of you.
Long-term care services can range anywhere from $20,000 a year to more than $100,000. There typically aren’t many options for funding these services when you need them, so make sure you have a plan in place long before you do need extensive care. You can use your life insurance to pay for long-term care but you’ll want to purchase it in earlier decades.
4. Establish a legacy plan and revise your will
Once retired and past your 60s you can buckle down on your legacy plan and revise your will. Your legacy doesn’t have to end at your estate; think about charitable giving, investing in an organization or initiative you care about and other meaningful ways to spend your time and money.
As your family and lifestyle changes, continue to adjust your will so all of your assets are properly passed on.
Having good financial goals for every decade of your life can feel overwhelming. It’s never too late to start, but you should get going as early as you can. At the beginning of each decade, do a financial audit to make sure you’re on track and taking the necessary steps to keep your finances healthy.
Your future self will thank you.
Employee Benefits Research Institute and Greenwald & Associates. “2019 Retirement Confidence Survey Summary Report.” Accessed January 22, 2020.
International Revenue Service. “Retirement Topics - Catch-Up Contributions.” Accessed January 22, 2020.
Northwestern Mutual. “Planning & Progress Study 2019.” Accessed January 22, 2020.
United States Census Bureau: “Quarterly Residential Vacancies and Homeownership, Third Quarter 2019 Report.” Accessed January 22, 2020.
Fidelity. Article “How Much Do I Need to Retire?” Accessed January 22, 2020.
Federal Reserve Bank of St. Louis. “Personal Saving Rate Report.” Accessed January 22, 2020.
Sara East is a freelance writer for MoneyGeek and content marketing professional based in Reno, NV. She specializes in content on insurance, mortgage, business and travel.