Yogi Berra was definitely quotable. The above title is attributed to him. Let’s assume that now you are in your 40’s, have established yourself in a career, and are thinking that you have made too many “wrong mistakes” financially to meet some or all of your family’s needs. Not necessarily. What you need to do is START with a plan.
I suggest that you consider doing the following (the order is relevant):
Establish an emergency fund. If both adults in the house work, then likely an amount equal to 3-6 months of regular expenses will do. Ideally, you will have enough to cover regular living expenses and some excess in case the heater breaks. If one family member has income then you will need to save about 12 months of expenses.
Tackle the debt. There are times when debt gets away from you. It can and does happen to almost everybody. There are many theories on how to reduce and eliminate excess debt. The key to all of them is a conscious willingness to address the problem with a full commitment. This means a focus on needs rather than wants. However, it is also necessary to make allowances for small nights out or other release. If you have accumulated more debt than you feel you can possibly pay, there are some services that can help to restructure your debt. Be very careful about these if you use one, and be careful not to have your credit adversely affected if at all possible.
Save for retirement. If you have a 401k at your job then you should, if possible, put in enough to enjoy the company matching contribution. This match is free money and enhances the savings outcome for you. If you pay yourself first through a payroll deduction you can get a tax deferral and you won’t be tempted to spend the money before saving it. The maximum contribution to a 401k in 2017 for a person under 50 is $18,000. Many people in their 40’s can also put money into an IRA for additional savings (maximum in 2017 is $5,500/year). Self-employed individuals also have many retirement savings options, such as SEP’s, individual 401k’s, etc. If you ever want to retire comfortably, saving for it is critical.
College savings may be needed. In my previous article entitled Baby Makes Three, I addressed the need for education expense planning. Whether through a 529, UGMA/UTMA accounts, or any other vehicle that meets your needs, having something put away for your children’s education will be important to avoid again running up the debt that you have paid off (see above). If you cannot put this money away and save for retirement, then many experts say to save for retirement first. If you, a grandparent or other relative, or a combination of all can put some money away for education it helps. And who knows, maybe the children will be able to support you one day!
Be sure that your insurance is in order. You can and should cover your family through life insurance, your property through homeowners and car insurance, and your income through disability insurance. Please do not neglect any of these as an absence of insurance can make all your prior planning irrelevant.
The decade of your 40’s is a prime time to get your planning in order if you haven’t done so previously. Let us know how we can help.
by Ronald Donato, Jr., CFP®, MBA
Director of Financial Services