Your personal finances are a part of your life which is always changing, always fluid. This is not surprising because when you think about the other aspects of your life, little stays the same for very long anywhere else either. While you may be a parent, your children grow and their needs change so fast, while you may stay in one job, your responsibilities, clients and colleagues will change there too.
That is why you need to be constantly monitoring and re-valuating your personal finances as you get older, to make sure they are structured for where you are now, and where you want to be in the future. Even if you think that as you get into your 30s and 40s that your life has stabilized, and a lot of the big events have already passed you by – marriage, a house, children – and you are settled in your career, there are still some personal finance things you will need to do before you turn 50.
At this stage of your life, you will have encountered your fair share of emergency situations, and their related expenses. However, just as you can bounce back from a big night out more quickly when you’re younger, so too can your finances stretch that little bit further, and you can work that little bit harder to make the ends meet.
As you approach 50, those opportunities and energies are going to be stretched even further, so to make sure you can start taking the stress out of your life after 50, start building up a healthy emergency savings fund. Your emergency fund acts as a safety net in case you lose your job or encounter an unexpected expense for example, because you can simply dip into your savings to cover the cost.
This means you don’t have to resort to high interest traps like credit cards for the money, which can in turn lead to large debts and high repayments, just as you’re trying to save for your golden years.
Know How Much You Need for Retirement
The amount you need for your retirement will depend on the lifestyle you envision for yourself. Will you stay in your existing house so the grandchildren can come and stay, or will you downsize to free up equity? Do you want to travel twice or three times a year and how much are your social activities going to cost, compared to the everyday expenses you have now?
Before your 50s you should work with a financial advisor to help you answer these questions and more, and calculate exactly how much you will need to live the retirement of your dreams. A financial advisor will take into account inflation, interest rates and a myriad of other factors to show you how much you need, and how you can get your savings where they need to be.
You may need to adjust your spending and savings habits to put away a little more each week, but at the same time, of your other expenses may be going down as your children grow up and become more independent.
Look at Your Loans
As you approach your 50s think about how your needs have changed in relation to your possessions and aim to reduce your debt. If you have a holiday house how often do you use it and is it where you plan to retire? If it’s no longer really a part of your life, look at selling it, or renting it out to produce an income. Look at how many cars you have or the boat you never use and decide whether you can sell some of your possessions, reduce your debt, and make wiser investments for the future.
If you’re having trouble repaying your home loan don’t ignore it because it is much easier to re-valuate and refinance your loan when you are current, than if you have defaulted on repayments. Look at refinancing to a lower interest rate or a fixed rate, even switching to a more basic loan can save you interest and fees to make your loan much easier to manage. You’ll then be able to focus on your repayments and aim to be mortgage free as soon as possible.
Before you are 50 you will begin to start thinking seriously about your retirement, and begin to implement plans to save the amount you need to live comfortably. As a general rule you should be putting around 10% of your income towards your retirement fund, but this figure is dependent on your other debts and your existing superannuation account balances.
When you start looking for ways to seriously save, you will find them everywhere, from putting your tax returns or work bonuses or extra commissions into your retirement fund, to depositing the difference between your pay rise and your old salary to save by living below your means.
Also, as you approach 50 in some cases you may be able to access some or all of the funds in your superannuation account. While this may enable you to work fewer hours now and start enjoying the spoils of your working life, consider the effect this could have on the longevity of your fund when you retire full time in your 60s or 70s.
Instead, take advantage of the fact that you are still working and find out how you can benefit from employer contributions and incentives, or government contributions to match your personal contributions, to boost your fund further.
Your choice of investments in your 30s and 40s are just as important as the ratios of those choices and as you approach 50 years old, you should have a mix of 50-60% of your investments in stocks and the rest in bonds. As you get closer to retirement you should continue to adjust your investment to change the types of securities you own to reduce your risk.
Many people learned the hard way from the Global Financial Crisis that even when you think you’re doing all of the right things to plan for your retirement, you can’t plan for the unexpected. However, when you have a solid savings plan and emergency fund, and a diversified investment portfolio and superannuation investments, then you can feel assured your finances are ready for the big 5-0 and much more.
Alban is a personal finance writer at Home Loan Finder, a home loan comparison website.