If recent events have taught us anything, it’s the importance of being financially secure. National and global turmoil in any era can create upheaval in the markets and trouble for businesses, derailing individuals and families who are not financially prepared.
So how does one reach financial security and avoid their financial futures getting thrown out of whack by uncontrollable circumstances? Of course, there are never any complete guarantees — life is full of uncertainties, and finances are part of that — but there are steps everyone can take to achieve financial security.
Financial Security Defined
What is financial security? The term means different things to different people: How much money do you need to make and save to ensure the lifestyle you desire, now and in the future? How much savings do you need to cover emergency expenses or to cover all your expenses in case of a job loss or situation that prevents you from working?
These “how much” questions have to do with dollars, but, as with any question of money, there’s also an emotional aspect. How much income plus investments, plus emergency funds do you need to be able to sleep at night — in other words, to feel safe and secure in your financial situation? Sometimes you can calculate these numbers on your own, but, depending on your income situation and stage in life, it can be helpful to seek the assistance of a wealth manager to ensure you have a personalized financial plan and the right investments to see you through your plans for retirement.
How to Get There
In Your 20s & 30s
What to do: Start saving.
Right now, it’s time to think long-term and begin saving for retirement, as difficult as that can be when retirement seems so far away. Yes, there are many opportunities right in front of you to spend, spend, spend. Instead, make a plan for what you want your life to look like, and save accordingly. Curb your spending to make sure you’re saving between 15-20% of your salary. If you’re smart about it, you can usually do both: Spending in moderation where it’s really important to you, and saving as aggressively as possible for your very important future.
What not to do: Borrow to finance a certain lifestyle.
It can be easy to get caught up in borrowing from credit cards to finance things like travel and other lifestyle purchases that may feel good in the moment, but that, in reality, won’t get you any closer to financial security. Incurring unnecessary debt can even have a negative impact on your ability to save and invest for decades to come.
In Your 40s and 50s
What to do: Stay the course.
Even if your goals change from those you set back in your early adulthood (it’s likely they will — and that’s ok), stick to your savings plan. Even if there’s extreme market volatility, stick to your plan. If you tend to let your financial decisions be influenced by your emotions, then develop a relationship with a wealth manager or financial advisor who can ensure you maintain the right strategy for long-term financial wellbeing.
What not to do: Get tempted by shiny investments.
How you approach risk will necessarily change as you get older. Work with a financial advisor who can help you create your ideal investment blend that will help you reach your financial goals, and then leave it alone (other than to periodically rebalance your portfolio to reach the correct asset allocation, a task your advisor will be able to handle).
In Your 60s, 70s and Beyond
What to do: Budget for medical and long-term care expenses.
Medical expenses are an inevitable part of our financial picture, and those only increase as we get older. Not preparing for these expenses can leave you in financial ruin. Contrary to popular belief, Medicare is not free, and it doesn’t cover long-term care (like nursing homes and assisted living facilities). The U.S. Department of Health and Human Services estimates that 70% of people turning 65 today will need some type of long-term care as they age.
What not to do: Give up working entirely.
Many people 65 and older are delaying retirement, partly because they want to continue to work, and partly because they want to continue to earn income. Even if you opt to only work part-time, bringing in some sort of salary can help safeguard your finances and delay you having to dip into your retirement accounts for daily living expenses.
