Every decade of life brings new life changes, from paying for college to having children to planning for retirement. Your household budget will change over time, and you’ll likely need to pay attention to money management as it changes.
While you likely won’t reach every financial milestone exactly when your peers do, you may be able to avoid long-term financial difficulties if you consider the following money management tips for each decade of your life:
In your 20s: Paying for the past, preparing for the future
The first decade of your adult life is a good time to start building a solid financial foundation. A good idea would be to first pay for any college costs you incurred and repay student loans, if you have them and you’re able to.
However, your college education costs don’t need to slow down your progress toward other financial goals. Income-based repayment options from the federal government can help you begin repaying your student loans without breaking the bank. As your income increases, you can make bigger payments.
This is also a good time to start using a household budget and paying down your debt so you can build your credit score and prepare for other financial milestones.
And while it may seem far away, your 20s are also a good time to start saving for retirement, says Andrew McFadden, CFP®, founder of Panoramic Financial Advice. “Investment compounding is an amazing tool that, if used in your 20s and 30s, will make saving for retirement seem like a piece of cake in your 40s and 50s,” he says. “If you’re starting in your 20s, you should be saving at least 10 percent of your salary for retirement.”
Traditionally, a person’s 20s was the decade in which he or she prepared for a wedding and a first home purchase. However, the demographics surrounding these milestones are changing. In the United States, the average age for marriage has been rising for decades; it now stands at 27 years for women and 29 for men. Additionally, many millennials are putting off buying a first home.
While you still should prepare for these events, chances are they will occur in your later 20s or early 30s. Consider creating a fund designed to help you meet these kinds of life goals so that you’ll be ready for major milestone expenses when they crop up.
You may also want to consider starting an emergency savings fund that will help cover unexpected expenses, especially as you take on more financial responsibility. In addition, now might be the time to research and secure insurance plans that act as a safety net.
In your 30s: Managing big changes
A lot can happen in your 30s: You may get married, buy a house, have kids, or some combination of all three—all while your career changes and grows.
Saving for a home or a wedding is often a matter of realistically assessing how much you can afford to spend and then saving money in a high-yield account. If you find yourself in this situation, you may want to consider setting aside money each month for your goal.
When it comes to buying a house, McFadden warns about spending too much. The bank might approve you for a higher amount than you are comfortable with, or you might be tempted to get a home like your peers.
“You are shooting for smart, not reckless,” he says.
McFadden says that saving up for a 20 percent down payment will help you avoid extra costs, such as private mortgage insurance, an additional monthly fee tacked on when you don’t have at least 20 percent equity in your home.
That savings “reflection” time may also enable you to gather information and get some perspective on what your home purchase really costs.
Aside from the wedding and the house, you may have kids or be planning to have them.
“Children come in all shapes and sizes—and come at many stages of life,” McFadden says. “The old mantra is true, though: You’ll never be truly ready for the adventure.”
Even so, there are things you can do to prepare for children. The average age for women having their first child in the United States is still the mid-20s, and that means there’s a lot of child rearing that will happen in one’s 30s.
“Kids don’t have to be terribly expensive,” McFadden says. “You don’t have to buy them designer clothes, take them on fancy vacations, or buy them fancy cars.”
You can prepare for the expenses related to children by saving early and spending wisely. Avoid buying a lot of unnecessary items, and look for second-hand items and hand-me-downs.
Finally, it’s a good idea to think ahead. If you’re just getting started saving for retirement when you’re in your 30s, McFadden suggests putting aside 15 percent of your income.
In your 40s: Planning for the expected—and unexpected
By the time you’re in your 40s, you know to expect the unexpected, which may include home repairs, renovations, a change in relationship status, or illness.
All of these situations can take a toll if you aren’t prepared. However, if you have been contributing to an emergency savings fund since your 20s and you have appropriate insurance coverage, you may be able to reduce the financial impact of these events.
In your 40s, if you’ve started saving for retirement, continue on that financially sound track. If you are just building a retirement fund, you might need to set aside 20 percent of your income in order to meet your goals, McFadden says.
“Make sure you are taking advantage of an employer match on your 401(k),” he says. “Beyond that, it’s probably good to have a mix of tax-deferred and Roth accounts to diversify your tax benefits in retirement.”
As you get closer to retirement age, your portfolio often requires tweaking, and you might need to adjust your investments. If you plan to help your children pay for weddings, college, and other experiences, you also should set aside money each month toward these goals.
No matter your age, it’s important to keep an eye toward your future finances. Work on managing your household budget and your investments in every decade to help prepare for what’s to come.
Miranda Marquit is a freelance journalist specializing in financial topics. Read more of her writing on Huffington Post, Wise Bread, AllBusiness, and at her website, Planting Money Seeds. Follow her on Twitter: @MMarquit