Money Matters

Kern County’s 20 Under 40 People to Watch are trailblazing paths for a bright future. These spirited individuals seem to make all the right moves. Life’s decades tend to dictate the moves we should make, especially when it comes to money. If you had a map of the financial moves you should take in life, what would it look like? Answers vary, but here are some general rules of thumb.

YOUR 20s

It’s time to get it together and live within your means. Know where your money is going – develop a plan for spending and saving it, then test it out (aka “budgeting”). Finances are simple now without a family and mortgage, so this is an ideal time to develop good money habits.

Start an emergency fund. Begin nesting money into an accessible savings account to cover life’s financial surprises. Set a goal of three to six months of living expenses.

Avoid credit card debt like the plague. Make at least the minimum monthly payments on your credit cards and student loans, on time, every month.

Start saving toward retirement, even if it seems light-years away. Start in your 20s and you’ll be infinitely ahead of those who start in their 30s and 40s. Join your company’s retirement plan, such as a 401(k). Strive to contribute at least as much as your employer’s match, typically 3 percent of your income.

Save toward a greater goal. Commit to set aside money each month for purchases such as a home or car.

YOUR 30s

With your career on track, carry the same goals from your 20s into your 30s except to a higher degree. For example, maximize contributions to your retirement accounts. Set up automatic deposits to help.

Your 30s are typically when you’re having children and settling into a home, which can mean overspending. Beware of lifestyle creep and focus on controlling debt.

Buy a home but don’t overextend yourself. Factor in taxes, insurance and possible interest rate hikes if considering an adjustable rate mortgage.

If you’ve started a family, consider a will, a living trust and life insurance. Term life insurance policies are inexpensive in your 30s. Also consider both short- and long-term disability insurance in the event of an injury or illness.

Set a goal for college savings. If you want to contribute to your kids’ college education, a 529 plan is typically the best way to go.

YOUR 40s

Retirement savings is your priority. Under no circumstances should you set money aside for your kids’ education if your retirement savings are off-track. As the old saying goes: You can borrow for college, but you can’t borrow for retirement. Kick it into high gear and maximize your retirement savings. Take advantage of your retirement plan’s “catch-up” contributions.

Adjust college savings. Check tuition costs to ensure your savings are on track. Have the conversation with your kids about how much you can afford to help and which schools are realistic for them to attend.

Resist the urge to splurge. These are your peak earning years and your peak saving years. You may soon find yourself taking care of your elderly parents.

Consider long-term care insurance, which may be worth the expense depending on your health history. Buying it before age 50 while you are in good health is smart if you are interested. Make sure coverage includes an inflation rider so coverage reflects rising care costs.

THE BOTTOM LINE

No matter your age, it’s never too late to start making the right moves – set your goals, stay focused and keep moving forward. 

Chris Thornburgh is a CPA and partner at Brown Armstrong Accountancy Corp. Contact her at cthornburgh@bacpas.com or 324-4971. The views expressed in this column are her own.

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