How budgeting changes depending on age
No matter what your age, money always seems to be one topic most people struggle with, unless of course finance happens to be your forte. For the rest of us, however, knowing how to handle your money isn't exactly something that comes naturally. We know what needs to be allotted for bills and the necessities, but what about savings and investing?
Furthermore, while you may have the process figured out in your 20s, you'll find that come 30 or middle-age, your budget and the things you need to include within it will drastically change. As you grow and your life changes throughout the years, so do the things you're financially responsible for.
And once you've saved up enough to buy what's important to you in your twenties, you'll find that your financial goals change with age as well. That being said, without hiring a financial coach, how do you know what to budget for from decade to decade as you age?
Here are some basic guidelines for adjusting your budget as you age so you can afford each stage of life and prepare ahead of time.
Budgeting in Your 20s
For many, your twenties involve that epic moment when you graduate from college and finally enter into the real adult world and job market. Of course, if school was a path you took, your twenties most likely has a lot of debt as well. It makes sense that the biggest budgetary consideration during this decade is to begin hacking away at that debt you've accumulated.
Your budget in your twenties should have three essential categories: necessities (which should include a category for your debt), savings, and extracurricular money.
Your first step should be to create a mini-emergency savings fund. Life is unexpected, and if you happen to lose your job, get in an accident, or have your car break down, you'll be thankful for your extra cushion. After that and after paying any and all bills you have, including debt, as well groceries, you should use a portion of your monthly income for other savings. Anything left over can be used for fun activities. Now is also a great time to set up a retirement account in the form of a 401k or IRA, since the sooner you get started, the better off you'll be in the end.
Budgeting in Your 30s
Your thirties bring about a whole slew of new factors you must consider for your budget. For starters, you may still be in the process of paying down your debt. If that's the case, you'll want to factor any debt you have left into your budget, and maybe even make debt freedom one of your financial goals for the decade.
A lot of people also decide to settle down in their 30s. The idea of buying a house might enter the picture, as well as the possibility of children. Apart from the basic items you always have to budget for, now is the time when you may want to include saving for a down payment in your list of financial goals. Or, if you have kids or are considering having kids, now is the prime time to begin saving for a multitude of things. For example, there's always the possibility of child care, braces, purchasing a car for them someday or, the most important of all, college tuition for your now, or future, children.
It's imperative that you know how much you need to save for retirement. Make sure you've taken care of any high-interest debt, and focus on saving as much as you can for retirement and keeping your emergency fund topped off.
Moreover, be sure to check on any college savings you may have for your children to ensure that everything is as it should be. If not, you may need to adjust your budget to accommodate further costs as well.
Another important budget category should be your investments. Middle age tends to be the years when you earn the most off of your previous investments and it usually serves as good padding for you nest egg, which is important come retirement. Your fifties are also a time to think about saving for a long-term care plan in case you or your spouse need one in the future.
You could consider splurging a little since you'll still be bringing in a steady income. As long as your debts are paid, now may be the time to budget for some fun activities. Come retirement, you'll be living off a set income, which may give you less leeway in the future.
Budgeting for Retirement
Your sixties and every age after is not the time to take risk. Now is the time to budget in correlation to what you want your retirement to look like. That being said, still budget for investments, but be sure they're low-risk investments and put away what you can into a retirement fund. Again, budgeting with consideration for long-term-care can be imperative for the future.
Your goal now is to plan for the near future. Consider how your budget will adjust when you retire, and think about how you'll need to budget for bills in relation to the retirement fund you have set up. Figuring out how to budget at any age can be difficult, and when you consider the array of things you have to save for in the future, it can be a little daunting. However, if you figure out your timeline and have a plan, as with most things in life, you'll find that it can be easier than you think.
Just as your life will adjust and grow as you age, so should your budget. It's important to make the right adjustments accordingly. By doing so, come every stage of life, you'll find yourself prepared and properly equipped for whatever is thrown at you. Moreover, come retirement, you'll be elated when you can head into a much-deserved stage of life without worrying about whether or not you saved enough.
Have you thought about how your budget will change with age? What are some adjustments you've already had to make?
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