We all know that keeping our finances on track is key to reducing stress and making progress toward life goals like retirement. Asking yourself a few key questions can help make that you’re on track and keep stress at a minimum.
We all know that keeping our finances on track is key to reducing stress and making progress toward life goals like bucket list vacations or an early (or at least on-time) retirement. Still, more than half of Americans are losing sleep at night over at least one money issue, according to Bankrate.1
What makes this challenge more difficult to overcome is that the stresses change as you age. That means reducing money stress becomes an ongoing process of handling the life-happens moments that hit you at various ages and stages.
Asking yourself a few key questions can help keep you on track and keep stress at a minimum. Here are the most important questions to ask yourself, depending on your age:
In your 20s: Do I have a realistic budget— and am I sticking to it?
Your 20s are typically your first time collecting a full-time paycheck – but the decade also often represents your first time dealing with real-life expenses such as apartment rent and student loan payments, along with your booming 20-something social life. The earlier you can create a budget for yourself, making sure that all your expenses add up to less than your take-home pay—leaving a significant margin to save—the better off you’ll set yourself up for the rest of your life.
In addition to covering student loans and basic living expenses, as well as savings, you’ll need to set aside both money for an emergency account (aim for three to six months’ worth of expenses) and for retirement (at least enough to get your employer’s match).
Make it easy for yourself to stick to the budget by automating as much as possible, including recurring bill and debt payments as well as deposits into retirement savings accounts. That way, you won’t have to remember to make the transactions each month—and since the money will leave your account automatically, you won’t be tempted to spend it.
“The banks will let you set up as many [savings] accounts as you want, and that can help you separate your money into different buckets, which will help organize your financial life,” says Jeff Poole, co-author of Your Insiders’ Guide to Retirement.
In your 30s: Am I doing as much as I can to save for retirement?
The earlier you can start saving in earnest for retirement—aim to be socking away a good 15% of your income, a number that can include matching dollars from your employer— the longer you’ll have for your money to grow, thanks to the magic of compounding. While it’s OK to just save enough to get your employer match when you’re just starting out, you’ll need to significantly ramp up those savings in order to build a big enough nest egg to support yourself in retirement.
“This is the time in your life to say ‘I want to buy a house and do these other things now, but I also want to take care of myself in the future,” says Emily Guy Birken, author of End Financial Stress Now: Steps You Can Take to Improve Your Financial Outlook. “This is where you should really be paying yourself first.”
By the time you’re 30, you should have an amount equal to about your annual income set aside for retirement, but you’ll want at least three times that by the time you’re 40. An easy way to save more is to increase the percentage that you put toward retirement each time you get a raise. Alternately, if your employer offers to automatically increase your retirement plan contributions annually, hop on that train and don’t disembark until you’re maxxing out.
In your 40s: Am I teaching my kids how to be responsible about money?
Teaching your kids how to be smart about money when they’re young helps them put them on a path toward financial independence once they reach adulthood. That not only prepares for future success, but it also means that you’re less likely to have to jump in with financial bailouts when they’re adults—and you’re ready to retire. Start by offering them an allowance, letting them practice saving and spending their money, and learning the difference between wants and needs. You’ll start by covering all the needs and leaving them to purchase their own wants. The goal is that over time they start budgeting and paying for more wants (via allowance and money they earn) as well as gradually more needs.
Teaching your kids about money also means leading by example. Talk to your kids about the financial decisions that you’re making, whether it’s which car to purchase or why you’ve selected a particular family vacation. If you’re prioritizing your retirement savings and won’t be able to pay for their entire college tuition bill, be honest about that with them. The transparency will help set expectations for the future—and you’ll be giving them a real-life illustration of the tough decisions we often have to make about money.
In your 50s: Do I have a long-term plan?
Healthcare costs are among the costliest expenses that most people face in retirement. The average 65-year-old couple would need more than $300,000 saved in order to have a 90% chance of covering their medical expenses in retirement, according to a recent study from the Employee Benefits Research Institute.2 That’s before the cost of long-term care, which on average in the United States, can run over $100,000 annually for a private room in a nursing home.3
“Look at your family history,” Poole says. “We are all living longer. Does your family have a history of medical issues that would require long-term care or moving into a part- or full-time care facility? Would you want in-home care in your house, or would you sell your home to help pay for a living care facility?” While long-term care insurance premiums can be pricey, for many of us, it is something important to consider as part of a total financial picture.
1. “Survey: More Than Half of Americans Lose Sleep Over Money Trouble,” Bankrate, June, 2019
2. “Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $400,000, Up from $370,000 in 2017,” Employee Benefit Research Institute, October, 2018
3. “Cost of Care Survey 2019” Genworth, 2019 Note: this survey is referenced in “Nursing Home Costs,” SeniorLiving.org
About the author
Annuities are issued by Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and in New York, annuities are issued by Jackson National Life Insurance Company of New York (Home Office: Purchase, New York). Variable products are distributed by Jackson National Life Distributors LLC, member FINRA. May not be available in all states and state variations may apply. These products have limitations and restrictions. Contact the Company for more information.
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The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.
Tom Hurley and Phil Wright are affiliated with Jackson. All other authors are not affiliated with Jackson.