A Hardcore Money Bootcamp for 40-Somethings

We should be actively engaged in our finances at all stages of our adult lives, but each stage comes with its own special set of considerations. Once you’re in your 40s, it’s important to re-examine your financial goals – both long-term and the more immediate – and adjust your plan as needed. Here are six questions to ask yourself to help get your finances into top shape and make sure you and your family are on track to meet those goals, now and in the years to come.

1. What Are Your Goals & Have You Shared Them?

If you write down your goals and go the extra step of visualizing the achievement of your goals, you may be more likely to accomplish them. For example, if you write down the goal of sending your child to Saint Joseph’s University, visualizing your child walking down the aisle on graduation day can give you greater motivation and clarity to help you follow the necessary steps to attain that goal. You may open a 529 College Savings Plan, determine how much you should fund the account on a monthly basis, and adjust your budget in other areas. Imagine how happy and proud you will feel when your goal becomes a reality. Now determine what you are willing to do in order to succeed.

Communication between loved ones is essential. Ensure that you and your spouse or significant other identify each other’s goals and values. Internalizing their goals and values, in addition to your own, is important as you begin developing strategies to accomplish the goals. If you are on the same page about purchasing that new home in 10 years, you may make sacrifices together, such as dining out less often, in order to help make that dream a reality.

2. Do You Have Enough in a ‘Safe & Sound’ Fund?

Many experts say that six months’ worth of expenses will suffice for your cash reserve. However, small business owners and families with children might consider setting more cash aside for emergencies. Keep your cash reserve in a money market account separate from the one you use to pay your typical bills. Failing to have enough cash to cover yourself in an emergency, especially if it becomes a regular occurrence, can get you into debt. Getting into significant debt can also derail your financial plans and have a negative impact on your credit. (You can see how your debts are affecting your credit by getting a free credit report summary on Credit.com.)

3. How Much Money Do You Need for Your Ideal Life in Retirement?

Retirement income planning boils down to the following: Will you outlive your money, or will your money outlive you? Ensure that you are taking steps that will increase the likelihood of not running out of money in retirement such as: contributing the maximum to your retirement plan, maintaining an adequate “safe and sound fund” and funding various buckets of money for retirement. You should not only fund your tax-deferred retirement account; you should also fund a taxable investment account, and contribute (or convert) money to a Roth IRA if your tax situation allows. Having different pots of money allows for strategic tax planning in retirement – tax deferred, tax-free and taxable accounts.

Do not invest too conservatively, and be sure to have a broadly diversified investment portfolio. Not only may you work for another 20+ years, but you are likely to have a 30+ year retirement. Don’t think of risk as the ups and downs of the stock market, but rather, running out of money before running out of life.

4. Are You Easily Swayed by the Media?

If you’re watching the news and the news isn’t good, take note of how it may influence your financial decisions. Your financial success is contingent upon not allowing your emotions to get in the way of your long-term plan. How do you react in the face of adversity? If you are someone who may be easily influenced, then try your best to avoid the negative stimuli. Do not sacrifice the long-term plan for a short-term emotional fix. Investors who did not fall victim to their emotions in 2008-2009, although it was a very difficult time, were eventually rewarded as the economy recovered.

5. What If a Wrench Gets Thrown Into Your Life?

Review all risk management areas and check that proper coverage is part of any comprehensive financial plan.

If you have not done so already, meet with an estate attorney to draft powers of attorney for health care and related financial concerns. Ensure that your will and/or trust distributes your money to whom you want. If you do not have a will, your money will pass as the laws of your state of residence dictate. Review your beneficiaries on retirement plans and insurance policies now, and following major life events. Meet with an insurance broker to review your disability, property and casualty insurance. Work with a financial planner and insurance agent to determine if you have adequate life insurance coverage.

6. Should You Work With a Professional?

Some people enjoy handling their finances on their own while others do not. Many of my clients were “do-it-yourselfers” until they began to accumulate significant money. Then, they decided to hire someone to handle all of the aspects of a comprehensive financial plan – cash flow management, asset allocation, tax planning, retirement planning, risk management and insurance planning, as well as estate planning. You may decide to hire a planner to allow you to focus on living your ideal life, doing what you love, and spending time with your family. If you do decide to go that route, ensure that the person has good credentials like the Certified Financial Planner designation and perform adequate background research on the individual and the firm in which the planner works.