Your 2016 Smart Money Plan for Your 40s: 12 Tips to Get You on the Right Track
Ah, the New Year! A chance to reaffirm our commitment to do all the shit we should have done in our thirties, or should have been doing all along.
Unfortunately, resolutions related to finances are right up there with promises we make to ourselves about swearing off Cheetos or finally signing up for that Crossfit class. One of the biggest barriers I see my clients facing on their path to better finances is this: they think it’s going to be way harder than it actually is and take far longer than it actually does.
It’s such a huge sounding thing. This year I will get my finances in order.
As soon as you say it your brain starts to freeze up. Because, where do you even start?
Take a breath of that brisk January air. Let’s break down these smart money moves for you 40s into just a few manageable steps. And if you find you’ve already done one of these steps, hooray for you! You can skip a month. But no Cheetos as a reward!
Tackle one step each month. Before you know it you’ll be owning your finances and in control of your money.
1. January – Get electronically organized.
Estimated time to complete: 30 minutes
A half hour now can save you hours — and a ton of frustration — at the end of the year. Set up a system to capture all your important financial documentation in the one digital place you use often — your email.
The key is to keep it simple! Create a tag or a folder in your email program for receipts for expenses and charitable contributions. Whenever a receipt hits your inbox, you can quickly file it. Commit to creating electronic versions of your paper documents as you receive them. Simply install an app on your phone to convert photos to pdfs (such as TinyScan), then you can take a photo, convert it to a .pdf, email it to yourself and drag it to the appropriate folder in under a minute.
You never have to go hunting through stacks of paper again. Also, add a placeholder in your calendar every month for your next smart money move!
2. February – Budget the big ticket items.
Estimated time to complete: 15 minutes
In your 40s, it’s important to get a handle on your biggest expenses for the coming year and figure out where the money’s going to come from. Jot down every big purchase you know is coming: those plane tickets to get the whole family to that wedding in July, tires for the car, tuition for that perfect preschool.
Now figure out where the hell that money is going to come from.
Already have it saved? You’re amazing. If not, decide how much income to set aside so it’s painless when the bill arrives. You can also set up a monthly reminder in your calendar to review your upcoming big expenses. Regular review will prevent the temptation to dream up new and frivolous ways to spend your savings. But be sure to budget for some fun money. Feeling deprived for too long can lead to splurge spending. Not a smart money move.
3. March – Track the shit out of your spending for one month.
Estimated time to complete: 2 hours
There are a number of creative ways to tackle this one. You can go to your online banking and dump out a report in Excel on your spending over the last month. Or try a more automated approach like Mint, which will automatically download, import and try to auto-categorize your transactions (it gets smarter as you use it).
It’s a psychological fact that simply by tracking behavior, we move it in the direction we want it to go.
An interesting exercise to try is this: every time you have the urge to do some “non-essential spending” (a polite way of saying “splurge spending”), move that money from your checking to your savings account and add a memo about what you were going to buy. At the end of the month, you can see how much money you saved and decide if you still want to buy it. Time has a way of curbing impulses.
Added bonus: less clutter. The stuff you opt not to buy won’t clutter up your house. If you’re in your 40s like me, with kids, you can’t wait to get rid of those noisy light-up toys that scare the shit out of you in the middle of the night when you step on them.
4. April – Have a meeting of the minds.
Estimated time to complete: 15 minutes to 3 days – depending on your relationship and communication style!
When’s the last time you had a discussion with your significant other about your money goals? If it’s been more than six months, it’s time for another one. Make sure your goals are aligned and talk about the best strategies to meet them.
These conversations can get tricky, so if your relationship has a history of tension around money topics, it’s wise to set some ground rules for the talk, such as agreeing not to shame or interrupt one another and creating a balance of both partners’ priorities. Be sure to revisit the conversation again in another six months.
5. May – Set up a college savings account.
Estimated time to complete: 10 minutes
This one is so easy to put off as you watch your 18-month-old wobble around the living room. But you will fall to your knees in gratitude to your future self if you take the 10 minutes to make this smart money move today.
We are not lying. It takes about 10 minutes to set up and put money in most 529 plans online.
Then all those birthday checks from grandma and grandpa have a place to go and grow (instead of more plastic toys to clutter up your house!). Add in a few bucks of your own every month and saving for your kids’ college will stop giving you night sweats.
Here’s a tip from Savingforcollege.com’s founder Joe Hurley from our “12 Expert Tips on Building Wealth” blog post:
Even when other financial goals take priority start a 529 account for your child and begin automatic contributions of $25 per month. Your account statements will be a good reminder that college is getting closer and you’ll think about increasing your contributions.
6. June – Have a garage sale.
Estimated time to complete: Two days to one week – depending on the amount of extra crap you own
Yay! The weather’s nice and it’s garage sale season again. Spend a day or two in the attic and garage gathering up dusty things you no longer use.
You’d be surprised how many big ticket items you may have laying around: fancy roof racks that fit a car you no longer own, supplies for a hobby you no longer enjoy, perennially hot kids toys like overpriced Thomas the Train… you get the idea.
If you’re not keen on sitting around in your driveway for a few afternoons, you can put the stuff up on Craigslist or Ebay instead. Splitting the earnings between your savings and fun money can give you instant gratification and the well-deserved smugness that comes from doing the adult thing and saving money.
7. July – Eliminate temptation.
Estimated time to complete: 15-30 minutes.
Three words: unsubscribe, unsubscribe, unsubscribe.
Go through your inbox and hit the unsubscribe link for every retailer email you can find. *Quick tip: To find the link fast, use the “Control + F” command and type in the word “unsubscribe”. They hide it because they don’t want you to unsubscribe! This is the perfect task to knock off while waiting at the doctor’s office or standing in line. This has the added benefit of getting your inbox closer to that zen state called “inbox zero.”
Cancel print catalogs, too. Anything that compels you to keep up with the Joneses should be banished. It’s far better to retire before the Joneses than match their spending.
8. August – Automate or reallocate savings.
Estimated time to complete: 5 minutes!
If you haven’t set up an automatic way to save money, you’re missing out on one of the best and easiest ways to progress toward your financial goals. You know it’s true. And if you haven’t done it, you’re reading this and mentally kicking yourself right now. Stop. Just log into that retirement or 529 college savings account you want to receive the money and link your bank account right now. You’ll get a total dopamine hit out of it.
If you’ve already done this — hooray!
Want to supercharge your savings? Take this concept one step further and direct deposit money from your paycheck into separate accounts. That way you never see the money in your main checking account (It is not even there to spend, money? What money?) All you need is the routing and account number of the external account. I’ve done this several times at previous employers and it works beautifully.
9. September – Get ahead of the holidays.
Estimated time to complete: 1 hour
You already know you can save money by careful online shopping for the holidays. This year, try to spend fifteen minutes crafting an email to the family and friends you normally exchange gifts with. Propose name drawing instead of buying for every person and emphasize sentiment over spending, or better yet propose a spending cap. Doing this in September will give everyone a chance to adjust to the idea.
There’s a 99 percent chance your loved ones will be relieved.
10. October – Create a net worth statement
Estimated time to complete: 20 minutes
This is such an easy thing to do, yet very few clients in their 40s (before I worked with them) had a true, up-to-date snapshot of their net worth. Think of your Net Worth as a snapshot in time of exactly everything you own minus everyone you owe (Assets – Liabilities = Net Worth).
One of the most powerful, yet easy to use ways we know for keeping tabs on your net worth is our online tool (the same tool we use for our clients). Our secure system gives you a total snapshot of your net worth and investments–with a strong focus on simplicity. The platform keeps your total net worth updated daily and is available anytime.
11. November – Check to see if you’re on track for retirement.
Estimated time to complete: 5 -10 minutes.
This tool will allow you to see if you’re on track with your retirement savings.
It only takes a few minutes, so the only thing standing in your way is the dread you may feel at getting the answer. But the sooner you have all the data, the sooner you can take action and start moving in the right direction. Remember, even small changes in your 40s can have a big impact on your retirement.
12. December – Meet with a fee-only financial planner.
Estimated time to complete: 1 hour
Damn! What a great year you’ve had. You’ve done a ton of smart money moves on your own, and it didn’t hurt a bit. For 2017 you can take it a step further and meet with a fee-only financial planner. Wait, what is a “Fee-only” Planner, and why does that matter? Answer: Take a quick look at this short blog post we wrote.
Most, but not all, Fee-only planners are also “fiduciaries,” a funny sounding word that is actually very important for you. It lets you know you’re getting advice without any ulterior motives and they are legally bound to work in your best interest. Now that’s smart money management!
Want more advice on making the most of your money? Schedule a no-obligation chat with me below.