9 steps to achieve financial security in your fifties!
We all want to have enough money to comfortably cover bills and regular expenses, be debt-free and have an emergency savings cushion. There are 9 steps to achieve financial security in your fifties that we are going to show you.
The bad news is that for many women who are now entering their 50s and beyond, financial security can feel like a pipe dream.
Your 50s are a crucial time not just in your profession but on the road to retirement.
So, just how fat should your savings be in your 50s? According to retirement-plan provider Fidelity Investments, you need the equivalent of 6-7 times your income stashed away to leave the workforce at 67 (full retirement age in the U.S.).
The Bureau of Labor Statistics’ most recent Q4 2020 data shows that the typical American woman earns roughly $47,136 during her early-50s. If you take 7 times that annual salary, it means having $329,953 stashed for the future by that point.
Unfortunately, the average 50-something American is nowhere close to being on track. That’s why I prepared this article – to help you fast track your progress.
It’s Not All Rosy
While equality for women has come a long way, they face some unique challenges when planning for their financial future.
Let’s start with the gender wage gap. Women famously earn 79 cents for every dollar earned by men regardless of job type or worker seniority.
In 2019, over 55 million full-time working women earned an approximate $545 billion less than their male counterparts.
Other challenges are:
Many women tend to work for smaller firms and nonprofits that may not offer retirement savings plans.
Women are also more likely to quit their jobs to raise kids or care of aging parents.
Research shows that most American women are likely to find themselves single as they approach retirement, meaning women navigate the financial world on their own in their golden years.
Setting the Stage for 9 steps to achieve Financial Security in your fifties
The good news is that while you may experience some financial challenges in midlife, there are also plenty of opportunities.
Entering 50 sharpens your focus at a time when you may still have a decade of work left, so there’s time to pad your savings and watch your money grow.
ANYONE can become financially secure, but it takes some discipline in the years ahead.
In this post, I’ll take you through 9 steps to achieve financial security in your fifties.
Dream A Bit, Have Fun
Good financial planning enables you to enjoy life in the present while ensuring that you will continue to live comfortably in the future.
You need to gain some clarity before you become financially secure.
What do you need to feel financially secure? What’s top on your list of goals? Make a list of the things you need and want, now and in the future. This should be your starting point and an indicator of where you currently stand.
If you don’t have any financial goals, try online calculators to find out how much money you need to retire comfortably and make it your goal.
Once you have a clear picture of your financial situation, you’ll be able to improve it.
But a goal without a plan is just a wish. Next, work out how much money you need to achieve each of your goals.
You may not be able to accomplish everything at once, so it’s essential to work on your most important and time-sensitive goals first.
Get Your House in Order
When it comes to financial security, the name of the game is budgeting.
Entering your 50s means evaluating how far you’ve come and where you’re going.
Your income is your greatest wealth-growing tool – protect it!
It’s easy to spend more money than you should if you don’t actually know how much you’re spending. A monthly budget will help you keep your expenses below your income.
We live in a culture where we always compare ourselves to others. Many women fall into the trap of “lifestyle creep,” i.e., when their income increases, their spending increases as well, leaving them with no savings. Forget about keeping up with the Joneses.
A monthly budget will tell your money where to go instead of wondering where it went. Itemize both essential and non-essential monthly expenses. Note your habits and find the areas that could use some improvement.
Use free budget tools to work out your income and expense
When you constantly have money left over at the end of every month, you’re well on your way to attaining financial security.
Pay Yourself First
Most people get paid, pay bills, then spend whatever is left. Such a horrible and stressful way to manage your money!
A better way: (by George Samuel Clason in the book “The Richest Man in Babylon”) always pay yourself first from each of your pay, e.g., 10 percent (can be flexible depending on your situation), put it aside for two things: 1. Build an emergency fund, and 2. Start an automated investment (we’ll cover this more in point 7).
The idea is that you need to pay yourself first before anybody else, such as a bank (mortgage), an insurance company, supermarket, hairdresser etc. Pay yourself first, then use what’s left to pay others. Always put yourself ahead of others.
Then, break the money left to pay others into 2 categories in the order of priority
1. Bills and essentials 2. Splurge
If your expenses are the same or bigger than your income, you still need to pay yourself first, then reduce the money you pay on the bills.
You can do this by sharing housing/cars, selling unused stuff, negotiating your loan repayments, shopping around for discounts, buying in bulk etc.
Change Your Mindset of Your Identify (Perceived)
No one cares about your financial security more than you, so it’s vital to change the mindset of your identity.
Your bank balance isn’t the biggest obstacle to financial security. It’s the mindset you have towards money.
Change any limiting belief you have around money. You are not a saver; you are an investor. Once you start paying yourself first and automate investment, you become an investor and you don’t save money anymore.
Don’t just let money lie idle in your account. You will lose money by doing nothing.
If the inflation rate exceeds the interest earned on your savings account, then you’re losing money.
Try meditation, “rewire” your brain.
According to Wikipedia, Neuroplasticity (also known as neural plasticity, or brain plasticity) is the brain’s ability to change through growth and reorganization. These changes range from individual neurons making new connections to systematic adjustments like cortical remapping.
Your money can’t go where your mind has never been.
Learn the Difference Between Good Debt and Bad Debt
It’s difficult to feel financially secure when carrying significant debt.
Now, some types of debt like a mortgage and student loans are necessary. But others like personal loans, auto loans and credit card debt should be done away with.
Consider creating a debt pay-off strategy and exercise patience and consistency when working toward becoming debt-free.
Between exorbitant interest rates, hefty minimum monthly payments, and the damage debt can do to your credit score; you’re better off paying your bad debts first.
Settle bad debt using the snowball (paying off the smallest debt first) or avalanche (paying off the debt with the largest interest rate first) method.
Consider taking good debt for investment. Aim to accumulate and generate a passive income, and if you are borrowing to invest, make sure the income is more than the borrowing interest.
Once again, use an online calculator to project your investment outcome.
Use One Stone to Kill Two Birds – Reduce Tax and Increase Your 401k
A great financial plan will make sure that you’re poised to take full advantage of all of the options available to you. Use every tax-deferred or tax-free option that’s available.
Unknown to most, your 401k is the fastest way for an average American to build wealth. Once you hit 50, you can put an extra $6,000 in your 401(k) account as a catch-up contribution.
This employer-sponsored plan allows you to save for retirement in a tax-sheltered manner. If your employer is offering a 401k and you’re not utilizing it, you may be leaving money on the table.
Not only are contributions excluded from your taxable income, but if your employer offers a match, then you’re essentially getting free money as well.
Don’t forget to pay your tax. Taxes can be annoying, but they’re certainly not going away anytime soon.
There are plenty of ways to reduce your tax, but this is the simplest and the most effective way for most people.
Learn how to Invest
If you’re a Gen X, you probably don’t think about retirement much.
But if you’re serious about being financially secure, then you’re going to need to put your money to work for you.
Before putting any of your hard-earned money into investments, do your own research thoroughly or seek advice, as people make mistakes all the time, and they can become very expensive.
Take advantage of free government resources and learn different investment types (at the minimum).
Then decide how you want to invest, start small and set up an automated investment plan. Learn what is “dollar cost averaging,” and very importantly, resist the temptation to download the mobile app of your investment and checking it 20 times a day.
A healthy frequency is to check the balance every 3 – 6 months as the more you check it, the more you will want to submit to the worst enemy in your success: human nature.
Decisions around money are always emotional. To be a successful investor, you must learn to separate how you feel from a buy/sell action and not let your emotions (fear and greed) cloud/sabotage your rational thinking.
At this stage in life, playing it safe is a natural inclination. Create a diversified portfolio. This way, if one investment fails, you won’t lose all of your money.
Investing isn’t a short-term activity. If you want to watch your money grow, you have to commit to it.
Protect Yourself and Your Family
You’ve most likely heard this advice before. If you haven’t already, start thinking long-term.
No one gets through life without some unforeseen events that affect their finances, so plan for them. The first step is creating an emergency fund so that if anything happens, you’re covered.
Get income protection, and if you are over 50 without trauma/crisis recovery insurance, you should also look at it. While you are at it, have a good review of your protection plan, a lot of financial planners and general insurance brokers do these for free, so take the opportunity when you see it.
Be aware that the insurances offered by a financial advisor are completely different from a general insurance broker.
Financial advisors offer life insurance, including death, total and permanent disability, income protection and trauma insurance, as they are classified as life insurance, which is a financial product.
General insurance offers car, home, hospital insurance and they are not financial products.
Have a Will, prepare power of attorney & advanced care directive, and make binding death nominations in your 401k fund to make sure your money goes to your family according to your wish, not a court decision after a lengthy procedure.
Consult a Financial Advisor
Women over 50 may not be comfortable navigating financial planning resources online.
A certified financial advisor can be a valuable resource to ensuring you haven’t missed any crucial piece of planning.
He/she can help you to assess your future needs and create a roadmap to reach your financial goals.
Finding a financial adviser you can trust doesn’t have to be hard.
Connect with a professional via the databases of the Financial Planning Association, the National Association of Personal Financial Advisors, or the Certified Financial Planner Board of Standards.
So, there you have it, 9 steps to achieve financial security in your 50s to ensure your financial independence.
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