Dollars and Sense

Good Financial Advice for Any Age

 

By Robert Lillegard

When stocks are plunging, retirement accounts are dwindling and the government is scratching its head, it might look like everything we knew about money was wrong. Not so, local experts say. The fundamentals are the same as they’ve always been, and just as important. In this exclusive guide, we put them all together. Here’s what you need to know about your money, now.

In Your 20s

You may be unemployed, inexperienced, and unsure of your future. But you’ve got one definite advantage over the older set — time. Though experts disagree on many things, they all say to start thinking about money early.

Even if you don’t have a lot of spare cash, it’s good to start saving now. Brian Liberty, of Liberty Wealth Management of Raymond James and Associates, recommends socking away 10 percent of your pre-tax income in a savings account. By getting this habit established early, and then using the money responsibly, you will avoid trouble later on.

“Just get it going,” says Gene Von Mosch, of Symphonic Financial Advisors. “As early as possible is the best.”

First, work toward establishing an emergency fund, with enough money to pay your living expenses for six months. Then, pay down any big-ticket debt you’ve accumulated — credit cards, car loans, etc. Look at workplace options for retirement funds, and be sure to take advantage of employer matched contribution programs.

Since you have more time to weather market ups and downs, you should bet more heavily on the stock market. For a younger person, Robert Farden of Edward Jones advises, it’s not unreasonable to invest 80 to 100 percent of available funds in stocks. But that doesn't mean ignoring sound advice. Putting all your money in two or three stocks or buying stocks on leverage is risky at any age.

“Just because they're young doesn't mean that they should gamble their money away,” Laura Zahn of Edward Jones says.

In Your 30s and 40s

First comes love, then comes marriage. Then comes baby— and a lot of expenses. A home, a car, or a child adds a lot to your financial burden, and even an increased income may not leave you with a lot to spare.
“Maybe your goals include funding college,” Zahn says. “Maybe you'd like to own a second home or a cabin.”

But even if your tax situation is as complex as a Sudoku, your budget doesn’t have to be.

“I don’t like the word budget,” Liberty says. “To me budgeting is like a diet; most people can’t do it very long. Your overall priority is to save that 10 percent every month.”

By now, you should have your emergency fund established (but make sure it still covers six months of expenses). Use additional savings towards a college or retirement fund, and keep your investment mix in line with your risk tolerance. One rule of thumb for investing advises people to take 100 and subtract their age, so that a 30 year old would have 70 percent of his portfolio in stocks and a 40 year old would have 60 percent. The rest goes to safer investments like bonds.

Furthermore, make sure to guard yourself from financial risk. The rule here is simple: protect what you have.

“You drive a car, you need car insurance,” Von Mosch says, “You have a home, you need homeowner’s insurance.”

In Your 50s and 60s

Eventually, of course, the kids move out. You may own your home free and clear, and chances are you’ve worked up a fair amount of money. Be careful with it!

“What people should do and do are two different things,” Liberty says.

No matter how much money you have, the top item on the “should” list is living within your means. This means keeping total home payments under 35 percent of your income, continuing to save at least 10 percent of your pretax income, and not getting into further debt. In fact, the current financial recession can be partly blamed on bad personal finances.

“What got us in trouble was that people overspent and didn’t save,” Liberty says.

If you’ve had good financial habits, you probably have some money to invest. The most important rule of investing is to stay rational. Pick a mix of investments you’re comfortable with, and don’t panic if something dramatic happens.

“What we find is in an up market, everybody’s happy,” Von Mosch says. “When everything turns upside down like last year, they do something that can hurt them.”

Money is a numbers game, so use your head instead of your heart. Find a financial advisor or a book you can trust, and stay the course!

Retirement

If you’re living on a fixed income, take heart. This isn’t the first recession the United States has had, and contrary to what news reports may imply, it won’t last forever.

“We’ve always had a recovery out of a recession,” Farden says. “In times like this, you need to have courage, discipline and patience.”

In short, stay calm. Selling at a low will lock in your losses, leaving even less money for the future. In fact, you may even want to put money INTO the stock market.

“On average, [retired seniors] are going to live another twenty years,” Farden says. “The only area that’s been able to keep up with inflation is the stock market.”

Adjust your strategy, but make sure it's still balanced. If you are not planning on spending all your money the same year you retire, don't keep it all in cash!

“Even people in retirement need to be long term investors,” Zahn says.