Smart Budgeting Strategies for Every Life Stage
Creating and sticking to a budget may not seem exciting, but it can be a powerful tool for achieving your financial goals throughout life.
With a budget, you can see how much money is coming in and going out, and where you can free up cash to meet your short- and long-term goals. Your budget will need to be adjusted as your income, expenses, and goals change. But no matter your stage of life, make room for retirement savings and an emergency fund. Your emergency fund should cover three to six months' worth of living expenses in case you have an unexpected event, such as an illness or job loss.
Budgeting Tips for Different Life Stages
Early Career
A budget can be fairly simple early in your career. Goals could include paying off high-interest rate debt, like credit cards, repaying student loans, or beginning to save for a house down payment.
A helpful budgeting guideline is the 50-30-20 rule: Set aside 50% of your take-home pay for necessities, 30% for your wants, and 20% for your savings.
Mid-Career
Your life and budget are likely more complex now. You might be juggling a mortgage along with child care and saving for future college tuition.
Investing in a tax-advantaged 529 plan can help with college bills.1 And beyond a workplace retirement plan, consider investing in a brokerage account or traditional or Roth IRA that will provide tax-free withdrawals in retirement.2
Late Career
Begin envisioning what you want your retirement to look like. Then run projections on whether your retirement savings and income could support that lifestyle.
If not, you may need to play catch-up. Workers aged 50 and older can contribute more to a 457(b), 403(b), or 401(k) plan. And those aged 60 to 63 can contribute extra to their savings, as well. Check this year’s contribution limits.
Retirement
Many retirees worry about running out of money. A budget is key at this stage to help make your savings last. Consider your income sources and decide how much you can and want to withdraw each month after laying out your expenses. Keep in mind that some retirement accounts will have required minimum distributions after a certain age.
1MissionSquare does not offer specific tax, insurance, or legal advice. The information presented here is for educational purposes only and is not to be construed or relied upon as investment advice. It is recommended that individuals consult with their personal finance advisor prior to implementing any financial or tax strategy.
2Contributions: If you contribute to a Roth IRA, you can make tax-free withdrawals if you’ve owned a Roth IRA for at least five years (as defined by the IRS) and meet the requirements for a “qualifying event”: age 59 1/2, a “first-time” home purchase, a disability, or death (with withdrawals going to your beneficiaries). Otherwise, you may have to pay income taxes and penalties to withdraw your earnings. Withdrawals: Roth IRA contributions can be withdrawn at any time without taxes or penalties. If you have a traditional IRA, you may not be able to withdraw your money before age 59 1/2 without paying a penalty. There can be many exceptions to the IRS rules, so carefully research all of your options.