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I was raised frugally, and the financial lessons I learned growing up have been helpful to me. Even when I went through a period of unemployment, I was able to save a small amount of money and stay debt-free. It also helped that I never took on student loan debt, putting me in a better position than the roughly half of other millennials who carry around $40,000 in student loan debt on average.
While I believe I was reasonably smart with money (I didn’t live beyond my means and always had a safety net), I realize there was a lot I could have done to maximize my returns. Now that I’m middle-aged, I look back and wish I had taken the time to learn about investing. But I’m still in the thick of life, and finances are more complicated. Like many people, I’m thinking about how I can save for retirement, college, and senior care.
One person who has pondered all these important money questions is personal finance writer Emily Jay Birkin. Here are some of her tips for some of life’s most important events:
Save Money Starting With Your First Job
Everyone knows they should save some of their paycheck, but it can be difficult to save even a small amount of your starting salary. Jay Perkin advises that instead of trying to stick to the discipline of saving a portion of your paycheck, it’s better to set up recurring automatic investments. “It’s much easier to make one decision to allocate money than to make recurring decisions about your finances with each paycheck cycle,” she writes. “Automatic investing that syncs with each direct deposit of your paycheck means you’ll never miss out on the money you’ve invested.”
Paying off debt early in your marriage
When you get married, you take on the other person’s assets and debts. Jay Perkin points out that Recent study A study of 20% of divorced couples found that debt was a contributing factor to their divorce. This is all the more reason to work together to pay off any high-interest debt early in your marriage.
To determine how much money to set aside for debt repayment, she recommends using: The 6% rule To help you determine which debts to prioritize.
This rule suggests that you focus on paying off any debt with an interest rate higher than 6% before sending additional money into your investments. This is because the historical rate of return for the market as a whole has been around 7% per annum “After accounting for inflation, that means any debt with an interest rate of 6% or higher will offer roughly the same or higher ROI than a traditional investment,” says Jay Perkin.
Creating a Will When You Become a Parent
Nothing makes you think about death more than having a baby (or maybe that’s just me). But when you’re responsible for someone else’s life, it’s important to make sure you provide for them, no matter what. Making a will can seem complicated, and Jay Perkin advises anyone with a large estate or complicated family situation to consult a lawyer, but most new parents can afford one. Reputable online will service“These services help you with the process of writing your will and give you instructions on how to notarize and probate your will,” she says.
This isn’t a very complicated process. But Jay Perkin says that as your children and assets grow (or if you have more children after you first write your will), you should plan to revisit your will at least every five years.
Think about annual income, not the money you save, when planning for retirement.
Not having enough money to retire is a common worry. But Jay Birkin says most of us think about retirement savings the wrong way. We think about how much we’ll need to save for retirement. The problem with that approach, she says, is that no one knows when they’ll die, so no one knows how many years they’ll need the money.
She suggests changing your mindset so that you think instead about how much annual income you’ll need in retirement to maintain your lifestyle. “A more dynamic retirement plan focuses on ensuring you have an annual income in retirement—that means you have multiple sources of income, such as tax-advantaged retirement accounts, taxable investments, pensions, Social Security, etc.”
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