Midlife often means dueling financial goals: saving for the education of your children and retirement, while also preparing for your own rising health care costs and possibly caring for your parents.
What’s more, for those who are middle-aged, it can be more difficult to change careers to get a better salary or to find a new job after a layoff. On top of all that, middle-age is simply more stressful now than it was even as recently as the 1990s, according to a team of researchers led by Pennsylvania State University.
So how are you supposed to balance staying sane and hitting all your critical financial goals?
Don’t worry: there are some smart money moves to make in your 40s and as you navigate your 50s too. Here are some tips to help you get your finances on the right track.
Save with a purpose
The first step is possibly the most important: it’s crucial you define your financial goals. Without a clear idea of what you want to accomplish, knowing how to save money can be extremely difficult to accomplish.
Start by writing out all the financial goals that are currently important to you. Break them up into groups: short-term, mid-term, and long-term goals. Then use some online calculators or work with a financial advisor to determine how much money you need to save to achieve your goals based on when you want to achieve them. This process will also help you calculate how much you’ll need to save each month to get to where you want to be financially.
Once you’ve completed that process, open separate savings accounts for each goal — except for your retirement savings, which should be set aside in a tax-advantaged retirement account where possible, such as an IRA or 401(k).
Opening more than one savings account may seem like a hassle, but it will make it easier to keep track of your progress and also make it less easy to raid your savings. Depending on where you bank, having multiple savings accounts may not be an option. However, there are many online banks, including Discover, Ally Bank, and HSBC Direct, that provide this feature.
Build your emergency fund
Unexpected challenges, especially unemployment, can be much more financially damaging in midlife than when you were younger. An emergency fund can help you cover the cost of unexpected expenses that arise, such as home repairs, vehicle repairs and replacement, or unemployment. Having a robust emergency fund will also ensure you don’t end up borrowing from other financial goals to meet your current needs.
Financial experts recommend saving between three and six months’ worth of basic expenses in an emergency fund, but some people may be fine with more or less. You should save what you can, based on your ability and comfort level.
Examine your budget
Although defining your goals is essential for establishing a purpose for your saving, using a budget can help you make the saving actually happen. Start by adding up your typical income and expenses for each month. These can vary from month to month, but you should be able to get a good idea of the ranges for each income and spending category.
Then, take some time to consider where you can cut back on your spending. For example, determine if you’re an emotional spender and find ways to limit that kind of spending. Take a look at your recurring subscriptions and memberships to see whether you’re getting enough value to justify the expense.
You may also want to comparison shop when it comes to certain expenses. You may be falling victim to the kinds of bills people typically overpay, and there may be ways for you to easily be spending less.
Finally, take a look at each discretionary spending category, such as delivery food and entertainment, and determine how you might reallocate some of those funds toward your financial goals.
Examining your budget can be a difficult process because it’s not easy to give up things you enjoy now to benefit from doing so later. It’s also important to find a balance between working toward your goals and maintaining a reasonable lifestyle. Only you know what that balance is, so ask yourself the hard questions and decide the best path forward for you.
If you’re having a hard time with the budgeting process, consider using one of many helpful budgeting apps that are available.
Get money back on your spending
Budgeting isn’t just about cutting expenses but also spending smarter. You can’t cut out all of your expenses completely, so research opportunities to get money back when you make everyday purchases.
Here are just a few ways to get money back on your spending:
- Cashback credit cards: These cards offer a percentage back of every dollar you spend. For example, some of the best cashback credit cards may give you 1% to 2.5% back on every purchase you make. Others have a tiered rewards program, giving you higher rates on certain purchases. You can put all the cash back you earn toward your financial goals or use it as your discretionary spending money. Either way, it can be valuable to take the time to compare credit cards to find the right fit for you based on your spending.
- Shopping apps: Search for mobile apps that give you discounts or cash back on the purchases you make every day. For example, Ibotta allows you to submit receipts from eligible purchases to earn cash rewards. Similar apps include Dosh, Fetch Rewards, Shopkick, and more.
- Shopping portals: Using online shopping portals like Rakuten, Swagbucks, and TopCashback is another way to earn rewards on spending you would do anyway. You can typically earn a percentage back on each purchase. If you combine this with cashback credit cards, you can earn even more.
The more ways you can integrate these options into your regular spending, the easier it will be to rack up cashback rewards to help you navigate your midlife money crunch.
Make a debt reduction plan
Now is also a good time to get a handle on your past spending, so it doesn’t continue to impact your future. If you have credit card balances or other high-interest consumer debt, take the time to focus on paying that down. This will help you create the cash flow to put money toward more important things.
Here are some tips on how to make and execute a debt reduction plan:
- List your debts, including the balances, interest rates, and payment terms.
- Choose a plan of attack. We recommend the debt snowball method or the debt avalanche method.
- Consider applying for one of the best balance transfer cards to consolidate credit card debt and save money with an introductory 0% APR. Alternatively, you can use a debt consolidation loan and get a more structured repayment plan and a potentially lower interest rate.
- Look at other options, including credit counseling, if your debt situation is out of control.
- Always pay all your bills on time to maintain a good credit score, which can help if you need to borrow money in the future.
Paying off debt is often a long process, but taking the right steps now can save you a lot of money and headaches in the future.
Downsize your assets
If your kids are moving away for college, now may be a good time to start thinking about selling your house and moving into a smaller home or to a more affordable neighborhood. Through this process, you may be able to significantly reduce your mortgage payment, giving you hundreds of dollars more each month to put toward your goals.
You may also look for other personal belongings you’ve accumulated over the years but no longer use. A garage sale may not net you a lot of money, but some is better than none, and it can make it easier to downsize your living situation if you’re motivated by turning your old stuff into extra cash.
Take investing seriously
Take some time to evaluate your investment strategy and make sure you’re taking advantage of every opportunity to save for the future, especially with tax-advantaged retirement accounts.
For example, if you have a 401(k) plan through your employer and it offers a contribution match, save enough to max that out. Also, if you qualify for the tax benefits of an IRA or HSA, you can maximize your savings for retirement, as well as current and future health care needs.
And remember, once you’re 50 years or older, you can make additional catch-up contributions to your 401(k) and IRAs that you couldn’t before you reached middle-age.
If you’ve reached the point where you feel you’re saving enough for retirement, think about investing more via taxable brokerage accounts. Many of the best brokerage accounts allow you to start small and invest in ETFs, mutual funds, stocks, bonds, and more. Consider consulting a financial advisor before you start to make sure your investment decisions align with your goals.
Care for your emotional health
Financial health and emotional health are linked, and it can be challenging to tackle your finances with a clear mind if you’re feeling stressed, overwhelmed, or anxious. It can be especially difficult if your emotional difficulties come on top of coping with financial stress.
Make sure you find ways to take care of yourself and your emotional needs so you can be in a better position to work on your financial goals. Depending on your situation, you may even consider working with a therapist to get some professional advice.
Navigating a midlife money crisis can be challenging, not only because you may have several competing financial priorities, but also because you’re in a unique time in other areas of your life.
Using these tips above to learn how to manage your money now and in the future will take some time and effort, and it may be difficult at times to stay motivated. But biting the bullet now will not only help you meet your goals faster but also make your later years more stress-free.