Staying on top of your finances is hard, and not just because it can involve a whole lot of math. It’s hard because we’re creatures who are actually built to live in the present, and we’re just not biologically wired to plan ahead or to save. According to Dr. Brad Klontz, a certified financial planner and financial psychologist, “It’s why we were able to survive as a species. We’re actually wired to enjoy the moment now and to consume as much as possible.”
So it sounds like we’ve got a reason why it might be so hard to stick to our financial goals, but not really an excuse; after all, being financially responsible at all stages of our adult life is in our own best interest! And consider this: a recent survey by TD Ameritrade found that between 60% and 68% of respondents aged 40 to 79 would advise their younger selves to start saving money much earlier in life. The question is, then, how can you get yourself to focus on your finances and make smart choices that will help you save for things you need and want, as well as lead to greater security (and more fun!) in your retirement?
Well, you can start by thinking about some of the financial milestones that many experts say you should be hitting as you go through each decade of life. But that’s not all: remember that there is no hard and fast rule for the way everyone’s finances are going to look at each stage, so it’s important to relieve yourself of the stress of comparing yourself to others, as well as look at some more creative, yet practical, ways to get you to your financial goals.
What Are Some Traditional Financial Milestones?
When financial experts talk about how to set yourself up for future success, they sometimes lay out financial milestones to aim for as you move through different stages of life, so that you have some concrete goals to motivate you. For example:
- In your 20s:
- Create and stick to a budget
- Save 3-6 months worth of expenses just in case
- Pay down some debts, starting with higher interest ones (like credit cards), and then moving on to lower interest ones, like student loans
- Start investing while you still have time on your side to grow your money
- Try to have half of your annual salary saved by the time you’re 30
- In your 30s
- Think more seriously about your retirement savings. Many financial experts recommend putting aside 15% of your pre-tax salary towards savings; if that’s too difficult for you, contribute as much as you can, adding 1-2% each year.
- Try to invest in real estate
- Set up more specific savings accounts that are right for you, like a 401k, IRA, Roth IRA, or college savings accounts
- Get a life insurance policy as another financial safety net for your family
- Aim to have twice your annual salary in savings by the time you’re 40
- In your 40s
- Try to have 4 times your annual salary saved
- In your 50s
- Pay off as many debts as you can as you approach retirement age
- Make sure you are investing the maximum amount into your retirement account every year
- Reduce the level of risk in your investment portfolio
- Aim to have 6 times your annual salary saved
Should You Stop Worrying About Keeping Up?
All of the above is a lot to think about, and some of the figures might have you feeling a little stressed, or some of the goals, like investing in real estate, might have you worrying about whether you’re “keeping up” with everyone around you. And you know what? Not everyone agrees that your financial journey has to go in a certain order, or has to look the same for everyone.
Take, for example, Paula Pant, a financial podcast host, writer, speaker, and media commentator on financial independence and real estate investing. She feels that one of the things that actually keeps people in debt, and keeps them from building their net worth, is focusing too much on the idea that you should have certain things by a certain age, and that making financial decisions based on what people expect you to do next is not actually helpful to getting what you want from your money – and out of life.
According to Pant, “…[P]eople think that money management is about money. It’s actually about life, you make the life decisions first, and then you use the financial planning piece, the money management piece to execute around that. Where people often go wrong is by doing those steps in reverse, by letting money govern their decision-making, rather than letting life be the leader. You know, I can’t answer for you what you deeply want.”
She advocates for thinking about what you really want, as well as not comparing yourself to others: “It’s natural to compare, but it’s not healthy,” according to Pant. “Imagine if we all started comparing our weight to one another? That is a recipe for some unhealthy thinking and unhealthy behavior because weight is not even a good way of knowing anything about a person anyway. And when you reduce a person’s weight to just a number and then start making comparisons, it leads to very unhealthy thinking. And yet we do that with money all the time.” Stressing about money and comparing yourself to where others are in life is not going to help your financial health (and could be detrimental to your actual health). So, before you put yourself on a super strict budget (like you might unhelpfully put yourself on a strict diet if you were comparing your weight with another person’s), consider these creative, yet very practical, ways to stay on track to meet your specific money goals.
Ways to Get Where You Want to Go
Paula Pant, as well as some other financial experts, aren’t focused on robust retirement savings as the one and only financial goal to work towards, or even just the traditional route of saving for a house, college, and retirement; they allow for other lifestyle goals that you might want to add into the mix. That being said, whatever your financial goals are, you still need money to get there, and it will take some work on your part to make sure you’re able to fully fund everything you want and need in life, now and in the future. So what are some suggestions for reaching your goals? Here are two that you might not have thought of, but that make total sense and can be applied in very practical ways:
- The “Afford Anything” tradeoff – Paula Pant’s philosophy is based on the idea that we all have a limited amount of time, energy, attention, and money, so we have to constantly make decisions about how we want to spend those resources – and when it comes to money, it effectively means that if you spend money on one thing, you don’t have money for the other thing. Makes sense, right?
So the first step becomes, as we talked about above, thinking about what you really want and need to save for. Pay off debts, put aside necessary funds, but also make your goals for how you want to live your life, and make your money work for you by brainstorming everything you want/need money for. After all of that, do the math to see if and how you can realistically make it all happen. Pant gives an example of how this can work: She says, let’s say you want to pay for a wedding and an extended “mini retirement”: “All right—wedding, $10,000…your six month trip, a little mini sabbatical mini retirement—you’re going to budget $15,000 for that, right. So start putting dollar figures towards each one of those and then put an ideal date, on each one of those goals. And then from there, it becomes a simple division problem, right? If you want $15,000 to travel and you want that trip to start 15 months from now, that’s going to be $1,000 a month. Right. And so you then start kind of dividing out how much money you would need to save every month in order to reach each goal. And what’s going to happen is that the savings rate is going to add up to an unrealistic, astronomical figure, but now you can look at every goal and its timeline. You’ve divided that out in terms of what that means per month. And now that you know that you’ve got two choices—eliminate or extend. The two E’s. So which of those goals are you going to eliminate? And then which ones are you just going to extend out the timeline so that you’d have to save a smaller amount per month on your way towards that given goal.”
- Make an emotional connection to your money – This one might sound a little weird, but hear us out – there is an actual study that backs this up! Dr Klontz, the financial psychologist we quoted above, conducted a study that found that people’s savings skyrocketed by 73% when they got fully and emotionally engaged in what they were saving for. Similar to what Paula Pant says, the point is that saving is just too difficult when it’s not for something that you really care about right now, or if you can’t actually picture what you’re saving for. And people who advocate for this theory of saving money mean that literally: keep an actual picture in sight that reminds you what you’re working towards, or create a digital board that you can keep adding to to get you excited about saving. It can be something small like a trip, or even your retirement; for example, you can have a picture of a couple in a hammock happily enjoying their retirement by the beach if that’s your long-term goal!
This more creative way of looking at your financial planning can then lead to more practical solutions. Once you’ve done your research about what you want, and have your picture in front of you, start the process of figuring out how you’ll get there: let’s say you need $5,000 for a dream trip and you’re giving yourself 5 years to plan. That means you’ll need to save $1,000 a year, so you’ll have to break that down to a weekly or monthly amount that you need to put aside, and make the necessary adjustments to your budget.
Financial planning and budgeting are probably not your idea of a good time (or maybe they are! Who are we to judge?), but they are necessary to take you where you want to go in life, and they don’t actually have to be as dry and stressful as you think. Remembering that financial milestones and money goals might look different for you than for others, and remembering that it is ultimately you who gets to choose where you want your savings to take you can help keep you on track for both a comfortable retirement and a fulfilling present!