By: Stacie Rhodes
Editors Note: Over the next few months, Stacie Rhodes will be sharing strategies for financial readiness for each decade of our lives.
One of my core memories is the moment my parents showed me the black filing cabinet that held their will and written instructions to settle their estate. Their upcoming trip triggered a serious toned conversation with my sister and me to convey guardianship plans, last wishes, and the location of key information. I remember hating the entire discussion as the thought of a tragedy was unbearable. But, while I sat in silence listening to their details, I remember feeling begrudgingly impressed at how many safeguards they had put in place to ensure our world remained protected.
Ladies, this new decade will find you in a position to not only build on the foundation established years prior, but to start securing your financial position. The keyword for this decade is “fortify” – to protect, to strengthen against an attack, or to set up a defense.
Reassess and recalibrate your lifestyle. Lifestyle creep is a common phenomenon that occurs when your standard of living improves as your discretionary income rises. Luxuries that were once considered wants are now deemed needs. If following the guidance previously outlined, you are following your debt payment plan and meeting the minimum level of savings goals.
The pivotal question of this decade: How much is enough? I challenge you to consider this question yearly. As your family grows and needs change, your lifestyle budget will need to adjust, but be aware of this “lifestyle creep” phenomenon. Rather than purchasing new luxuries, reassess your priorities. Can you pay down your debt more aggressively or start saving for college tuition? Review those long-term goals with your spouse on a yearly basis. Stay the course.
Monitor and track your retirement funding goals and portfolio performance – increase contributions if possible. Remember, the recommended yearly contribution into your retirement plan is 10 – 15% of your pre-tax income. However, if you are saving for college or paying down debt, continue with consistency. But – we are fortifying – which means we need to take a more active role in monitoring our retirement account. There is abundant information around building a retirement portfolio, consider engaging with a trusted investment advisor (CFP®) for educational insight and performance maximization. Regardless, consider the following:
- Do not rely solely on your employer plan for adequate retirement funding. As a reminder, there are different types of retirement accounts that you can open. Most often, individuals who are fully funding their retirement account are contributing to an employer plan and an individual retirement fund (ROTH IRA or IRA). Review the previous article in this series for the recommended retirement funding strategy.
- Review your portfolio allocation to evaluate the level of risk assumed. What you own in your retirement portfolio will determine the risk assumed. Owning a group of stocks (e.g., mutual funds or exchange-traded funds) will help spread risk, but owning a mix of stocks and bonds will also help diversify.
- Remember to prioritize diversification. Plans managed by a professional will have some diversification built into your investment choices. However, asset purchases through another investment account or outside of an investment account (such as real estate) change your overall diversification. Review what you own and how much of each category, and evaluate if you need to buy or sell more of each category to spread out your risk.
Determine and communicate guardianship. If following the outlined guidance from your 30s, you’ve already established your Power of Attorney (POA) and will. Continue to evaluate guardianship and communicate those decisions with those committed to that role and those impacted by the decision (children, grandparents, local community, etc.). Reassess every few years as potential guardians may change, resulting in a required update to your estate documents.
Optimize your taxes. While the process of filing taxes has been simplified, the easy route may not be the most financially strategic. Consider consulting with a CPA to evaluate tax-saving strategies, especially as your lifestyle builds in complexity. Education and childcare credits, charitable donations, land conservation credits (state tax-related), small business deductions – there are a myriad of deductions and credits likely available to you.
Consider a credit freeze. With the increasing threat of cyber-attacks, freezing your credit can be invaluable in guarding against new credit being taken out in your name. A credit freeze prevents anyone from getting access to credit – even you. However, it can be “thawed” or removed within one business day. While it doesn’t prevent identity theft, it does limit the use of your stolen identity to commit fraud against you.
Ladies, I challenge you to fortify your world. Let’s put safeguards in place to protect what you are building – consulting with trusted advisors to maximize growth and communicating your plan with those most impacted.