Stages of Life

Google ‘Financial planning in your 20s, 30s or 40s’ and you will get dozens of results that tell you exactly what your financial life ‘should’ look like at each age. The problem with this approach is that people follow different paths and what different things from life.  Not everyone has a plan nor wants to have a life plan.  Not everyone is going to go to college, start a career, and settle down in their 20s, or 30s, or even 40s.  

At Willingworth, we know the world is changing and life is less traditional.  We understand and celebrate that. However, we acknowledge that learning to budget, developing good spending and saving habits, investing, and preventing unnecessary debt are worthwhile skills to develop no matter your path.  Instead of guiding you through these financial skills based on your age, we created “stages of life” guidelines. We want to you make the best decisions for yourself and your loved ones

We like to use a sailing metaphor to structure our “stage of life” guides from Sailing Free to Steadily Anchored.  Our definition of “anchor” is in no way negative.  For Willingworth, an anchor is simply an object which provides constancy or connection; it is not an object to stop progression.  Examples of anchors include your job bound to a specific location, a significant other/partner, a child/children, or a home you own.  Some people crave these anchors (i.e. attachments or permanence), while others do not.  Traditionally, as a person gets older, more anchors are created and collected, but no matter your life choices, Willingworth will help you be secure now and in the future, in every stage of life.

Sailing Free In Open Water

This means to float or be unattached; you can go where the wind and current take you and have no anchors down.  

Definition:  no anchors

If you are in this stage of your life, this might mean variable or inconsistent income.  Thus you need to consider a few very important things:

1.     Make a budget and stick to it. A budget is a routine of how you use money.  There many templates online that you can use, but basically think of all your reoccurring expenses, such as rent, utility bills, phone bill, loan payments, health insurance, etc.  Then add lines for clothes, beauty/grooming habits, entertainment, bar & restaurant expenses, etc. (Yes! You should budget for an entertainment allowance. Life is meant to be fun and enjoyed.)

NOTE: Some experts recommend to spend no more than 60% of your income on needed essentials (food, rent, transportation), 25% on wants (entertainment, vacations) and 15% savings for your future.  You may not be able to save 15%, but certainly do not spend more than you make.  You will need to spend time tracking and reviewing your budget.

2.     Now that you have a budget, ask yourself if you live above your means. Do you spend more than you make? Do you have credit card debt?  Do you have loans that are difficult to repay?  If you answered yes, then consider revising your budget.  A revised budget might mean reducing your rent by downsizing your apartment, reducing your car payment by driving an older model, or reducing your dining out or entertainment allowance.  Take advantage of technology and apps to help you. 

NOTE:  Pay attention to your credit score, and if you have debt, pay off the highest interest loans first as part of your budget.

3.     Plan for your future.  Some people stay in the “sailing free” stage their whole lives, and that is perfectly fine, but having a financial plan on how to handle downturns is important.  Factor in unforeseen events such as medical expenses or car repairs. Start a “rainy day” or emergency fund to cover these types of unexpected occurrences.  Do not invest this money; simply keep it in a risk-free, interest-bearing savings account or money market account (MMA). 

NOTE: The goal is for this fund to equal from three to six months of your total spending.  If money is tight, then think about putting tax refunds in this account to give it a boost.

Coming Into Port

This means to pursue a course of action or to be guided in a particular direction; you have a plan and are creating anchors or have already set down a couple anchors.

Definition:  one to two anchors

*This stage is also for those who have no anchors, but are still financially secure.

If you are in this stage of your life, this might mean you have a job that you intend to stay with for a few years, you have a significant relationship/partner, you want to buy a home, etc.  Make sure you have completed the actions in the above category, then, depending on your income and job stability, consider these tips:

1.     Establish your priorities and start saving for your next big event, such as a home, wedding, or new car.  The more you align your spending with your values, the happier you will be with the purchase.  Try to live below your means and put a little money into an interest-bearing savings account for your next big purchase. This account is different from your “rainy day” or emergency fund.  Add to this account whenever possible; you can also set a savings goal to contribute each month.  Ideally, this money would be a down payment of some kind, but it can also help you through periods of financial variability or volatility, if needed.  

NOTE: If you do plan to start a family, consider buying disability and life insurance.

2.     Start saving for your retirement.  The most common accounts are a 401(k) or an Individual Retirement Arrangement (IRA).  Ideally, start saving for retirement with your first job so that you can take advantage of compounding interest over the years.  If your employer has a matching program, take advantage of this “free” money to build your retirement savings.

3.     When you are financially comfortable, start investing.  For the risk adverse, bonds are a safe investment. For the risk tolerant, stock index mutual funds might suit you better.  And there are a myriad of investments on the risk spectrum. Please consult a Certified Financial Planner to create a diversified portfolio that is right for you. 

Steadily Anchored

In this stage, you have a firm basis or foundation.  You have set down several anchors and are connected.

Definition:  three or more anchors

Typically, in this stage of your life, you are comfortably settled with income and job stability.  Make sure you have completed the actions in the above categories, then, consider these steps:

1.     Create a habit of saving money.  You may have more responsibility and stability in your life, but also more expenses. Remember, frugal is not a bad word. It could simply mean you wait for items to go on sale or looking around for deals. Take advantage of technology and apps to help you.  

NOTE: If you have chosen a career path, know what you are worth and negotiate hard to get it so your income is increasing. Then increase your savings as well. Think of your savings as a percentage, not a dollar amount. 

2.     Only borrow what you need!  For example, if you want to make an improvement to your house, only take out a loan for the amount you need because interest makes the money you borrow more expensive over time.

NOTE: Borrowing for education is also an option.  Consider enrolling in courses to keep your skills sharp and your career on the upward trajectory.

3.     Consolidate your accounts. At this stage, you may have had several employers, each with different retirement accounts (e.g. 401k or 403b) and/or investment accounts.  You might have different bank accounts, too.  When you consolidate these, managing your finances (and doing your taxes) becomes easier, as well as reducing account fees.

In the coming weeks, we will be releasing helpful 2-page quick reference guides for each stage. If you would like to stay informed, please sign up for our newsletter.