Financial Planning for Late Starters

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The following article is by MPFJ staff writer, Miss T, from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.

A ‘late starter’ in financial terms generally refers to those who are over forty and have not yet developed any sort of financial plan for funding their retirement.

If that’s you, don’t feel bad; there are plenty more folks out there in the same boat.

Luckily, it’s never too late to get into financial planning. I mean, it would have been better if we’d all started yesterday, or last month, or ten years ago for that matter, but the main thing is to realize the need to get started right now.

Financial planning is slightly different for late starters, although the basics are much the same.

What Should Your Financial Plan Include?

A financial plan, at any age, needs to address your financial needs in the present, as well as the short-, medium- and long-terms. It’s not much use saving huge amounts for a great retirement if you are struggling from day to day right now.

Determine Whether Your Income Covers Your Current Expenses

The first thing to do is work out whether your income covers your expenses at the moment. If you don’t know this off the top of your head, then I’m guessing you don’t have a written budget. You can’t have financial security if you don’t have a budget, so that becomes your first job.

We’ve written about this before, but the basics of a good budget include all your income, added up to get a monthly or weekly figure (whichever works for you). Then, you list every expense – fixed amounts like rent or mortgage; variable amounts like food, transport, clothing, utilities, entertainment etc. Average all your expenses out to get a weekly or monthly figure, like your income. When you subtract your total expenses from your total income, you’ll see clearly if you spend more than you earn.

If your expenditure is more than your income, you have some work to do to cut your spending in some areas, until you do spend less than you earn.

If your budget balances, that is, you earn enough to cover all your expenses, and you don’t have a savings amount in there, you also need to cut some spending.

If you’re over forty, you need to be able to save much more from every pay check than you would if you were still in your twenties.

So, where do you stand with a budget?

Do you have one?

Does it balance?

Do you have an allowance for savings in it?

You need to answer ‘yes’ to each of these questions before you can plan for your financial security.

Effective Financial Planning Strategies for Late Starters

What are the best short-term strategies for late starters? Here are some ideas that will give you the best results in a shorter time.

• You need to know how much you are going to need for your retirement fund before you can know how much you need to save from every pay check. 
• Obviously, the older you are, the more you will need to find each week for retirement savings. 
• Work out a weekly and annual figure for retirement spending, multiply by the average number of years (usually 20 years) you will be retired; then divide this by how many years you still are going to work. 
• Bring this figure down to an amount per pay period.

• Chances are you are going to need to restrict your spending, so you need to look for ways to do this in your budget. 
• Cutting back on new clothes and shoes may not be enough, especially if you are in your fifties, so consider more drastic measures like down-sizing your home, moving to a less-expensive area, taking a second job etc.

• Consolidate your debts to reduce your obligations and the total cost of the debts. 
• A financial consultant is the best person to help you do this. Make sure all money saved is put into your retirement savings account.

• Consider investments, but avoid anything too risky where your savings are exposed. 
• Remember that some long-term investments can be maintained during your retirement – you can spend the earnings but keep the principle intact to keep earning. 
• Well-researched stocks and mutual funds are good options.

• Even at this late stage, employer 401Ks are a good option, especially if your employer also contributes. 
• Good returns are also available with IRAs and other retirement funds. While maximum contributions apply, older workers are often allowed to go over these limits. Utilize the tax benefits of these funds to your advantage.

• Delaying retirement and working part time in retirement are two important strategies.
•  The longer you keep working, the bigger retirement fund you will have, even if you just work a few years past the normal retirement age.

Now, this last point may seem tough, but you need to consider your future financial security. If your kids have left home and have a job, let them make their own way. Don’t continue to support them; you are going to need every cent for your own retirement. It’s time to put yourself first so that you can continue to live the way you want, well into your senior years.

How about you all? How have you approached retirement planning?

***Photo courtesy of http://farm8.static.flickr.com/7210/6870888815_24c39c51f3_m.jpg