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How to Stop Stressing and Take Control of Your Financial Future

Jan 14, 2019 | 7 min read | Stephanie Taylor Christensen

Key Takeaways

  • Use age-based milestones to check your financial progress.
  • Create a budget that allows you to save for emergencies.
  • Consult with an advisor to ensure you have the proper financial and legal products.

 

When Lisa Brandt (not her real name) graduated college 10 years ago, she vowed that she'd take better care of her financial affairs than her parents, who were constantly worried about money. She didn't have lofty goals like buying a penthouse or driving a luxury car. She simply wanted to know that she'd be financially prepared for an emergency, able to comfortably manage her monthly expenses, and confident that she could retire one day.

 


At first, she was on the right track. She landed a marketing job in Chicago within a month of graduating, and now at 32, her annual salary is close to six figures. On paper, financial stability should be a given.

But when she read a headline that said most Americans don't have enough money saved to pay for a major car repair, it hit way too close to home. The same thing happened when she read that many Americans will never be able to afford to retire.

Logically, she knows worrying about money isn't productive. But between her living expenses, lack of savings, and limited financial knowledge, she's not sure whether she needs to change course or how.

Does Lisa's struggle sound familiar? If so, you're not alone. Prudential's 2018 Financial Wellness Census indicated that women, minorities, and younger generations are more worried about their financial future than men, whites, and Baby Boomers, especially when it comes to retirement, health care costs, managing expenses, saving, and their family's financial stability.

Whether one, two (or all) of these topics concern you too, know that it's never too late to face your financial fears and take charge.

Here's how.


Worry #1: Will my savings last through retirement?

With all the unknowns that come with retirement—like how long you'll be able to work, how long you'll live, and your health status—it can be difficult to pinpoint the exact amount of money you'll need. However, one thing is certain: delaying gratification now can seriously reduce the chances that you'll run out of money in retirement. The sooner and more consistently that you make retirement contributions, the better the chances that you'll have the  money you need.


Take advantage of retirement accounts

If your job offers a 401(k) or 403(b) plan, contribute at least 10% of your pre-tax income to the retirement account each year. As your income increases, so should your contributions until you reach the maximum amount allowed. For 2018, the IRS allows you to contribute up to $18,500, or $24,500 if you're 50 years old by the end of the calendar year. Can't afford to save anywhere near those amounts? At least contribute up to the amount your employer may be willing to match to take advantage of that free money. If you're self-employed, you may be eligible to contribute up to 25% of your compensation, or up to $55,000, to a SEP-IRA in 2018.

In either case, and based on your income and tax filing status, you may also be eligible to contribute to an IRA and/or a Roth IRA. For the 2018 tax year, the IRS may allow you to contribute up to a total of $6,500 a year (in one, or a combination of both accounts), depending on your age.


Track your progress

Once you start saving for retirement, keep tabs on your progress with simple, age-based milestones. A financial advisor can provide those milestones based on your income and life circumstances.

In addition to managing contributions, the Center for Retirement Research at Boston College recommends waiting a bit longer to retire: Those who wait will have larger social security checks and more 401(k) savings distributed over fewer years.


Worry #2: Will I be able to afford health care?

It's smart to be aware of the costs of your future health care. An analysis that consulting firm HealthView Services compiled for Barron's estimated that a healthy 65-year-old couple with annual income of $214,000 to $267,000 could expect health care coverage to cost about $565,000 throughout retirement, including Medicare premiums.


Know how to offset costs

You may face considerable health care costs when you're older, but having a sense for what you're up against means you can proactively plan to offset some of them. According to Medicare.gov, you'll be enrolled in Medicare Parts A and B once you claim Social Security benefits. According to the site, most people do not pay for Medicare Part A (hospital insurance); and costs for Part B (medical insurance) depend on your income. If you opt for Part C (Medicare Advantage), or Part D (prescription drug coverage), those costs depend on your income at the time, too.

If you're interested in securing long-term care insurance to prepare for future health care costs, the American Association for Long-Term Care Insurance (AALTCI) recommends purchasing it in your mid-50s. The AALTCI explains that premiums for long-term care insurance are based on your age at the time you apply. Assuming you're in good health at that point, an insurer may offer you additional discounts (which are locked in once issued). If you wait to buy long-term care insurance until you're in your mid-60s, your health could be worse, and premiums could be 6% to 8% higher than if you'd secured the coverage 10 years before.


Start saving your health care fund now

If you have a High Deductible Health Plan (HDHP), you may be able to contribute funds to a Health Savings Account (HSA) to pay for current or future health care costs. In the 2018 tax year, the IRS allows those with self-only HDHP coverage to contribute up to $3,450; those with family HDHP coverage can contribute up to $6,900. Like a retirement account, the funds carry over year to year. You own the account, regardless of whether you establish it through your employer or change jobs.

You can opt to use HSA funds like a savings account that you've earmarked to pay for medical costs, but some experts recommend investing part of the funds (assuming your plan allows it).


Worry #3: Will I be able to keep up with current expenses?

If your budget is so strained that you're not sure you can pay your bills, it's time to focus on reducing expenses and eliminating costly debt.


Create (and follow) a budget

Developing a budget helps you see where your paycheck goes — and where you can make adjustments to your expenses. You'll feel much more in control of your finances when you're intentional about spending and saving.

A common budget breakdown follows the 50/30/20 rule: 50% of income goes to necessities, 20% to long-term savings, and 30% to lifestyle choices. This formula can be a simple guide if you aren't sure how much your individual budget categories should be, and it also ensures you build savings.


Eliminate costly debt

If debt is straining your income, create a list of your debts, starting with the one with the highest interest rate. This is the balance that costs you the most money; paying it off first will save you money in the long run. (You still need to pay at least the minimum amount due on your other debts, too.)
Once you pay off your most expensive debt, work your way down the list until you're left only with debts that offer a tax benefit (which could be a mortgage or some types of student loan debt), or that charge less interest than you could make if you kept the debt and put the cash in an interest-bearing deposit account.


Worry #4: Do I have enough emergency savings?

Not all financial experts agree on the exact figure you need to have saved for an emergency. Some recommend a minimum of three months' worth of living expenses while others say the bare minimum is six months' worth of take-home pay. Financial expert Suze Orman is even more conservative; she recommends saving eight to 12 months of living expenses in case of job loss.

Make saving automatic

Regardless of your emergency savings balance goal, there's no better time to start saving than now. Establish a savings account with an automatic contribution that draws from the account you deposit your paycheck into, and only withdraw from that savings for emergencies. (If you can't deposit much at first, remember that any amount saved is progress in the right direction). Look for an account that pays some interest on your deposit and is liquid enough that you could get to the cash within 24 hours without penalty, if needed.


Worry #5: Will I be able to protect my family?

The idea of creating a will or estate plan, or determining what type of insurance coverage you need at various points of your life can be daunting, but there are professionals to help you through it.


Lean on expert resources

Contact a financial advisor to discuss your key concerns and goals, so you can determine what financial and legal protections, and insurance policies will best address your needs. You cannot predict what the future will bring, but with the right legal and financial products, you can gain quite a bit of control over what impact it will have on your family's financial security.

 

What you can do next

Create an action plan for each of your big financial worries — and then take the first step toward addressing them. The sooner you begin, the closer you are to building a financial life that makes you feel confident and financially empowered.

 

Stephanie Taylor Christensen is a former financial services marketer, personal finance expert and freelance writer whose work regularly appears in publications including USA Today, Cosmopolitan and Money.

 

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