10 Financial Learnings By Age 40

My Financial Learnings By Age 40.

Yes, I turn 40 years old this week, rather today in fact. Happy birthday to me. There I finally said it and what the %$&#, why not share it with our 000’s of readers and subscribers at the same time. As I head over on an amazing weekend with my wife and closest friends to celebrate, I have spent an amazing amount of time reflecting on all things life. That includes our journey to financial freedom.  Here are my most important financial learnings.

Remember, life is a game that is never won or lost, only played!

Here Are My Favorite 10 Financial Learnings By The Age Of 40.

Financial Learnings #1:

You Are Never As Much Of An Expert As You Think You Are: Most people start off with very few assets, but learning about your options and the details will help you when you’re ready to put your dollars in. Regardless of what you decide to invest in, one key benefit is you are investing, and you are taking advantage of the single biggest asset, time. Above and beyond that read and take the time to get educated. There are countless areas to think about and you will never know them all. Don’t shy away; embrace it and learn, because it can be the difference between reaping the rewards of your investments and watching your hard work wash away. Learn finance basics!

Financial Learnings #2: 

Review Your Portfolio Regularly. Consider this spring cleaning for your investments. As a result, evaluating your portfolio of stocks, ETFs, mutual funds, bonds, etc. gets over looked far too often.  Not only is investing for your retirement accounts (e.g. 401K, ROTH, IRA, etc.) but so is reviewing your investments is key. I do believe in the buy and hold strategy, but even good investments are important to review. Remember, our world changes daily. The old rule of thumb used to be that you should subtract your age from 100 – and that’s the percentage of your portfolio that you should keep in stocks. For example, if you’re 30, you should keep 70% of your portfolio in stocks. As Americans are living longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age to make your money last. Managing your portfolio is core to being financially literate.

Financial Learnings #3: 

Calculate & Review Your Net Worth: Your net worth is the amount of money by which your assets exceed your liabilities. In the simplest of terms, it’s the difference between what you own and what you owe (assets – liabilities = net worth). Though many people never both to calculate their net worth, everyone really needs to. Calculating your net worth provides a snapshot of your financial situation at a moment of time. There are a few important reasons why including; (1) net worth is the most accurate measure of wealth (2) there is no way to know how wealthy you are (or what you owe) if you don’t track it (3) tracking your net worth also allows you to track your financial progress from year to year (4) tracking net worth puts your debt level in perspective and (5) net worth is important, especially when you think about loans or borrowing money.

Financial Learnings #4: 

Take Advantage Of What Your Employer Offers: Far too many times employees, don’t take advantage of what their employers offers for financial planning. This includes everything from 401(K) contribution matching & limits, health savings accounts, employee stock purchase plans and even life & estate planning services. In many cases it offers ‘free money’ offered by your employer to entice contributions. Also, many times they offer services at discounted rates. It is one area to review and fully understand.

Financial Learnings #5: 

Financial Needs Are Much Bigger Than Just Retirement: Did you know that 40% of American adults do not have life insurance? I would think carefully before you close the browser window. Look, I get it. Life insurance is not the sexiest of topics. Life insurance was one area that I ignored – partly due to not understanding it, partly due to being overwhelmed by all of the information and partly out of not seeing the need or value. As the children have grown up and as I sit down to review our financial plan, I realized this was an area I had grossly overlooked.  In addition to life insurance and estate planning, make sure you are considering a well-rounded financial plan. This is far more than contributing to your 401(K) plan.

Financial Learnings #6: 

Markets Go Up. Markets Go Down. That Is The Only Predictable Thing About Them: You have to stop trying so hard to time the market correctly. No one can predict the stock market. Take the emotion out of the decision, and let it ride. Embrace Jeff Bezos’s motto of think long-term. Be smart about regularly reviewing your portfolio, but as I have shared earlier, time is the single most important factor in building wealth. You have to ignore day-to-day fluctuation and ride out the bumps along the way. I would recommend you put yourself in into one of 3 categories – “the long-term investor”, “retirement is near” or “the cash investor”. Make decisions based on your category, not what you read on the front of the Wall Street Journal

Financial Learnings #7: 

Automate Your Investing: Technology has done amazing things for saving, investing and building wealth. Tools like Digit & Acorns are great ways to save additional money without noticing. I have used Acorns for the last 3 years and find it to be an amazing way to save thru regular investment and round ups by taking the pennies from your purchase and rounding to the $1. Over the last 3+ years we have saved thousands of dollars by creating automatic investments with Acorns. It’s created new ways to save that are invisible to me day-to-day.  Who will ever notice a few pennies shaved off your monthly spending. We live in a world of excess.

Financial Learnings #8: 

Invest 1% More Each Year: This is the single biggest change I would encourage everyone to make. The average median household income is $55,000 per year. Simply investing 1% more in your 401K, could net you $550 per year, if not more, considering most companies offer a matching program. Vanguard recently published a report that say only 11% of all 401K participant maximize their 401K contributions ($18,500 in 2018) This simple change can net you nearly $60,000 in additional retirement savings (@ 7% annually over 30 years) Is $10.50 a week worth $60K in additional retirement? An additional 1% can help boost your retirement. Don’t wait to start.

Financial Learnings #9: 

Use Professionals When It Makes Sense: For the first 20 years, I did everything myself. I had my picked and chose my own stocks, I did my own taxes and other than some tough life decisions (e.g. a divorce) I had never used an attorney. Today, my 3 best professional friends are our financial advisor, accountant and lawyer.  This was as shift to value over cost. Over the last 5 years, the areas we focus on are our long-term tax strategy, medical and health insurance costs and family planning like wills and trusts. These are huge decisions that you don’t get to do over. Use professionals and spend wisely to find the right information now as it can save you in the long-term.

Financial Learnings #10: 

It Really Isn’t About Earning More, It’s About Spending Less. As I highlighted in a previous post, in today’s world, a penny saved is really two pennies earned.  Therefore, if you wanted to have another $50 to eat out, you would need to earn $100. Half for your pocket and half for Uncle Sam. Most people I know are worried about their finances, yet only a few take the time to make a sensible plan. The goal is simple. Focus on spending less first rather than earning more. Whether you’re looking to create a personal budget or just getting a better idea on how you are spending money, both are important to start your journey towards financial freedom. Start tracking your spending, set goals and create new habits.

Remember that life is a game never won or lost, only played.