If you are in your 30s or 40s:
Concentrate on saving for retirement, getting rid of expensive debt and building an emergency fund—even if you’re juggling the expenses of raising children.
Be selfish with your savings. Your kids’ college funds need to take a backseat as you aim to put 15 percent of your pretax salary toward retirement, says Christine Fahlund, a Baltimore-based financial planner with T. Rowe Price. Can’t afford such a large chunk? You should still take advantage of any matching funds in a company-sponsored plan like a 401(k). Bump up your contribution every time you get a raise, or by 1 to 2 percent every year, until you’re getting the full match. Put any spare cash into a Roth IRA if you’re eligible (married couples making under $188,000 and singles making less than $127,000 can contribute up to $5,500 this year) or keep funding your workplace plan.
Pay off pricey debt fast. Mortgage and federal student loans are relatively low rate and often tax deductible; it’s the high-interest stuff that kills. Try to devote 5 to 10 percent of your income (or more if you can swing it) to paying off credit cards and other expensive debt.
Get your backup plan in order. Job loss and big bills can decimate your savings, so now’s the time to plump up your emergency fund. Once your high-rate debt is extinguished, funnel money into an FDIC-insured savings account until your cash fund is equal to three months’ worth of living expenses.
Protect yourself from financial ruin. Other big enemies of wealth accumulation: catastrophic medical bills and lawsuits from car accidents or injuries that occur on your property. Your best protection is umbrella liability coverage that extends the limits on your homeowners’ and auto policies to an amount that’s at least equal to your net worth, says Arkansas-based financial planner Sheryl Garrett. Make sure your health insurance covers hospitalizations and surgeries; some policies don’t.
Curb the big expenses. Manage your must-have costs (e.g., shelter, transportation, child care, insurance and minimum loan payments) so they constitute 50 percent or less of your after-tax income.
Take investment risks now. Over time, stocks have earned better returns than any other investment class (yes, even when the 2008 recession is taken into account). And women in particular need to think long term, since statistically we live longer than men. What percentage of your investments should be in stocks? The old guideline was to find that number by subtracting your age from 100—but that formula will leave you too conservatively invested, Fahlund says. To get the returns you need, the best plan is to put 80 to 100 percent of your portfolio into stocks, mutual funds and exchange-traded funds.
Now, consider college savings. Even though other goals take priority, if you can save for college, you should. Money invested in 529 college savings plans is tax free if you use it for education, and it won’t have much impact on financial-aid offers. Many 529 plans allow you to contribute as little as $25 a month.
If you are in your 50s:
Focus on creating a sustainable long-term financial plan, even if you’re coping with aging parents and older kids who have returned home.
Unify your accounts. If you have several smaller retirement plans from different jobs, consolidate them now. Find out if your current employer will allow you to transfer these accounts into its plan, or set up a rollover IRA at a discount brokerage.
Supercharge your savings. Your retirement goal should be about 10 times your income, so if you’re lagging, start to kick up your savings. Once you’re 50, you can add an extra $5,500 (known as a “catch up” contribution) to workplace retirement plans such as 401(k)s, for a total maximum annual contribution of $23,000 in 2013. In addition, you can put an extra $1,000 annually in an IRA or Roth IRA, for a total of $6,500 in 2013.