When it comes to your financial life, the idea of starting over at 50 is daunting. Fortunately, that doesn’t mean it isn’t doable. With a bit of planning and dedication, you can get yourself on better financial footing regardless of your age. If you’re rebooting your financial life at 50, here are some tips that can help.
Begin with a Sound Budget
Regardless of a person’s age, having a well-designed budget is typically critical if you want to get your financial house in order. Your budget ensures you’re properly tracking your bills and various expenses. Plus, it gives you a chance to allocate your income to make sure that critical costs are covered and that you’re saving enough to reach your goals.
Begin by making a list of every debt and recurring bill monthly payment. With debts, it’s also wise to list the remaining balance and interest rate, making it easier to prioritize paying the right ones off.
Next, consider your other spending categories, such as groceries and gasoline. Look at your spending in those areas over the past six months, as that can help you come up with a figure that represents your average monthly spending. Then, total up all of your income.
Once you have that information, you can start allocating your income to the various expenses. Along the way, you can see if specific costs need reducing to make your budget work, as well as make sure that you’re committing money to your savings goals, including retirement.
Build an Emergency Fund
Having money set aside for emergencies gives you a stronger financial foundation. Should something unexpected occur – like a vehicle breakdown or a surprise medical bill – you don’t have to turn to debt to handle it.
When you’re just starting out, aim to get either $1,000 in an emergency fund or enough to pay your home and auto insurance deductibles simultaneously (whichever is higher). Then, you can start working toward staffing three months of living expenses, followed by six and 12 months.
This also lets you make saving a habit. Once your emergency fund is squared away, you can direct the money toward other financial goals.
Find Ways to Reduce Your Spending
If you’re struggling to make ends meet, then it’s best to prioritize finding ways to save. Look at all of your expenses and determine if you can reduce each one. For example, could you choose another internet plan to get the speed you need without paying for a service level you don’t require? Are there streaming services, gym memberships, or other ongoing costs that you can cancel? Could you reduce your grocery spending or use alternative transportation options to limit your need for gas?
While some of the changes you’re considering may seem uncomfortable, remember you don’t have to make specific sacrifices forever. Start with cost reductions where the impact on your life is minimal. Then, explore the other options to see if they may work as at least a short-term solution. After all, once your financial life is in order, you can potentially get some of what you cut back, making sacrificing for a little while worthwhile.
Pay Down Your Debt
If you’re carrying any debts, now is the perfect time to start eliminating them. By tackling your debt, you reduce your monthly expenses. That can free up critical room in your budget for saving, as well as reduce how much you need each month to live comfortably.
There are two debt payoff approaches that work well for many people. The debt snowball has you target the debt with the lowest balance first. Then, when it’s paid off, you take that payment (along with the minimum payment you’re already making) and direct it toward your next smallest debt. The strategy can give you the quickest possible win, as it lets you completely handle a debt in the shortest amount of time.
With the debt avalanche, you focus on the debt with the highest interest rate first. With this option, you’re coming out financially ahead, as it helps you avoid as much future interest as possible. So, for those who want to get the most out of their money and don’t need a quick win to stay motivated, this approach works best.
Maximize Free Money
If you’re rebooting your financial life at 50, you want to make the most of any free money available. The biggest example is retirement account matching through an employer. If you’re not sending enough toward your retirement account to get the full match, consider bumping up your contributions. That way, you’re getting as much free money as you can from this benefit, allowing you to stash more cash without much extra effort or hardship.
At age 50, you may also start qualifying for specific discounts or programs aimed at older adults. Start looking for these deals now, even if you aren’t eligible yet. By doing so, you’ll know what you can leverage once you reach the right age to reduce expenses and get more room in your budget.
Keep Up with Your Retirement Account
While reducing how much you contribute to a retirement account may seem like an intelligent move initially, it typically costs you in the long run. After all, retirement is likely on the horizon, so you want to make sure your future self is in the best position possible.
Do your best to at least keep your retirement contributions where they are if you’re currently sending money to that account. If you aren’t saving for retirement right now, try starting small and working your way up. Anything saved is better than nothing, especially since retirement accounts often come with tax advantages either now or later.
Make Catch-Up Contributions
Catch-up contributions allow you to direct more money toward your upcoming retirement, making them a powerful way to recover financially. Look at your retirement account options and see how much extra you could set aside in the form of catch-up contributions. Then, start working your way to maxing out your retirement fully, including both regular and catch-up contributions in that mix.
Consider More Drastic Steps
If your financial life is in complete disarray and there’s no way to cover your expenses with your current income, it could be wise to consider more drastic steps. For example, you could explore starting a side hustle to boost your income, even just temporarily. You could look for a non-profit credit counseling service that could offer guidance and may even be able to get you into a repayment program that reduces your interest rates.
For situations that are genuinely dire, exploring bankruptcy may even be worthwhile. While that does harm your credit score, it could make a fresh start possible. Just understand that hiring an attorney and moving through the process does come with a cost. Still, if your situation is legitimately that rough, it’s a path you may want to check out.
Do you have any other tips that can help people who are starting over at 50 when it comes to their financial lives? Share your thoughts in the comments below.
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Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.