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Week of 9.4.09

Are You on Financial Track?
By Manisha Thakor

Manisha Thakor
Learn more about Manisha and ask her your questions
Some are saying this brutal recession may finally be reaching an end, but for many it's also been a wake-up call. Many people are starting to poke their heads up and ask, "Am I on financial track?" Here are some rough rules of thumb you can use to benchmark your progress as you move through life.

In Your 20s: Your key challenge is to learn to live within your means. Steps to take: Avoid credit card debt like the plague. Make at least the minimum monthly payments on your student loans—on time—every month. Build a starter emergency fund of at least $2,000, and start contributing to your employer 401k/403b.

In Your 30s: Your key challenge is to build a solid financial foundation. Save for a home down payment—but don't bite off more house than you can chew. Think long and hard about buying a house for more than three times your annual household income. Build an emergency fund of up to at least three and ideally six months of living expenses. If you have children, make sure you have term life insurance equal to 10 to 15 times your annual income, and prepare a will naming a guardian.

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In Your 40s: Your key challenge, as you enter into your peak earning years, is to avoid lifestyle creep—a situation where increased earnings, turns into increased spending. Before you know it, former luxuries have morphed into seeming necessities. If you have not been saving at least 10% of your gross income in your 20s and 30s for your retirement, it's time to kick it into high gear by committing to save at least 15%. If you have kids and want to help them pay for college, it's time to open a 529 plan account (if you haven't already). Resist the urge to splurge. These are your peak earning years, and they should also be your peak saving years.

In Your 50s: Your key challenge is to resist the temptation to make up for lost time by swinging for the financial fences—taking on extra risk in hopes of making out-sized returns. Check your asset allocation in your retirement plan—this is the time to start easing up on stocks. For men, "100 minus your age" is good rule of thumb for the maximum percentage of your portfolio to have in stocks at this stage. For women it's "110 minus your age". You should also consider long-term care insurance. And make sure your will and related documents (medical and durable power of attorney) are updated to address life changes.

In Your 60s: Your key challenge is to not over-nibble your nest egg. Think long and hard about spending more than 5% of your savings annually once you are in retirement. If you have not amassed your desired savings nest egg, it's time to think about working longer or part-time. The decisions you make in the early stages of your "golden years" will have huge implications for how golden the rest of your financial life is.

In Your 70s: Your key challenge is planning for a smooth landing in this journey called life. It's time to think about how you would like to be cared for should you no longer be able to care for yourself. This is a smart time to review your estate planning wishes, as your priorities may have changed since you first created these documents years ago. It's also a good time to make sure your children and/or other loved ones are clear about your wishes on health care and financial fronts.

In Your 80s & beyond: Enjoy your life—you've earned it! And share your hard-won wisdom with those who can benefit from your experience and financial prudence.

Have any questions about this list? If so, I'd love to hear from you! Send your concerns to, putting "Manisha" in your subject line, please.

Note: The answers provided by Manisha Thakor represent solely her opinion and do not represent the opinion of NOW or its producers, who bear no responsibility for them. These answers do not necessarily reflect knowledge on Thakor's part of all factors relevant either to the circumstances of the questioner, or to circumstances experienced by others in their own situations. You therefore should consult with, and solely rely on, your own professional advisors before making any material financial or legal decision rather than on the answers provided here.
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