You never graduate from the school of personal finance. Source: Wikimedia Commons user Mando vzl.
Great investors never stop learning, and it's always a good time to learn more about how to manage your personal finances. Yet by the time you hit middle age, there are a few lessons about your money that you really should have down pat.
In order to make sure you're current on what you need to know -- or know to get the help you need to get back up to speed -- we turned to three Motley Fool personal finance experts to share some key things you really need to know about your finances. Look at what they have to say, and see if you measure up.
Selena Maranjian: It's easy to kick yourself if you've reached age 50 with far less in savings than you would like to have -- possibly with close to $0. That's certainly not a great situation to be in, but it doesn't represent guaranteed financial doom, either. (And you're not alone -- according to the 2015 Retirement Confidence Survey, about 42% of those aged 45 and up have total savings and investments of less than $25,000.)
So what can you do now? Well, if you're determined, you can still amass a considerable nest egg before you retire. Imagine, for example, that you're 50 with $0 in savings, and you hope to retire at age 65. If you can manage to plow $10,000 per year into an investment account, and it grows by an annual average of 8% annually, you'll end up with about $293,000. Not bad, eh? If you were lucky, and your 15 years of growth averaged 10%, you'd end up with roughly $349,000.
Of course, you might have a modest nest egg already. If you started with $25,000 in that account before you began adding your annual $10,000, and you averaged 8% growth, you'd end up with $372,000 -- fully $79,000 more. Average 10%, and it would be almost $454,000. That's almost half-a-million dollars!
What kind of income can such sums give you in retirement? Well, if you withdraw 4% of just $300,000 each year, as many experts suggest, that will amount to $12,000, or $1,000 per month. It won't support a princely lifestyle, but with a Social Security income -- which recently averaged about $16,000 per year -- it can make a big difference.
John Maxfield: You'll have to excuse me for being Captain Obvious, but I'd say the single most important money lesson you need to know by the age of 50 is how to budget. If you look at the savings rate in the United States, it's clear that most of us struggle to calibrate how much we spend relative to how much we earn. The U.S. household savings rate this year is projected to be only 4%. Meanwhile, countries like Germany save more than twice as much on a relative basis.
This is problematic because, with the exception of Social Security benefits, Americans are largely on their own nowadays when it comes to income in retirement. Thus, not only are many Americans woefully unprepared when entering their golden years, they also haven't practiced the skills that will make it possible to stretch their retirement savings as far as possible -- namely, budgeting.
Learning how to budget by the age of 50 is critical. While it may be a bit late in the game to acquire the skill, it's still early enough that you have a decade or more to refine your techniques before relying on them to ensure that your nest egg lasts to the end.
Dan Caplinger: As Selena points out above, by the time you're 50, knowing how to save is essential. Yet even those who've done a good job of setting aside money and investing face an additional challenge: how to prioritize competing financial goals to make sure you can achieve everything you want for yourself and your family.
In particular, middle-aged savers have three types of financial goals: money for immediate needs like home renovation or a new vehicle, money for needs with a time horizon of a few years or more such as college education for your kids, and money for long-term needs like your retirement expenses. Funneling money into three different buckets can be challenging, but figuring out which costs are most important to you is a personal decision that you have to make.
The most important rule is not to skimp on your retirement savings. Often, if you have to prioritize between retirement and college for your children, letting your kids take advantage of other funding sources, like financial aid or student loans, while you contribute toward your IRA or 401(k) accounts, can be the best long-term move, and help you avoid hard-to-solve financial problems as you approach the end of your career.
There's always more to learn about your money, and turning 50 is a good excuse for getting educated about managing your money more effectively. Even when you're dealing with multiple financial needs, you can still do what it takes to reach your goals.
