Generation X: Financial Planning Advice and Tips
As a member of Generation X, you are more than likely approaching the peak of your earning years. You may also be experiencing more complex financial responsibilities like assisting aging parents, funding your children’s education, and contributing to your retirement accounts.
Given today’s headlines of persistent inflation, rising interest rates, and market volatility, trying to go alone may not be your best course of action.
As you near retirement, strategic financial planning becomes increasingly important for your long-term financial success. As a financial advisor based in Greeneville, Tennessee, I guide and advocate for Generation X clients who need comprehensive financial planning and wealth management solutions.
In our latest Quick Guide, we’ll cover these important topics and provide our advice and tips for:
Chapter 1: Debt Reduction
Chapter 2: College Expenses
Chapter 3: Caring for Parents
Chapter 4: Retirement Savings
Chapter 5: Creating a Comprehensive Financial Plan
Chapter 6: Minimizing Taxes
Chapter 7: Building an Emergency Fund
Chapter 8: Investment Strategies
Reducing debt is a critical step in achieving financial stability. You already know debt payments hurt your ability to pursue other financial goals. For example, high debt amounts reduce your ability to fund college education, healthcare, and retirement. The hidden consequence can be increased anxiety about pursuing your financial goals.
Here are some debt reduction tips to consider:
- Prioritize debt repayments by interest rate, focusing on high-interest debts first.
- Create a realistic budget that allocates extra funds to debt repayment.
- Cut unnecessary expenses to free up more money for debt reduction.
- Consider consolidating debts to simplify payments and reduce interest rates.
- Avoid accumulating new debt while paying off existing ones.
- Set short-term goals for debt reduction to stay motivated.
- Explore additional income sources to accelerate debt repayment.
- Regularly review and adjust your debt repayment plan as needed.
- Stay informed about financial options and seek professional advice if needed.
- Remember, consistent effort over time is the key to reducing debt.
Sapiat Tip: Your highest priority should be the reduction and/or elimination of debt for several important reasons. A well-thought-out financial plan and budget can assist you in pursuing this goal.
Many parents I meet with are not prepared for the expense of sending their child to college. The room and board alone can cause sticker shock!
Here are some practical tips to assist in reducing college education expenses:
- Consider sending your child to a community college for their freshman and sophomore years, where they can study core subjects like history, science, English, and math. Many community colleges offer pathways for seamless transfer to a four-year state university with full credit transferability. This strategy could save you $20,000 – $40,000 in college costs.
- Take advantage of state education incentives. In Tennessee, for example, residents who graduated from a Tennessee high school can attend community college without any tuition fee.
- The Hope Scholarship is another benefit, offering $4,500 annually for studying at a four-year university in the state. Together, these programs can reduce college expenses by $20,000 – $50,000.
- Steer clear of private colleges and universities if cost is a concern. The institution’s prestige is less critical than you might think, and the quality of education is comparable. Opting for a state university can save significantly, as private institutions charge substantially more.
- Consider schools within your state. Out-of-state tuition fees can be $20,000 – $30,000 higher yearly than in-state rates. Some states offer agreements allowing students to attend schools in neighboring states while still paying in-state tuition. Tennessee, for example, has agreements with 14 other states.
- If you’re an educator or university employee, your children might be eligible for free or significantly reduced tuition. Look into these options for substantial savings.
- Filling out the FAFSA is crucial for any kind of financial aid. No aid is available unless this form is completed each year your child is in college.
- For families with limited financial resources, consider discussing options with military recruiters. Serving at least three years of active duty can qualify your child for free tuition at any state university.
With smart planning and a few wise adjustments, you can potentially take $80,000 to $100,000 of college expenses down to $10,000 to $15,000.
Sapiat Tips: Involve your children in discussing college affordability and consider community college or in-state universities to reduce costs. Scholarships, grants, and part-time work ease the financial burden.
Many Gen Xers are in the ‘sandwich generation,’ which includes caring for children and aging parents. Caring for aging parents involves a blend of emotional and financial strategies, particularly for Gen Xers balancing their own needs with the needs of their parents.
It starts with understanding and respecting your parent’s need for independence while offering assistance when needed so they can maintain their dignity.
Ensure you review and organize all their legal documents so they are current and you have easy access.
Creating a budget for care-related expenses and exploring insurance options can also help manage costs. Explore long-term care insurance for your parents to cover potential healthcare costs. Discuss financial and healthcare power of attorney to ensure their wishes are met if they can no longer make important financial or health-related decisions.
Sapiat Tip: It’s important to involve siblings or other family members in discussions and decisions to share responsibilities and support.
Retirement savings should be near the top of your financial planning priority list unless you plan to continue working well into your 70’s or beyond.
Two primary benefits of retirement saving are minimizing taxes and compounding rates of return.
Contributions to traditional retirement accounts are often tax-deductible, lowering your current income tax bracket. This can result in immediate tax savings, assisting with your current tax obligations.
For 2024, employees who contribute to 401(k), 403(b), and most 457 plans, along with the federal government’s Thrift Savings Plan, can contribute $23,000. If you are 50 or older, you can also make a catch-up contribution of $7,500 in 2024.
If you have a traditional IRA in 2024, you can contribute $7,000. The catch-up contribution of $1,000 is available if you are over 50, for $8,000.
You can think about compounding rates of return this way: by saving early in life, your assets have longer periods to compound rates of return. The result can be substantially more assets for your retirement years. Fueled by consistent contributions and time, compound growth can make a considerable difference in your retirement assets.
Sapiat Tip: Retirement saving should be a top priority. Remember, retirement planning is a one-time opportunity; optimizing contributions can ensure a more comfortable and secure retirement.
Many financial plans lack a personal touch that truly resonates with your motivations and goals. Your plan should address questions such as the following:
- What immediate financial concerns do you have?
- What are your long-term ambitions for your retirement years?
- Will you be able to maintain your current lifestyle – for the rest of your life?
- Will you be financially secure late in life when you need it the most?
- What kind of legacy do you wish to leave for your family?
A comprehensive financial plan should address your current financial situation, goals, and strategies for achieving them. It should include budgeting, an investment plan, retirement planning, insurance needs, and estate planning.
Sapiat Tip: Understanding your life’s desires enables us to craft a tailored plan for achieving them. This plan acts as your financial roadmap. Regularly review and adjust your plan to reflect life changes in your current circumstances or future goals.
You will likely face higher tax liabilities if you’re in your peak earning years. The good news is there are ways to manage your tax exposure using smart tax planning strategies.
Following are a few tax planning strategies worth considering:
- Health Savings Accounts (HSAs): Contributions to HSAs are tax-deductible, and withdrawals for medical expenses are tax-free.
- Charitable Donations: Donating to charities can provide tax deductions.
- Investment Strategies: Consider tax-efficient investments like low turnover index funds or municipal bonds.
- Flexible Spending Accounts: Use FSAs for pre-tax dollars to pay eligible expenses.
- Tax Credits: Explore eligible tax credits like the Child Tax Credit.
Sapiat Tip: Who wants to pay more taxes than we have to? No one that I know of! Consult a tax planner to understand which option(s) best suits your situation.
Establishing an emergency fund is a wise financial step, offering security during unexpected financial challenges. The fund can also help you sleep better at night.
An emergency fund is a liquid reserve of personal savings that are set aside as a financial safety net for unexpected expenses or disruptions in income. A general recommendation is a fund equal to six months of living expenses.
This fund helps maintain financial stability without relying on debt or the liquidation of other assets. It’s especially important for Gen Xers with significant responsibilities, such as family expenses or mortgage payments.
Sapiat Tip: Keep this fund in a readily accessible account, such as a high-yield savings account.
A well-planned investment approach helps balance risks and rewards, adapting to ever-changing market conditions while steadily building wealth over longer periods.
As a Gen Xer, this means considering diverse investment options, maintaining a long-term perspective, and regularly reviewing and adjusting your portfolio to align with your evolving financial goals and market risks.
It’s a given that market movements are largely unpredictable in their breadth and scope. But you can manage your expenses and utilize smart tax strategies. Both can impact your financial bottom line.
Every investment choice carries some risk, and seeking higher returns often means accepting more risk. But there’s a strategy that is an alternative to this norm – it is tax-efficient investing. By choosing options that offer better after-tax returns, you can enhance your financial returns without taking on additional investment risk.
This strategy aligns with the principle that the true measure of success is not just earnings but what you ultimately retain after all expenses and the impact of inflation are deducted.
Sapiat Tips: At Sapiat, we recognize that everyone is different and they have unique financial circumstances, concerns, and goals. Rather than slotting you into a model portfolio based on age or a superficial risk assessment, we take the time to know you and craft a strategy based on that knowledge.
Based on this information, we collaborate with you to develop an investment strategy that perfectly matches your situation. This personalized approach means our portfolio is a good fit for your needs. Connect with us to learn more about our financial planning services.
Sapiat Asset Management is a Fee-Only, Independent, Registered Investment Advisor (RIA), specializing in goal-oriented financial planning and investment management for Gen X Individuals & Families, their Businesses, & the Trusts that benefit them and their heirs.