Americans born between the mid 1960s and the early 1980s are known as Generation X or Gen X. They face a unique set of personal and career challenges, including raising children and frequently supporting aging parents.
Gen X responsibilities typically mean higher expenses, more debt and time away from work. The combination of these burdens can make it difficult to save money and get ahead financially. Here are 5 great savings strategies for members of Gen X:
1. Map out a simple financial plan.
You don’t need to be a financial whiz to create and achieve financial goals. First, consider the big picture of your life and your dreams. Take a moment to reconnect with what’s truly important to you and your family.
Then stretch your imagination to think about what your ideal life looks like in 5, 10, or 20 years. Ask yourself questions, such as:
- Where do I want to live?
- How do I want to spend my time?
- What accomplishments do I want to achieve?
The answers may inspire you to plan for retirement, save a down payment to buy a home, give to a charity or stop living paycheck to paycheck.
Time passes quickly, so don’t underestimate how much small decisions and everyday actions impact your finances decades from now. By thinking about your financial end-game first, you focus on your dreams, which can make necessary sacrifices easier.
If you’re not sure where to start, use a professional financial advisor. The Financial Planning Association and the National Association of Personal Financial Advisors have resources to help you find a qualified advisor.
2. Fill insurance gaps to protect your family.
While insurance might seem like an expense, it’s an important safety net that saves money in the long run. Being underinsured or uninsured means an accident or natural disaster could jeopardize your financial future.
In addition to required property insurance, such as auto and homeowners, consider purchasing these key policies:
- Health insurance. It’s an essential coverage to protect your health and your finances. Even one hospital stay could result in a huge bill that turns into a difficult financial hardship.
- Disability insurance. This often-overlooked coverage can replace a significant portion of your income (such as 60%) if you can’t work due to a covered accident or illness, such as cancer, heart disease or pregnancy.
- Life insurance. This coverage is important when you have a spouse, partner or family who would be hurt financially if you died. If you’re in relatively good health, a term policy with a $500,000 benefit may only cost about $200 a year.
3. Max out a retirement plan.
Workplace retirement plans, such as a 401(k) or 403(b), give you the option to contribute up to $18,500 — $24,500 if you’re over age 50. They come with money-saving tax benefits that allow you to build a nest egg faster.
Some employers also match your contributions. Always contribute enough to max out a company match so you get as much free money as possible.
If you don’t have a retirement plan at work, just about everyone can use an Individual Retirement Arrangement or IRA. Similar to a workplace plan, an IRA offers great tax advantages and a menu of investment options. However, the contribution limit is lower at $5,500 ($6,500 if you’re over 50).
4. Tackle debt aggressively.
After you’ve created financial goals, purchased the right insurance and set up a retirement account, it’s time to tackle debt. Make a list of all your debts, including the names of the institutions you owe, your outstanding balances and their interest rates.
In general, it’s best to target your highest interest rate debts first because they cost you the most. Even if you don’t have extra money to pay toward your debt, “optimize” it by paying less interest so you can pay down the principal balance faster.
For example, you could use a 0% balance transfer credit card to eliminate interest during a promotional period. Or you might pay off a high-rate credit card or auto loan with a lower-rate personal loan to cut your interest expense.
5. Plan for education expenses.
If you want to pay for college for yourself or a child, but feel overwhelmed by the high price tag, just start saving small amounts sooner rather than later.
Use a tax-advantaged 529 college savings account to avoid tax on withdrawals used to pay for qualified education expenses. You can sign up for a 529 using a financial advisor or researching options for the state where you live at savingforcollege.com or collegebacker.com.