Women and Savings: What to Do at Your Life Stage

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The recession has pushed almost all of us, regardless of age, a decade behind in building personal wealth. Don’t beat yourself up if you’re in your 20s and haven’t paid off student loans, or in your late 30s or early 40s and still paying off debt or saving up for a down payment. If your retirement account isn’t where you’d like it to be in your 50s, do the best you can to build it up. What matters is doing the best you can to make sound financial decisions so you can enjoy the important things in life without worrying too much about money. Here are few tips for women in their 20s, 30s, 40s, and 50s on saving and building wealth. (See also: 37 Savings Changes You Can Make Today)

In Your 20s

I can’t stress this enough — start saving early. Even if you think you’re broke, give up lattes twice a week and put the $25 a month you save into a retirement account. The hilarious truth of the matter is that the earlier you start saving, when you can least afford it, the harder that money works for you to earn interest. Investing just 5% of a $40,000 salary annually from age 25-65 can pay off big in the long run. Assuming a 6% rate of return, at age 65 you’d have $479,241 in your 401(k) thanks to the magic of compound interest. Invest 10% of a $40,000 salary, and that number grows to $830,678 by age 65.

On to credit card debt, especially important in your 20s. I know about this one first hand. I thought I had a great handle on my credit card spending in my early 20s. So great, in fact, that over the next several years I didn’t bat an eyelash at charging multiple plane tickets to Europe, rounds of drinks with friends, and several pairs of new shoes.

Several years later, I was still paying it off.  The only way I dug myself out of debt was to get a second job in addition to my full time job while I was finishing school. That meant a 60-plus hour work week, no social life, no excess spending, little sleep, and a lot of headaches for over a year. Trust me, you do NOT want to put yourself through the stress that excess debt causes. Before you whip out the credit card to travel or go out or buy a new gadget, ask yourself if you really need it. Force yourself to spend responsibly. If you want to travel, set aside 10% of your earnings and take one great trip a year.

In Your 30s

In your 30s, the traditional wisdom says you should be buying a house, saving up for a family, and finally paying off your student loans and credit card debts. Realistically, with the low pulse of the housing and job markets, many people are delaying purchasing property or starting a family. So if you’re still working on paying down debt and building up savings, that’s okay. Don’t beat yourself up; just continue to save.

Still, your 30s do represent a transition into being a “real” adult, and along with that comes responsibility, like it or not. Aim on building a savings account with three to six months’ worth of living expenses. Try to finish paying off high interest debt, like credit cards and car loans. If you do decide to buy property, add up all the costs of ownership before making a commitment.

In Your 40s

Most women in their 40s seem to have a good handle on the concept that managing your money well leads to more freedom down the road. At this point, most women are probably mid-career and earning more than they did in previous decades. Whether you’re a single-income or dual-income household, use the peak earning years to your advantage. Pay down all the debt you can, ramp up retirement contributions and review your savings goals on a regular basis. Remember, not all workers are lucky enough to have a company pension plan, and who knows what the future holds for social security. Once your emergency fund is built, use extra cash to build up retirement savings.

In Your 50s and Beyond

Women live longer than men, over five years on average, which means we should be saving more for retirement, not less. A Wells Fargo survey on women and retirement found that 30% of women aged 40 to 69 “weren’t sure” or “couldn’t estimate” how much they’d need in retirement. Well, let’s knock that excuse out first. Here’s a great calculator from Bankrate to estimate how much income your retirement savings will generate.

If you’re in your 50s and 60s and your retirement income isn’t what it should be, you’ll need to ramp up saving to meet your estimated expenses. Make sure you don’t make risky or aggressive investments during this time period, as the goal is to safely build wealth for upcoming retirement.

Some people might want to have a part-time job during “retirement,” so take that into consideration as well. If you do decide to exit the work force, consider what expenses you’ll have in retirement. Will you have a mortgage or car payment? Do you plan on traveling? What about healthcare costs? Keeping a handle on how much you’ll need to live on can prevent unpleasant surprises down the road. 

This post is a part of Women's Money Week 2012. For more posts about saving, see womensmoneyweek.com.