Manage Your Mid-Life Financial Crisis Better

Merriam-Webster defines a mid-life crisis as “a period of emotional turmoil in middle age characterized especially by a strong desire for change.” (1)
Researchers generally consider midlife to include the ages 40 to 60, give or take ten years. (2) A midlife crisis signals a time of dissatisfaction with our lives that pushes us toward change.

Unfortunately, a mid-life financial crisis can also be part of this dissatisfaction. At this stage of life, many people feel they haven’t saved enough for retirement. Or, they may feel their career isn’t emotionally or financially satisfying for them.

Worry in analyzing financial crisis

Accept the Reality of the Situation

When facing a mid-life financial crisis, it’s easy to feel panicked or depressed. First, however, you must accept the reality of the situation. Only by facing your current reality head-on can you make plans to change it.

Create a Plan to Regain Control

A vital aspect of weathering a mid-life financial crisis is creating a budget, which will help you evaluate your spending, your debt, your emergency savings, and more.
You can easily find a free budget calendar template online to print out, or you can purchase budget sheets or ledgers online or at an office supply store. Alternately, there are numerous budgeting software programs you can buy.

Info to Include in Your Budget

In one column, list all your expenses. Or, you may want to break your expenses into categories. You’ll have a mixture of fixed and variable costs.
Fixed expenses: Those that are the same every month. This includes things like rent/mortgage, vehicle, and cable.

Variable expenses: those amounts that usually change month-to-month. This includes things like electricity, food, and entertainment. Credit card debt may fall into the variable expenses category. You’ll want to estimate variable expenses.

Please remember to add occasional expenses to your budget. For instance, some of your costs may be due quarterly or annually. Be sure to add them to the appropriate month’s budget.

analyzing your financial crisis

In another column, list all expected income for the month. This includes your regular salary and expected revenue from investments, yard sales, freelance work, etc. Just like variable expenses, you may have to estimate some of your expected income.

Total the expense and income columns, and then subtract expenses from income, showing how much money is remaining for the month.

Financial Planning in Midlife

Review Spending

If you have little to no money left over, you’ll need to cut discretionary spending. First, take a look at your variable expenses. Is there a way you can cut back on food costs or utilities? How about your clothing budget?

Does your electric or natural gas company offer budget billing in which you pay the same amount every month regardless of the season? If so, you might want to sign up for it, as this can save you steep seasonal increases.

You may also reduce spending if you bundle certain utilities, such as cable and internet services.

Reduce Debt

Carrying excess debt is almost certainly a significant factor in your financial crisis.

Research shows that the average debt for those between ages 45 and 54 is $150,500. Between the ages of 55 and 64, however, the average debt falls to $131,900. This debt is a significant amount to carry when you’re close to retirement.

Tools to manage a financial crisis

Here are a few ways to reduce debt.

Try the snowball method.

Write down all your credit obligations, organizing them from the highest to the lowest interest rates. Pay off the one with the highest rate first. (To reduce this debt faster, try to pay more than the minimum each month.) Once you’ve paid off that debt, proceed to the next highest and so on until you’re debt-free. After you’ve paid off a credit card, you may want to cancel that account so that you won’t be tempted to create new debt.

Consider a consolidation loan.

Taking out a consolidation loan is an excellent way to reduce overall debt. This kind of loan can potentially offer a lower interest rate than your credit cards, thereby saving you money. It’s also more convenient as you’ll have just one bill to pay each month instead of the several you may be paying now. However, as with the snowball method, there is a temptation to run up debts on your credit cards again unless you’re very disciplined. Therefore, you may want to close all your credit card account once you pay the balances off with your consolidation loan.

Think about restructuring your debt.

If your debt is overwhelming, you may want to consider negotiating new payment terms with your creditors. This can enable you to meet your monthly obligations while paying off your debt faster. If you need assistance with this, please consult a professional credit counselor.

401k and IRA will help manage a financial crisis

Reevaluate Your Career

During a midlife crisis, many people reevaluate their careers. After all, it’s never too late to switch gears career-wise. For example, Colonel Sanders was 62 when he founded Kentucky Fried Chicken (3).

So, middle-age is an excellent time to evaluate your skillset and examine your career aspirations. Is your pay adequate for your needs? If not, think about higher-paying opportunities within your organization that you might be interested in pursuing.

If necessary, take some classes at a community college to learn new skills you’ll need for a career switch. You can use these skills to switch to that new dream position within your current company, or you can look for opportunities with another organization.

Or, if you’d rather stay in your current position, you can turn a hobby into a side hustle.

Plan for Retirement

Savings

Experts recommend that you save a minimum of 10% from each pay, or monthly if you prefer. This not only helps you rebuild your emergency savings but also helps gird your retirement savings.

But don’t just put it in a regular low-interest savings account. Instead, invest it in one or more of the following investment accounts:

Handle financial crisis with organization

401(k)

A 401(k) is a savings plan offered by many employees in the United States. When you sign up for a 401(k) plan, you agree that a certain percentage of each paycheck be deposited directly into an investments account, usually mutual funds. Employers also may opt to match your investment up to a specific rate.
The great thing about a 401(k) is that it is pre-tax, meaning that funds are deducted before your income is totaled for tax purposes. This eases your tax burden. Plus, you don’t pay taxes on 401(k) savings until the funds are withdrawn, typically during retirement.

Individual Retirement Account (IRA)

Unlike a 401(k), IRA’s are not employer-sponsored. Instead, an IRA operates like any other investment plan that you open through a financial institution. In addition, however, an IRA comes with tax advantages. There are two main types of IRA’s, traditional and Roth.
In a traditional IRA, the savings are tax-deferred, meaning that you don’t pay taxes on the earnings until you withdraw the funds. Plus, you may be able to deduct contributions on your tax returns. In a Roth IRA, you deposit funds that have already been taxed so that you can withdraw them tax-free in retirement as long as certain conditions are met.

Mutual Funds

Investing in mutual funds is a great way to create financial stability in retirement. Mutual funds include a wide variety of stocks, bonds, and other securities. Thus, they are ideal for people who don’t have a lot of money to invest. Indeed, you can start investing in mutual funds for as little as $25.

Certificates of Deposit

Investing in certificates of deposit is also an excellent way to build a retirement nest egg. A CD, or certificate of deposit, is a savings account where you invest your money for a fixed time. The interest is usually higher than a regular savings account, though.

Though a midlife financial crisis is common, you don’t have to stay stuck there. Use this article as a guide, and you should be able to sail through any financial crisis.

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References

1- https://www.merriam-webster.com/dictionary/midlife%20crisis
2- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7347230/
3- https://startuptalky.com/colonel-sanders-kfc/