Top Financial Planning Misses for People in Their 30s and 40s

Peter, good to see you.

Welcome back, everyone. I really like today's topic. We are going to talk through the top financial planning misses for people in their 30s and 40s. So we're going to talk through five key areas that most people, again, who are a little bit younger miss when it comes to financial planning and building wealth, right? So first, when you're young, Peter, we have to make sure that we have that cushion. And you're saying that is bank savings and a robust emergency fund.

Absolutely, yeah. And a lot of people miss some of the basic building blocks, the foundation, you will, if you will, of the financial progress they want to make and aspire to, which is fantastic. But if you are building a home and you're not setting it on a firm foundation, then things can happen, cracks in the foundation. Things can can fall apart very quickly. And and so those basic foundational pieces are to ensure the success of your ongoing investment progress. And so you you want to have that emergency account in place and the emergency account. Everybody wants to get the best rate on their savings.

I get it. Interest rates are a little bit better than they were five, 10 years ago. However, that's not really the job of those dollars.

Yes, we want to get the best and most growth and the highest interest rate possible with them. But their job is simply to be there, to be safe and liquid, that you can go and get those dollars when something comes up, because life happens and when it happens, it's usually kind of expensive. And if you can stroke a check or pay a problem away, then it's not an emergency. But if you can't, then an inconvenience or what would otherwise be an inconvenience turns into an emergency. So you've got to have that emergency account in place and know that the job of those dollars is not necessarily to grow. It's to be safe, be liquid, be available and just wait for things to happen.

And there are actually a couple of steps even before that that I would say in case stuff happens, you need to have squared away. Mm hmm. Right.

Because you don't want to have to borrow to pay down that emergency because then it's probably going to be at a high rate. Right. Yeah.

All right. Number two, and this is life insurance. I think, Peter, a lot of young people might dismiss life insurance, but essentially we're protecting our human earning capital.

Yeah. And this is where I was going in case things happen, in case the worst scenario kind of things happen. Look, any mature, responsible adult over the age of 18, if you are married, if you have children, if you have a mortgage, you need to have a few essential things in place. Your legal documents. I'm not an attorney.

That's not a brag, but I'm not. But you need to have your legal documents in place, your will, your power of attorney, your health care, medical directives. Those important documents need to be in place because yes, with the rest of your financial progress, it's better to get started sooner rather than later. But you can you can get started a little later with the legal documents and the life insurance.

You cannot do those things or get that the day after you need to have it done. And again, this is one of those foundational pieces that is going to allow you the best opportunity for success in the rest of your financial progress. If you've got these things squared away and for the most part, these are things that you can just get done and then you don't really have to worry about them day to day, like the rest of your budgeting and your investing and your financial progress. Pretty much once every five to 10 years, you may want to bring those things out, dust them off, make sure they're still in place and still appropriate and reflective of your life circumstances. But far, far too many.

And this is not just for my 30 and 40 year olds that may be listening or watching. Far too many people, even into their 50s, 60s and beyond, have not addressed the legal documents and have no life insurance in place to cover that that worst case possible scenario and protect their family and their loved ones and their spouse. These are big, big, big oversights that you really I cannot emphasize enough the importance of addressing these as soon as possible. Right.

All right. Number three, Peter, this is what I wish somebody had tapped me on the shoulder when I was in my 20s. Open and invest in a Roth. You need to take advantage of your lower earning years. And I mean, Peter, we've talked about it many times right now, especially now, considering we are living in a historically low tax rate.

Right. And specifically for those who are earning in their 30s and in their 40s, we hope that into the future decades, right, we are earning more money. And because of those tax rates, we expect that we are at a paradigm shift here.

Yes. For those that are retiring now, taxes were higher during the course of the majority of their working career. So saving in tax deferred accounts, it probably was beneficial. We got to crunch the numbers and make sure you're doing the best thing today.

Looking forward, though. And so for those that have already saved and amassed a large tax deferred balance, and especially for those 30 and 40 year olds who are contributing and building that savings, the Roth opportunity is just a fantastic opportunity to get things in while you're probably earning a little bit less. And while we are in these low tax rates and brackets, and oh, by the way, just factoring in inflation over the course of the next 20 or 30 years, that means we're going to need more money likely in retirement. So so why not save in a way where you prepay your taxes, you pay it on the seed, and then the harvest when you get to retirement is 100 percent tax free to you. This is a fantastic opportunity. It's one that is not necessarily guaranteed to be around forever, either. So they could change the rules on even allowing the existence of Roths. But what they would likely do is what they've done previously is grandfather people in who have already utilized this. So this is a right now opportunity not to be overlooked. Once you've gotten those other financial steps taken care of and you are into the investment phase, look at Roths to try to do as much maximize your Roth savings as you possibly can.

All right. So, Peter, let's say we've got steps one through three. Our Roth is maxed out. Is this when we open a brokerage account and why is having a brokerage important? Well, I mean, not every financial goal is a retirement financial goal. So if we have maxed out our opportunities to save in retirement accounts or if we have done the benchmark, 15 percent should be kind of our milestone for gross household income that is going to retirement because one day we're not going to want to work. And in order to make that realistic, we really need to save as much as possible. But retirement is not the only financial goal.

We might want to buy another primary residence down the road. We may want to buy cars or vehicles or pay for college or weddings or things along that line, vacation homes. And a brokerage account doesn't have the limits or limitations that a retirement account does.

You can only earn so much. You can only put so much into a retirement account each year, whereas a brokerage account, you can invest as much as you want whenever you want. And you can also remove those dollars for whatever purpose you want without the penalties that are associated with early removal from retirement accounts. So it is kind of a baby step be there that, yes, we want to be investing for retirement for the long term. And if we've got a financial goal that is, I would say, less than three to five years away, maybe we don't want to take a huge risk in investing. But if we've got an intermediate goal that is like three or more, five or more years away, but not necessarily a retirement goal, that's where those brokerage accounts come into play.

And then last, Peter, this tip is for anyone who has children or maybe children in their lives who they want to help with college, a 529 is a fantastic tool to help those kids and or grandkids in your in your life that you want to help fund that education. And I'm a father of an only child, so I would do anything for my child. But I do want to make sure that I am doing the best thing for myself. That is, in fact, actually the best thing for my child. I liken it to when you're flying in an airplane and they come to the front of the plane before takeoff and they say if there's trouble in the air and there's masks drop from the ceiling, make sure to put on your own mask before helping the children that you are traveling with. That is not because we don't care about the kids.

That is because if we are not putting ourselves in the most stable situation possible, then we don't serve to stabilize those around us that depend on us. And if we have not put ourselves in the best situation for retirement, we stand a likelihood of becoming dependent on our children later on in life during their peak earning year. So make sure you're funding for your own retirement first. But if you are doing that benchmark, hitting that 15 percent and have additional money available, saving for college through 529 is more attractive than it once was. They've loosened the definition of what those educational expenses are. If your child does get scholarship money, some of the 529 funds might be accessible to match whatever scholarships they get. It can be used for off campus room and board like to the extent that they've loosened the requirements for what is an educational expense.

It is now much, much more loose. And if your child ends up having excess money left over after all educational expenses are done and you don't have any other siblings or family members to transfer those funds between, which again is a flexibility of the 529 plan, you can transfer among family members. But if there's money left over, the new law is that you can now roll those funds up to $35,000 as long as the account has been open for 15 years. Thirty five thousand could give them a jumpstart rolled directly and tax free over to a Roth IRA in that child's name. So really fantastic tool, a lot more flexibility than it used to have. And I think that all five of the items that we covered on the program today are pretty critically essential or good to strive to for younger savers and investors in kind of those early years, thirties, forties, family is getting started out or going. Right.

Building that wealth and thanking yourself 30, 40 years down the road. Peter, somebody has questions about anything that we've talked about today. How can they reach you? Well, you can reach me at nine one nine three zero zero five eight eight six for a quick phone call conversation. Happy to talk any of these over. If you've got questions, feel free to reach out. If you would like to really get a plan put together, we do offer the opportunity to put together what we call the optimized retirement plan and planning for retirement should start the first day of our working career.

It usually doesn't, but it would be optimal if it did. But wherever you're at in your path, you should still have a retirement plan, even if you're already retired or in fact, even if it's your very first day of work or before forming that plan is super beneficial in achieving your goals. So give us a call. Nine one nine three zero zero five eight eight six to ask any questions or for that complementary retirement planning strategy session and the optimized retirement plan. Great. All right, Peter, thanks so much for your time today. Thank you.

Hi everyone, Peter Rochon here. Hope you enjoy the content. As always, make sure that you like, subscribe, share the videos with others that may find this information helpful. And as always, you're welcome to be in touch or to submit questions or comments. You can comment below the video anything that you'd like to see or hear shared on our YouTube channel and in future videos. If you've got a topic that you've been thinking about or is of concern for you financially, be sure to let us know. We'd love to help you by discussing it on the channel. So appreciate the continued views and the likes and the subscribes, the shares, the comments, always helpful. We look forward to getting you the information that you need.

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