My cowriter and I briefly discussed (verbally, not through some sort of electronic medium) how spending can be roughly modeled by looking at it from different perspectives – one of the key ones being “how old you are”. Enter today’s topic: spending per decade.
Even though many pieces of advice are specific, it’s the concepts which can be applied elsewhere – a 30 year old buying a house is going through a different thought process than someone buying her first car, but they should be drawing from the same bag of financial tricks.
That said, here’s what I felt was the biggest spending per decade for a typical North American.
Is there really a question? In your teens, it’s all about controlling those higher education costs.
As college has become something of a “rite of passage” for the American middle class, lots of teenagers are ending up in college by the end of their teens. Now, we’re spilled lots of digital ink on whether that’s a good thing (in the right circumstances, of course it is!) – but it can also undoubtedly be an expensive thing.
Controlling education costs is probably the best way to get ahead, financially, in your teens.
Although some of you are in the home buying process by your 20s, the biggest spending will likely be lifestyle. Eating out, going out and the like – but also transportation. Sure, there’s a stereotype about Millennials and not owning cars (or even having licenses), but c’mon – lots of Millennials, our current generation-in-their-20s, own cars.
So control that lifestyle inflation and you’ll be well on your way. And don’t overspend on a car…
In your thirties, it’s all about the house. It’s tempting to think your income will still rise like it did in your 20s… but as we’ve shown in recent articles, it starts to level out in your late 30s for both females and males. Don’t overshoot your income curve and buy a house you can’t afford.
Luckily, homes do tend to appreciate in value (or at least the land they are situated on appreciates in value) – at least enough to match inflation. If you sit on your home long enough, you may have some of that forced savings working in your favor – but remember to be smart going into the purchase to keep stress levels down in the meantime. Remember that most of you will be paying for the house into your 60s.
There might be another large post-secondary educational expense in your 40s or 50s on your grown children – now it’s time to look at educational spending from the other side. First, how will this affect your finances – is there any way to minimize the damage? And, second, how can you help your son or daughter manage whatever debt is coming from school? Keep it modest, and you’ll both be ahead of the game.
Second, your income may not be appreciating at the same rate as it did in your 20s, but you certainly should be saving money for retirement at quite a clip. This is the time to double check the funds you are in and your asset allocation – you can easily lose more than a few new-car values in inefficient funds which don’t do much more than track an index, or even lose out by being too conservative. Be careful here!
Your 60s is the traditional time for retirement – so, yes, that is the typical largest expense. Make sure you fully understand your desired lifestyle, and look into whether your current assets can support what you’re looking to do in retirement. Unlike some of the mistakes you can make in the other decades, it’s harder to make up for lost time in your 60s.
Of course, if you are retired, it’s possible to reduce your expenses as well to better fit what your assets can support. That might mean toning back your expectations on lifestyle, but it’s better to be ahead of the game – because no one knows exactly how long retirement will last (hopefully a long, long time!).
Spending per Decade: It’s All Relative
All of those decades, and the advice is the same – carefully weigh the cost/benefits versus your resources of all of your decisions and you’ll do fine. If you err on the side of caution, you’ll be in much better shape than the majority of North Americans by the time you hit your 40s, 50s, or 60s – and isn’t a relatively (financial) stress-free life past 40 something everyone wants?