How do I build wealth with a late start?
Building wealth: better late than never!
“If I only knew then what I know now.”
We’ve all been there, cringing at past decisions through hindsight’s 20-20 lens. Sometimes those decisions seemed unavoidable, other times not. Regardless, we don’t have to let the past dictate our future. If you’re further along the path of life than most and haven’t made a meaningful effort to build wealth, it’s not too late to change course. Depending on your age and your retirement goals, you may need to make greater sacrifices, but it’s not too late.
So, with a late start in the savings game, how do you catch up? By understanding and doing the following:
Know your goals. Or, put another way, what’s your intended destination? If you don’t know, then you’ll never get there. Think through your retirement goals, discuss them with a professional financial advisor, and get them down on paper.
Remember the basics. They’re the basics for a reason:
Spend less than you earn. Otherwise, you won’t have money to save and grow.
Have a budget. People don’t accomplish their financial goals by accident. They do so by following a plan called a budget.
Delay gratification. Provision in the future is made possible by sacrifice today.
Save AND invest. It’s essential to have cash savings for unexpected expenses. It’s also vital to invest in things that can grow in value.
Avoid unnecessary risks. Don’t let the pressure of your need drive you to take unnecessary risks. Reaching part of your goal is far better than going for too much and losing it all. Make sure that your investment portfolio reflects a healthy risk tolerance based on your life situation.
Take advantage of tax rules. Consider the IRS catch-up provisions to avoid current taxes. Employees age 50 and older can contribute an additional $7,500 to their tax-deferred retirement plan (above the normal $22,500 limit). This is a fantastic option for those who started saving late and have the means to contribute more.
It’s never too late. Certain trains of thought say that not only is it not too late to start building wealth, but the later years in your career are the most critical for doing so. It’s later in your career that you tend to experience higher income, and it’s later in life that you begin to put certain expenses behind you (children, college, weddings, etc.). This is the season when you can set aside resources that would have been impossible in your younger years, and these simple shifts in life can allow for significant financial catch-up.
The power of a small delay in retirement. Building on the previous point, the last years of your career are the most critical. Extending your working years by 2-5 years can significantly impact your retirement savings. These are the years when compounding interest is really working its magic, and a simple delay could translate into hundreds of thousands of dollars.
So, if you’re starting late, don’t lose hope! With reasonable goals, a smart plan, hard work, and sacrifice, you can begin building wealth you never thought possible.