Editor’s Note: This story originally appeared on NewRetirement.
It’s easy to assume that financial confidence increases over time. As you age, you make more money. The opposite is true, however. Recent research suggests that financial stress — not confidence — increases as we age, peaks in midlife and then gets better through our 60s.
This financial stress may be the root of the midlife crisis.
The U Curve of Financial Confidence and Happiness
If you were to illustrate financial confidence across generations, you would see that the results are in the form of a U-curve. You are more likely to feel happy in your earliest and later stages of life than you are in your middle. In fact, financial confidence bottoms out in your 40s and 50s.
Feeling bad in your 40s and 50s does not immediately make a lot of sense. People have families, make money, and own homes. These obligations can cause stress.
Research shows that the amount of obligations you have at certain times in your life can directly affect your financial confidence. Midlife is the best time to have the most obligations. Midlife is when you have to choose between home loans, marriages, children, education, aging parents and health care.
Taking those expenses into consideration, it’s no wonder workers ages 45-54 feel stretched and are among the least confident about their retirement finances.
This financial stress could easily contribute to a midlife crisis as described in an article in The Atlantic, “The Real Roots of Midlife Crisis.”
8 Ways to Find Happiness and Financial Confidence in Midlife
So, the midlife crisis is real, with possible origins in feeling stretched a financial crunch.
There are eight things that you can do to alleviate financial stress.
No. 1: Create a Financial Plan
- Feel more confident about your financial decision-making?
- Save more money?
- Make more progress toward financial goals?
Create a financial plan! Research has shown that financial plans can make people feel more confident and help them achieve better financial results.
” If you are worried about your finances, it is time to face them and create a plan. It’s easy to put off the problem, but there are ways you can make a difference. John Shearman is a financial advisor with IV Lions LLC in Sausalito California, which primarily serves clients in the San Francisco Bay Area.
It is not knowing what causes stress.
No. 2: Figure Out How Much Savings You Will Need
In midlife, retirement looms on the horizon. It’s likely that you are excited about this, but also anxious about how much money you have saved. Your worries are normal. However, there are ways to calm your nerves and make sure you feel at ease.
Some people say that you should have about 1.4 times your annual salary set aside by the time you’re 35, 2.4 times your salary when you’re 40, and 3.7 times your salary by age 45. When you reach 50, you’ll want 5.2 times your annual salary saved.
These are only guidelines that may or may not apply to you. A detailed retirement plan is the only way to know how much you should be saving.
No. 3: Prioritize Savings Over Other Obligations
Yes. There are many ways to spend money in your midlife. This can be stressful.
You can’t get rid of stress by worrying. Prioritizing is key.
Most financial planners recommend that retirement savings be your top priority.
- There are loans for college, none for retirement.
- Weddings and vacations last only a day or a few weeks. Retirement is often 30 YEARS or more.
- Paying down debt is important. However, it is not as important as building retirement assets.
“You’re on a race to the finish line to retirement,” Shearman says. “You need to be flat out saving as much as you possibly can by the time you hit age 50.”
No. 4: Bump Up Your Savings When the Kids Leave Home or You Retire a Debt
Your financial obligations are at a maximum now, but that is good news for your future. Financial pressure will be eased soon. Think about how much cash you will have when your children are financially independent and all of your debts are paid.
However you can boost your lifestyle by reducing your financial obligations.
Learn more about how to save more for your kids when they fly the coop.
No. 5: Choose to Thrive in Midlife
Beginnings are exciting. The goal is the end. What is the middle? Nobody really talks about the middle.
Middles do all the work. They are also where the real life happens. It is crucial to make the most of your time and to be able to thrive.
No. 6: Make Friends With Your Future Self
Research suggests that our brains naturally process our future selves as strangers. Let’s face the facts: you won’t be able to save enough for retirement or pay for the care of someone else. You can visualize yourself in the future, and then take action to make sure you have enough resources to support your future.
Whether you are 40 and hoping to retire in 30 years or if you are 67 and hoping you have enough resources to fund the rest of your life, here are seven ways to visualize your future so that you can create and achieve a really effective plan.
No. If you are 7: Try a Sabbatical or Mini-Retirement
Think again if you believe retirement at age 50 is impossible.
While you may not be able to stop working for ever, you might “try on” retirement to see how it feels.
More people are taking a sabbatical of up to a year or more from work in order to have a mini-retirement. Some retirees choose to spend more time with their families, while others go on a hobby or look into other work options, such as a second career.
No. 8: Avoid the Affair and Pricey Sports Cars
Look, if you are already feeling financially stressed, I’ve got some news for you: the tropes of a midlife crisis – sports cars and a divorce – will definitely make matters worse.
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