How can I ‘get younger’ financially?

What's Your Financial Age?

What if you could be 30 years old again… financially speaking? It’s an interesting thought. While you can't rewind your actual age, you can absolutely lower your "financial age."

This isn't a gimmick. It’s about aligning your financial health—your savings💡 Definition:Frugality is the practice of mindful spending to save money and achieve financial goals., investments, and debt💡 Definition:A liability is a financial obligation that requires payment, impacting your net worth and cash flow.—with where a younger, financially savvy person would be. By making smart moves, you can get on a faster track to your goals, whether that's a comfortable retirement💡 Definition:Retirement is the planned cessation of work, allowing you to enjoy life without financial stress., buying a home, or building serious wealth💡 Definition:Wealth is the accumulation of valuable resources, crucial for financial security and growth..

Understanding Financial Age

Think of your financial age as a quick check-up. It’s not about the candles on your cake, but how healthy your money habits are for your stage in life. It's a holistic view of your financial well-being.

Calculators that determine this score look at your savings, income💡 Definition:Income is the money you earn, essential for budgeting and financial planning., how much you're stashing away each month, and your investment strategy. Some even factor in debt levels and asset allocation💡 Definition:The mix of different investment types in your portfolio, determining both risk and potential returns. The goal is simple: have a financial age that’s younger than your real age. It’s a clear sign you’re ahead of the curve and building a solid financial foundation. Conversely, a financial age older than your actual age is a wake-up call to reassess your financial habits.

For example, according to a recent study by the Transamerica Center for Retirement Studies, the median retirement savings for U.S. workers in their 50s is around $144,000. If you're in your 50s and have significantly less than that, your financial age might be considerably older than your chronological age.

Four Ways to Turn Back Your Financial Clock

1. Automate Your Savings

Aim to save at least 20% of your income. The easiest way to do this? Make it automatic.

Set up recurring transfers to your retirement accounts, like a 401(k) or an IRA💡 Definition:A retirement account with tax-deductible contributions that grow tax-deferred until withdrawal in retirement.. When the money moves before you even see it, you're not tempted to spend it. It’s the classic "set it and forget it" strategy for building a solid nest egg.

Step-by-step automation:

1. Calculate your target savings amount: Determine 20% of your 💡 Definition:Your take-home pay after federal, state, and payroll taxes are deducted—the actual money you can spend.💡 Definition:Net profit is your total earnings after all expenses; it shows your business's true profitability.net income💡 Definition:Profit is the financial gain from business activities, crucial for growth and sustainability. (after taxes).
2. Set up direct deposit: If possible, split your direct deposit so a portion goes directly into your savings or investment account💡 Definition:A brokerage account lets you buy and sell investments, helping you grow wealth over time..
3. Schedule recurring transfers: Set up automatic transfers from your checking account to your savings and investment accounts on a monthly or bi-weekly basis💡 Definition:The original purchase price of an investment, used to calculate capital gains or losses when you sell..
4. Review and adjust: Periodically review your automated savings💡 Definition:Setting up automatic transfers so saving happens without willpower. plan to ensure it aligns with your financial goals and income changes.

A common mistake is only automating savings to a retirement account. While retirement is important, also automate savings for other goals like a down payment💡 Definition:The initial cash payment made when purchasing a vehicle, reducing the amount you need to finance. on a house or an 💡 Definition:Savings buffer of 3-6 months of expenses for unexpected costs and financial security.emergency fund💡 Definition:Savings buffer of 3-6 months of expenses for unexpected costs, including pet emergencies and medical crises..

2. Tame the "Big Three" Expenses

For most people, the biggest budget killers are housing, transportation, and food. Small wins here can free up a surprising amount of cash.

Could you refinance your mortgage💡 Definition:A mortgage is a loan to buy property, enabling homeownership with manageable payments over time. to a lower rate? Even a 0.5% reduction can save you thousands over the life of the loan. Or maybe switch to a more fuel-efficient car? Consider the total cost of ownership, including insurance, maintenance, and fuel. Even just planning meals for the week instead of ordering takeout can make a huge difference. According to the Bureau of Labor Statistics, Americans spend an average of over $3,000 per year on food away from home.

Actionable tips for reducing the "Big Three":

• Housing: Explore refinancing💡 Definition:Refinancing replaces your existing debt with a new loan for better terms, saving money and improving cash flow. options💡 Definition:Options are contracts that grant the right to buy or sell an asset at a set price, offering potential profit with limited risk., consider downsizing, or negotiate rent.
• Transportation: Shop around for cheaper car insurance, use public transportation, or carpool.
• Food: Plan meals, cook at home more often, and reduce eating out.

Many people underestimate the power of small changes. Cutting back on daily coffee runs, for example, can save you hundreds of dollars per year.

3. Claim Your Free Money

Are you turning down a raise? If your employer offers a 401(k) match and you aren't contributing enough to get all of it, that's exactly what you're doing.

This is free money that supercharges your retirement savings. Check your company's policy and make sure you’re not leaving anything on the table. It’s one of the fastest ways to improve your financial picture. For more details, see our guide to 401(k) plans.

Example: If your employer matches 50% of your contributions up to 6% of your salary, and you earn $50,000 per year, you could be missing out on $1,500 in free money annually.

Common mistake: Only contributing enough to get the match and not maximizing contributions beyond that. Aim to contribute as much as possible, even if it's just a little more each year.

4. Invest Early and Often

Time is your single greatest asset in investing, all thanks to the power of compound interest💡 Definition:Interest calculated on both principal and accumulated interest, creating exponential growth over time.. Even small, consistent investments can grow into a fortune.

Consider this: investing $500 a month starting at age 30, with an average 7% annual return, could grow to over $600,000 by the time you’re 60. If you started at age 20, that same $500 per month would grow to over $1.2 million! The key is to start, no matter how small.

Actionable tips for investing:

• Start with a diversified portfolio: Consider investing in a mix of stocks, bonds💡 Definition:A fixed-income investment where you loan money to a government or corporation in exchange for regular interest payments., and other asset classes💡 Definition:A group of investments with similar behavior, risk, and regulatory profiles (e.g., stocks, bonds, cash)..
• Reinvest dividends💡 Definition:A payment made by a corporation to its shareholders, usually as a distribution of profits.: Reinvesting dividends allows your investments to grow even faster.
• Stay consistent: Don't try to time the market. Invest regularly, regardless of market conditions.

A common mistake is being too conservative with investments, especially when young. While it's important to manage risk, younger investors can typically afford to take on more risk in exchange for potentially higher returns.

Putting It All Together

Let's look at a real-world example. A 30-year-old has already saved $50,000 and invests $500 monthly at a 7% return. By age 60, they’re on track to have about $1 million. They have effectively lowered their financial age by being so far ahead.

In contrast, a 50-year-old with very little saved and a lot of debt has a financial age much older than their actual one. For example, imagine they have $10,000 saved and $50,000 in credit card and personal loan💡 Definition:A personal loan is an unsecured loan that can help you finance personal expenses, often with lower interest rates than credit cards. debt. This signals that it's time for a serious financial course correction💡 Definition:A market correction is a decline of 10% or more from a recent peak, signaling potential buying opportunities.. This might involve creating a debt repayment plan💡 Definition:A structured program to pay off debt efficiently, helping you regain financial stability., increasing savings contributions, and seeking professional financial advice.

A Few Reality Checks

Keep in mind that these are powerful strategies, but not magic.

Calculators are just estimates. Financial age tools rely on assumptions about future market returns. A long-term market downturn💡 Definition:20%+ sustained market decline from recent peak. Characterized by fear, pessimism, and falling prices. Buying opportunity for long-term investors. can always slow things down, so it's good to have a plan with some flexibility. For example, a prolonged bear market could significantly impact your investment returns and push your financial age older.

Don't forget the details. Many simple calculators don't account for taxes, inflation💡 Definition:General increase in prices over time, reducing the purchasing power of your money., or your personal spending, all of which impact your real-world results. Inflation, in particular, can erode the purchasing power💡 Definition:The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. of your savings over time.

Your biggest obstacle might be you. The best financial plan💡 Definition:A spending plan that tracks income and expenses to ensure you're living within your means and working toward financial goals. in the world won't work if you don't stick to it. Emotional spending and inconsistent saving can undo a lot of hard work. Impulse purchases, lifestyle creep💡 Definition:The tendency to increase spending as income rises, often preventing wealth building., and failing to track your spending are common pitfalls.

Key Takeaways

• Financial age is a useful metric: It provides a snapshot of your financial health relative to your age.
• Automation is key: Automate your savings and investments to make it easier to stay on track.
• Control your expenses: Focus on reducing the "Big Three" expenses to free up cash for savings and investments.
• Claim free money: Take advantage of employer 401(k) matches and other benefits.
• Invest early and often: Time is your greatest asset when it comes to investing.
• Be realistic: Financial calculators are estimates, and your actual results may vary.
• Stay disciplined: The best financial plan is one that you can stick to over the long term.

What's Your Score?

Lowering your financial age is really about building a more secure future, one good decision at a time. By saving more, spending smarter, and investing consistently, you can put yourself on a much stronger footing.

Ready to find out where you stand? Use our Financial Age Calculator to get your personalized score and start making changes today.