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How You Think About Money Depends on Your Age – The Investment Life Cycle.

August 31, 2014 by  
Filed under Money, News, Opinion, Weekly Columns

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( When I’m not out doing what I do everyday (whatever that is), I am a Finance Professor in my spare time. So, in order to utilize all the years of spending countless hours every single day studying the intricate details of financial and statistical theory, I thought I’d give some advice on something that is known as “The Investment Life Cycle.”   I’ve been to the bottom of the theoretical and mathematical abyss, put scores of students on Wall Street, and taken every class known to man, and after doing all that, I realized that the most valuable financial advice I’d ever received was the simple message of my grandmother:  Prepare today so you can live a good life tomorrow.

As you’ve heard me say before, investing and ownership are the keys to empowerment for all of us, especially people of color.  Making sacrifices today so you can reap the rewards tomorrow can make the difference between fulfilling your destiny and feeling like a slave. So, without further ado, here are some simple notes on your investment life cycle:

Money Management by Stage and Age – 20?s, 30?s, 40?s, 50?s and Beyond

I am not here to tell you things you’ll want to hear today.  I am here to tell you things you’ll want to hear 20, 30 or 40 years from now.  When old age creeps up and father time is about to reach for the buzzer, you’ll want to hear that your bank account is full of money, you are financially secureinvestments-2014 and your children will have a legacy of wealth that you’ve left behind.

Let’s go through the various stages of life and figure out how we might create financial music for our aging ears.

The Roaring 20?s

Before you create a pile of bills and financial obligations, you should spend your 20s and beyond maxing out your 401k plan.  A person who starts saving at 22 and puts $500 per month toward retirement will have over a million dollars more in his/her retirement plan than the person who starts saving at 30.

It is critical that you set financial goals.  You should be saving no less than 10% of your income, aiming for more like 25%.  Put the funds into an illiquid account that is difficult to convert to cash.  Keep only 1 – 2 credit cards to minimize debt accumulation, and remember that the greatest investment you can make is in yourself; obtain as much education as you possibly can.

You can afford to take risks because you are young, so you should be gobbling up financial assets.  If the market crashes, it will likely recover before you retire.   You must also remember the importance of making good non-financial investments.  How many children do you plan to have and what kind of earning power is going to be required in order to support them?   Be careful who you marry.  Marrying someone who does not share your financial goals is a good way to end up with both a broken heart and a busted bank account.

The 30 Somethings

You’ve finally settled into your career, gained a bit of status and income, and that’s when life really gets complicated.   Since you may very well have some little dependents (and perhaps a big one too), you should start confronting your own mortality by making sure you have sufficient life, health and property insurance.  You must be prepared for the possibility that you or one of your loved ones might end up in the place that sells $10 aspirin and $1,000 ambulance rides.

In addition to your financial assets, you may also have little emotional assets called “children,” who need to be taught to protect the wealth you hope to leave them when you pass.  Having financially responsible children can help you avoid the headache of taking care of adults who haven’t learned to take care of themselves.   Yes, cute little children eventually grow up.

Your children should be well-educated.  In fact, as you face the “retirement killer” of college tuition, I strongly advise you to consider allowing your children to repay some of their own student loans.  After all, they are going to be earning more money than you pretty soon anyway, so why not allow them to manage some of their own debt?  Tough love is not the same as child abuse.

Forever 40

When you turn 40, don’t do what your parents did.  According to the Employee Benefits Research Institute, more than 50% of all 40 – 54 year olds have less than $50,000 saved for retirement.  That’s a problem.

You must also be more serious about healthcare costs, since your body is starting to break down.  Factor this into your budget and realize that healthcare costs tend to rise faster than the rate of inflation.  The good news, however, is that your kids should be moving out of the house, allowing you to reduce your insurance expense.

Finally, you should be making plans to scale down debt you’ve accumulated in your 30s.  Focus on being debt free by 50, so you can have a strong positive net worth as you head into retirement.  Credit cards aren’t necessary anymore, since your earning power should be reaching its peak.  You don’t need anyone else’s money, and you certainly shouldn’t be borrowing against your 401k.

The Frugal 50?s

Go meet your financial advisor for your 50th birthday and find out if you are on pace to retire when you expect.  You may find yourself, like many Americans, behind on your retirement savings.  Some Americans are working beyond retirement age to make up for lost income, but don’t plan on using this option to make up for financial mistakes.

Given that you now have something to lose, make sure that your wealth is protected against disasters, lawsuits, etc.   You should renegotiate financially draining relationships – if your kids are in their 20s and 30s still asking for money, tell them that it’s time for you to retire and you simply can’t give them money anymore.   You may also have the added challenge of budgeting for the care of aging parents.

Your 50s should be the era of reduction and preparation.  You should reduce debt and financial obligations to make sure you and your spouse can start your glory years comfortably.   You should also reduce your exposure in the stock market, since you don’t want a major crash to derail your retirement plans.

Now that we’ve gone through the money management lifecycle, we should remember that life begins at 60.  So, reading this article is just the beginning of a significant part of your personal journey.  Enjoy! 

Staff Writer; Dr. Boyce Watkins 

Dr. Boyce Watkins is the founder of the Your Black World Coalition.  For more information, please visit




One Response to “How You Think About Money Depends on Your Age – The Investment Life Cycle.”
  1. Papacool says:

    Finance is one of the many things that were never taught to us by our parents, schools, or institutions of business themselves. The chief aim of everyone seems to be the quest of getting you to let go of your money as quick as possible and without efficient results. A high percentage of the human race dies as penniless as they came in. As a race we have been left holding the bag of debt when our love ones pass away without any type of resource availability to put them into the ground. We seem to have our attention and focus on the wrong things and I am under the impression that it is being done this way on purpose. By doing so, we are kept in the place of being behind the eight ball and blaming others for our shortfalls in life. Black America collectively has enough money to rate into the top 10 GNP’s of the world’s established nations. We have been side-tracked by the false belief that we are reaching equality status within the United States. There is so much left to do that even MLK would turn over in his grave as he would see life after death that has not lived up to its expectations. But we have found self satisfaction in being able to live the good life while so many others are being left behind. We are never going to achieve the level of equality due to us in this country and we may as well come to terms with this fact. As soon as you assume that all is well, the rug of prosperity is pulled out from under one’s feet. Then we are caught up the task of making it even if the majority of us are doing so paycheck to paycheck. The question rings out, when will we learn? Wake up, everybody, Peace out, Papacool.

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