Financial Planning for Generation X

If you are a member of Generation X, you’re parents are most likely Baby Boomers. Although most Baby Boomers are not financially prepared for retirement a lot of them do at least have some sort of inheritance to look forward to. Chances are, if the Boomers do inherit assets from their parents, they will spend them all supporting (and indulging) themselves in retirement, which will leave very little for Generation X to inherit. Therefore, if there was ever a generation that needs to get active in planning for the financial future, it is Generation X. Fortunately, most of us have time on our side.

Based on the definition from Wikipedia, the oldest members of Generation X are now in their early 40’s. If they wait until they are 65 to retire, they have 20+ years to prepare. We can’t count on Social Security to help us out and corporate pensions are vanishing into thin air. It’s up to us to make our own way. So, what should Generation X’s action plan look like?

1. Start saving NOW!

That’s all there is to it. I’m not talking $25 per paycheck. I’m talking about at least $100 per week. Of course, you need to be able to afford to save. But, if you think you can’t afford to save, then you probably need to give your budget a serious look. I’d be willing to be that most people could cut out some fat if they really wanted to.

2. Make sure your money is invested properly.

I know lots of people who have no clue where or how to invest the money they have in their 401(k) or other retirement plan. Not knowing how to invest your money could mean the difference between a secure retirement and a retirement spent eating beans. There are two ways to solve this problem: 1. Learn how by reading books or 2. visit a financial planner who can help you understand your choices.

3. Get out of debt.

My wife and I are STILL paying off debt from college. Some of it was necessary debt but most of it was the result of stupidity. Nonetheless, we are focusing on getting out of debt so that the only debt we have to worry about is our house note. Our interest rate on our mortgage is low enough that I’m not aggressively trying to pay off the house. Instead, I’m concentrating on paying off the other debt and investing in our retirement plan.

4. Set up some sort of emergency fund.

Hurrricane Rita taught me the importance of having an emergency fund that can be tapped when needed. EVERYONE needs at least three months worth of expenses in an account that be accessed easily. If you are one of those people who spends money just because you have it, you may want to make your money harder to get to by depositing it somewhere like EmigrantDirect, which is currently paying 4% or ING Orange.

There’s much, much more that Generation X can do to assure themselves a secure retirement. I hope to continue with this topic in the future. In the meantime, you can be working on the four suggestions above.

10 thoughts on “Financial Planning for Generation X”

  1. Sounds like you have been reading Dave Ramsay’s Financial Peace book. Or maybe he has been reading your blog . . .

  2. What about generation Y? I think this is an age group of genuine uncertainty. The above four points apply at an even greater level for them. Especially the idea of getting out of debt. Credit is incredibly loose right now and the lending industry has gone haywire. I speak to parents all the time who think having their child take on $50,000 in debt for college is normal. Somebody needs to have a little pep talk with these younger people about the uncertainty that lies ahead.

  3. I think the parents of Gen Y are the Boomers, hence Boomers and Gen Y are a huge segment of the population. Gen X is squeezed in between and tend to have less ‘power’ due to its smaller size.

  4. It’s incredible that parents think having their children take on $50k for college is normal. I for one probably would never have attended college if not for my parents financial support. Sure I had student loans as well, but not the full amount. Then again, when I went to college tuition for a year was only about $3-4,000. It’s a good thing that now parents can start Education IRA’s or 529 Plans for their children. Unfortunately, the average US citizens savings rate for the past two years have not exactly been stellar. Wasn’t it a negative savings rate?

  5. Generatin X has been in decline for quite a while… currently I owe big brother over 95% of all my debt… that’s approx. 80,000, via student loans, reassesment of taxation for the last 7 years (and yes I paid big every year), penalties on my business retail sales tax act… somehow they estimated over $10,000 owed even though during this period I had 0$ in sales… again big brother with hands in my pocket… currently all Canadian laws have been changed so bankruptcy is not an option… and bankjruptcy will not handle student loads which is the majority of debt, but since they investigated and I did oppose them with a good case in the supreme court of justice, everything has come under scrutiny. Don’t kid youself generation x has been the poorest and had the least amount of career opportunities… pensions, hah go ahead and find one that will also provide long term stable employment… currrently my best advice for those in gen x, and running into trouble, is develop a needed skill and run a cash under the table business… have a nice day !

  6. While I think the author is giving pretty decent advice overall, I think the author glosses over the serious financial challenges Generation Xers have to contend with. First, we are the only generation in history expected to pay for both our own post secondary educations and those of our children. With tution inflation outpacing headline inflation by over 5% annually, the challenge becomes even more daunting. Second, we are expected to pay for both our own retirement and that of our parents generation. Social security, according to the GAO, will be bankrupt anywhere between 2017 and 2043. One would think all of those boomers paying into the system would leave a little nest egg for their own retirement; WRONG! Social Security and medicare are both funded by FICA and employment taxes. Considering that the number of workers working to support one retiree is expected to halve over the next 20 years, we will get to pay much higher taxes to fund the boomers retirement. Finally, our headline inflation will continue to outpace wage increases for the forseeable future. We already enjoy a 12% lower standard of living compared to our parents generation, (USA Today 5/20/08), and with the dollar sliding down on the back on ever increasing mountains of government debt, it will only get worse. Thanks Baby Boomers, what a wonderful job you’ve done running this nation and your kids into the ground.

  7. This article touches upon some very important points ranging from the importance of savings to the need for that liquidity in case of a “rainy day.” The world of financial management, unfortunately, rewards those informed on HOW to save and HOW to invest. Simply knowing that you should do these things will not necessarily guarantee success. I offer specific financial planning and investing advice on my blog; feel free to drop by. Best of luck!

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