It’s easy to make fun of a midlife crisis, especially if it’s someone else’s.
The stereotype, as depicted in movies and on television, is a familiar one: a middle-aged man has a crisis as he turns 40 and leaves his wife for a younger woman and a sports car. . Or maybe just the car.
In real life, however, the midlife crisis is rarely as obvious or dramatic, and it is not the preserve of men. Milestone events such as celebrating your 40the or 50e birthday, or suddenly living in an empty nest, can cause uncertainty about one’s life and future. And this uncertainty can influence the way you spend.
“Feelings drive behavior,” says Nathan Astle, a financial therapist in Kansas City, Missouri. If you are unhappy with your life, you can buy a new wardrobe or spend on beauty treatments. If you are looking for thrills, you can indulge in major spending, such as trips or luxury wines.
There’s no harm in treating yourself from time to time, especially if you budget for these expenses. The problem is that a midlife crisis can strike just as retirement becomes more concrete. So if you want to treat yourself, you also need to make sure your retirement savings and investments are on track, experts say.
When it comes to investing, time is more important than timing, says financial therapist Ashley Agnew. In other words, it’s more important to save for retirement early than to enter the market when prices are low and exit when they are high.
For example, with a 6% return, an investment of $5,000 per year (for 40 years) will earn more than $800,000 by age 65, explained M.me Agnew. On the other hand, if you invest the same amount for 30 years, you will have $400,000.
The closer you get to retirement, the less time there is to save.
Short-term thinking can have a long-term impact.
Ashley Agnew, financial therapist
According to Marti Awad, a financial advisor in Denver, Colorado, signs that a midlife crisis is in full swing include withdrawing money from your retirement fund or individual retirement account, or borrowing from your home for purchases that respond to wants and not needs. Credit card debt or hiding purchases from loved ones are also red flags.
But because shopping often boosts morale (even temporarily), spending is not seen as a problem, but is seen as a solution, says Astle. It is therefore important to develop a plan before a problem arises. To prevent a midlife crisis from disrupting your financial goals, consider the following protective measures.
Beware of lifestyle inflation
If you are lucky enough to have a stable job over the years, income generally increases with age and experience.
A 2022 survey by the United States Census Bureau found that the median household income of people aged 45 to 54 was US$101,500 per year, compared to $80,240 for people aged 45 to 54. 25 to 34 years old.
“In general, it is between the ages of 40 and 50 that we start to earn the most money,” explains Paco de Leon, author of the book Finance for the People. With a higher income, you may be able to afford more expensive restaurants, fancier vacations, or a bigger house.
However, buying these things can trigger a phenomenon called “lifestyle inflation,” meaning your expenses increase as your income increases.
“It’s a slippery slope,” explains M.me by Leon. For example, if you earn US$80,000 a year and your salary increases by 3%, a few extra expenses such as dinners and weekend getaways, not to mention inflation, can quickly eat up your extra money.
To avoid changing your lifestyle, set financial limits for yourself. For example, if your salary increases, invest the additional income in your retirement account. If that’s not possible, follow general financial advice, which is to put 20% of your raise into a savings account. And if you receive an annual bonus, spend a small part of it and invest the rest, advises Mme by Leon.
Trick your brain
According to Mme Agnew, mid-life crisis can trigger a “here and now” mentality toward money. This can make you more vulnerable to impulsive spending.
To avoid this, Mme de Leon recommends creating what she calls a shopping list. Write down everything you want and imagine yourself purchasing those items, she says.
Just like scrolling social media or drinking alcohol, shopping provides a rush of dopamine. However, the shopping list can “trick your brain” into thinking you spent the money, she says, which provides the same reward.
If two weeks have passed and you still want the item, consider the downsides before taking action. Mme de Leon suggests answering the following question: “Will this put me in a more fragile financial situation? »
Put your bank account to the test
If you’re considering a major expense, like a dream vacation for a milestone birthday, Mme Awad suggests reviewing your retirement plan first. Financial planners have software that allows them to perform a “stress test” to analyze the effect of the purchase, she says.
A stress test runs different return scenarios, revealing the risk inherent in your financial choices, says Mme Awad. Seeing the range of potential returns can help you determine if your nest egg can support the expense.
Find help
Financial mishaps can be embarrassing, which can prevent you from taking action. “Shame is the enemy of change,” says Astle. Therefore, if you have overspent, do not hesitate to ask for help.
For example, if stress has fueled your excesses, a financial therapist could teach you how to manage your emotions in a healthier way. Being able to name your feelings can help you respond differently.
If withdrawing money from your retirement account has hurt your financial health, meeting with a fee-only financial planner could help you get back on track. And if you’ve accumulated credit card debt, a professional can develop a plan to help you pay it off.
Even if your savings have been damaged, the results of financial mistakes are rarely set in stone.
“Taking small steps to correct your mistakes goes a long way,” says Astle.
This article was originally published in the New York Times.