Next Level Adulting

When people call a plumber, they know what they want. But when people call a financial advisor, they often have no idea. I often field calls from people who believe they should be consulting a professional but are not sure why. Eventually, they arrive at the same term: next level adulting.

Typically, these people have a stable career, they’re saving some money for retirement, and maybe they’ve bought their first home. Everything is going well, but they have a nagging feeling they should be doing more.

Today we’ll cover the common themes involved in next level adulting.

Adulting 101

Before we move to next level adulting, let’s explore what just general-purpose adulting looks like. People tend to think of straightforward financial stuff–i.e., nothing to do with hedge funds or estate planning. It usually involves tasks like

• Paying bills on time
• Saving for retirement in a 401(k) or 403(b)
• Paying down credit card debt
• Purchasing a home.

It takes time to do these things and once people have the tasks under control, they ask, “Now what?”

Reaching the Next Level

Maybe their bank account has more money than they expect, maybe they’re considering refinancing, maybe they inherited money, but there’s always something that makes a person interested in exploring what the next level looks like.

Everyone’s situation is different, so I can’t provide detailed advice on exactly what you should do. But I can explain some of the common financial issues people face and provide you with some information to weigh.

If you’re still not feeling confident about what course of action to take, consult a financial planner.

Often, helping clients suss out what that next level looks is one of the most meaningful ways that financial planners can help their clients. And, as a financial planner, I can tell you it’s some of the most rewarding and exciting work I do.

What Do I Do with Extra Money?

When you’re fresh out of school, there’s no question of where to spend your extra money… because you don’t have any. But as people hit the peak earning years of their career, they find their bank accounts look cushier than they used to.

As a first step, I typically recommend building an emergency fund to help weather unexpected events. Once that’s established, some people might start to consider early retirement or other large financial goals, like paying off their mortgage.

Consider your goals: Do you want to travel more? Do you want to be debt free? Are you considering children, and if so, do you want to save for their college expenses?

Goals help orient us. Write out your goals because they will focus your spending habits.

Should I Pay Off My Debt?

Ideally, you have no debt and plenty of money in the bank. But that doesn’t describe most people. Most of us spend the bulk of our careers dealing with some form of debt, whether it’s student loan debt, automotive debt, or a mortgage.

You want to know your debt-to-income ratio. This is determined by dividing your total monthly debt payment by your gross monthly income (not “eww” gross, but “before taxes and deductions” gross). That will tell you what percentage of your income you’re paying to debts.

If you’re paying over 25%, focus on paying down the debt. Figure out which debt has the highest interest rate and look to pay down that first.

Am I Saving Enough for Retirement?

As a financial advisor, one of the agonizing parts of my job is telling people close to retirement that they haven’t saved as much as they thought.

Retirement and growing old take planning and are not cheap.

As a baseline, ensure that you’re saving at least 10% of your income. But that number is different for different people at various points in their careers.

A young professional planning to buy their first house might save less in order to have a downpayment for their future home. Someone in the last ten years of their career without much retirement savings might save 25%.

This is an area where it’s worth meeting with a financial planner early in your career. I can’t do much for someone who comes to me and says they want to retire next year. There aren’t many levers I can pull to improve that person’s financial situation.

But I, or any financial advisor, can do a lot for someone with 20-30 years left in their career. Structuring things correctly at the outset pays dividends down the road.

Do I Need Life Insurance?

Employers often offer one year’s worth of salary as a Life Insurance benefit for their employees. This is rarely enough.

A general rule of thumb is you should have 10 times your earnings. As with many rules of thumb, they don’t apply to everyone.

I often recommend $500,000 - $1,000,000 in coverage for families with young children. People seem shocked at this number. It looks like a huge number, but once they factor in paying off debt, college savings, etc, then it adds up quickly.

First, make sure you can cover any debts (e.g., mortgage, automobile). Then consider lost savings, i.e., the money you would be saving for retirement in the event you lose your spouse.

For the primary bread-winner, think about covering lost earnings potential. For a stay-at-home parent, think about covering the cost of additional child care.

The cost of term insurance varies depending on your age and health but usually, getting coverage a relatively inexpensive option.

Keeping Things on the Level

Next level adulting is a strange term. What defines the next level for one person is often not applicable to the next person.

But that nagging feeling in the back of your head that questions whether you are on solid ground is shared between many, many people.

The most important thing is to reflect on your own financial situation and figure out where there’s room for improvement.