The Quarter Life Crisis is a curious thing. Young adults complain several years out of college they haven’t found their life’s work yet. Well obviously. You can’t expect to go straight to the corner office without knowing jack! What happened to paying your dues for at least 10 years and getting enough experience before doing more of what you want?
After two years of getting my balls crushed working in New York City, all I wanted to do was retire and work on my grandparents’ fruit farm in Hawaii. They had eight acres of land that consisted of dozens of mango, papaya, avocado, and pomelo trees nestled in the Waianae mountain range. It was wonderful piece of land that needed care.
Looking back to 15 years ago, what I now realize is that I wasn’t really having a Quarter Life Crisis. I was just afraid of being unable to get a new job after my firm decided not to offer me a third year analyst position during the dotcom collapse. If I gave up early by going back to Hawaii, I would have regretted my decision. Preventing a crisis from taking over your life is extremely important!
THE MID-LIFE CRISIS
One of the biggest comforts I had by the time I hit 26 was that I had saved a relatively large sum of money by living frugally. I maxed out my 401k, saved 100% of each year-end bonus, and saved 50%+ of my after tax income by sharing a studio with a friend and always eating company provided cafeteria food. Worst case, I knew I could disappear, like Lady Edith in season 4 of Downton Abbey, and come back to the world just fine after solving my “problems.”
The Quarter Life Crisis lasted for about three months, the same duration it took for me to get a new job offer in San Francisco doing the exact same thing. All of a sudden, my crisis turned into a wonderful new adventure that has lasted for 15 years!
If we understand and accept that the Quarter Life crisis is driven by fear of uncertainty questions such as, what am I going to do with my life; how am I going to survive; what will my parents think; will anybody give me a chance, it will be much easier to prepare and deal with the upcoming Mid-Life Crisis!
Given the median life expectancy for men and women hovers around 80-90, 40 – 45 is the most typical age range for mid-life crisis sufferers. Although, studies show that a mid-life crisis often range between 40 – 60 . A mid-life crisis could be caused by aging itself, or aging in combination with changes, problems, or regrets over:
- Work or career (or lack thereof)
- Spousal relationships (or lack thereof)
- Maturation of children (or lack of children)
- Aging or death of parents
- Physical changes associated with aging
From the list above, my three mid-life crisis fears could be: lack of children, my parents, and wondering when I’ll finally start feeling old.
WHAT HAPPENS DURING A MID-LIFE CRISIS?
A mid-life crisis tends to be an emotional response to any or all of a multitude of stresses – unhappy marriages, disappointment in our jobs, and financial woes. Based on discussions with others who’ve had mid-life crises, and research I’ve conducted, here’s what people generally do or feel:
- Buy a fancy car, motorbike, or boat
- Acquire unusually expensive items like a rare watch, jewelry, clothes, gadgets, etc.
- Get depressed
- Feel remorse and regret
- Start working out like crazy
- Change your appearance with tattoos, hair plugs, hair extensions, tanning salons, outrageous outfits not fitting of your age
- Enter relationships with younger people
- Abuse drugs and alcohol
Holy crap! That’s a lot of stuff middle-aged folks in crisis go through. But now that we know, when the time comes, we can do things to help ensure we don’t go overboard with the help of money.
Remorse, regret, and depression are the toughest items on the list because it’s hard to control our feelings. I know I’ll probably get a little depressed, but there’s no reason in my life for remorse or regret because I haven’t wronged anybody since high school, and I’ve done everything I’ve wanted to do in my life already. Having a family is left up to destiny, and I can only hope my parents live long and happy.
One of the worst things that could happen during a mid-life crisis is to let emotion cause irrational spending that completely ruins the second half of your life!
MONEY CAN HELP EASE THE PAIN
Money can’t solve all problems, but money can certainly ease the pain. You need a good wad of cash to buy the finest Colombian cocaine while you’re out clubbing into the wee hours of the morning. You need tens of thousands of dollars to attract and maintain a younger relationship on the side. They expect to be fine dined and showered with gifts if they are going to have an affair with your out of shape, wrinkly self!
Given I would never do such things, my main focus is on developing my mid-life crisis fund in order to have an extra stash of cash to buy a fancy car. Since middle school I’ve been a car fanatic who went nuts and bought 8 cars in 10 years after college. I finally wised up in my late 20s and have been following my 1/10th rule for car buying ever since.
But deep down, I know that when I turn 40, I’ll be asking myself, Why the hell am I STILL driving a Honda Fit when I’ve got money! You’ve already stayed disciplined with money for a large portion of your life, it’s time to let loose a little. You’re half dead already, you cheap fool!
As a result, I’ve decided to create a mid-life crisis fund today with the goal of accumulating roughly $60,000 in 24 months so that I can buy that sweet second hand Porsche 911, Acura NSX, Range Rover Sport SuperCharger, or another similar vehicle.
TREATING THE MID-LIFE CRISIS
The way to have fewer money problems is to save and plan ahead. I could start setting aside $2,500 a month in a new money market savings account, but I just can’t get over the fact that money market accounts still pay less than 0.2% interest. I could just wall off $60,000 of my ~$150,000 in current savings and allocate it towards my mid-life crisis car, but that feels completely inefficient and unfair. It’s more fun to work towards a goal.
Instead, what I’ve done is kill two birds with one stone by starting my mid-life crisis fund through Betterment!
But when I logged on to transfer funds after filling out the short questionnaire, I came across this perfect snapshot with the option, Repeating.
Instead of sending a one time lump sum of $10,000, I can automatically contribute funds to my mid-life crisis fund every month once I put in my checking details. By contributing a smaller amount of money each month ($1,000 – $2,500), I don’t feel the “sting” of investing as much, while buying me time to get thoroughly smart about the product just in time for me to buy the car.
For those of you who’ve read my 401k By Age post, you know that over time, consistent contribution adds up to large amounts. For example, after 13 years of contributing to my 401k, I had over $350,000 without even realizing it. Building a financial but is all about setting up an automatic money transfer so you don’t even have a chance to spend the money. Over the long run, the money will compound. Pay yourself first!
With my new Betterment mid-life crisis fund, I’m going to pay myself first for the next two years so I can amass hopefully at least $60,000 through a relatively conservative portfolio. I went through the six question questionnaire, got a risk tolerance setting of 9.5/10 (high risk/offensive), and manually dialed it down to a 5 (neutral) by pressing the “-” button.
Take a look at what my Mid-Life Crisis portfolio’s initial composition will look like. Betterment will automatically rebalance and conduct tax-loss harvesting for free over the year so I can focus my attention on making money elsewhere.
What’s interesting about Betterment is that you can use them to save for any sort of future big money expense, such as a downpayment for a home or college tuition. It’s much easier to save and invest when there’s a purpose behind it. If I was to use Betterment to save for a 20% downpayment on a home in 3-5 years, I’d probably go with a risk tolerance of 1-3 (most conservative/defensive).
At a 2/10 Risk Tolerance level above, almost 50% of the portfolio will be in TIPS and Municipal Bonds. You’ve now got a balanced offensive and defensive portfolio with much less volatility. As you enter the year you plan to buy the house, you can go even more defensive or turn the entire portfolio into cash to be 100% certain.
You don’t have to fund your Betterment portfolio in order for you to play around with their interface and see what type of portfolios they’ll construct based off your risk tolerance. It’s worth the exercise since there’s only six questions they ask, and the process is free. If you want, you can simply buy exactly what they’ll build on your own and manage your portfolio yourself! But don’t forget trading fees.
IF THE MID-LIFE CRISIS DOESN’T COME
The benefits of setting up a mid-life crisis fund are: 1) you pay yourself first, 2) you come to grips with what’s bothering you so you can make some changes, and 3) you intimately work towards buffering a crisis that may not be as bad because you’ve spent years preparing. If I somehow turn 40 unscathed, then I’ll simply reallocate my mid-life crisis fund towards a home remodel, tuition, travel, or reinvestment in my business.
Long ago I realized having money is a pretty empty feeling once you’ve got your basic necessities covered. From now on, I’m going to start setting up different funds for different purposes. It feels great investing for a reason while at the same time potentially making more money.
Updated for 2020 and beyond. My mid-life crisis fund is helping me pay for some major remodels in a new property I bought.