Life accelerates as we age. And one day you may wake up and find yourself in the middle of a midlife crisis. The key to getting through it without going broke is to create a midlife crisis fund in advance. That and mentally prepare as much as possible.
But before we get to discussing a midlife crisis fund, let's take a step back to touch on the quarter life crisis. 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.
The Quarter-Life Crisis Comes First
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!
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. I shared a studio with a friend and always ate 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.”
My Quarter Life Crisis lasted for about three months. This was 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!
Fear Of Uncertainty Is The Reason To Create A Midlife Crisis Fund
Overcome your quarter life crisis by understanding and accepting that it is driven by fear of uncertainty. Questions to mull over and answer are ones like what am I going to do with my life, how am I going to survive, what will my parents think, and will anybody give me a chance? The sooner you come to grips with those, the easier it will be to prepare and deal with the upcoming Mid-Life Crisis!
The median life expectancy for men and women hovers around 80-90. Thus, 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 midlife crisis could be caused by aging itself. Or by 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
- Spiritual purpose and life meaning
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 Midlife Crisis?
A mid-life crisis tends to be an emotional response to any or all of a multitude of stresses. This could include an unhappy marriage, 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
- Want to find a job again after retiring early for years
- Abuse drugs and alcohol
- Spend an excessive amount on a midlife crisis house you don't need or can't afford
Self-Sabotaging During Midlife
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. If you create a mid-life crisis fund in advance, you can splurge a little on yourself without going broke. And you also protect yourself from derailing your retirement plans.
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. I haven't wronged anybody since high school, and I've done everything I've wanted to do in my life already. I have a family now 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! If you think you're the type of person who will be really tempted to spend a fortune, start building your mid-life crisis fund now. And if you don't end up needing it, all the better for your retirement. You can use the extra funds to try and retire early and live the FIRE lifestyle.
Money Can Help Ease The Pain Of A Crisis
Money can't solve all problems, but money can certainly ease the pain of a crisis. You need a good wad of cash to party VIP style while you're out clubbing into the wee hours of the morning. And 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 Midlife 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 automatic saving. I can automatically contribute funds to my mid-life crisis fund every month with recurring deposits into my investment account. By contributing a small amount of money each month, I don't feel the “sting” of investing as much. And I should be able to build a big enough balance just in time for me to buy the car.
Pay Yourself First
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 nut 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 and utilize these top financial products to grow your wealth faster.
With my new mid-life crisis fund, I'm going to pay myself first for the next two years. Then, I can amass hopefully at least $60,000 through a relatively conservative portfolio.
What If The Midlife 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.
Create Your Midlife Crisis Fund With Real Estate
Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. You can easily build a real estate mid-life crisis fund through real estate crowdfunding.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $954,000 with real estate crowdfunding platforms. Today, my real estate crowdfunding investments across America generate roughly $80,000 a year in passive income.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and manages over $3.3 billion for over 400,000 investors. For most people, investing in a diversified eREIT is the way to go. Fundrise invests in residential and industrial properties in the Sunbelt.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
Invest In Private Growth Companies
Consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Utilize Free Technology To Get More Money
Empower has the best free wealth management tools for investors and people who are serious about planning for a healthy retirement. You can easily x-ray your portfolio for excessive fees, get a snapshot of your asset allocation by portfolio, track your net worth, and plan for your retirement.
When there is so much uncertainty in the world, you absolutely must stay on top of your finances. You got to watch your midlife crisis fund like a hawk. Understand where your risk exposure is. Stay on top of your cash flow. Empower’s free tools will help you bring calm to the chaos.
My midlife crisis fund is helping me pay for some major remodels in a new property I bought