Building a financial plan for your future is easier if you think about the events that will shape your life and then plan ahead, using these ‘life stages’ for guidance, says Standard Bank.
By looking at your life in stages from youth through to retirement enables you not only to plan ahead, but also to target financial achievements during your lifetime.
Personal financial planning becomes easier and adjustments can be made as you go along, says Errol Meyer, Legal Specialist from Standard Bank Financial Consultancy.
The stages and things you should be thinking about are:
Starting Out and getting established (ages 18 to early 30’s):
At this stage, education and getting a car, rather than thinking about retirement are usually priorities.
But, this is the time to begin thinking that far ahead.
At this stage of life you should concentrate on developing life-time habits such as:
Making sure that you pay yourself first.
Decide what you want to save and put this aside before spending any money.
You can build future financial independence earlier than you think if you decide, for example, to put away 33% of your earnings for the future.
Learning not to compromise.
Committing money to investments that stop you from drawing it out takes away temptation.
A 12-month fixed investment is ideal. The money grows and you can’t get it.
Putting together a budget. Deduct your compulsory savings and then set aside money for living and money for short-term goals.
Consider starting a long-term fund. Investment portfolio’s that are aligned to lifestyle goals, such as education and buying a house are good ways to go. The earlier you invest the less the investment will cost and the more you will benefit.
Wisely invest some of your budget . For example, cars just don’t hold their value.
Buy a pre-owned car or downsize and you will have money available when you need it.
Moving on and beginning to accumulate assets (mid 30’s to 50)
With your education complete and career path decided, you are now focusing on family and other responsibilities such as focusing on home loans, saving for the future of your children and other needs.
Typically, this is the time of your life when you get established and your income increases accordingly.
You should be looking at:
Increasing your contributions to medium and long-term savings mechanisms and taking out life insurance.
Diversifying savings and moving into shares, unit trusts and other products.
Reassessing your retirement savings and adjusting them if necessary.
Making sure that you have a will.
Review your investment plans regularly and get a professional financial planner to assess what you need for the next stage of your life. As you approach 50, it pays to be realistic about your health and plan for contingencies that could result if your health doesn’t stay good.
Independent family and the road to retirement (age 50-65)
Ironically, life gets cheaper and earnings greater at this stage of your life. Children leave home and even begin their own families. Simultaneously, your earning power peaks.
The important things to consider now are:
Making sure you have no debt as you approach retirement. After retirement, you have to live on investments and pensions. Major debts can be financially damaging.
Consolidating your investments so that they are low-risk investments that offer steady, inflation-linked returns.
Adjusting your long-term retirement strategy and thinking about increasing your contributions to a retirement annuity.
Planning your estate and taking steps to ensure that your family-rather than the tax man- benefits when you die.
“Being financially secure and making sure that the money you need is available through your life is a process that becomes more complex as you get older and your responsibilities increase,” says Errol Meyer
“Three principles apply. The first is that the sooner you begin planning, the more you and your family will benefit. The second, and equally important principle, is that the task should be tackled with assistance from a qualified, professional financial planner.”
“The third principle is that the best time to consider financial planning is when you begin working. You have time on your side, so your financial commitment will be smaller and your benefits larger. Start later and the size of the monthly commitment will be much higher-something that could be difficult to achieve when you have more demanding personal and family commitments.
“If financial planning becomes second nature and you do what is needed automatically every month and every year, you will be a financial winner with a solid future,” says Errol Meyer