Most people go through life reacting to their financial needs rather than planning for them. This means they are always playing catch-up and in most instances find that they have to go into debt just to get by.
By having a financial plan that adapts with your needs you will remain in control of your money and your destiny.
The plan for your 20s
Pay off debt: Chances are you have just finished higher education and have just started working. You may even have to start paying back your study loans. Make arrangements with the institution that financed you on the amount that you can start paying off. The earlier you start, and the more you pay, the sooner you settle your debt and the less you pay over time.
Don’t leave home too soon: At this stage you may move out of your parent’s home, start renting a place of your own, buy a car and buy clothes for work. If you can stay with your parents at this stage, and put off incurring these costs until you have some money saved up, this will give you far more financial freedom in later years.
Start saving: Do not blow all your extra money on fun, clubs and going out. Now is the time you can really maximise savings as you do not have any dependants. You can start with the minimum amounts necessary for retirement and investment planning. If you start planning at the age of 23 that gives you at least 32 years of retirement planning and time to save for your own place, or to buy a car for cash, this means you benefit from the power of compound interest. For example if you save R1000 a month in a growth unit trust, by the time you are 30 you would have R135 000 to put down as a deposit on your first home.
Protect your income: Once you start earning you need to protect your greatest asset — your future income. If you earn R10 000 per month, never get a promotion and only ever receive an inflation related salary increase you would still earn over R9-million during your working life. You need to protect that income by taking out insurance should you not be able to work.
Protect your health: Make sure you have decent medical aid cover a well as dread disease cover. Most companies will offer these as a benefit for their employees, but if your company does not; get one on your own. Ask your financial adviser for help.
Remember you must cover yourself for most eventualities. Should you have dependants and debt, then it is also a good idea to have life cover.
The plan for your 30s
This is the decade many people get married and start a family.
Replenish your savings: At this stage you may have used some of your savings to buy a house, furniture, a car or pay for the wedding. Try and replenish the savings after each event. One should have at least three months of expenses as emergency savings. In this way an emergency will not put you into debt.
Protect your dependants: One of the most important things to do at this stage is to review your insurance to protect yourself, your partner or your children. You do not want your family to have to downscale their lifestyle because you or your partner is no longer able to earn an income or has passed away.
Plan your estate: Review your will and make sure you have made provision for your children including setting up a testamentary trust and choosing guardians should both parents die.
Save for education:As soon as your children are born, start saving for their education. This will ensure that you can send them to the school of your choice, not the one you can afford.
Have a review after every life changing event to ensure that your financial plan is still relevant for you.
The plan for your 40s
All the planning in your earlier years should be paying off and putting you in a stronger financial position to adapt to your changing needs.
Stick with the plan: Expenses start increasing as your children start school and you may possibly buy a bigger home for your growing family. At the same time your salary may increase significantly as you experience promotions. Avoid the temptation to squander your additional income on a flashy lifestyle.
Plan to be mortgage free: Before you buy the bigger house, make sure you can afford to pay it off by the time you are 55. You do not want to enter retirement with debt.
The lifestyle you choose to live in your 40s will have a significant impact on your retirement years.
The plan for your 50s
By now your children are going to university, and you are closer to retirement.
Retirement review: Review your retirement savings and start topping up if you find that you are under saving.
Focus on getting rid of debt: By this stage you should have paid off most debt like your bond and car and accumulated other assets in addition to your retirement savings. If not, start making arrangements to do so. The last thing you need is to retire while still in debt or, worse, have to continue working because you are in debt and your savings are not enough for you to live on.
Review impact of life changes: If you divorce, or your spouse/partner dies, this may cause a setback in your financial planning.
The plan for your 60s
By now your children have left home and you are now retired, or close to it. Remember that your retirement savings may have to sustain you for a very long time, in some cases longer than your working years. If you retire at age 55, and live until 100, you need to fund 45 years of retirement! It is imperative that you ensure that you have enough money saved so you do not need to downscale your lifestyle.
Post-retirement planning: Invest your retirement savings in such a way that it continues to grow and that your income grows with inflation.
Review your lifestyle: You may downscale your home if you no longer have your children living with you in order to free up some of your money.
At each stage of your life, review your financial plan and make sure that you are fully insured and saving optimally. It is easier to own your life if you start planning early and have a financial adviser to assist you.
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Article by Boitumelo Mothoagae of Liberty Life