Article from
Financial Planning 101
Face it. As you get older, your needs also change. This applies to your financial goals and needs too. The best way to prepare financially is by anticipating them.
People usually go through four stages of financial life:
1. “Let’s Party” Stage (20s)
2. Family Building Stage (30s)
3. Middle-aged Stage (40s and 50s)
4. Retirement Stage (60s and beyod)
Let’s dissect each one:
Starting out: “Let’s Party” Stage (20s)
You’re fresh out of college, and eager to start a career. Independence is your number one priority. You have high ambitions and there’s just so many things that you want to do. get a high-paying job, own a car, take graduate studies, find a date, tour around the world and so on. You may have your own credit card that will let you buy things that you have long been wanting.
People in this stage have a lot of plans but don’t have enough income to make them a reality. Saving may not be on top of the list for them; partying is.
The earlier the “party” people realize that having great money money management skills will make life more enjoyable, the better.
Tips for people at this age:
1. Start saving early. Always see to it that a certain amount (around 10 percent) is set aside from your pay, and deposit it in a savings account. Once you have accumulated enough savings, transfer most of it to a higher-earning deposit account that allows emergency withdrawals. Let it grow. The secret: Compound interest. With it’s power, you’ll make it grow substantially.
2. Secure a health insurance. If you’re company doesn’t offer it, make sure to make it a priority. You’ll never know when accidents and illnesses will strike.
3. Get a life insurance. This is highly recommended if you are married with kids. Make sure they won’t be burdened when it’s your time to go.
4. Consider going into investment options. Mutual funds and bonds are highly recommended. Once you have established your emergency fund and insurance as mentioned in (1), look for a mutual fundor other types of investment schemes that have higher interest rates. Stocks can be an option if you can afford to lock your money for at least 5 years.
5. Avoid debt if possible. Take only enough debt that you can pay if it’s unavoidable. That includes credit card debt.
Getting Established: Family Building Stage (30s)
You may now have progressed in your career and probably be in a supervisory or management position. You may also be running your own business. Thus, you may be earning more, perfect to build your foundations for future wealth.
Expenses may be high for this stage of your life as you are also starting a family. You may have purchased your first home and taking care of your parents now.
Here are a few tips:
1. Your children’s education should be a priority so plan for it. Look for options that will gain higher interests than a time deposit would. Consider endowment policy, bonds or, mutual fund.
2. If you haven’t taken out life insurance, now is the best time.
3. Health insurance is a must at this stage. Medical expenses could reach unbelievable amounts and it’s always nice to have a backup.
4. Emergency funds should have about six month’s worth of your pay or a year’s income. Putting this in a money market fund is your best option.
5. Start saving for retirement. The sooner you will start, the more it will grow. Do this via insurance, mutual fund, stocks, bonds or pension plan.
The Investment Peak: Middle-Aged Stage (40s and 50s)
You may be earning so much more and on top of your career. Your children are in college or may be already working. Retirement is near and you might have more money you can put on savings now.
Here are some tips:
1. Convert a bulk of your income into investment capital.
2. Check your investment portfolio and see if you need to allocate your funds into investments with higher earning potential. Review if you have enough to sustain your desired lifestyle during retirement.
Reaping the Rewards: Retirement Stage (60s and beyond)
Children may be well on their own. You may have finished paying for your home. You can now retire, or still work if you want to. Expenses may be lower, although health care expenses should naturally rise.
If you have financially prepared well over the years for this period, you may be living off of interests from your investments and pension. If not, you may need to withdraw your investment capital, which will of course make it smaller, giving you lower yield.
Few tips:
1. Protect your capital. You will never know when your time will come to leave. You might reach the age of 100 – who knows! Aim to preserve your capital so you can continue earning interests from it. Check if you can risk investing on bonds that has a potential for earning higher income.
2. Make sure you arrange your last will and testament.
To Recap:
Start saving early to ensure financial stability. Your goal is to gain enough financial capital to sustain your target lifestyle upon retirement.
Always make plans to meet your mid-term goals in between starting out and retirement. this includes paying for your children’s education, or owning a car or a home. Don’t forget your ultimate goal: LIVE A COMFORTABLE LIFE IN RETIREMENT.
Article from
Financial Planning 101
Originally Posted by lorenzoleo
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