Once you recognise the ever changing reality of your financial circumstances you will begin to see the need for effective planning and strategy. We are directly affected by fluctuations in the economy as well as financial markets. In a similar manner, your own personal financial needs never remain constant. They are also prone to change many times throughout the stages of adulthood. The good news is that it is probably simpler to determine how your financial needs will change than it is to predict the future of financial markets.
”Having a financial game plan makes you focus on the way you use your money and helps lay the groundwork for a bright future. This might seem daunting at first, but if you manage to work your plan, the rewards far out way the effort.
Your financial life as an adult typically comprises three distinct stages. And with these come changes in the levels of personal income you are able to enjoy, and the added responsibilities that life will throw at you. You will no doubt have increased financial concerns as you age from taking care of a family to eventually worrying about retirement. Fortunately, the patterns are fairly consistent and these are stages we all have to go through.
The first stage is when you are a young adult entering the working world for the first time. Depending on your earnings you need to establish good habits with regards to spending and saving. Decide early on to be a wise spender. Start a monthly budget so you can learn to control your money. If you have to borrow money always give preference to purchases which have long term value instead of just short term enjoyment.
Saving should begin as soon as you earn your first pay cheque and then continue for the rest of your life. Usually, the tendency is to celebrate your earnings by spending on entertainment and luxuries. Sadly in South Africa, even employees at advanced stages of their lives struggle to keep aside money on a monthly basis. If you’re just starting out now is the best time to commit to healthy financial habits.
The second phase of your financial life is known as your prime earning years. This is when you find that your career starts to grow and your earnings increase correspondingly. But at the same time, you have increased expenses. You are also probably looking at owning a decent house and car, or settling down to marry. All of these things have direct financial implications. During this stage, your need to save money goes even higher because you have to consider your family in addition to yourself.
You will probably have to save money for your child’s education while your personal retirement planning should be well underway. This is also the stage where you should seriously consider investing portions of your savings so you can build assets for the future. The need for protection for you and your family also increases so be sure to have insurance products that meet your requirements.
The third stage actually begins shortly before you are near retirement. Your needs for healthcare are likely to go up and this is easily taken care of if you had implemented a medical aid or insurance plan in earlier years. The cost of healthcare is always on the rise so make sure you are covered during the time you will need it most. If you’re struggling to afford healthcare in retirement some options you can consider are Medicare, Medicaid, private health insurance, or selling your life insurance for cash through a life settlement.
Though you are free from the working world you will still have investments to look after. This is the time when you get to reap the benefits of passive and residual income especially if you started investing as early as possible. Your retirement should be a time when you can finally kick back, relax, and enjoy well deserve special times with your growing family.