Personal finance through life’s stages

As we pass through the various stages of life, our financial needs, goals and priorities change. Planning ahead for each stage will help to prepare you for financial consequences of the major life events. These significant milestones range from starting a first job, getting married, starting a family, buying a home, moving up in your career, caring for aging parents, to the loss of a loved one, planning for retirement and your legacy.

If you are in your twenties, you are probably just starting out in your career. If you are lucky, you may still be living at home without the attendant costs of paying rent and utility bills, or you may be married and either thinking about having children or may have already started a young family.

This is the time to establish a firm foundation for your financial future; start to imbibe sound financial habits by preparing a budget, developing a saving pattern, prioritising, and setting financial goals. You may not have a lot of money at this stage, but you have the advantage of time to work towards your long-term goals including your retirement as far away as it might seem.

At this stage, responsibilities are usually relatively low and so, there is a greater capacity to take more risk with the attendant prospect of higher returns over the long term.

In your 30s and 40s you should be focused on your goals and bringing them to fruition. People in their thirties are usually established in their jobs and in the midst of raising a young family. These are the years when mortgage payments, child care expenses, education savings and other significant costs come to bear. It is important to ensure that your insurance coverage keeps apace with your changing circumstances.

In your 40s and 50s, even though you are likely to be in your prime earning years, your expenses tend to be rising almost as fast as your income.

School fees bills will be at their highest now and rising, and concerns are primarily around educating children along with more care and attention for aging parents. With such huge responsibilities, the capacity to take risk tends to be lower than in the earlier stages, although this varies according to each individual’s risk profile.

This phase is critical to your long-term investment success and what you save and invest now could have huge implications on the quality of life you will be able to experience during your retirement years.

Many people have reached the peak of their careers in their 50s and as they approach retirement at 60. This profile ideally should already include home ownership and children completing their education. Retirement plans that should have been put in place decades ago should now be put to work.

If you have been in paid employment, your priority is to maintain the standard of living that you have grown accustomed to, without a regular income and benefits such as health care and accommodation that your employer may have provided. Remember to plan for large and looming expenditures such as your children’s weddings.

Retirees tend to be risk averse; liquidity and the preservation of accumulated wealth being of primary concern. Remember that with better health care and longer life spans, you could easily expect to spend a third of your life in retirement. This means that the long-term growth prospects for your investments continue to be important so that you can maintain your financial independence for your entire lifetime.

Between the ages of 60 and 70, most people have retired; if they are still working, one hopes that it is at something that they enjoy doing and not because they have to earn a living. Investments you made decades ago should be providing you with the income you need now, in the form of dividends from your equities portfolio and rental income from real estate investments. Your retirement plans, if they were put in place, should be paying off now and it ought to be a very enjoyable and fulfilling time. For many people, retirement ushers in a period of new experiences, philanthropy and a time to take an active interest in causes that are close to their hearts.

Ideally, you should have considered your legacy long before your 70s but if you haven’t, it is time to think about leaving a legacy for your family or community. Do you have a Will?

Have you thought about establishing a trust? After working so hard for so many years, it is important that a plan is in place for the management, protection and distribution of your wealth after your lifetime in accordance with your wishes. There may well be health issues to contend with, and your health insurance coverage, if in place and current, should be a cushion.

Consider your life stage this New Year; at whatever age or stage you are in life, you will be presented with different opportunities and challenges, which will make the saving and investing strategies that seemed right at one phase of your life somewhat inappropriate for another.

By anticipating the life events you will undoubtedly encounter, you will be better equipped to meet your evolving needs as your income levels, spending patterns and family obligations change.

'Nimi Akinkugbe