Adapting your attitude towards money as you age
Our journey towards financial wellness begins with a few of our daily choices:
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Implementing a financial plan is always the first step you need to take when setting your financial goals, and deciding on how you plan to reach them. It’s important to remember that your financial plan will change at different stages of your life
– it should not remain linear. Your needs will look different as you move through these phases of your life:
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budgeting
putting money aside for an emergency
curbing unnecessary spending habits
choosing your retirement fund contribution rate
starting out in your career
establishing your career
preparing for retirement
after you’ve retired
The younger years
Investors in their 20s will have at least 40 years to accumulate their retirement savings and should focus on growth. In this stage of your life, aim to keep your savings invested in the most suitable investment vehicle for your unique circumstances.
Look for consistent long-term performance and keep your retirement savings invested between jobs to benefit from compound interest over the long term. A high allocation towards growth assets such as shares and property and the full allowable allocation to the global markets (according to legislation) could benefit you greatly.
During this stage of your life, you will be focusing on planning for and creating your wealth. The choices you make during this time will be the deciding factor on where you ultimately end up during one of the most vulnerable times of your life, retirement.
Middle-age investors
People in this phase are starting to earn and spend more and are most likely attempting to pay off debt. Your investment objective could be more moderately high-risk portfolios to keep your money protected, however, this depends on your risk profile and appetite. Because of higher earnings and possible tax savings, first try to top up your compulsory investments as much as possible before building on discretionary investments.
The retirement years
Retired investors want to minimise risk and keep up with inflation. Your main objective would be to choose an appropriate income annuity option (either a life annuity or living annuity) that would best suit your retirement income needs.
One of the best things you can do for your retirement planning goals is to take advantage of compound interest. Consider choosing a healthy contribution rate of a minimum of 13% to 15% of your fund salary and investing in more aggressive investments or portfolios in your younger years. In turn, this should help you reap the rewards of the highest possible returns, compounded over the years leading up to retirement.
Two to five years before retirement, your focus needs to shift towards protecting the savings that you have accumulated over the years. This also highlights why withdrawing your retirement savings before retirement is seldom a good idea. It can be detrimental to your quality of life during your retirement years.
Discretionary investing for rainy days
In any life stage, make sure you have enough emergency savings so that any unplanned and urgent expenses do not derail your long-term goals. Being prepared financially makes the world of a difference when you have to deal with your car breaking down, the death of a loved one, or even the birth of a child.
With the correct financial planning advice, you can structure your investments and insurance so that you don’t get caught off guard. A certified financial planner can assist you with building your financial wellness by analysing your unique financial situation and offering a holistic approach to finding the appropriate solutions for you.
The perfect financial plan should not only aim to build your financial wellness over your lifetime, it should also make sure that your affairs are in order, even in the event of death.