How to plan for financial success
Financial peace of mind is essential in uncertain times – here’s how to set goals for your stage of life
BUYING your first car or home, getting married, seeing your kids off to university – they’re all big moments in life. And they all cost money. Planning your financial future might seem daunting but it’s important to manage your money for every stage of your life. Twentysomethings who’ve just graduated and entered the working world have substantially different goals to those in their thirties who are starting a family, or fifty-year-olds who are nearing retirement.
Setting proper financial goals is vital, says Francois Viviers, executive of marketing and communications at Capitec Bank. “While many people are tempted to take things as they come, if you don’t have a proper financial plan you’re likely to spend money on things that don’t matter and miss important financial goals for various stages of your life.”
What goals do you need to hit at certain ages to set yourself up for financial security and success? We
asked experts for tips on the life cycle of financial planning. IN YOUR TWENTIES Many people view this as a carefree time with few responsibilities but you’ll benefit hugely in the long run if you put financial goals in place at this age.
“In your twenties you’re pushed into adulthood, willingly or unwillingly,” says Nikki Gajoo, certified financial planner at Opulentus Wealth in Johannesburg. “By this time most people have completed their tertiary education and started their career journey. It’s a good time to put financial goals in place – which will need constant reviewing as you age.”
Start a tax-free savings account. If you contribute the maximum of R2 750 a month you’ll reach the lifetime maximum of R500 000 in 15 years, which can grow nicely over time. You can basically forget about it until you retire. (Note: the minimum contribution for a tax-free savings account is R300 a month and the maximum contribution each year to qualify for tax-free savings is R33 000). Start another savings account. Even if you contribute just R50 a month, this can go a long way to achieving your goals, whether they be to study abroad, travel or buy a car. A fixed deposit savings account is a good idea, Viviers advises. “It removes the temptation of withdrawing and you’ll earn higher interest.” Pay off your student loan. The earlier you pay off loans, the better – and what you’ve saved on interest can be used elsewhere. Start a pension fund. “When you’re in your twenties, retirement seems far away,” Gajoo says. “But you shouldn’t underestimate the value of starting early.”
If your employer doesn’t automatically pay money into a retirement fund, get a retirement annuity. The effect of putting away R500 a month from age 25 translates into R5 482 337 if you retire at 65 (if your premium is increased by 6% a year to keep up with inflation). The more you put in, the greater the effect because of compound interest. Consider medical aid cover or a hospital plan. “Young people often underestimate the value of a medical aid, a hospital plan and gap cover,” Viviers says.
Having access to these benefits is important, especially if you have young children.
Also, penalties may apply to late joiners. Of course you’re probably not in a high-income bracket just yet, so if you’re in good health a hospital plan might be best.
IN YOUR THIRTIES This is a period of potential high growth in income potential – but it’s also when you start to become serious about life and commit to long-term financial goals. Clear debt that’s not related to property. Try to ensure it’s only your home loan or car that you have to pay off. The faster you clear other debt, the sooner you can start putting more money into a savings or retirement plan. If you have a child, consider taking out life assurance. If you’re not a parent it’s not as much of a priority as you don’t have dependants who’d suffer if anything happened to you. Get an education policy or start an education fund. This is a must if you have a child and want to be able to help them out one day when they want to study. Check out various options. “It helps to personalise your savings plans and name them according to the goals you’re saving towards,” Viviers says. Have a retirement plan. If you haven’t yet made retirement planning a goal, now’s the time to make that a priority, Gajoo says. See a financial planner to help you with this. Have an emergency fund. You never know when something unexpected might come up. A general rule of thumb is to have the equivalent of three months’ expenses set aside to cover your monthly bills. Draft a will. This is particularly important if you’re a parent with underaged kids. IN YOUR FORTIES Meet with your financial adviser annually. This is the time when you may start to settle some of your major debts. Instead of letting that excess money be absorbed into monthly expenses, consider saving or investing it.
“Bond repayments can now be redirected into saving for other financial goals, such as boosting your children’s education fund or your retirement fund,” Gajoo says. Your financial planner can help you decide how best to invest it. Revise your medical aid, hospital and insurance plans. Your circumstances now are probably quite different from when you were in your twenties and your plans need to reflect this. Revise your child’s education fund. You may need to increase it, especially if tertiary education is fast approaching. IN YOUR FIFTIES This stage of life often brings lifestyle changes. By now you should have finished paying off your bond. “There’s usually more disposable income as children are less dependent on their parents,” Gajoo says. Consider downsizing, especially if your children have left home. “Bonds are often settled at this stage and most people start to enjoy living relatively debt-free,” Gajoo says. “Use this extra income to contribute towards your pension, savings or investments for the future.” Revise your medical aid to ensure you’re getting the most appropriate and affordable cover for your age and physical health. IN YOUR SIXTIES & ONWARD Most people retire now, and a new life stage begins. “Financial goals often change to lifestyle goals during this time,” Gajoo says.
Budget carefully to ensure you don’t outlive your pension. Revise your medical aid to make sure it’s aligned to your health needs. Start considering that there may come a time when you or your partner are unable to live alone and take care of yourselves.
Frail care and medical-procedure aftercare are priorities. They should be included in your medical aid benefit. If you have not done so, review your medical aid to incorporate this cover. Consider longterm care insurance, which is a frail-care benefit some medical aids offer. Review your will. Finalising your estate planning is important now, Gajoo says. Check if you qualify for any government subsidies – even a little bit extra can help.