As you get older and progress through the key stages of your life, the situations you encounter will change, as will your circumstances and priorities.
So that you can meet your financial and lifestyle goals, including retirement ultimately, you need to be aware of what you need to do to manage your money and other assets appropriately during the following 3 important periods of time.
This is when you have most financial freedom and should be laying the groundwork for a bright and stable future.
There are various longer term aspirations you might have, such as buying a house, getting married, and paying for your children’s education. But first of all your main financial commitment is more likely to be paying off a student loan (if you have one) and working out how to pay for living away from home.
A good starting point which is often overlooked is to consider creating a budget to manage and track your expenses, which will also now include a salary from your job. You should test this budget out for a few months to make sure it is realistic for you, and then make adjustments.
Your 20s are also an important time to get into other good money habits, such as creating an “emergency fund” consisting of the equivalent of 3 months’ salary (at least). This is to act as a buffer against situations such as future unemployment, sickness and accidents – times when you might not be able to earn any income.
By approaching your money in this way, you are more likely to be able to aim for your financial goals earlier rather than later.
If you start investing at this point in your life, you should look to the long term. Traditional asset allocation strategies would suggest you put more into equities with a view to building up higher amounts of wealth in the decades to come, to position you well for retirement.
During this time in your life, your financial objectives and needs are likely to get a bit more complicated.
You don’t want to still be paying off debts like credit cards and student loans. Instead, you should be focused on a combination of investing and saving to achieve a few specific goals, for example: kick-starting your retirement fund; saving for the down-payment on a house; and possibly starting a family.
This requires you to juggle multiple financial goals. However, you should limit the number of them so that you don’t spread your savings too thin.
This period of your life might also be a time when you get married and therefore have new objectives and priorities. This requires you to plan as a family, and pool resources and goals.
It will require you to consider taking out insurance to cover various aspects of your lifestyle and future health.
During this time, your investment strategy should still be skewed more towards equities, but you might want to increase your allocation to more ‘defensive’ assets such as bonds and other fixed income products.
This is the time in your life when you need to make sure you have your financial goals and strategies working effectively for you. This requires you to really be on top of your money.
During this stage, you need to be free from the debt cycle of credit cards, and have other legacy loans (such as student debt) paid off. Other than possibly mortgage payments, you should make sure you don’t have the pressure or burden of paying off the ‘bad’ types of debt.
You also must not forget to continue adding to your emergency fund – if possible – and regularly revisiting your retirement projections.
If you have children, paying for their education now becomes more of a reality, so you need to make sure you continue to save for this.
Key to giving yourself the financial stability and peace of mind you want also means you need to monitor and adapt your investment strategy to one that works best for you. With retirement drawing closer, you need to re-assess what you are on track to achieve, and look to preserve more of the wealth you have accumulated in the past 20-plus years. This can be achieved by changing your asset allocation and putting more money into bonds than equities.
You might also have enough savings or money from other sources to be able to invest in property or other larger assets that can be stable, longer term investments.
From an insurance perspective, you need to factor in any requirements you have relating to coverage for life, health or other areas you need to consider.