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FINANCIAL PLANNING FOR EVERY STAGE OF YOUR LIFE

Your goals evolve as you move through the different stages of your life. It’s

therefore important that you have a flexible financial plan that reflects where

you are now and where you want to be in the future.

SO, WHAT ARE THE DIFFERENT LIFE STAGES? Most people pass through the following financial stages:

• Growing up

• Young adulthood (in their twenties)

• Getting married

• Buying a house

• Having children

• Establishing your career

• Pre-retirement (your fifties and sixties)

• Retirement

You may not necessarily go through all of these stages as everybody’s

circumstances are different - for example, a couple, the stay-at-home mum

who sacrifices her career, or a single person with no children.

IN YOUR TWENTIESTypical events common to this phase include:

• Finishing your studies

• Leaving your parents’ home

• Buying your first car

• Getting married

• Entering the workforce

• Saving to buy property

• Travelling

• Paying off study loans

VINCENT OSBORNEFINANCIAL PLANNER,

PRIVATE WEALTH MANAGEMENT

FINANCIAL PLANNING

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Typically, you will have completed your education and are at the beginning of your career. You now have to start budgeting to understand what you can afford and to live within your means. You may be paying rent for the first time or are saving for a property. Maybe you have some debt to pay off (like a student or car loan).

WHAT TO DO?You have to track your expenses and reconcile them regularly in the form of a budget. It is important that you don’t make use of consumer debt like credit cards and overdrafts to fund your lifestyle. These forms of debt are expensive and the interest rates charged are extremely high. You need to use credit cards in the right way, as a convenient way to transact, and be disciplined in repaying the debt timeously not to incur interest charges.

Now is also the time to start saving towards your retirement. Most employers offer access to a retirement fund. These contributions are tax-efficient and a great way to save for the future.

You should also start planning your estate. Draft a will even if you only have a handful of possessions and nominate your beneficiaries on employment-related benefits (like group life cover and your pension fund). You should also consider disability insurance. Most employers offer income disability benefits between 75% and 100% of their employees’ salaries. If your employer doesn’t offer this type of benefit, and you can afford it, take out appropriate income replacement cover. Remember that you have a life to live and need to be able to fund your lifestyle needs, even if you are not able to work to earn an income.

You will most probably switch employment a few times during your twenties. It is important to preserve your retirement capital accumulated within your retirement fund. When you change employment, you have the option to invest your retirement savings either in the new employer’s retirement fund, a preserved pension fund or a retirement annuity. If you decide to withdraw the money, you will be taxed as per the South African Revenue Services (SARS) withdrawal tables.

Make sure you have a high-level overview of what you should focus on and why. Look at your lifestyle, analyse your financial robustness and ask your financial planner to recommend solutions to achieve both your shorter- and longer-term objectives. These solutions should be incorporated within an integrated financial plan that must be revisited and updated as your circumstances change.

GETTING MARRIEDThe next stage for many is tying the knot. Planning for a wedding is an exciting time: the build-up to the big day, budgeting and stretching limited resources to provide for the actual day, the honeymoon and then life as a married couple. You also have to revisit your will, consider life insurance and look at consolidating expenses, like your medical aid cover.

THIRTIES AND FORTIES The thirties bring additional responsibility and you may take on debt in the form of a home loan, postgraduate studies and travelling. When taking on debt, it is important not to overcommit yourself financially. Make sure

“YOU NEED TO ALIGN YOUR

UNDERLYING FUNDS WITHIN

ALL YOUR INVESTMENTS TO

YOUR REQUIRED LONG-TERM

STRATEGIC RATE OF RETURN.”

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that you can afford the repayments under different interest rate scenarios. Financial considerations in this life stage include: • Getting debt-free and building a career • Saving money for travel and holidays • Updating your will • Starting your own business • Generating passive income

HAVING CHILDREN Although having children gives purpose to your life, they cost money! You need to consider saving for your children’s tertiary education. Private schooling is also becoming more popular.

It is important to talk to your children about money and investments. Be open and transparent about your income, expenses and debt. Kids have to understand the meaning of money and the importance of a budget from an early age.

Remember to update your will and nominate a guardian for your children. Your assets and insurance must be able to support your dependants until they can look after themselves.

ESTABLISHING A CAREER You may have climbed the corporate ladder and are now established within your career. From a financial planning perspective, this is the time when you usually have good cash flow. Ensure that you are contributing the maximum towards your retirement fund. This also counts as proactive tax planning, as contributions are tax deductible.

You need to align your underlying funds within all your investments to your required long-term strategic rate of return. This is the minimum annual return required to ensure that your investments will provide the income you need to meet your lifestyle goals for the rest of your life. Diversify your investments to ensure that you don’t have all your eggs in one basket, and reduce financial risk.

IN YOUR FIFTIES AND SIXTIES You may be taking care of your parents, aging family members or loved ones who simply don’t have enough income to support themselves.

Remember to also consider your own retirement needs. You have to visualise what your retirement will look like, what you want to do in your retirement years, and understand how you will be able to achieve it and where the money will come from.

Understand what you have to do to ensure that you don’t become a financial burden to your children. It’s important to think about the cost of assisted living, healthcare and how these expenses will increase with inflation. Will your retirement income fund these expenses for the rest of your retirement - which can span thirty years or more? Selling large family homes and downscaling is not necessarily cheap in the short term but does have long-term benefits.

Your lifestyle goals like purchasing luxury cars and travelling the world need to be considered within the context of “How much is enough?” Nobody wants to work forever. You have specific dreams, goals and a lifestyle to maintain well into your retirement.

It is important to strive for financial “peace of mind” knowing that you can

live the life you desire with the investments you have accumulated. Thereafter,

you don’t need to work – you would want to work. This mindshift will allow

you to make the transition from a stable salary to living off your investments

and passive income.

If you have surplus income, you need to invest it to have extra income in

your retirement years. You can use this income to assist others, support a

charity organisation or enjoy a well-deserved holiday.

RETIREMENTYou need to know what your income and expenses will be in retirement,

as some will decrease while others will surge. Typically, fuel costs will be

less but medical expenses will increase and you will probably need more

money for holidays and luxury expenses.

It is important to meet with your financial planner on a regular basis to convert

your retirement savings into appropriate vehicles to fund your retirement

needs. You have to agree on the optimal solution taking cash flow and

taxation into account, when considering retirement vehicles. Essentially, your

investments will have to provide an income to replace the income received

from your employer.

Review your investments to ensure that they are aligned to your strategic rate

of return to fund your lifestyle needs for the rest of your lives.

The main focus areas in retirement are:

• Maintaining the capital value of investments over the longer term to

achieve growth in excess of inflation

• Considering financial risks

• Diversifying your investments

• Actively managing your investments

• Considering the on-going need for life cover

• Staying close to your financial planner

WHEN YOU REACH YOUR SEVENTIES AND EIGHTIESAt this age, you will generally spend your income on living expenses, travel,

holidays and medical costs. This is the time when you should be enjoying

the fruits of your savings. Revisit your will and decide on who will manage,

distribute and protect your wealth after death. Make sure that you can pass

your assets directly to your nominated beneficiaries.

Many people have to deal with the loss of their spouse at this time. It is

important to understand what your future expenses will be and if your

existing investments can provide for these. There may be life assurance

proceeds that will need to be invested. Review your estate plan and will

with compassion and extra care. This is the time to consider downscaling

or living in a retirement village.

BOTTOM LINEEvery stage of life has its own financial considerations. It is important to

review your financial plan as you go through the different stages. Knowing

what financial milestones to hit when will help you to create and protect

your wealth now and in the future.