Financial planning tips for different life stages

How much money is enough for you to be secure? When it comes to investing in your future, a little can go a long way. It all depends on when you start budgeting for the life you want to live.

“People in their 20s, 30s, 40s and 50s have different savings needs,” says David Cumming, Wealth Manager at Standard Bank. “It would help to consult a financial planner about your investments because there is no generic answer.”

Saving and achieving returns on your money doesn’t guarantee financial freedom when you retire. Setting aside enough today will determine your lifestyle in retirement, as well as the age you’ll be able to retire.

Do you know how much you will be able to live off and how long your capital will last? According to Cumming, reaching your retirement goal is predominantly reliant on three things: time, real return and contributions.

Student loan debt, car repayments, bond deposits and wedding costs are just some of the financial obligations that can delay saving for retirement. But the trick is to start as soon as you can and to save as much as possible.

financial tips for your life stage

This guide includes savvy tips for all stages of your adult life:

Smart financial moves in your 20s

Financial discipline in your youth yields significant advantages later in life, and the sooner you start building your wealth, the better. Consider minimising your debt and your expenses, while maximising savings. You can do this by living with your parents while you save for a deposit on your own house, instead of moving into a rental property and paying a landlord.

Retirement may seem far away, but the earlier you start saving, the more compound interest you will accrue. Automated deposits are easy and effective because they take money directly from your pay cheque and put it where you need it – into a savings account. This will help you become accustomed to saving early on.

Savings and investing in your 20s

• Short and medium-term savings:
  • Savings for a car
  • Savings for a home
  • Savings accounts
  • Tax-free savings account
  • Unit trusts
• Long-term savings and investments:
  • A retirement annuity can benefit you massively if you start early.
  • The percentage saved from your salary when you’re 20 years old will increase exponentially, compared to the percentage of your salary saved from when you are 35.
  • If you begin investing in your 20s, you can build an investment portfolio with a higher risk tolerance for higher gains over time – this can have a significant impact on your ability to begin building wealth in your 20s and beyond.
  • Property investment affords you the benefit of assets that appreciate over time, plus the long-term advantage of low repayments in relation to higher inflation in future.

Insurance in your 20s

Consider getting cover for younger people who do not yet have dependents, including:

• Medical cover or a hospital plan to cover unexpected health expenses.
• Disability cover to ensure you’re earning an income even if you can no longer work.
• Vehicle and asset cover to replace your car and household contents.

Smart financial moves in your 30s

In your 30s, you might be moving up in your career, starting a business, buying a home, getting married or growing your family. By now, you probably have a financial plan in place, either with the help of a financial planner or through your own research. Being in your 30s still gives you enough time to plan and save for the future. By focusing on a few key points, you can manage your finances better and ensure that you keep the future in mind.

Here are three key tips for maintaining financial control:

• Budgeting is just as important as managing your expenses; at this time in your life, commitments such as buying a property and covering family-related costs will continue to mount.
• Reducing expenditure on flashy cars, clothes, and entertainment will allow more to be invested in your property or savings.
• As your assets and family grow, estate planning and a Will are essential. You also need to focus on fostering strong financial discipline in your children and establishing shared financial goals with your spouse.

Savings and investing in your 30s

• Short and medium-term savings:
  • Set up an emergency fund to avoid unexpected expenses from throwing you off budget
  • Save for your children's education
  • Savings accounts
  • Tax-free savings account for you children
  • Unit trusts
• Long-term savings and investments:
  • If you haven’t begun saving for your retirement, now is the time to commit to an annuity and make regular payments. Commit as much as you can to your RA – your future self will thank you.
  • There are only 30-something years and fewer pay cheques than in your 20s until retirement at 65.
  • Your investment portfolio can still accommodate higher risk tolerance, resulting in high gains over time.
  • If you can, pay off a higher rate on your home loan to save you years in interest, and give you more cash to invest.

Insurance in your 30s

• Beyond medical cover and disability, life cover is essential if you are concerned about ensuring loved ones and dependents are covered should you pass away.
• If you are a homeowner, building and household contents cover is vital.
• Funeral cover is an addition that should not cost you too much but will benefit your family a great deal.

Smart financial moves in your 40s

In your 40s, the reminder to save and invest for the future should be top of mind. You’re heading into your peak earning years, but your time horizon is shrinking. As your expenses and commitments mount, budgeting becomes more important. You are probably still paying off your bond, and you may also have to cover family-related costs:

• If you have dependents, life cover is vital.
• Saving for your children’s education is a priority.
• Your Will needs to be reviewed regularly to ensure your estate planning is up-to-date and takes into account life changes such as marriage, children, divorce and changes to your assets and investments.

Savings and investing in your 40s

• Short and medium-term savings:
  • Set up an emergency fund and aim to have at least three months of expenses covered
  • Review your education savings for your children, as increases in education prices are often higher than average inflation
  • Savings accounts
  • Tax-free savings account
  • Unit trusts
• Long-term savings and investments:
  • If you haven’t begun saving for your retirement, start immediately.
  • There are at least 25 years and a limited amount of pay cheques until retirement at 65.
  • Use any bonuses you receive to boost your retirement savings.
  • How to build wealth in your 40's? You may wish to consider a portfolio allocation and management method aimed at balancing risk and return.
  • Consider additional property investment.

Insurance in your 40s

• In addition to medical and disability cover, life cover is critical in ensuring your loved ones and dependents are covered should you no longer be around to look after them.
• If you are a homeowner, building and household contents cover should be a priority.
• Funeral cover is an important addition to these policies.

Smart financial moves in your 50s

Many people get serious about planning for their retirement in the 50s. Financial planning in this decade is hugely important. This is the time to take a thorough look at your future and make some decisions. Review your financial plan to ensure you are on track. It’s important to assess your tolerance for risk-taking and to avoid making bad money choices. Although you may be taking care of older parents, don’t forget about saving for your own retirement.

It’s also wise to review your estate planning regularly, ensuring all information is up to date and accurate.

Savings and investing in your 50s

• Short and medium-term savings:
  • Your 50s should be a time for reaping the rewards of your hard work. Consider savings for the following:
    • Holidays
    • Grandchildren
    • Paying cash for a vehicle
• Long-term savings and investments:
  • If you haven’t begun saving for your retirement, start now by scaling back all expenses to supplement your contributions. You have approximately 15 years until retirement at 65, so use any available funds to boost your retirement savings.
  • Review your risk exposure in your investment portfolio as you have more to lose at this stage, and it could take longer to recoup losses from risky investments.
  • You should be aiming to pay off property, so you have fewer expenses leading up to retirement.

Insurance in your 50s

• Maintain your medical insurance, as it’s costly to join a plan at this age after interrupted cover.
• Ensure your home, its contents and your vehicle are insured, and the premiums up to date.
• Funeral cover is a good addition, albeit later in life.