It is important to understand that your financial health and goals should be adjusted and measured based on the financial stage you are in your life. In the following two articles we will discuss some generally accepted goals and considerations for each life stage, but it is important to remember that each person’s situation is unique and thus different situations can influence these goals.
Early career
During this life stage most people have debt, perhaps from financing a vehicle or having a student loan. Many people in this life stage will also apply for a credit card based on their salary. Although having debt is normal and it is a good way to start building a credit record, it is important that debt doesn’t get out of control. Unfortunately, we aren’t taught how to manage our finances at school, and people tend to be irresponsible with the new found freedom of being financially independent. People in this life stage should be encouraged to build a good relationship with their money and form good habits. Living within your means, budgeting and understanding where your money goes each month are just some of the fundamental habits that need to become second nature and need to be established early on.
Some of the important goals during this life stage is:
- Building up your savings in an emergency fund that can be used for those inevitable financial crises times like repairing a car problem or visiting the dentist.
- Prioritise paying off debts. Any extra commission or bonuses earned should be used for lowering your debt obligations.
- Protect any asset that you have at this stage, such as a vehicle, by taking out short-term insurance. This is important because if a risk event takes place, the pool of assets that you are starting to build up, will not be diminished.
- During this life stage your biggest asset is your ability to earn an income, therefore disability income protection is absolutely critical.
- Having medical aid is not the main goal at this stage since most people will be young and healthy, but make sure that you either have a basic medical plan in place or at the very least that you have a hospital plan. This is important because hospital costs are expensive and the risk of being hospitalised is, of course, not zero. Should you be in a situation where you need to pay for hospital expenses out of your own pocket, it can set you back in terms of reaching other financial goals rather drastically.
Family and career building years
During this stage people are likely more settled in their career and are earning enough to save a fair amount of their income. People tend to want more structure and stability during this life stage and usually the first step is to buy property that fits their needs for a growing family. Having children comes with important financial responsibilities and planning during this stage is crucial as their future can’t be left to chance.
Some of the important goals during this life stage is:
- Life insurance will be crucial, not only to provide for your family should something happen to you, but the bank will likely also want a life insurance policy as collateral to cover the cost of your outstanding mortgage.
- It will be very important during this life stage to have a will in place.
- You will have to add your children to your medical aid which will bump up this expense. It is important that you have some medical aid in place from the age of 35, because for every year after the age of 35 that you are not contributing towards a medical aid, you will pay a “Late Joiner Penalty” that is an additional amount added to your premiums for the rest of your life.
- Although expenses during this life stage will be high, it is important to also prioritise your savings. Having an emergency fund as a fall back remains important, but it will also be important to set out particular financial goals. Such goals can be saving for your child’s education and university fees, saving for shorter term expenses such as a destination family holiday can also be planned during this stage. The most important goal to save towards will, however, be your retirement savings. Make sure that you have some sort of monthly contribution towards a retirement product set up.
- Disability cover should remain in place and adjusted according to your higher salary.
During these first two financial life stages it is important to build up assets – not just physical assets, but also financial assets. Along with this goal comes an emphasis on covering risk by having adequate cover in place. In the next article we will look at the financial goals of the life stages following the accumulation phases.
