While no two people will have identical life experiences, it is possible to follow some general guidelines on how our financial lives will progress through different stages.
Setting out the characteristics of various life stages can be a useful way to help highlight financial issues and priorities. Of course this will vary from person to person, but the general foundation this provides is something we can all build upon.
During our twenties and into our thirties most of us will experience many firsts, which will all have a profound impact on our financial future and will require a planned response if we are to take full advantage. Our early employment brings with it the chance to establish some sound savings habits that can last a lifetime and can fuel wealth creation.
Finding a life partner brings greater responsibilities and expenses along with increased income and assets. This requires a higher level of financial planning so that life, income protection and disability insurances are put in place to help protect each other’s livelihoods and savings plans are put in place to build toward major goals, such as buying a home or travelling.
Starting a family and buying a home in this phase will also require protection plans to be well established as a priority.
From an investment standpoint, your early years are an opportunity to incorporate growth assets such as shares and property into your wealth creation strategy, given the amount of time you will have to take advantage of their greater long term growth potential (assuming this also fits your personal risk profile).
Middle aged consolidation
Hopefully your income will be increasing, but your expenses may also be burgeoning as children grow, education costs escalate and perhaps the family home is upscaled. This puts an increased emphasis on budgeting so that debts and expenses are kept in check and a longer term savings and investment plan is in place.
Superannuation needs to be given adequate attention too, as your super assets will likely be growing and thus giving you more scope to diversify the way they are invested.
Protection needs during this stage will peak, to cover the growing family expenses and mortgage commitments. Neglecting this important aspect of financial planning could result in financial catastrophe if breadwinners and homemakers are not adequately insured.
Cresting the hill
Assumedly, the nest will begin to empty, mortgage expenses will reduce and insurance needs will begin to taper. These factors can create an increase in discretionary income and an opportunity to supercharge important investments. This could include loading your superannuation to maximise concessional limits and expanding your property, share and managed fund portfolios, so that dreams of financial independence can start to become reality.
This is also a time when we should be looking at positioning our assets to take full advantage of the tax opportunities that present themselves in the run up to retirement.
Stepping into retirement should hopefully be stress-free if you’ve planned carefully. You should ideally enjoy the well-earned fruits of your labour but this requires careful structuring of your portfolio, using a combination of growth and income based investments and income stream plans, as well as planning the liquidity needed for major purchases and lifestyle experiences. At the same time your social security position needs to be considered, so that you can take full advantage of entitlements.
Passing on your estate to beneficiaries needs due consideration too, so that the wealth you have built is preserved in accordance with your wishes and for the maximum benefit of those who will inherit it.
Why advice is so important
Each life stage has its challenges and complexities and this is where some experienced, professional advice can make all the difference. Your financial adviser is ready to guide, coach and support you on every twist and turn, so that you can be confident and secure along every stage of the journey.