From career start to retirement: How to plan your finances at each life stage
Depending on your age, we have tried to construct what could be the possible financial situation and advise you what you should do at each of these stages.
A good financial plan includes, among other things, saving and investing over the years, having adequate insurance and planning early for your retirement years to build a corpus. (Reuters)
Financial planning has to be a continuous exercise throughout a person’s working life. The earlier you start, the better. You need to set your goals in life and plan your finances accordingly. A good financial plan includes, among other things, saving and investing over the years, having adequate insurance and planning early for your retirement years to build a corpus.
However, at every stage of one’s life the financial requirements would be different. Here we set out some of the crucial elements that should form your financial planning package at each stage of life. Depending on your age, we have tried to construct what could be the possible financial situation and advise you what you should do at each of these stages.
Life Stage 1: Start of one’s career: Age band: in 20s Personal Situation: Single, minimum surplus Goals: Purchasing a vehicle; meeting day-to-day needs in case of sudden job loss
Investment steps: Buy a health cover Purchase life cover if your parents are dependent on your income Create an emergency corpus Start investment portfolio with small investments in stocks and fixed-income instruments
Life Stage 2: Start of Married life Age band: 30s Personal situation: To provide for needs of spouse and young children besides Goals added: Buying a house, a bigger vehicle, and preparing for family Investment steps:
Review health insurance cover; consider changing to family floater Increase life insurance and disability cover to adequate level Update beneficiaries for insurance Including spouse as nominee in your investments Start initial accumulation for retirement by setting aside around 10-15% for the corpus
Life Stage 3: Maturing Family: Age Band: 40s Personal Situation: Higher surplus with rising income Goals added: Added responsibility of providing for children’s education Investments steps: Start early to create a corpus for child’s needs, especially higher education Invest regularly in your child-related goals from your monthly salary Consider investing in child-specific plan Continue investing in equities, debt and gold Ensure your child’s medical costs are covered in your health insurance
Life Stage 4: Nearing retirement Age: 50s Personal Situation: Healthy surplus and corpus; lower responsibilities; children earning Goal: Start providing for retirement years Investment steps: Review portfolio to see whether it would meet retirement requirements If not, increase allocation towards long-term, safer investments Invest in instruments that generate regular income or provide annuities later Gradually shift money to less-riskier investments such as bonds and debt mutual funds Increase health insurance cover
Life Stage 5: Retirement years Age band: 60s and above Personal situation: Spouse only dependent Goal: To have portfolio that generated regular and adequate cash flow Investment steps: Take stocks of all your old-age savings including investments in pension funds and provident fund Shift investments mostly in debt instruments that provide regular income such as Monthly Income Plans Ensure that you have enough investments that are liquid so that you have money when needed. Retain a slight exposure to equity (10-15%) if you are still not risk-averse Ensure you have adequate health cover Life insurance premiums may be stopped unless you have dependents and have left enough in the corpus for your spouse if you are no longer there Write a Will for your legacy