Financial planning is process where a person takes a complete look at their financial situation and then builds a specific financial plan to reach their financial goals, according to SmartAsset.
Many people may feel that financial planning is not necessary. People in their 20s may think that it is too soon for financial planning while people in the 50s may think that it is too late for them.
No matter the age group, financial planning should be the one thing people need to consider if they want to secure their financial future.
Here are financial planning tips for your 20s, 30s, 40s and 50s:
Tips for your 20s
Katlego Gaborone, a financial planner at Momentum shares his financial tips for people in their 20s:
– Consult a financial adviser to assist you with planning and setting realistic goals as well as offer guidance on how you can invest your money.
– Pay off your debts as quickly as possible including student loans
– Have a budget and be motivated to stick to it – buy items that you need and pay for them with cash.
– Start investing your money, even a small amount and earn compound growth.
– Re-invest the money that you receive when you switch jobs
– Get life insurance and medical aid as well as protect your income to prepare yourself for unpredictable situations.
– Having a healthy credit score means that banks will grant you a loan at a lower interest rate when needed.
Tips for your 30s
In your 30s it’s all about establishing your career, starting a family and finding your place in the world but it’s okay to invest in yourself too, according to Sharon Moller, Financial Planning Coach at Old Mutual Wealth.
Moller shares financial tips for people in their 30s:
– Have clarity about what your planning for and how your finances supports that plan.
– Speak to a qualified financial planning professional as well as lifestyle financial planner who has some coaching qualifications or experience.
– Re-examine your financial plan on a regular basis because your view of life evolves as you grow
– Start saving as soon as possible, even if it’s only R100 a month and then a month later you can increase the amount
– Review your relationship with finances and money.
Tips for your 40s
Rita Cool, Certified Financial Planner at Alexforbes and Kirsten Smit, Advisory Partner, Citadel offer their top financial planning tips for people in 40s:
Know the ins and outs of your cash flow
If you know your cash flow then you can ascertain
1. How much you can save each month
2. How you can potentially increase your earnings and thus save more.
Smit said: “It is important to differentiate between essential expenses and discretionary expenses. Your morning Vida coffee, while awesome, isn’t essential, and by cutting this out you could be on your way to saving an additional R1 000 per month.”
According to Smit, boosting earnings via a side hustle or securing a raise/promotion/new role is a great way to expedite your way to financial independence.
“Just be sure that this additional income is appropriately directed towards savings.”
Sort out your debt
Interest rates on the rise make it essential to try and pay off all debt as soon as possible with a focus on eliminating high-interest debt first.
Smit said that as soon as debt has been paid off those same contributions can be directed into investments.
Cool advises people to “look at their debt and work out a repayment plan”.
“Do a budget, identify what you can allocate to pay off debt like credit cards and personal loans so that you do not have debt when you retire,” Cool said.
Investing
When it comes to investing, diversification is key.
According to Smit, diversification covers more than just choosing a retirement annuity (RA) over a tax-free investment, it means that people need to ensure:
– that their overall asset allocation is appropriate
– they have exposure to different sectors, geographies and currencies
– they have considered institutional risk; and
– they have taken liquidity requirements and time frames into account.
“In your 40s, you still have 20+ years ahead of working so it is essential to ensure that your investment portfolio is equity-centric to ensure that you outperform inflation and maximise your opportunity for growth,” Smit said.
Savings goals
People in their 40s need to set and know their savings goals so they know what they are saving towards.
Cool said: “Set your goals, short term, medium and long term - without them you don’t know what you are aiming for.”
Tax efficiencies
Smit said that as a corporate earner, the ways that people can save on tax are limited so they need to be smart and maximise every opportunity.
The two easiest ways are to ensure that they have contributed the most they can to their retirement fund and make an annual contribution to a tax-free investment.
“It doesn’t matter whether you have a pension, provident fund or retirement annuity (RA) fund – or even a combination of all three – you’ll qualify for a deduction of up to 27.5% of your taxable income (up to a maximum of R350 000 per year),” Smit said.
“Any South African tax resident (including minor children) can have a tax-free investment. You are able to invest up to R36 000 per year with a R500 000 lifetime limit. Also remember that tax-free investments aren’t limited to money market type funds – you are also able to invest in ETFs and unit trusts.”
Get your life cover sorted
Cool said, “You probably have not picked up too many health issues so lock in that health status in your premiums when making sure your loved ones are looked after if you die. Ensure you have a disability benefit, if you don’t already have it through work.”
Ensure that your affairs are in order
Most people in their 40s have dependants including – spouses, children and parents – so it is essential to ensure that:
– their will is up-to-date and in line with their long-term estate planning strategy.
– their beneficiary nominations on their policies and retirement products are accurate.
Tips for your 50s
John Manyike, head of Financial Education, Old Mutual shares his financial planning tips people in their 50s:
– Ensuring that retirement planning is a priority
– Having a valid will in place/ estate planning to ensure that there is enough liquidity in the estate to cover and taxes, capital gains tax, costs
– Focus on paying off debt so that when they get to retirement they don’t have to worry about this
– It’s never too late to save, if retirement age is 65, there is 15 years to accumulate as much as possible.
– Be selfish with your money, don’t spend too much on children and family members, who is going to look after them in retirement
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