How goals change at different life stages
Changes are bound to happen in your life as you go through different stages in life. What you want now may not be the same as what you wanted ten years ago. People change, and so do their goals and aspirations. This is why planning and goal setting must be a part of one’s financial management.
Setting financial goals is easy. In this article, let’s explore the different financial goals for life stages, financial goals and strategy, how financial goals change over time and why you need to plan accordingly for each life stage.
Different life stages
Once you start earning, the different stages in life can be listed in the following manner:
Early career years
This stage includes people from the ages of 25-35. At this stage, you have just started working. You are fresh out of college and it’s probably the first time you have financial independence. In many cases, the income is generally not very high. Some of the most common financial goals at this stage include paying off college debt, buying a car and building savings for the future.
A lot of people avoid thinking of financial planning at this stage. However, it is very important to be mindful of your income and expenses in order to avoid problems like debt traps.
Career-building stage
This stage includes people from the ages of 35-50. The income, expenditure and overall lifestyle of individuals would have changed dramatically compared to the previous life stage. During these years, people are looking to improve their careers. Additional responsibilities come in the form of family and children.
If you were looking to buy furnishings for your rented house in the previous life stage, you are probably more interested in buying a house itself during this stage. Other goals include:
a) Higher savings and investments for the future
b) Adequate life and health insurance plans for the entire family
c) Greater contribution towards retirement fund
d) Repayment of EMIs on home loan, vehicle loan etc.
Pre-retirement years
This stage includes people from the ages of 50-60. As retirement approaches, the income of people reaches peak levels. As a result, they generally try to use their wealth for helping the family.
At this stage in life, the main financial goals are:
a) Paying for their kids’ college education and wedding costs
b) Repayment of all their debt: It is important to repay all your debts before you retire
c) Building a retirement kitty: Higher savings means greater financial independence during retirement
d) Reassessment of asset allocation: It is time to slowly transfer funds from high-risk investments to safer avenues
Post-retirement years
This stage includes people who are above 60. During this stage in life, you may not have a steady source of income. However, if health supports, you can still earn money if you wish. Many people start new businesses and indulge in part-time jobs during the early stages of retirement.
Other people may want a more laidback lifestyle. They travel to new places and pick up new hobbies to spend the time.
Proper management of savings and estate planning are some of the important financial goals at this stage in life.
Conclusion
Change is a natural part of life. But as an individual, it is very important to accommodate these changes financially. As you grow older, your life goals and financial goals change. That’s why it is necessary to monitor your goals from time to time and make the required changes in your financial plan.
What next?
It is natural to have different (and opposing) financial goals at each life stage. But which goal should be given the priority? Find out in the next article about the importance of prioritising goals.
Disclaimer
Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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Effective financial planning includes managing debt
IntroductionMany smart individuals resort to financial planning to handle their finances better. They make a budget, invest towards their goals, and plan their taxes. Yet, despite everything their financial plan could fall short. The reason is not hard to understand. While all other activities of financial planning are undertaken, managing debt burden is often ignored. This ignorance unbalances even a good financial plan, and makes it go awry. This is why it is crucial to have effective financial management. To enjoy the effective financial planning, managing your debt is important. Do you know how you can do so? If you don’t here are some tips for you - How to manage your debt• Identify your liabilitiesThe first and the foremost task is to know how much you owe and to whom. Until and unless you know your actual liabilities you cannot make a plan to repay them. So, work out the details of your debts, their interest rate, the outstanding amount and the outstanding tenure. Once you know how much you owe at any given time, you can proceed to service your debt.• Repay on time One of the most important ways to manage your loans is to repay them on time. Every loan has a monthly repayment date. Stick by this date to avoid late payment fees and charges. Paying on time is also good for your credit score which is negatively impacted in case of a default. To ensure timely repayments you can opt for direct ECS with your bank. Your bank account would be automatically debited at a particular date for every instalment due. Your repayment would be done and you would be spared the burden of remembering the date.• Avoid bad loans Personal loans and credit card loans, though easily available, are not a very good choice. It is because of two reasons. Firstly, they have very high interest rates. Secondly, they are unsecured loans which put a negative impact on your credit score. Try and avoid these unsecured loans. Instead, opt for secured loans like loan against property or loan against your investments. These loans are secured against your assets. They have a lower interest outgo and are also good for your credit score.• Prepayment is not always goodThough prepayment reduces your loan liability, it is not always a good choice. In many cases prepayment involves a charge. Even in those instances where prepayments are free, you incur an opportunity cost. The money you spend on prepaying your debt if invested elsewhere might yield you higher returns than the interest you are paying. Let’s understand it with an example – Suppose you have Rs.50, 000 in surplus funds. You can either prepay your home loan or invest this money in a good scheme. Your home loan’s interest rate is, say, 9% per annum while the investment avenue promises you 12% returns. If you prepay the loan you would be saving the 9% interest outgo on Rs.50, 000. However, you would be losing the 12% return which you can earn if the money is invested. Since the investment return is better than the debt interest rate, prepayment is not a good option.So, always weigh the scales before prepaying your debt. Try and direct your additional funds to lucrative investment avenues instead to earn higher returns.• EMI v/s monthly income ratioIdeally, your debt EMIs should not exceed 15% to 20% of your monthly income. You should have at least 80% to 90% of your earned income in hand (after paying off the debt instalment) to meet your lifestyle costs and for saving. If EMIs are more than 20% of your income, it might create a cashflow problem. So, when you are choosing loans, ensure that the EMIs don’t put a strain on your income. • Use your loans for tax planning Home loans and education loans give you tax benefits. The interest you pay on home loans is exempted under Section 24 while the interest paid on education loan is exempted under Section 80EE. Since your loans give you tax relief, use the benefits if you have these loans.Conclusion Managing your debt is an important aspect of the financial planning process. For an effective financial management and to reap the benefits of financial planning in business, don’t forget to include debt management into the planning process. DisclaimerInvestment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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Save first, spend later
Save first, spend later“Don’t save what is left after spending; spend what is left after saving.” The founder of Berkshire Hathaway, Warren Buffet, once said. He isn’t known as the Oracle of Omaha for nothing. He certainly knows a thing or two more than a layman would, and as is evident from the ay he lives his life, investments and financial growth over the years, it would be a good idea to learn from one of the most financially successful entrepreneurs of our time. And he certainly does know about the importance of saving. Even this article’s thrust is about the importance of saving, useful investment tips, and how you need to save before you spend. The benefits of implementing basic financial planning tips are manifold. Some of them are: Why save first, spend later?• It prevents overspending Instant gratification has become a trend in today’s age. A lot of people tend to overspend their hard-earned money on unnecessary things. As a result, you are left with little or no money to plan your investments. But you can curb this bad habit by saving first and then spending. These personal financial planning tips can allow you to invest more money and, consequently, reach your goals faster. • You can plan your goals wellYou may want to buy a house, a car, take an overseas trip and fund your child’s education. But if you can’t save enough, you’ll never be able to fulfil them. On the other hand, by saving first, you’ll have enough money to invest towards each life goal. This way, you won’t have to pick and choose your life goals. • You can create an emergency fund An emergency fund can take care of unplanned financial blows. But this fund is compromised if you spend before you save. Your expenses might blind you to the need of an emergency fund. But, such myopic vision can be corrected. If you save first, you have sufficient funds to build an emergency kitty. In fact, by the end of the year, you can build more than a month’s income by saving just 10% every month. For example, say your income is Rs 10, 000 per month and you save 10% of your income every month. This means you save Rs 1,000 every month and by the end of the year, you will have Rs 12,000 in your emergency fund. Hence, the amount will be more than your monthly salary. • You can enjoy a longer investment tenureSaving regularly for investing can also give you the benefit of compounding. For instance, if you invest Rs 1,000 every month at an interest rate of 10% for 30 years, you will receive Rs 22.6 lakh. This despite the fact that you saved Rs 3.6 lakh only. So, if you want to build your wealth, keep saving for a longer tenure. The higher the amount you save for investing, the higher the amount you’ll receive in the end. However, you can only achieve this if you save first and spend later.To sum up Warren Buffet was not born rich. He made his wealth by following the simple mantras of life, consistently and without fail, one of them being the golden rule of saving first and spending later. So, if you want to be like the Oracle himself, follow his principles. You wouldn’t need a financial advisor with these helpful family financial planning tips. What next?Once you start saving, you will have to make a financial calendar for yourself. That’s because every quarter has its own significance.DisclaimerInvestment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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