In Financial Matters, Life is a Marathon, Not a Sprint.
As your priorities and tastes change over time, the financial decisions that you take during the various stages of your life should also change. Most probably you are familiar with the saying, "Life is a marathon, not a sprint." Adopting a marathoner's approach to life allows you to take a more holistic look at your overall financial picture and enables you to better prioritize your financial decisions.
As with many other things in life, financial matters are not a matter of "one-size-fits-all." We are all different and different families have different dynamics. The same holds true for the stages of our lives - different stages bring forth different needs and issues. However, there are certain patterns that are common among with those who seem to have managed their life financial affairs in an adequate manner over the course of their lifetime.
In the following advice, we present some of the strategies of financial management in the various decades of life, the 20s through the 60s, which have been advocated by financial experts.
Your 20s are an ideal time to establish some good money habits;
Do not delay debt repayments for when you are older and making more money.
Remember that as you grow older and make more money, most probably your expenses will also grow.
Start an emergency fund:
As you are working on reducing your debt, simultaneously you should also start creating an emergency fund. One of the ways this can be done is through a direct deposit from your paycheck account into a savings account. This would avoid the temptation for you to spend this money before it can be saved.
Start working on your retirement:
Even though retirement is far away from your current reality, the earlier you start working on your retirement, the better. Small amounts saved during your 20s could make a huge difference during your 60s.
Here things will start getting a bit more complicated, as more financial issues come along with your increased responsibilities in life. During this decade, most people experience an accumulation of various types of debts from such things as student loans, credit card payments, a car loan, mortgage, and personal loans. But in this stage, you need also to become more conscious of saving for the future, for such things as retirement savings and your children's college funds, as typically the 30s is the time when you would start a family. What would be the best way to juggle all these matters?
Continue to tackle your debts:
Work together with your banker and other financial professionals and make use of the possibilities available to you, such as debt refinancing and consolidation. You should try to lower your interest burden and strengthen your cash-flow position.
Consider your family future needs:
If you have or plan to have children, start saving for their education and continue funding your emergency fund.
Consult insurance professionals:
Make an assessment of your overall insurance needs and coverage. Your aim should be to as far as possible to provide for the financial well-being of your family should anything happens to you.
This is the decade to ensure that you are on top of your financial matters.
Consult a professional to help you determine if your retirement savings are adequate. Here it is important to realize that you can borrow for such things as college but you can't borrow for retirement.
The 40s are typically your high-earning years, so it would be good to consider investing. Consult professionals and let them help you determine which investments are suitable for you and in line with your goals and risk profile.
Start questioning the reasons:
Just because you're making more money doesn't mean that you should buy a new car or embark on a pricey home renovation. Make sure your financial picture is clear and your priorities in line with your goals.
The 50s and 60s
These are the decades where you are approaching a critical phase in your financial management. Fortunately, it's not too late to recognize issues and make adjustments prior to your retirement.
Check if your investments and savings are suitable:
As you are getting closer to retirement, lower the risk of your investments, consult professionals to help you lower your risk profile, and make the shift from capital appreciation to capital preservation. In addition, if possible, start saving as aggressively as you are able - creating an emergency savings pool of two years of cash would be ideal.
Prioritize your needs over that of your children:
The clock is ticking and there is a very real possibility you may not get to work as long as you thought you would. It is okay to continue providing for grown-up children to some extent but not at the expense of your own security in retirement.
Make key retirement decisions:
Educate yourself about issues such as healthcare costs after retirement and take decisions to deal with those issues. It may be the time to start asking yourself some tough questions such as, "Do we really need a home this large or would we be better to sell it and use the cash to strengthen our retirement fund?"
A marathoner starts out at the beginning of the race thinking of the entire distance to be covered and paces himself or herself over the entire distance; a sprinter runs a short distance as fast as possible. In this financial management analogy, a sprinter would try to do it all in one decade, usually the decade preceding retirement. Considering the advice provided above, it's clear that taking a marathoner's attitude towards your financial management is the preferred choice.