Many of us know that financial planning is a lifelong process. Our ultimate dream is to achieve a retirement life which we desire. This could mean being debt-free, having a passive stream of income and best of all, pursuing our interest and passion which we might not get to do in our younger days.
Our lifelong financial process can be split into 4 stages. What are the crucial aspects which we should consider at each stage? Read on to find out more.
Stage 1: Young Adult (Aged 20-30)
The young adult is new to the working world and naturally earns a low income. He/she is driven to succeed and increase his earning ability. Being single, there are little or no financial commitments for him/her. Some may have an education loan to pay off after graduation which can be fully redeemed after working for 2 to 3 years.
This is the best time for you to start some form of wealth accumulation to prepare for retirement as it could be harder to save money in later stages of life when financial commitments increase. With the high risk tolerance at a young age, investing in more equities and mutual funds on a regular basis is recommended.
Buying a house is common goal for young couples preparing to get married. Do the math on your liquid finances and CPF savings to find out which type of property best suits your financial ability.
Having a comprehensive insurance portfolio is a must as well for wealth protection. Key insurance components include Hospital & Surgical, Critical Illness and Disability.
Stage 2: Young Family (Aged 30-40)
At this stage, one could be married with or without children. With a moderate income, you would have more financial commitments such as a home loan and a car loan. Retirement planning remains an essential component in your portfolio. Risk tolerance starts to moderate as you are one step closer to retirement. A correct investment mix of equity and fixed income helps you to achieve financial goals easily.
Being a parent, getting insurance cover for your child prevents you from incurring unnecessary huge medical bills. Saving for your child’s future tertiary education should be your concern too. Another wealth protection area concerns the largest debt that you share with your spouse – home loan. If a spouse passes away, any outstanding loan is left to be paid off by the surviving spouse. Be responsible in financially protecting your loved ones in the event of your passing.
Stage 3: Mature Family (Aged 40-50)
Your children are grown up by this stage of your life. Your earning ability is at its highest and naturally your expenses increase as well. You could possibly take up a bigger car loan of home loan, thus increasing your financial commitment.
Child’s education and retirement planning are your main financial objectives for the long term. Therefore, your investments should be diversified in equities and debts instruments according to your age, available time and risk ability.
Stage 4: Pre-retirees or Retirees (Aged 50 and above)
By now, your home loan would have been fully paid off and your children are no longer dependent on you financially. This means low financial commitment which means your protection needs are its lowest stage. However, health insurance continues to play an important role as you age.
The security of your retirement savings carefully accumulated over your younger days, coupled with regular income, becomes your focus now. For that, investments should be more in fixed income which yields regular income with low risk.