Financial Planning for Every Phase of Life

Depending on what stage of life you’re in, you will have different needs and priorities, which requires a different approach to your finances. From the heady freedom presented by graduation to the deep responsibility as you gaze down at a child you have brought into the world, each life stage carries financial implications. Whether the life events are the more traditional milestones, such as marriage through estate planning, life events can also include things like sabbaticals, dealing with mental illness, embarking on solo travel, or facing job loss.

Whatever your position in life, it is important to consider the financial planning required for you. If you do it right, proper financial planning can be the difference between hitting rock-bottom and thriving. Being good with money is not just about earning, it is also about being proactive with how you manage it and understanding that there is no ‘one size fits all’ approach.

What is Financial Planning?

A financial plan involves establishing where exactly you are now financially, where exactly you want to get to financially, and what exactly that would require strategy-wise. This should take into consideration factors like calculating net worth, cash flow, financial goals, an emergency savings plan, managing debt and expenses, addressing risk management, and building in future-focused aspects such as a retirement plan. When it comes to mapping out goals and strategies, it is a smart idea to enlist the expertise of a financial advisor.

Below we look at a few typical life phases and the financial considerations of these:

Scenario #1: Getting your first job

You have landed your first job – you are a financially viable citizen. With financial freedom also comes responsibility. Consider financial obligations like travel to and from the office and perhaps the rent for an apartment. You also need to terms with new tax requirements.

Managing your first salary is a great time to set the groundwork of fiscal accountability. This financial resilience will help you handle unexpected events in the future.

Consider the below financial checklist:

  • Read and understand your employment contract. Are there any benefits, such as medical aid or RA contributions, that I can benefit from? What does my tax look like?
  • Find out how to maximise employer contributions. An employer-sponsored plan, such as a Pension or Provident Fund, provides employees with benefits like retirement savings and healthcare coverage at little to no cost, with tax advantages for both employers and employees.
  • Prioritise your health. It is the platform through which you can enjoy the rest life has to offer. Am I covered in case of a health emergency? There is no stock standard health insurance; you really need to shop around. Don’t forget, getting medical aid when you are young is rewarded.
  • Watch out for the “little indulgences”. Budget, just do it. It will pay off megafold. Use the 50/30/20 budgeting rule, comb through your bank statements and know where your money goes. Pro tip: automate your savings, fixed monthly expenses, and debt repayment.
  • Start saving early to benefit from the magic of compound interest. An emergency fund of three months salary is a must and offers you a financial buffer.

Scenario #2: Getting married

Getting married is an exciting time to be celebrated! Your lives are now intertwined with this other person. Weddings can start a turning point towards an exciting new phase as you journey with your partner into your future together.
Financially, there are a lot of doors that can open when you have a dual income household and share costs; especially if both of you have good jobs. There is also the benefit of reduced risk as one can financially support the other in times of possible financial crisis or distress.

Some key financial points to consider when getting married:

  • Being on the same page as your partner on financial matters is of utmost importance. Money can be a very emotional matter but requires a level head so make sure to find ways to communicate that are free of conflict.
  • Having the “money conversation” is not just a matter of exchanging salary amounts; it is important to understand your partner’s approach to money management, spending habits, debts they are servicing, and their financial goals.
  • Depending on whether you get married ‘in community of property’ or not, there is a legal aspect of marriage to consider, which has a major effect on you financially, for example, for something like getting out a new credit card. Drafting a will is crucial for this.
  • Marriage may or may not impact your current health insurance plan, estate planning documents, power of attorneys, etc.
  • Even if you have separate finances, it is a winning idea to budget together around shared things like holidays, etc., as this creates real expectations, shared goals, and ensures you are on the same page. Having a good understanding of the cost of how you live together helps determine a financial life together.

Scenario #3: Starting a family

Another major milestone in life that has financial implications is having children. Bringing little ones into this world can mark wonderful life change. Financial preparation for parenthood involves proactive planning to ensure the best possible financial outcomes for both parents and child. This is because the general notion that “Children are so expensive” is sadly true!

Ideally, planning for kids should start before you’re pregnant. This is because there is a lot to consider: everything from medical costs of the birth, being able to take time off work, the cost of another month to feed for a minimum of 18 years, clothing and other costs, healthcare for them, childcare and school.

First off, the associated medical costs can build up in a blink of an eye. This makes it important to get appropriate medical aid coverage before pregnancy to avoid waiting periods and understanding coverage for prenatal care and childbirth.

Image Source: Unsplash

Understanding your maternity and paternity leave means knowing your entitlements from your employer and exploring options for additional financial support, such as UIF benefits.
If you work for yourself, having the right amount of savings to tide you over for this time. In the short-term, savings should cover budget shortfalls of the mother typically needing to take time to give birth. Alternatively, consider adoption agency costs or the possible need for treatments like IVF.

From a paperwork perspective, you’ll need to update financial plans, such as life insurance and wills, to account for the new addition to the family. After the child is born, there is the financial implication of childcare – or if one of the parents will be working less to focus on raising the child.

Future child-related expenses to consider include your child’s university education. To ensure your child gets the best quality education you can afford, we suggest you start saving early.

Scenario #4: Buying a house

A major life aspiration and financial goal for many is buying a house. This is because it is considered an investment into an asset – versus a monthly expense necessary for boarding – that can also serve as a retirement nest egg. It goes without saying that there are a lot of financial factors to consider when buying a house. Much like a child, a house is a long term commitment.

Before you buy:
Affordability and money management is key here whilst keeping your lifestyle needs in mind. Consider the full range of the costs – over and above the actual house sale figure.
Understanding your debt-to-income ratio (DTI) is a starting point, as it determines your mortgage eligibility. Mortgage lenders typically use a 43% DTI as a guideline, considering both front-end and back-end ratios. Then think about the down payment, with 20% often recommended to avoid private mortgage insurance (PMI).

Ensuring that it is an investment property versus a financial black hole depends on a few factors. When looking out into the housing market, think about the prospects of the area and the economic outlook.
Other things that should be included in all this thing around house buying are factors like the time of year and your future plans.

Image source: Unsplash

Once you have bought the house:
You’ll need to make sure you have adequate insurance cover for the building. This includes;

  • Short Term Insurance – Remember that the building and its contents need to be insured.
  • Long Term Insurance (Life Insurance) – Although not always a requirement by the bank/mortgage provider, it is a good idea to take out cover that will pay out in the event of death/disability to cover the bond. This ensures that you/your family is not left with a mortgage that you cannot afford.

Consider the following too: Will you live in the house or rent it out? What are the ongoing maintenance costs of the house? You have to also think about long-term implications that might include potential home appreciation and interest rates.

Scenario #5: Retiring

While planning from retirement should happen a long time beforehand, there are things to consider at this significant life stage. Assuming you’ve had a long and successful career, you’re about to start your golden years of well-deserved rest and relaxation!

This is a time where you can really make investments work for you. The true magic of compound interest means that, with enough money saved up in the correct ways, you can make your money make money, so to speak.

However, there will be some changes and adjustments. For example, living a more frugal and simple life is wise for ensuring your money lasts as long as possible. A slower pace can be difficult for some people who might be used to a faster pace. Consider hobbies that are more home bound and have lower costs, like gardening.

You might even start getting grandkids at this time. It can be tempting to give generously, but avoid overgiving. Instead, consider setting up educational accounts or other structured financial instruments or investments to support them into the future.

Helping your family benefit from generational wealth and leaving a legacy after you are no longer around might also be important to you. This is where your last will and testament and estate planning comes in. Your will should detail who inherits your assets like property and money, taking into account various circumstances such as ex-spouses, dependents, offshore assets, debts, and taxes like capital gains.

Even retirement fund benefits are separate from the estate but subject to distribution regulations – much room for ambiguity. Trusts can be helpful here, but require expertise.

In Conclusion

Your personal planning is very tied up with some of your most personal moments. Money management requires careful consideration for each life stage, so it’s important to get clued up. Financial literacy starts with a financial plan first and foremost. Get in touch with TVC Wealth and Health Managers today, we can help support you on your next stage in life!

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