Guaranteed Financial Independence through Financial Planning by Age
Financial Planning at any stage of your life is the beginning of your Financial Independence Journey. It is learning from your past, setting good financial goals for the future, and living in the moment over which you have control.Being financially independent and retiring early is something many people aspire to be. There are even controversial movements like FIRE that give many have followed.
However, I think wealth creation is a process, you can accelerate the process if you are lucky or if you had an advantage early in your life, but most of us will go through the process throughout our life.
While our financial needs and responsibilities are unique from person to person, our financial priorities are kind of similar according to our stages in life
- 25s and 35s- The Foundation
- 45s and 55s- Juggling Priorities
- 55s and 65s- wealth accumulation
- 65s- Preparation for retirement and retirement
THE 25 TO 35 YEARS – The Foundation
Manage your income and cash flow.
Invest in yourself and start a continuous savings plan. In this stage you have a low income in your first job, it’s advisable to avoid living beyond your means to avoid financial strain.
You may have time to recover if you make money mistakes. There are no shortcuts, if you are disciplined you can ensure you don’t create have too many mistakes that you will not be able to recover from in the future.
Enjoy your life. Don’t concentrate on your future that you don’t do what you are supposed to do today. If you enjoy your youth you will avoid midlife crises and regret later in life.
At this stage of life, you have a HELB loan, according to studies, many people start their financial life with a student loan. It should be a priority to clear the loan to avoid the compounding interest on the HELB loan.
Am not going to tell you not to take a loan for their first car. In your 20s this is a milestone formany. This is the time you want to buy your first dream car, since you don’t have plenty of money saved up and your income is not as high as you would like to afford a car, the next best thing is to take that car loan.
However, if you can accelerate the payment of this loan it will serve you well to release your funds to take loans that will grow you in the future and not for liabilities like cars and homes.
Avoid mobile loans that are designed for this stage of life and are very tempting. The interest on mobile loans is as high as 20 to 40%, which is just like taking a loan from a loan shark except there are no goons to beat you up.
At this age life insurance has very low premiums and will help you reduce the number of premiums you may need to accumulate later in life.
At this stage, if you are employed you probably have a medical insurance cover that you hardly use. However, when you take your motor insurance ensure you get a personal accident. This will provide you with funds in case of an accident.
At this stage, you should consider investing a greater portion of your investments in growth-oriented funds like equity funds, balanced funds, and personal pension plans.
The compound interest in your 20s is a superpower because It will increase 88 times over. This is the best time to start your money market.
Start your emergency fund. If you start your fund, it will be easy to keep growing it.
Start your investing in the money market and mutual funds. At this age, it is very tempting to try to gamble with shares because the returns can be high but you can also suffer big losses which will turn you off investing for the rest of your life. A financial advisor is recommended.
Tax and compliance In your 20s you are required to have registered for your KRA to file your tax returns.
In Estate planning in the 20s most people have their beneficiaries as their parents or guardians. Don’t put you, girlfriend, if you are not yet married
Start your pension plan. For you to have good money in your later days.
THE 35 TO 45 YEARS Juggling commitments
Manage Your Income and Cash Flow.
Your income is increasing because your career is growing and you’re able to buy more things. You have now worked for 10 years and there has been growth in your career and income.
Review what you have done financially so far. What needs to change due to life changes. You nowhave commitments professionally and personally.
Time management becomes a priority because you are now at the peak of your career and you may also now have obligation to family, kids, and your expenses have increased.
Savings is not a suggestion it’s a must. If need to have savings for specific goals to ensure you stay motivated and get financial products that have compound interest to grow your money.
Choose the right career so that you are earning a high income for your future. Get ways to increase your income through promotions in your current job. Decide if you have to move jobs or positions to increase your income or try other sources of income.
Now that you have a family and more expenses, it will serve you well if you have a budget so that you are in control of where your money goes. This will help you find ways to reduce your expenses.
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”— Robert Kiyosaki
An emergency fund is most important at this stage of life because there are more variables during this stage of life. You may have parents with medical issues, you have vehicles that may need a new expensive part. This financial crisis can be handled better if you have an emergency fund.
Choose where you will be living. Decisions like if you want to build a home, or buy a house will determine your financial goals.
According to the below study 25-30-year-old invest most in life insurance.
Only take loans that will help you achieve your goals like loans to buy land, start a business, etc. Avoid taking loans for cars or homes, these are not assets.
Remember recovery at this stage is harder. Taking up credit cards or mobile loans should not be entertained. These are pitfalls that are hard to get out of.
At this stage, medical insurance is very important. Your kids are growing and need more medical attention. Stay healthy to avoid lifestyle ailments. Also, take medical cover for your parents because if they are unwell it is your responsibility to pay the bills.
You should consider increasing your life insurance in your 30s. At this stage, you have people who depend on you. You don’t want to leave your loved ones suffering in the event you pass on.
At this stage in life, you also need to protect your investment and ensure it is not wiped out by one event.
You need home/Asset and business insurance to protect your investment in your business and all the assets you may have purchased for work or home like your computers which are required to make a living.
THE 45 TO 55 YEARS -Wealth accumulation
Manage Your Income and Cash Flow.
Your income is highest in this stage that is if you have been doing well in your career or business growth. You may not be broke, but your expenses are more because you are driving bigger cars, you live in nice places, going for expensive holidays.
Your money mindset in this stage is either you are celebrating or you are bitter.
You have reached a comfortable place in your financial journey and you are at risk of being complacent. Or you are regretting all your previous money decisions and may go through a mid-life crisis.
Financial mistakes at this stage are very costly and you may never recover and have to adjust your financial goals. It is prudent to reduce your risk in investment in this stage.
Take a reflection on your life so far. There are fewer opportunities that will do to earn those big monies.
If you have not been planning your finances well, it is time you review your goals, drop some that are time-barred goals like traveling the world, and concentrate on retirement and college funds.
You can also change the year you will retire from 65 to 70 if your health will allow it. Evaluate and know what you need to continue, increase or stop if it is not aligned to your goals.
Stick to the financial goals you had made earlier without changing your goals based on trends. If you were to buy a house in the city stick to it don’t change it to a beach house because that is what others are doing. Once you meet your goal you can add a new goal for the future.
Children’s education should already be underway. You don’t have a lot of time to plan for their education so you may have to sell some property for education or already invested.
Ensure you are debt-free by mid of this stage. Do not take up new loans or only take short-term loans for 3 or 6months. Increase your loan payment to ensure you pay off your loans so that you are not paying high-interest loans. Do not take any new loans at this stage. Instead, manage your high-interest investments to make them grow.
Review your insurance coverage and adjust accordingly. your medical, life and critical illness insurance premiums are very high at higher ages. Talk to your insurance agent and choose an insurance company wisely, do not choose one that kicks you out once you are a certain age.
Ensure you have also included your insurance expenses, your daily living expenses. Children are now going to high school or college if you got them in their early 30s.
Tax and compliance: Take advantage of tax relief. pay your taxes and file your taxes
Estate Planning; Have a will, your kids are older so they can take care of themselves.
55 to 65 years Retirement preparation
Manage Your Income and Cash Flow.
This is the last leg of working years before retirement. Review your financial net worth and list out your assets and liabilities. You are finishing your mortgage payment, children have gone to school, so you do have those big expenses.
You can choose to move from the city and live in low-cost cities. Treasury bonds are maturing so that is money. You have adult kids who are leaving the nest so your expenses are reduced and you have some extra money
Make sure your retirement is secured with Pension funds.
Have a balanced investment portfolio that beats inflation with income-generating investments like a mutual fund, rental income, treasury bonds, equity funds, and other passive income instruments. This will ensure cash flow is sorted for daily expenses now and after retirement.
Simplify your investment so you know what you need to get rid of and liquidate non-profitable investments. Consolidate and make it easy to manage with your advanced age.
“Preparation for old age should begin not later than one’s teens. A life which is empty of purpose until 65 will not suddenly become filled on retirement.” -Arthur E. Morgan
You are more mature in this stage and you are probably seen as a leader in your field. Remind yourself the “why” you want to have financial independence.
This will guide you to your life purpose and how you would like to make a difference in the world. When you have money and no purpose, your life is empty.
Since you have built up your saving you can now be more sentimental and share your wisdom. This is the best time to become a mentor and share your knowledge because you are wiser. This is a way to give back to the world and stay relevant to the current situation.
You should be debt-free at this stage.
No need to purchase life insurance at this stage, however, critical illness and long-term care insurance are necessary at this stage. Have your medical insurance sorted and have regular income to pay the premiums.
Tax and compliance
Get a tax professional so that you know how the pension is taxed.
Use government treasury bonds to take advantage of tax-free investment bonds.
Set your will and estate planning, working well with tax and retirement
65 and Above : Retirement
Have a retirement plan. Know what you will be doing when you retire. Figure out how much you will need depending on the activities you want to be doing during retirement.
Do you want to take a cruise around the world, do you want to retire into a beach house, go for pilgrimages, become a farmer upcountry, or lecture in the field of your expertise?
I believe that the biggest mistake that most people make when it comes to their retirement is they do not plan for it. They take the same route as Alice in the story from “Alice in Wonderland,” in which the cat tells Alice that surely she will get somewhere as long as she walks long enough. It may not be exactly where you wanted to get to, but you certainly get somewhere. Mark Singer
Keep your money in a joint account for both you and your spouse so that if one of you passes first the other is able to survive.
Don’t bequeath your children before taking care of your spouse’s interest.
You have to choose where you want to spend your day. Choose simple and comfortable homes, your home should not be a house that has high service charges, taking up a lot of expenses like having a 7-bedroom mansion on an acre of land that will need 7 staff to maintain that will be stressful to you unless that is your preference.
Retire financially independent, Ensure you are not retiring to become a burden to your children and stifling their development.
Engage yourself in activities to keep you busy and happy. These should be your golden years.
“Retire from work, but not from life.” -M.K. Soni
Conclusion on Financial Planning by Age
We all want to have a fabulous life and being financially independent is something we should all aim for. However, some of us have not been strategic with our finances and are only starting the journey to financial independence now.
The above guide should start you off to the right direction and change your direction towards success. it is also never too late to start.
Curious how you can start your financial independence journey regardless of your age? Contact us for a call or visit to discuss your options for free.