Time is on your side: Financial planning in your 30s
It may seem strange to think about retirement in your 30s, when your family, home and possibly your business are all relative infants. But that’s exactly why you should get started now, while time is on your side. Retirement planning really is a case of ‘slow and steady wins the race’.
We all know how dangerous assumptions are, but let’s make a few anyway. You’ve found a good job, or you’ve started your own business. You plan to buy a home, to start a family and to accumulate enough wealth to ensure that you and your kids can live happily ever after.
The risky basics
You may feel invincible right now, but the simple truth is that you need to insure yourself. Try not to think of the extra expense as a waste of money, but rather as an essential part of your financial plan.
If you’re employed, risk benefits may be part of your remuneration package, but this is by no means a given. There is a trend away from group risk benefits since they are regarded as fringe benefits and subject to income tax. What’s more, the cover they provide may not be sufficient for your needs.
These are some of the most common (and important) types of insurance:
- Life assurance pays out when you die. If you commit to a policy in your 30s and are in good health, the premiums will be affordable. The amount of cover required is usually determined by your debt and a lump sum that your life partner would require for living expenses should he or she not be able to work.
- Disability insurance is an amount paid to you if something serious happens that prevents you from working.
- Income protection covers the short-term loss of income if you’re temporarily out of action: if you become ill or are involved in a car accident, for example.
- Short-term insurance for your car and household contents is essential, and medical cover is another absolute must.
3 ‘money must haves’
Before you think about planning for the future, you need to take care of these short term essentials. You could consider money market unit trusts or certain bank offerings as appropriate low-risk investment vehicles.
- Be prepared for a rainy day. When it comes to emergency funds , human beings tend to look on the bright side and assume that emergencies won’t arise. But sooner or later everyone has to deal with unforeseen expenses. These could include household accidents not covered by your short-term insurance , the need to upgrade your security or unexpected amounts owed to SARS.
- Plan ahead for your home sweet home. The funds for a deposit on a house can also be considered a ‘money must have’. It also pays to be aware that a future mortgage payment will be greater than your current rental payment. A good way to plan for this increase is to save the difference between a mortgage amount (based on a home of your choice) and the rental that you pay monthly.
- Make making memories a priority. Holidays are essential to our well being. They’re a reward for hard work and form a bank of happy memories for life. Certainly, a ‘ money must have’...
Time is on your side, and it’s never too early to start investing for retirement. Don’t kid yourself that you won’t grow old – we all do.
Even if you’re contributing to a pension fund, there’s an opportunity to invest in a portfolio of unit trusts geared for long-term growth. These may include units trusts with a relatively high proportion of local and offshore equity, since you’re able to take on more risk at an early age – you have a longer timeframe in which to invest and smooth out the ups and downs of the equity markets.
If you own your own business, it is prudent not to think of your business as your only retirement plan. Of course, you need funds to grow your business, but it also makes sense to invest at least some of your capital outside your business – thus allowing you to follow the age- old principle of diversification. In this instance, it is usually advisable to invest in lower risk investments which could include bond unit trusts and balanced unit trusts.
Debt, the all-time evil
There’s never a good time to embrace debt! Usually, the only type of debt that’s good for you in a personal capacity is an amount owing to the bank for your home mortgage when interest rates are lower than the rate of return you could be earning on contributions to investments for retirement.
Death, the sure thing
There’s the good old saying that nothing in life is guaranteed except death and taxes. Again, you may think of yourself as invincible; but the truth is we never know what life has in store for us. A well-drafted will ensures the distribution of your assets according to your wishes and allows the appointment of an executor of your choice. You don’t want to have your loved ones left in a state of uncertainty during a very stressful time.
Speak to a financial adviser
There’s currently a great debate between embracing robo-advice (direct access to funds using financial planning software) or seeing a financial adviser. Robo-advice is still in its infancy in South Africa and may entail lower fees, but the software isn’t usually able to provide a comprehensive plan that considers the myriad financial and risk variables – not to mention the fact that these variables are continually changing. A qualified and experienced adviser will be able to incorporate all of your unique requirements and tailor the best solutions for you as an individual and/or family, whereas robo-advice gives you a much narrower “one size fits all” solution.
Invest in yourself
In today’s environment, there’s no guarantee of long-term employment or the success of your business, so the greatest investment you can make is in yourself. Make sure you invest in your body and your mind. Success is nothing if you don’t have a healthy body to enjoy it with. And keeping your mind active and embracing lifelong learning will make sure you’re ahead of the pack when it comes to dealing with an ever-changing world.
Contact your Financial Adviser if you’d like to get going with your financial plan. To find out more about Prudential funds contact our Client Services Team on 0860 105 775 or at email@example.com