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Over the course of a lifetime, how you spend and save your money is something that should remain top of mind. Yet, recent research commissioned by Sanlam, tells us that this is not the case for the majority of South Africans, and many are missing pivotal financial planning moments in life.
Mariska Oosthuizen, Chief Marketing Officer at Sanlam says, “Building a financially confident future can feel like an intimidating task whether you’re just starting your personal finance journey or preparing to enter your retirement years, but it doesn’t have to be. There is help available to prepare you for what lies ahead.” Here are some tips on how to achieve financial confidence one life stage at a time.
Tips for your 20s
Learn the value of compound interest: There is a reason Compound Interest is called the 8th wonder of the world. This is especially true for those in their early 20s because the sooner you start to invest, the more time you have to take advantage of compound interest. Simply explained, compound interest is the interest you earn on your savings. So, the sooner you start saving, the more interest you will earn. Inversely, the later you start saving, the more catching up you’ll have to do.
Unfortunately, the research shows us that only 10% of 18–24-year-old South Africans are taking advantage of the gift of time by saving for their retirement. This is partly due to short-term bias. Short term bias is the desire to give priority to quick gains over long-term success, and because retirement seems far away for young people it’s often deprioritised for more immediate expenses. You may also feel that you don’t have enough in pocket to put away during your early working years but thinking big means starting small. Don’t underestimate the value of saving small amounts which has its benefits beyond compound interest, leading to our next tip…
Start thinking about risk: In your twenties, you may feel like you’re too young and healthy to prioritise life-event risk insurance such as income protection and life insurance but it’s the best time to put this on your radar. The fact of the matter is that as we age, the more inclined we are to develop health conditions which means higher insurance premiums. You’ll typically pay less for life insurance if you take out a policy in your twenties than if you wait until you’re middle-aged, which means that if you start now, you’ll receive the same cover at a much lower cost later in life.
Build your credit score: While living within your means and not falling into a “debt trap” is excellent financial advice, not having a good credit score can count against you. Your 20s are a good time learn the difference between good debt and bad debt so you can start building a good credit score in a responsible way. Unfortunately, this stage of life is often when people take on a lot of debt and credit beyond what they can afford, which will reflect badly on their credit scores.
Remember that a good credit score is built on good financial behavior.
Tips for your 30s
Get into a serious relationship – with a financial advisor: If you haven’t already, this is a good time to find a credible financial adviser. This will be one of the most important relationships of your life so when looking for an advisor, check their qualifications and ensure its someone you connect with, and who understands your financial goals.
The research shows that most South Africans in this life stage get their financial advice online, and while there are great resources on the internet, there is no substitute for getting advice that’s tailored to your needs and your pocket. Getting the help of a trusted financial advisor will help you stay on track and meet your goals sooner.
Recommit to your future: This a good time to commit or recommit to your future by taking stock of your goals for the short, medium, and long term and making all the right moves to invest and save for those goals. You can start by reviewing your financial plans and seeing if they still align with your goals.
You may also want to reassess your financial situation – a lot can change from life stage to life stage, and this may be a good time to adjust your savings and investments where you are able to. Putting a little bit of money aside each month can easily give you the satisfaction of saving, but it’s important to not slack off. By this stage, if you’ve moved up in your career, you’ve likely received salary increases along the way and it’s important to increase your savings and investment contributions as and when that happens too.
Plan for your dependents: The best time to start saving for your child’s education is when they’re born. Your 30s is typically when you’re planning a family, if not sooner, and it’s a good time to make sure that education saving starts or is on track. Looking at the survey results, 82% of respondents in their mid-late 30s (34-39 years old) have children but worryingly only 8.7% them have an education fund in place. As you broach your 40s, it’s time make sure that education savings are adequate to comfortably cover your child’s tertiary education.
Investing in your children’s future success is one of the most valuable moves you can make - not only for them, but also for yourself. The more successful your children are, the less they’ll depend on you financially later in life.
Tips for your 40s
Be prepared to join the ‘sandwich’ generation: South Africans are among the worst savers in the world, and the ‘sandwich generation’ is now paying the literal price. The term ‘sandwich generation’ refers to the group of people sandwiched between needing to care for their children and needing to take on the financial care of their older relatives. This typically happens around your 40s and 50s and can be an exceptionally stressful life stage.
Now is the time to take care of yourself so you’re able to take care of others, and this means resisting all temptation to dip into your savings to support your older relatives. Continue saving, while helping loved ones where you can. This can help break the cycle of dependence.
Stay focused on building a financially confident future: Your 40s can be a financially demanding life-stage as your budget is stretched in every direction from your children’s education to your bond, to caring for your parents.
It can be tough to imagine reaching your goals when you’re up against these demands but resist any urge to cash in on your retirement savings prematurely to offset these costs.
At this life stage, you still have ± 20 working years ahead of you, so use this time wisely to continue building up your nest egg.
Tips for your 50s
Ramp up your retirement savings: The research reveals that just over half of respondents in their 50s have retirement savings, and nearly 20% said their biggest financial concern is retiring comfortably. At this life stage, retirement is drawing closer and for many, this is the last working decade of their lives, making it a very important time to give retirement savings a top-up or boost, if possible.
With people living longer, now is the time to consult a financial adviser and urgently increase your savings if they’re not where they need to be to secure a comfortable retirement for yourself. A good rule of thumb is that your income in retirement should be equal to about 75% of your income when working.
If you find yourself in the same boat as nearly 48% of people in this group, with no retirement savings, starting late is better than not starting at all. Use this time to work with a financial adviser to get the best possible retirement saving strategy in place.
Tips for your 60s
Make the most of it: Your working years are running out and you may want to put your feet up but that doesn’t mean your money needs to stop working. At this stage, it’s critical to chat to your financial advisor about how to make your money work hardest for you in these last few working years. They will also help you to avoid decisions that could have negative consequences, such as cutting vital products or making risky investments.
Consider downsizing: Retirement can and often does change one’s financial situation. For this reason, many people in this life stage choose to downsize. It has great financial benefit and by downsizing your home, car, other assets, as well as cutting back on luxuries you can lower your expenses, increase your retirement savings, and make your money go further.
To find out more about important financial considerations at present and future life stages, visit Sanlam’s interactive digital experience at www.lifeofconfidence.co.za .
This post and content is sponsored, written and produced by Sanlam.
