When it comes to growing and protecting wealth, your life stage has as much bearing on the strategy you choose as your age.
One moment you’ve got a double income and no kids, the next minute you’re juggling a mortgage and school fees. As your lifestyle changes, so should your financial plan.
Many of us have a mental to-do list of what we hope to achieve by a certain age. But when it comes to creating and protecting wealth, your life stage is just as important as your age.
A married 30-year-old with kids will have very different spending and saving priorities to someone the same age who is single, while today’s 50-something is just as likely to be juggling school fees and a mortgage, as preparing for retirement.
The best financial plan is one that takes account of your lifestyle and changing responsibilities as you move through the ages and stages of life.
Young couple: Tom and Lucy
Young couple, Tom and Lucy, earn good salaries and are not planning to have kids any time soon. They love their inner-city lifestyle, but know that setting some short and long-term financial goals will help lay the groundwork for some serious wealth creation.
The more time you give to learning about your investment options and money management, the better off you could be in the future.
For Tom and Lucy, saving for a home deposit is a priority, followed by paying off the mortgage as quickly as possible.
Life insurance is not on their radar, but it should be. If they buy a house and one of them dies or is unable to work for a time, life and income-protection insurance will help cover the ongoing mortgage repayments. They also need to make a valid will.
Retirement can seem a long way off when you are just starting out, but the sooner Tom and Lucy start investing even small amounts into their superannuation, the better off they will be in the long run.
The good news is they can afford to take higher risks and adopt a more aggressive growth strategy as they should have plenty of time to recover from market swings and roundabouts. Because they earn good salaries, they likely don’t need to receive an income from their investments at this stage of life.
Young family: Aron and Abhi
Aron and Abhi have a two-year-old, Sophie, and a baby on the way. They love their growing family but are keenly aware of their new financial responsibilities.
Saving for long-term goals such as the children’s education, as well as retirement, may require investments with potential for strong capital growth. High risk is often required when aiming to achieve such a result. With many years left to retirement this may be a good option for Aron and Abhi.
They also have more immediate goals such as paying school fees, which may require investments outside superannuation that offer regular income. Aiming for a balance between growth and income is a sensible idea for now.
Aron and Abhi are hoping to get ahead by borrowing to invest in a rental property once they build up some equity in their home. As their living expenses eat up most of their salary, they plan to use the income from their investment to help pay the interest on the loan.
As they have more to protect, Aron and Abhi want to make sure their family, their home and their ability to earn an income, are covered with adequate life, health, home and income-protection insurance. They also need to update their wills when the new baby arrives.
Empty nesters: Kate and Paul
Now that their house is paid off and the kids are almost financially independent, Kate and Paul can really begin to focus on setting themselves up for retirement.
Superannuation is generally the most tax-effective vehicle for retirement savings, but Kate and Paul also want to build up some investments outside super which can be accessed at short notice.
As they get closer to retirement, they are concerned about capital preservation. They decide to reduce the overall risk in their investment portfolio to cushion the impact of sudden market setbacks. Even so, they keep a portion of their investments in growth assets to ensure their savings last the distance.
Life and income-protection insurance are still important because Kate and Paul are both still working. They may review their level of cover as their financial responsibilities change.
If everything goes to plan, Kate and Paul can look forward to their dream retirement, with a house fully paid for and a healthy investment portfolio.
Any advice in this article is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any advice, you should consider any relevant product disclosure statements and whether it is appropriate for you.