Your Financial Life can be roughly categorized into the following phases:
- The Young And Free
- The Family Years
- The Middle Age
- Retirement and The Rest of Life
For simplicity, let’s start off with the phase when you can potentially start to earn your own money either by employment or by running a business.
1. The Young And Free
The bucks start here. This when you start earning money for yourself either through various forms of employment or by running a business.
For most Filipinos, this is typically the period right after you finished your college studies. Depending on how independent you are, you may be living with your parents or you are living on a rented accommodation. Naturally, you are young, single and, as you want to announce to the world, very available! Typically, no one is dependent on you for financial support.
You are free and you have all the time in the world to enjoy your hard-earned money. If you are not very careful, you will soon discover that all that money can easily evaporate into the thin air. This may not have crossed your mind yet, but you too have unique financial needs, which typically include the following:
- An Emergency Fund. You should set this up even at the earliest phase so that it becomes a habit in the later periods of life. Young as you may, you will be facing some unexpected expenses and you need to prepare for that.
- Short-term and Medium-term savings which you can use for the downpayment of your house or car, if you wanted to have one.
- Long-term investment for stuff like your pension. The earlier you start investing, the better.
(See also: How To Setup An Emergency Fund.)
2. The Family Years
Maybe you’ll marry or maybe you won’t. But it’s typical of people at this stage to find a life partner to whom they are committed to and have children with. This changed situation could be a bit of a challenge emotionally and financially for both you and your partner especially in the early part of being together under one roof. If you add your children into the equation, the case will become even more complex requiring forethought and proper planning.
During this period, your financial plan should include:
- Emergency Fund, short-, medium- and long-term savings.
- Life Insurance. This is a must-have for every responsible parent. But not just any kind of life insurance. It has to be the right one that is adequate on your specific life situation.
- An investment for your future pension and the college education fund of your children. This is the right time to start to seriously think about Pension Planning and College.
Income protection for both of you.
- A Home Mortgage
3. The Middle Age
Hopefully, all your children are grown up and working by now. In terms of financial support, they need little to none at all from you. This is a good time for you to really become wealthy.
On the other hand, you also realize that retirement is only a few years ahead. Can you afford to retire in style and enjoy the rest of your life? Aside from becoming more aware of your retirement plans and needs you are also more anxious of your health conditions and that of your partner. Perhaps you also have an aging parent who is now dependent on you for support as you were of them when you were young.
You think your financial problems will end when your kids are already grown up and have families of their own? Maybe. And maybe not.
At this phase of your life, your financial priorities might look like these:
- Emergency fund
- Life and Health Insurance
- Income Protection Insurance
- Enough Investment for your Retirement needs
- Long-term health care plan
- Short-term savings for vacations and other enjoyable activities. You deserve some fun.
4. Retirement and The Rest of Your Life
When you think about retirement, what comes up in your mind?
Can you imagine yourself enjoying what you are doing in a relaxed environment? You are free from the worries and demands of your job. You get to play with your grand kids during weekends and treat them to the finest restaurants in town… sometime using your Senior Citizen Card for a discount. 🙂 That’s what retirement is supposed to be, right?
Or, does the thought of retirement seem scary to you? Do you know someone who is retired already? What do you observe from his or her lifestyle?
Well, retirement is not something to be scared of. It’s something you need to prepare for. Like it or not, you will retire eventually. And the best time to prepare for your retirement is when you start earning for yourself.
The following financial plans should be in place during this period:
- Adequate Emergency fund
- Fixed-income investment
- Continuing income if you or your partner were to die
- Long-term care planning
- Estate and inheritance Plan
Since you have different financial needs at each stage of your life, it follows that you should also prepare for different financial plans for each. But as you notice, there are things that should always be in place like the emergency fund, life insurance and investments.
Later on you will learn about a very important tool that will show you how to setup your financial plan from the essentials to the speculative type of financial instruments.