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So here are some milestones, based on your age, to help you measure your progress and keep you focussed on the goal of being financially independent.
Between the ages of 18 and 25
To really get ahead of the game you should start saving from your very first pay cheque. If you stay at home for those early years of your working life you should be able to save a substantial amount of cash. At this time your expenses are relatively low, so take full advantage of
this opportunity to get ahead.
Saving 15% of your income into a plan such as a retirement annuity will help to lock some money away for the long term (I'm talking at least 30 years later). This savings plan should not be touched for your entire working life. Fine-tuned yes, but spent, definitely not. If you do this, your financial freedom is virtually guaranteed.
The biggest mistake young people make is to move out of home as soon as they can afford a dingy flat. They are foisted into the real world of rent and cleaning materials, and they find out what happens when they don't pay the electricity bills. If they just put up with mom's "nagging" a little longer, they would be a lot better off because they could use the time at home to save.
The only time you should not commit to a highly structured savings plan in your youth is if you want to travel or live overseas. Keep your savings flexible and accessible.
Between the ages of 25 and 30
If you intend getting married and buying a home in the future, then an additional 10% of your monthly salary should be put aside for the deposit on a home. Having a large deposit for your home means that you can pay it off in five to 10 years instead of the usual 20 years that many
people labour under.
Marriage is an expensive affair and gone are the days when mom and dad mortgaged their house to give you a big wedding. Many couples are footing their own bills to tie the knot. Yes, it's a momentous day, but if you gather debt of R100 000 to celebrate the event, it will long be remembered for all the wrong reasons. Those bills will be there long after the champagne has lost its fizzle.
Typically, young families are not able to save as much as they would like in this period because of the costs of setting up a home, and if they have not set up a savings plan by now, it will be delayed even further. The good news is that having two incomes mean there are some savings and you should still be able to maintain a secondary savings plan. If you have children, then a life insurance and disability policy is vital for their protection in the event of injury or your early demise. If you are just thinking about starting a family, then now is the time to put some money away for their education.
From the ages of 30 to 40
This is the time when you start to incur big expenses such as raising children and perhaps moving to a larger home and
upgrading your car. A good education for your child is expensive and if you have not planned for school fees it can put a lot of stress on your budget. Even a preschool
education can cost as much as R800 per month. This is one of the most financially demanding times of your life and you may not be able to save as much as you have in the past. However, as long as your long term savings are in tact this will not present a problem.
From the ages of 40 to 45
By now you should have savings that are equal to one third of the money that you have earned in your lifetime. Clearly very few South Africans are in this position with
many of them only starting their savings plan at 40. By 45 you should have no debt so that your savings can be increased to take care of unforeseen events. Most of us
plan to retire at 60 or 65 years of age, but in today's society many people are retrenched in their 50s and struggle to find employment. You should maintain your existing investment portfolio and any windfalls should be added to the savings pool.
From the ages of 45 to 55
Depending on when you started your family, the financial demands for education should be slowing down. If you have planned things properly, at the age of 45 you should have
enough disposable income to start relaxing a little to take those overseas trips you have been dreaming about. You could also afford that sports car that you have been
eyeing for the last few years.
Unexpected expenses at this stage in the game can be easily afforded. At the age of 55 you should have enough in your retirement plan to make you financially independent. If you continue to work for the next 10 years your surplus income can be used to help your kids buy a home or to pay for your grandchildren's education. Just remember that people are living longer so err on the side of caution – this is one area where you can't have "too much money".
Remember, delayed gratification, a good financial plan and personal involvement in your investments will pay off and you'll still be young enough to enjoy the fruits of your efforts.
