Financial Planning for all ages

Rule 1: Start the way you intend to continue.

Your first salary may seem like an enormous sum of money. You may feel quite rich and be tempted to splurge. After all, you’ve worked hard to get this far.

Consider the child who eats all his sweets immediately and ends up with a very sore stomach… and no more sweets for tomorrow. No doubt you have witnessed this, or even experienced it. The concept of delayed gratification is not something that only children struggle with. In our climate of ‘instant everything’, we are all used to getting what we want, when we want it, at the click of a button.

To encourage yourself to resist temptation, you can set financial goals for the next 6 months, the next year, and the next 5 or 8 or even 10 years. Here are a few ideas:

6 months: pay off credit card or store cards.

1 year: pay off car.

5 years: have an emergency account with 6 months’ salary saved.

8 years: pay off home.

10 years: be completely debt free.

Rule 2: Stop to think before you splurge.

Do you really need that new mobile, or outfit, or console? If yes, then have you found the item at the best price? If it’s on credit, have you obtained the most affordable payment plan? Do you know how much interest you will be paying on the debt?

True wealth is not about the car you drive or the clothes you wear or the gadgets you own. True wealth – and true peace of mind – is a result of living with as little debt as possible. It’s a rare and special and truly admirable individual who can proudly announce that they owe nothing to anybody.

Rule 3: Continue cultivating the good habits you started with.

If you budget and save on a monthly basis, eventually it will become second nature to do so. This process is easier to achieve if you have professional help. Just like you wouldn’t try to give yourself stitches if you are injured, so you shouldn’t jump into the world of finances and investments without a financial advisor to guide you, and even encourage you to do the right thing. Consider your financial advisor the way you would your trainer at gym, or your dietician – someone that you pay to help you become the best version of yourself.

And when you become that person, what a great feeling – even better than the child who saved his sweets so that there would be something to look forward to tomorrow.

Have a look at the following example:

• Jane invests R500 each month from the age of 18. At age 28, after ten years, she decides to stop. She has invested a total of R60 000. Jane leaves this amount alone for the next 47 years, until she turns 65.
• Jenny, who is Jane’s best friend and the same age, also invests R500 a month, but she only starts at age 28. Jane carries on investing this monthly amount for 37 years, when she turns 65. In total, she invests R222 000.

Which of the two friends will have more when she retires?

Even though Jenny contributed almost four times more, she still has far less money at retirement. This is because Jenny’s money earned compound interest for ten years less than Jane’s did. Isn’t the power of time and patience incredible?