Financial success looks very different for us all, but perhaps one priority we are all striving towards is to live life without feeling stressed about our financial affairs.
For most of us we are constantly trying to strike a balance between enjoying life now and ensuring we have the resources to enjoy life later. Financial Planning is not just about having to choose between spending now, and saving so you can spend more in the future.
One of the major questions we would all like an answer to is how much is enough?
There is no magical number because we all have different goals, needs, resources, expectations, and desires. The other variable we have to deal with is life –we never know what (or when) various curve balls we will have to deal with from time to time and of course there is always “stuff” that keeps getting in the way of our good intentions.
There are however a few “standards” for everyone to apply:
- The best time to save and invest is when you are young so compound interest can work to your advantage. If you were to save $100 per week from age 25 to age 65, this would give you $900,000. If you wait until you are 45 to start saving, you will need to save $450 per week to get to the same position. The other important consideration though is that the 25 year old had to forgo $208,000 of “now” spending over their 40 year period while the 50 year old had to forgo $351,000 over their 15 year period.
At any stage of life however you are always better off starting your savings today rather than leaving it for another tomorrow!
- Spending priorities change over time and therefore so will your planning requirements. When you are young and footloose and fancyfree travel is likely to atttract most of your attention and savings. Once you have a young family you are more inclined to consider a quiet night on the couch far more inviting! As the children grow it is the experiences that you can enjoy as a family that you highly value, and of course there are the education costs. All too soon the kids have left home and you are back to being a couple again and the desire to get a few of your bucket list items ticked off, while both the mind and body are still willing and able becomes your priority.
Whatever phase you are currently in take the time to appreciate and celebrate the occasions but remember it is just a phase, and life is always changing.
- If you plan well for the big purchases in life (house, car etc) then you will not need to worry about the small everyday spending decisions. So ensure your mortgage is structured to suit your repayment ability and review this regualraly. If you do use finance to purchase any larger items always pay off the highest financial cost items first. Credit cards are the banks pay day – and your pay nightmare. If you can’t pay it off in full each month then put it out of sight and don’t use it again until all debt is cleared. Your future you (in the very near term) will thank you hugely for this!
- Your future income is your largest asset. While you are in the accumulating stage of life you need to have the right level of protection in place to replace your income if you were unable to work for an extended period. Get good personal advice in this regard as you are unique and so too are your needs.
- Get professional advice. With a financial strategy in place you will no longer be stressing about money as you will have a good understanding about what you need to do to achieve your own version of financial success. Once in place you will need to regularly monitor and update your plan as you dodge those curve balls.
MFAS provides specialist financial planning solutions for health professionals. We are here to help.