Johannesburg - The head of financial planning of Intelligent Debt Management, Dave Cumming, says people in their 20s, 30s, 40s and 50s have different savings needs.Investment advice for those in their 20s:
The best advice is to avoid getting into debt. Draw up a budget and stick to it!
People in this category are either leaving school or attending a tertiary education institution – or they are looking for work or have just started working.
If you are working, save a portion of your salary each month. Put it into an investment vehicle, such as a unit trust or a retirement annuity. The type of unit trust would depend on your savings goals.
It would help to consult a financial planner about your investments, but there is, says Cumming, “no generic answer I’m afraid”.
That is because your investment would depend on your short-, medium- and long-term goals.
A rule of thumb in the industry is, however, that younger people have longer expected investment horizons, so they can go for more “aggressive” investments in unit trusts... those that are more risky.
The bottom line is, don’t use debt instruments to prop up your lifestyle. Rather budget for travel and partying.Investment advice for those in their 30s:
The best advice is: Don’t try to keep up with the Kunenes and the Joneses. Don’t spend money to impress others, like a girlfriend or a boyfriend.
Once again: Avoid debt, especially personal loans that bring with them high interest costs.
If you buy a house, make sure you don’t overextend yourself. Factor in possible interest rate increases and hikes in rates, taxes and insurances.
This is the age bracket when you should be bedding down a career. Don’t be shy to consult a financial adviser, but the key investment principles for this age group are: Follow the plan your financial planner has set up. Practice discipline and don’t allow your ego to take over. Buy assets that will work for you and avoid buying flashy vehicles.
The bottom line is invest in assets so that your money works for you.
Make sure you can afford the mortgage payments on your house, which the banks work out on gross income – but you have to pay with after tax income. Purchase property within your means.
By this age group you should be earning more than in your 20s so make sure you are dedicated to a budget. Save up for the things that you want rather than commit yourself to financing items through debt.Investment advice for those in their 40s:
The best advice is: Put in place an emergency fund of at least three times your monthly expenses as a cushion should something go wrong, such as losing your job.
Make sure you have a will in place so your assets go to the correct people if you die.
This is the age bracket when you probably have a house and children.
Your savings and various goals and aspirations should be on a solid foundation. If you have a mortgage bond, make sure you continue paying it off even if interest rates rise by a few percent.
Have a decent medical aid for any health surprises. You should also have life assurance cover to protect your family, as well as funeral and disability cover.
You should watch out for education inflation, which is running at about 10% a year.Investment advice for those in their 50s:
The best advice is: Don’t start thinking about retiring early.
Get your financial planner to show you where you are with your finances before deciding to retire.
Your children may well be out of the house. If so, think of scaling down to a more affordable home. Use the extra money from selling the large home to boost your investments. The nominal value of your investments, which you kick-started in your 20s, should be doing jolly well by now.
* Intelligent Debt Management, a Cape Town based company, has a team of financial advisers that helps about 1 200 clients a month. The advisers help with debt reviews and also to forge a holistic financial plan once the debtor is debt free.
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