The need for investment arises when one starts earning and looks to secure his/her future. But needs change over time and also with that comes the need for changing the way you invest and what you invest your money in.
There are different stages of life which helps you decide as to what you should invest in. The different stages bring changes to one’s living style, expenses and responsibilities. There are many ways to divide one’s life into different stages. One way of doing it is as follows –
This is the very beginning of one’s adulthood and when one starts taking up responsibilities and starts making life decisions.
There are certain things to keep in mind when a bachelor decides to make his/her investments. Bachelors usually have to take care of their own responsibilities only and does not have any dependents. Age is not a concern and their risk appetite is more than other older age groups. A bachelor should save and invest 60 – 70 % of their earnings as their living expenses are lower than other age groups.
The First Job
When a bachelor gets his/her first job then the first thing he/she should do is to open a savings account and build their cash reserves from their salary. A retirement fund should be started with a commitment to make regular contributions to the same. The amount that you save or the contribution that you make towards your retirement fund does n’t really matter as long as the savings are being built.
The First Raise
There would come a time when you will get your first raise or an increase in your pay. At this stage, one should contribute a bit more to their company’s retirement fund. Invest your earnings after tax in securities/investments which provide interests or earnings which are exempt from any tax. Lastly, increase your contribution to your savings account.
Marriage marks a significant change in one’s lifestyle and way of living. The expenses double up and there is more responsibility. Also, if one of the spouses decide not to work then that means financial dependancy which was not there before. Also, one should invest 30 – 50 % of their earnings post-marriage because of the added expenses.
If both the partners are actively employed then it is an advantage as that means double the income. This leads to deciding upon new investment contributions and allocations. You can now open a joint savings account and double up on your monthly contributions/savings.
As a bachelor, it is difficult to plan to buy your own house because of the hefty down payments and EMIs that one needs to commit to is very high. But after married people usually think of settling down and dream of buying their own house someday. But having two people earning in the family means it becomes much easier to decide on applying for a home loan and buying a house. Married couples should ideally make some short-term investments using their non-retirement savings so that they can pay for the down payment and other costs like moving.
Becoming a Parent
Becoming a parent is a beautiful time in a married couple’s life. But with children comes more serious responsibilities. It is high time to make more mature decisions when it comes to investments. In order to have enough for your kids and family, one should – increase their cash reserves even further, buy a life insurance policy and start a college fund. A college fund will help your children in future as then they would not have to take to much burden of paying back their student loans as most others do. It is recommended that parents should invest about 30 % of their earnings at this stage of life.
Children become adults
This is a time in life when your financial dependency will be reduced as your children will no longer need financial support from you. It is recommended that at this stage one focuses on contributions to their retirement fund than elsewhere.
One should keep reviewing their retirement fund asset allocations to make sure that there is enough for yourself when you hit that golden age of retirement.
During the retirement phase, one should consider all the options available to them when breaking their retirement funds and their provident funds. It is important that one hires a professional financial advisor in order to make the right decisions when it comes to finances. This is needed to ensure that you beat the future inflation and not hurt your savings/investments.
Therefore, needs change in different phases of life. It is important to prioritise and focus on the right kind of investments. Your contributions to savings and different investments should change depending on your current situation and age. Priorities are different when someone marries and has children and it’s completely opposite when one is nearing retirement.