Awesome money behaviours for different lifestages
As you go through life, your financial circumstances, needs and goals will change with you. And some behaviours can support you along this journey.
Often age is just a number, so we’ll talk about life stages instead, namely:
-
Set-up stage.
-
Building stage.
-
Consolidation stage.
-
Pre-retirement stage.
-
Retirement stage.
It’s important to note that your financial life is a continuum, and these lifestages don’t exist in isolation. They exist in relation to other lifestages, and the way you manage your money today can have a significant impact on what will happen down the track. And with that said, let’s get started.
1. The Set-up Stage
Are you a young adult taking your first steps towards independence? Welcome to the Set-up Stage of your financial life. Now that you’re earning an income and maybe have just flown the nest (or you’re about to), your money management skills are put to the test for the first time. So, here are some helpful behaviours for you:
Budget for needs and wants
Budgeting is a skill that takes practice, and there’s no better place to start than you’re your finances are reasonably simple. The goal is to reach a healthy balance between your spending habits, by prioritising your needs and making room for your wants. Looking for a rule of thumb to simplify your budget? You can give the 50-30-20 rule(1) a try. In short, it recommends allocating 50% of your budget towards your needs, 30% towards your wants, and the remaining 20% towards retirement savings, your emergency funds, and debt repayment.
Keep debt to a minimum
Credit cards and buy-now-pay-later solutions may seem like a convenient option, but losing your bearings is also easy – especially if you don’t have a long experience with credit. Some debt, paid on time each time, can help you boost your credit history and credit score, but try to keep debt to a minimum and pay it off as fast as possible. Getting behind means beginning your financial journey uphill.
Put the distant future on your radar
Why think about retirement now that you’ve just started out in your career? Well, retirement planning is a long-haul journey that starts on your first day at work. Even a small investment (including your KiwiSaver plan) can go a long way, because you have a long time ahead of you to accumulate savings and benefit from compounding returns. In short, the earlier you start, the better: the key thing is to start.
2. Building Stage
Maybe you’re about to tie the knot, have children, or have recently bought a house. These are years focused on career-building and family formation, with greater responsibilities and commitments. On top of honing your budgeting skills, here are other behaviours worth developing:
Envision your goalsThe first key step to reaching your financial goals it so clearly define them. Write down your goals and visualise when, and how, you’re looking to accomplish them. It’s about being pragmatic and considering the ‘big picture’: if you apply this mindset to both smaller and bigger goals, it will help you create a roadmap to get there. Not quite sure where to start? Remember: you don’t have to go it alone. There are hundreds of financial advisers in New Zealand who specialise in things like KiwiSaver planning, personal insurance, investments, and mortgages.
Boost your financial literacy
Financial literacy is a pillar of life itself, and the Building Stage can be an ideal time to ramp up yours. As we highlighted in a recent article, there’s a lot of noise when it comes to ‘planet money’, so make sure you get your information from reputable sources. To get you started, here are some podcasts and books that we recommend.
Focus on protecting your future
With life being full of what-ifs, building and protecting your financial life go hand in hand. Consider the undesired scenarios that may pop up, and the tools to mitigate the impact on your lifestyle or future goals. For example, a good-sized emergency fund can come to your rescue if you have an unexpected expense: many experts recommend saving at least three to six months’ worth of living expenses. And if you have high levels of debt (like a mortgage) or people depending on your income, personal insurance is also worth considering. The worst-case scenarios aren’t easy to think about – but pre-planning can take a huge burden off your shoulders.
3. Consolidation Stage
After the Building Stage, it’s time to consolidate your financial growth. Ideally, your income has increased further and your expenses have stabilised. And in terms of money behaviours, here are some good ones:
Pay closer attention to your investments
The closer you get to retirement age, the more you need to stay on top of your investments and make sure you’re on track. While you still have some way to go at this stage, having a good action plan is the key. Take the time to review your investment strategy on a regular basis (ideally, once a year) and ensure it’s aligned with your risk tolerance and long-term goals.
Pay off your mortgage faster
If you have a mortgage, this is also an ideal time to pay that off faster. This will free up money to allocate to other goals, and potentially save you thousands of dollars in interest costs. Of course, with interest rate rising, you may find it challenging to increase your mortgage repayments. So why not seek expert help? A mortgage adviser can help you find the most appropriate structure and strategy to get mortgage-free sooner.
Update your risk management
Compared to the Building Stage, during the Consolidation Stage you may have lower levels of debt, or perhaps your children no longer depend on you financially. This means your risk exposure has changed: for example, you might afford to have less insurance coverage in place. Before doing any of that, however, we recommend talking to an insurance adviser: they will help you understand what you may or may not need to stay protected.
4. Pre-retirement Stage
This is where retirement planning becomes even more serious. During the Pre-retirement Stage, the focus is on tying up all financial loose ends before your last day at work. This includes entering retirement debt-free and having sufficient income sources to fund the rest of your life. In the meantime:
Reassess your financial plans regularly
By now, retirement is just one step away, so it’s all the more important to have a clear idea of what your future spending may look like. Look into your investment portfolio and check that you’re on the right track. At this stage, you can still make ‘last-minute’ adjustments to your plans, like pushing back your retirement date if needed or downsizing your retirement goals.
Review your risk tolerance
If you have less than 10 years left to retire, you may want to start de-risking your investment portfolio. That doesn’t necessarily mean de-risking your investments as a whole. Retirement is a long journey, and you need to ensure that your money keeps growing to keep up with high inflation. Some people, for example, choose to de-risk only the portion of their savings that they plan to use in the near future, and leave the reminder invested in balanced or higher-risk options. Which brings us to the next point…
Seek professional advice
Financial advice can be helpful at any life stage, and especially when approaching retirement. With so many crucial decisions to make, you need a comprehensive retirement plan to make the most of your savings. A financial adviser can help you understand where you’re at and where you can be, while also navigating the complexities of Government regulations, taxes and other issues that can potentially impact your future income.
5. Post-retirement years (65+)
Retirement – a time to look forward to enjoying the fruits of your hard work and pursuing your passions. Of course, this means different things to different people. Maybe there’s a hobby that you’d like to revisit, places you’d like to go, and people you’re planning to spend quality time with.
While you focus on these things:
Budget for the long term
Budgeting really is a lifelong skill, but budgeting in retirement is likely more important than ever before. With such a long timespan ahead of you (20-30 years), it can be challenging to know how much to spend. Start by listing all your expected income and expenses, including potential healthcare costs. You can use a budgetin`g spreadsheet or look for a good budgeting app or software. Also, keep in mind that you may spend more on leisure in your early retirement years, and more on healthcare down the track. And lastly, don’t forget to leave a buffer for unexpected expenses, like home repairs.
Keep investing in retirement
Thinking of liquidating all your investments? While it’s important to protect your hard-earned savings from market volatility, it’s still a good idea to give your money a chance to grow further. Plus, investing during retirement can help to protect against inflation, so that your savings will retain their purchasing power in the future. Depending on your situation, you have access to a range of investment options, from KiwiSaver through to property investment. Make sure you seek professional advice to make the most of these tools.
Simplify your finances
By streamlining your finances, it becomes easier to understand where your money is coming and where it is going. This can help you ensure there’s enough in the coffers to fund your needs. From consolidating your accounts and investments, through to keeping all your financial documents in one place and easily accessible, you can make the most of your time, money, and energy. And remember, you can always reach out for professional advice if you need it.
Bottom line
Good money behaviours are crucial throughout every stage of life. From the early stages of earning and saving, to the challenges of managing expenses and budgeting during retirement, adopting and maintaining good money habits is all about financial stability and security. And the great thing about it is that there are professionals out there to provide advice, guidance, and support.
Keep an eye on our Education Centre for more tips and insights, or go straight to our Kick Start 2023 guides to learn about our latest money smarts.
Further reading
- The 50-30-20 rule originally appeared in the book “All Your Worth: The Ultimate Lifetime Money Plan” by US senator Elizabeth Warren and her daughter, Amelia Warren Tyagi.
