We believe there are six financial passages, or stages that most men and women pass through – from early adulthood, to middle age, and retirement. We understand everyone has their own set of financial affairs. However, if you stand back, you can see how so many people at your age and stage are also facing the same financial issues.
With Financial Passages, you can compare your situation with others at the same age and/or stage of life, and see what you might need to do to ensure you successfully pass through each passage.
Many of us actually have a ‘money phobia’, that is, a fear or avoidance of money issues. Like any phobia, we must find ways to control the fear or it will control us. Ask yourself, do you control your money or does it control you? Your ability to control your money has a great deal to do with your ability to reach other non-money goals. How can you help others in need, provide your children with the best education or technical training, enjoy your love of life, sport or travel, if you don’t have your financial affairs under control?
However, in order to provide a point of reference, we have looked at the key issues of life’s financial passages in relation to each household’s income. That way, you can look at your own specific situation. The path through each of the financial passages will be different for each person.
Women in particular may identify with the various passages. Time out of the workforce to have children, the balancing of weekly budgets, caring for elderly parents as well as the very high expectation of living longer than your partner, are familiar experiences for many women.
Financial Passages provides you with some checks you can make on your own or with your partner to ensure your immediate financial position is secure and that adequate provision is being made for the many years that will be spent in retirement.
There are many references in the book to amounts of money in future years. An obvious but important point to remember is that the buying power of money in the future is reduced by inflation. The following figures illustrate this point. If future inflation averages 3% p.a. (and many years in the past it has been higher), then in ten years’ time you will need $135 to buy what you can today for $100. In twenty years you will need $180 to equal $100 today, $240 in thirty years and $325 in forty years.
Our ambition for Financial Passages is summed up thus: “The best way to predict the future is to create it” and “People don’t plan to fail, they simply fail to plan.
In addition to the key financial issues, Financial Passages takes a look at some vital aspects of our health. Health, even more than money, is the key to real satisfaction in life, especially in retirement.
Broadly speaking, our adult financial years can be broken into six different passages. Each passage lasts about ten to fifteen years. However, as individuals and as partners, we are all different and today’s broadened range of opportunities and situations means that many of us – by circumstance or by choice – do not necessarily ‘conform’ to these passages.
In Financial Passages, we have chosen to ‘overlap’ the passages to help reflect today’s lifestyles and choices, and to cater for as many people as possible. This means you could find yourself fitting into two passages – lucky you! To be on the safe side, read both passages and you could benefit by twice as much.
First job, first income, first cheque account, first commitments — rent, payments on a car, car insurance, student loan, first credit cards, first superannuation, savings commence for first home purchase.
Marriage, birth of children, first home purchase, home mortgage, major career demands, need for life insurance, disability insurance, home and contents insurance, preparation of a will, living on a single income, preparing for children’s education.
New home or major renovations to accommodate growing family, return to two incomes, income protection insurance, travel plans, time for serious retirement planning.
Children left/leaving home, caring for aged parents, first discretionary income, time of likely inheritance, availability of long-service leave, mortgage paid off, superannuation and savings increase, plan new interests and activities to replace work, need for preventative health programmes.
Active preparation for retirement, pursuit of new interests/career, move to smaller home, provide assistance for children/grandchildren, invest lump sum carefully, understand pension and retirement income requirements, prepare retirement income budgets.
Retirement, staying active, travel, new career/interests, monitor retirement investments and income programmes, plan requirements for old age.
The size of the mortgage relative to your total household income. The usual pattern is for the mortgage to start at about twice the household income and to be paid off by age 55.
The amount of hire purchase, personal loans or other debts relative to your household income. As long as these are around 10% of household income, they are under control.
The value of retirement savings, including superannuation, relative to your household income. This is the hard one. We suggest that by the time you reach 65, this needs to be at least 7.5 times your annual household income.
The amount of your total superannuation and other savings each year. This is the ‘tightrope test’. You need to spend enough to enjoy life today, but you also need to put enough away for tomorrow.
How much life insurance you require depends on several things; the number and age of dependants, debts, income earning ability of partner and value of savings.
Making a will can be one of those unhappy jobs you put off, but even if you don’t have many assets, not leaving a will can be very messy. Without a will, your family may need to go to Court to arrange for your property to be divided. The Court has rules that decide how it is done, and the outcome may not be what you or your family really want.
If you have dependent children, another major issue is who will take care of them. A simple will overcomes these problems. You can contact a solicitor or trustee company for advice or use ‘do it yourself’ will forms available in New Zealand.
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