A question that eventually arises when financial planners talk about getting fiscally fit is: how much money do I need so I can retire comfortably. To be frank, I hate that question.
Not because the intention is incorrect but because it approaches life in a technical way. Most people I know - and I'm betting plenty you know as well - do not want to think about ageing, much less think about what they want to do when they retire.
The fact is many of us do not see retirement as a goal. No one says, "When I grow up, I want to retire." Rather, the goal is to achieve a level of success that allows us to quit our jobs when we want to in order to do the things we really desire - travel the world, buy a bed-and-breakfast, invest in a vineyard.
The more pertinent question, therefore, is where do you want to be in 10, 20, 40 years from now?
Where Do You Want To Be?
Inevitably, that means you will have to carefully map out a financial plan to ensure you have the money to make your goals happen.
There are several ardent views about how to map out the right financial plan. Philip Nielson from Hong Kong-based financial advisory firm The Henley Group, represents the more traditional school of thought that one needs to have an amount in mind for retirement and work towards it. He may have lost me until he noted financial planning did not occur in a vacuum.
Along the way you may run into some trouble - a divorce, a bankruptcy, a failed business venture - but the attitude required to make your plans work is to avoid throwing your hands up in grief and moan about how your "retirement goals" are over. As Mr. Nielson points out, some of the richest men and women in the world lost their shirts once or twice. The point is not to get so stuck on a magic number you lose sight of the broader perspective.
Another school of thought - and the one I'm more partial to - is promoted by Arun Abey, executive chairman of Ipac Securities. It sounds exceedingly simple and yet, for many of us, is difficult to execute. He says that, when thinking about your financial plan, consider what makes you happy, then work towards that. After all, the more happy or satisfied a person is, the more likely he or she will be disciplined to plan for the future.
With this in mind, let me give you some broad ideas about where ideally you ought to be at what time in your life. But don't fret if you're not there yet - these are recommendations, not requirements. A financial plan is just that - a plan that best prepares you for whatever comes your way.
20s - at this stage, who is thinking about retirement? This is really the stage where you set the right financial behavior. Start saving. Under-spend. Put your money in the company retirement plan - but not too much, since you won't see much of it for decades. You could use that cash for much better things, such as more education or a new house. And this is also the tender young age when you can fall on your face in your job and everybody gives you an excuse. Explore this stage to the fullest.
30s - this is when many of us start families, get settled into careers and begin to fret about our future. Since your career is not yet at its peak, you haven't reached your greatest earnings potential. But you are laden with big expenses - buying a new home, cars, furniture, preparing for children, getting married. Because this is the easiest time to get into debt, it is also a time you need to be especially careful to maintain your savings habit. Mr. Abey recommends pocketing half your raise every year. Pay off the debts. Start building an investment portfolio. Focus more on your career and what would make you happy for the rest of your life.
40s - reaching your fullest potential, you're as busy as ever, and accumulating wealth. This is the time to manage it properly, perhaps by hiring a professional planner. This is also a vulnerable time, when life throws those inevitable curveballs - a layoff, for example, or an illness. "It's not what happens to you that matters at this stage," says Mr. Nielson. "It's how you handle it and learn from it each time that makes the difference. It's changing your behavior and saying what will I do differently going forward". By this time, financial advisers say you also ought to be working towards substantially paying off your home - one of your best and most expensive investments. Put the rest of your savings in a diversified investment portfolio.
50s - a great time, since you've established your career and are probably still at your earnings peak. (Hopefully, a younger version of you hasn't kicked you out of the office yet.) Your kids are also hopefully out of the house and earning their own money. A lot of your obligations are behind you. This is when people begin to reflect on their post-working years. This is also an opportune time to explore your second career. Interestingly, there are plenty of companies now serving just this mindset - offering vacations and excursions, which allow you to "test" your passion for a new profession. It is an excellent moment to change the course of your life - again.
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