Here we are at session number 56 , and we’re going to be talking about Life Stages. As we go through life, our financial needs change, just as most of our other needs and wants change. For example, you never hear my 4yo nephew hankering after the new iPhone, or my 73yo father fretting because he’s run out of protein shake. Yes, at different times we need different things, and in this show I’ll be covering all the major life stages as I see them and briefly covering what I think are the priorities for each.
Let’s dive straight into discussing these life stages. Of course not everyone will go through each life stage, and yes, I have assumed that at some point you’ll be in a relationship and have kids together. For many people this won’t happen, and the young, free and single stage will continue, minus the young part for many years. I hope I haven’t pigeon-holed things too much, and that you’ll be able to take from each life stage the relevant lessons.
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I’m departing a bit from the usual format of what you need to know and what you need to do, instead looking at each of the six life-stages in turn. It’s worth bearing in mind that while you will certainly identify with one of the life stages as being where you’re at right now, you should also look ahead to what’s next and be thinking about it before you get there. Planning is about looking forward…
Life Stage No. 1 – Young, Free and Single
- Bottom end of the earning spectrum.
- Student Debt?
- Living at home? Unlikely to own own home.
Good habits start here – get into the savings habit. May be paying board/rent, but pay yourself first, even if small amount.
Relatively few bills – don’t need a great deal at this stage. You might want lots of nice things, but you don't need them. Expenditure rises to meet income, but don't let it by paying yourself first.
No need for financial products like life insurance. Remember student debt dies with you, but any other debt you have, you might want to consider covering in case you're not around to pay it off.
Not a priority to look at pension planning. It can wait.
Life Stage No. 2 – DINKies
- Double Income No Kids
- Early stages of commitment with another person
- Maybe just bought a house, possibly saving for a house deposit
Possible life insurance – if there is any dependency between you and your partner, or any debt, you should definitely consider it.
Saving – two incomes usually means surplus money? This is possibly the easiest time in your life to save, even though expenditure will rise to meet income if you let it.
May be saving for a house deposit. Average house price according to ONS is now £250,000 in England & Wales. A 10% deposit is 25 grand. That’s going to take you four years at £500 per month at a 4% return. But now’s the time to do it!
It may be worth giving some thought about the implications of having children one day. Kids are expensive. Maybe a lower income if Mum (or Dad) returns to work part time. Even if both partners return to work full time, you might have some extra accosts like childcare.
Make a will
Life Stage No. 3 – Young Family
- One or more kids
- Might be one partner working part time or not at all. Maybe not, but remember childcare costs.
- Disposable income is lower – kids are expensive
Budgeting arguably more important now then at any other stage. Money pressures likely to be most pressing right now, if you can budget now, you can do it at any time.
Make sure you’re claiming the relevant tax credits and benefits for being parents. Child benefit, working tax credit etc.
Life insurance is a must, plus Critical Illness Cover and Income Protection.
Make a will and consider guardianship – who will look after your kids if you're not around? Will you need to provide some money to help?
Savings for future events for your kids like university, weddings, first car or house deposit. But also savings for yourself and your own future.
Life Stage No. 4 – Middle Age
- Children flown the nest – Yeah right!
- But maybe still an element of dependency
- Both partners working full time?
- Disposable income likely to be higher than it was
- Starting to think about retirement
Goals and desires – what do you want to achieve? What’s next after the kids? Will you throw everything into career? Or what? It’s your life!
What will you need to be able to do that. Now would be a great time to engage in a formal financial planning exercise? Find a CFP here
What is your net worth? – assets minus liabilities, plus income over time.
Wills and Lasting Powers of Attorney – Less about guardianship and more about provision for your adult kids if you die.
Putting money away for yourselves and your own future.
Life Stage No. 5 – Retirement
- Probably kids are independent
- Debt Free – hopefully
- Thinking about retiring – whatever that means
- Elderly parents needing care
- Thinking about spending some serious money on yourself.
What does retirement look like for you? What is that going to cost? Can you afford it?! Time to refresh the financial plan.
Stop work or just do something different?
Pensions just one part of funding retirement. Consider the bucket – see this video
Health is going to fail in the next 30 years. What impact might that have? Should you consider Private Medical Insurance or can you self-insure?
Elderly parents in their 80s needing care perhaps. How will this impact you? You don’t have to pay for their care but you may want to care for them yourself
You may have power of attorney for them – big responsibility will impact on your retirement.
Inheritance Tax – think about it by mid 70s latest, don't leave it too late.
Last third of your life – live it now!
Life Stage No. 6 – Later Life
- Health failing
- Expenditure reduced
- Got everything you need
- Concerned about care
Long Term Care – Session 29 Plan for if you need care, but what happens if you don’t? How and where will you receive it?
Inheritance Tax planning? Assuming your estate is big enough this may be a concern. A bit late to do much about it, arguably. See previous section.
How should your family inherit? Should they inherit directly or should you skip a generation and give the money straight to the kids? What about trusts?
Lasting Power of Attorney – essential to make one now. And a will of course…
Each life stage is different. even if you can only identify with one of the above, maybe your parents are in a later life stage and I've identified something they need to be thinking about…
This week’s reviews
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Weight Loss Challenge
There’s one more review this week from dazandjacs, which actually came in the week before. It lays down a challenge, which is why I wanted to wait until this week. Dazandjacs challenges me to use helping others, as I do every week on this show, to be my incentive for shifting the weight. I want to be 14 stone by the time I am 40, that's on 23rd February 2015, so that's three and a half stone in ten months…
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Next Session Announcement
Next time I’ll be answering listener questions. I’ve had a few in on voicemail, but my notifications were playing up so I’ve only just become aware of them. So I’m sorry if you’ve been waiting for a couple of weeks. I’ll answer them next week. There is still time to get your questions in for that session, so if you have a question on any financial subject that you want me to answer here on next week’s show, then the best way to do that is to leave me a voicemail at meaningfulmoney.tv/feedback or click that green tab on the right hand side of the site
That's it for this session of the MM podcast, I hope it was helpful. Did I miss anything? Do you have any questions or comments? If so, please leave them in the comments section below
I hope you enjoyed this session. Thanks for listening – I'll talk to you next time.