Your money timeline

When it comes to money, your priorities, needs, and goals change as you move through life. In your twenties, you have a vastly different relationship with money than you do in your sixties, but it is important to recognise that at each stage of your life, the financial decisions you make can impact or enhance your financial future, regardless of how far away that might seem.

Here we explain the four stages of adult life when it comes to your finances, and the things you should consider and do at each stage:

Stage 1: Young, independent, and carefree! 

As you start your working life and begin building a career, you are likely to have financial independence for the first time, and all the temptation that comes with it. However, whilst it may seem a little dull, make sure that you use this time to build a solid foundation for your financial future. Create a budget and live within your means, clear student debt if you have it, and avoid building up debt on credit cards or personal loans. Ensure you also regularly review, and actively manage your credit score. This may not seem important when life is so carefree, but it could have huge implications in the future. 

Also, get into the habit of saving money for the short term (for things such as holidays), the mid-term (a deposit on your first home, perhaps) and the longer term, such as retirement. It may seem somewhat bizarre to be thinking about retirement when you start out on your career, but the earlier you start saving for retirement, the more likely you are to have the lifestyle in retirement you would want to have. 

Stage 2: Established, settled and responsible!

After a while, being independent, and carefree might lose its appeal, and most of us decide it’s time to “settle down.” Whilst you are likely to be established in your career and earning more money than before, this stage of life can be one of the most financially demanding. The reason for this is that you may start sharing your life with a partner, have children and decide to buy your own home. All of these mean the money you earn must stretch further, so it pays to avoid becoming complacent when it comes to your finances. Also, the impact of any financial mishap, such as overspending and falling behind on debt repayments can be more wide reaching than when you are a young, independent, and carefree 20-something.

As a result, ensure you continue to do the basics well. Budget and live within your means, avoid unnecessary debt, pay bills on time and, if you do have unsecured debt, clear it as quickly as possible to avoid paying high interest rates. 

Saving is also increasingly important when your life becomes settled, as you have added responsibilities in the form of a family and a home to pay for. Short term savings should be used to build an emergency fund to cover essential spending in the event of sickness, job loss, or your home needing urgent repairs. You should also consider saving for the mid and long term though, including for things such as your children’s education, paying off your mortgage early, and retirement. So take some time, and get some advice, to develop a plan to help fund these mid and long term aims. It can be a challenge to plan when there are so many demands on your money and time, but there is a lot you can do at this stage of life that will make the future much more comfortable. 

Stage 3: Peak financial comfort, with a plan in mind!

With life settled, you will reach a time when, hopefully, your earnings will start to peak and your expenses will remain stable, or begin to fall, as children become financially independent, and your mortgage gets nearer to ending. 

If you have continued to budget, live within your means, and have avoided accumulating additional debt, it is likely you will now have excess money each month. This will, naturally, let you do more of the things you want to do, such as taking nice holidays, but do keep in mind that retirement is not too far in the future.

 So, use this time to review and plan your finances for the future, and identify things you can do now to improve your financial position when you retire, which might include boosting savings or refinancing/clearing debt. Consider how much money you will need to have the lifestyle you want when you retire, and use some, or all, of your excess money each month to boost your retirement fund and savings so that lifestyle can be achieved. 

Whilst few of us like considering our own mortality, now is also a time to conduct some estate planning to ensure those you care about are adequately looked after in the event of your sudden death. This may seem a little morbid, but you are likely to have accumulated assets in the form of a property, savings, and investments by this stage in life. With a little forward planning, it may be possible to financially assist your children or grandchildren now, whilst also reducing the amount of death or inheritance taxes your loved ones will have to pay when you do eventually die.

Stage 4: Ready For Retirement

The time will eventually arrive when you decide that you want to take life easier and wish to retire. This can be a daunting prospect for some as the transition between work life and retirement can be considerable. After all, you may have worked for much of your life and many of the routines, relationships, and the security of having a job are likely to end. So, ahead of retirement, take some time to share your worries and desires about retirement with those you care about so that you can manage the transition between work and retirement smoothly. Also, speak to a financial adviser to work out how best to access and structure your retirement funds to ensure you have enough money to last you for the rest of your days.

Of course, it’s likely that you have big plans for your retirement – a Caribbean cruise, or a road trip around Europe in a motorhome, perhaps? If you do, good for you! You have worked hard to get to this stage in life. 

However, keep in mind that retirement means a drop in income for most people so you need to plan carefully to ensure your retirement fund lasts what could be the next 30+ years. This means that budgeting and living within your means becomes vitally important.

Budget for both the early years of retirement (when you have the energy and enthusiasm to grab life by the horns and will probably spend more) and the later years when life becomes a little more sedate, and less costly. Create a budget that enables you to enjoy your retirement, whilst still ensuring your retirement fund can look after you for the long term. Also, as in your working life, ensure your budget allows for emergencies and the unexpected, which can still arise regardless of how carefree life might have become. 

In retirement, as with all stages of life, it still pays to plan. As you move through retirement there are likely to be financial decisions and choices you need to make regarding where you live in the future, or what happens if you or your partner needs additional support or care. Whilst everyone’s circumstances are different, and support and care for the elderly varies dramatically from country to country, by regularly reviewing your finances and personal circumstances you can maintain control over any decision and avoid change being suddenly forced upon you. This will, hopefully, ensure you have the long, happy, fulfilling, and comfortable retirement you always planned for.