By Sydney Sekese, CFP® professional and member of the Financial Planning Institute
In South Africa, June is dedicated to the youth of 1976 who stood up against the apartheid government and laid down their lives fighting for freedom and the right to equal education. This article is appropriately dedicated to all youthful citizens (irrespective of age)
On the other hand, Pablo Picasso, the 20th century Spanish painter, said it right “Youth has no age”. This must be the new mantra that we all need to embrace. Is anyone ever satisfied with his or her age? When we’re really young, we can’t wait to be older and when we’re older, we keep wishing that we were young.
The finance professors and authors; L. Gratton & A. Scott state in their book that “the younger you are the longer you live.” This is not fiction; we are all living longer than our parents, longer still than our grandparents. The challenge is – are we financially fit to cater for the long lives that we are facing?
A lot of us see the financing of a long life as a curse. There are many aspects of long-term financial planning that can be unpleasant and unrewarding. It is complicated, requires self-knowledge, involves tackling difficult questions and needs some insight about future needs and aspirations. Without knowing what you want and having an idea of a life plan, it’s hard to calculate long-term finances. Preparing for the future means transferring money from today to the future. Most people find it challenging to create a close connection between their current and future selves.
As young as we are, we should start answering questions like:
- “How much do I need to live on?”
- “How long do I want to work for?”
- “What is my knowledge of my financial situation?”
- “How financially literate am I?”
- “Do I have self-control to balance current needs with future needs?”
Financial planning should not cause anxiety especially if you tackle the above questions head-on or risk entering old age with insufficient resources. A long life simply requires everyone to work longer and save more.
There are various steps you can take to get you on the road to financial well-being and peace of mind and to responsibly take control of your financial future. The following steps are not exhaustive, but they are logical and practical
Step 1: Learn to track expenses effectively
“How much do I spend monthly?” If you do not know this number, how can you possibly plan for your future?
Step 2: Determine Needs vs. Wants
“Do I need this?” What is your motivation for buying things? Distinguish between your needs vs. your wants to help improve your finances.
Step 3: Secure Your Retirement Savings Plan
Pay yourself first! We all must take the steps necessary to ensure a comfortable retirement. Become familiar with your company’s retirement offerings and make appropriate investment choices. Set aside a portion of your spending to invest in your long-term future.
Step 4: Start an Emergency Fund
An emergency fund eliminates the need to borrow money during unexpected life events. It should consist of three to six months of living expenses, to cover your needs in case of unemployment, medical emergencies, or other life events. Keep this money in a savings or money market account, separate from your normal bank account. Start small and work towards achieving your goal.
Just like with your physical fitness, you can change your money habits so that having money in the moment does not compromise your future. You should rather focus on “building your strength” for the long term. The question you could pose is “Will my 70- or 80-year-old self-approve of the decisions I am making today?”