Introduction

We all have the desire to live as comfortably as we possibly can…now. However, that also needs to be balanced with saving (investing), which will allow us to have comfortable financially independent retirement.

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 of life’s different financial passages.

1. Identify your own financial passage

Click here to read a brief description of each passage, and decide which one suits your personal circumstances best. It may be that you are in a different stage than your age indicates. Go with what feels most comfortable for you.

2. Read your financial passage

When you have decided which financial passage is applicable to you, click on your passage and read it.

In assessing your financial well-being in each financial passage, there are six key financial issues you need to consider.

3. How are you going?

At the end of your passage, you will find a quick personal checklist that will let you know how you are travelling. When you have filled out the checklist, you will be able to see what areas you might need to work on to get shipshape.

4. Additional reading

Information, basic to all the passages, on how to help you manage your finances can be found under Back to basics.

And because we’re not all perfect specimens who fit neatly into boxes, the items under Tips for a successful financial journey include some hints, should you have financial setbacks – or advances, as well as further suggestions on setting goals, budgeting and saving.

In Moneytalk, we’ve brought together a range of articles on investment and insurance issues that could be of further interest to you – now or in the future.

Which financial passage fits you best?

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.

1. Starting out / ages 15-25

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.

2. The balancing act / ages 25-40

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.

3. Life begins at 40 / ages 35-50

New home or major renovations to accommodate growing family, return to two incomes, income protection insurance, travel plans, time for serious retirement planning.

4. The middle ages / ages 45-60

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.

5. Preparing for change / ages 55-65

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.

6. Enjoying retirement / ages 65+

Retirement, staying active, travel, new career/interests, monitor retirement investments and income programmes, plan requirements for old age.

Key financial issues

1. Home mortgage

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.

2. Other debts

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.

3. Savings, investment and superannuation

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.

4. Annual savings

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.

5. Life insurance

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.

6. Your will

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.