Financial planning is a comprehensive process that involves managing your finances in a way that helps you achieve your life goals, both short-term, medium-term and long-term. It is a continuous journey that begins at the earliest stages of life and extends until the end.
Effective financial planning ensures that you can meet your needs, protect your loved ones, and secure your future at every stage of life.
1. Childhood and adolescence: building foundations
Although children and teenagers may not have significant income or assets, this stage is crucial for establishing financial literacy and good habits. Parents and guardians should teach children the value of money, saving, and responsible spending.
Opening a savings account for a child from age seven onwards can introduce the concept of saving early. Encouraging part-time work during adolescence helps develop a work ethic and financial independence. Education planning, including saving for college or university, should also begin in this phase through regular saver and regular stock market saver accounts. Email me for details if needed.
2. Early adulthood: establishing financial independence
In your 20s and 30s, the focus shifts to establishing financial independence. Key priorities include completing a budget plan every January as your circumstances change (so important to know how much it costs on a monthly basis to run your life), creating an emergency fund that covers three to six months of living expenses, paying off student loans, and establishing a steady income source.
This is also the ideal time to start investing for retirement, even if the amounts are modest. Contributing to employer-sponsored retirement plans like auto-enrolment starting next January or setting up your own PRSA (Personal Retirement Savings Account) can set the foundation for long-term wealth accumulation.
The younger you start your pension, the better. Additionally, young adults should consider obtaining health, life, and disability insurance to mitigate unforeseen risks.
3. Midlife: growth and protection
Midlife, typically between 40 and 60 years, is often marked by increasing responsibilities—homeownership, raising children, and career advancement.
Financial planning during this period involves maximising retirement savings, considering college funding for children, and protecting assets through insurance. Diversifying investments to balance risk and growth becomes essential, along with estate planning - making a Will - to ensure assets are transferred according to your wishes.
This stage may also involve paying down mortgages, car loans and other debts, and reviewing financial plans regularly to adapt to changing circumstances such as career shifts or health issues.
4. Pre-retirement: accumulation and transition
As retirement approaches, usually in the 50s and early 60s, the focus is on consolidating retirement savings and preparing for the transition. It's important to assess whether current savings are sufficient to maintain your desired lifestyle post-retirement.
Strategies may include increasing contributions, reducing debt, and exploring additional income streams such as part-time work or annuities. Estate planning becomes more critical, involving wills, trusts, and powers of attorney. Health care planning is also vital, including understanding health insurance and long-term care options.
5. Retirement and old age: preservation and distribution
Retirement is the phase where accumulated wealth is used to support a desired lifestyle. At this point in your life, you should have no debts, and the cost of living should be cheaper for you than when you were working. The key objectives are income management, healthcare, and estate planning.
Drawing down retirement savings prudently to ensure longevity of funds requires careful planning. Managing healthcare costs, including potential long-term care, becomes paramount.
Additionally, estate planning ensures that assets are distributed according to your wishes, minimising tax implications and avoiding inheritance tax for the loved ones you are leaving your assets to. Staying engaged and active can enhance quality of life during this phase, and financial planning should be adaptable to changing health and personal circumstances.
6. End-of-life planning
The final stage involves preparing for the inevitable, including final healthcare wishes and estate transfer. Creating legal documents such as living wills, health care directives, and powers of attorney is essential. These documents ensure that your wishes are respected and reduce the burden on your loved ones. Proper estate planning also involves minimising estate taxes and ensuring a smooth transfer of assets to heirs.
Financial planning from the cradle to the grave is a lifelong process that requires discipline, knowledge, and adaptability. It starts with instilling good financial habits early, then building on those foundations through strategic saving, investing, and risk management. As life progresses, the focus shifts toward protecting assets, maximising growth, and planning for a comfortable retirement and legacy. Regular reviews and adjustments are vital to accommodate changing circumstances and goals.
Ultimately, effective financial planning provides peace of mind, security, and the ability to enjoy life’s milestones without undue financial stress. It empowers individuals to make informed decisions at every stage of life, ensuring that their financial resources align with their values and aspirations from the earliest days to the very end.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ.
For more information, click on John Lowe's profile above or on his website.
