Are you financially prepared for life’s challenges?

by 'Nimi Akinkugbe

Many of us get swept up by major life events without being prepared financially. These range from the milestones of starting a first job to getting married and starting a family, educating children, losing a job, relocating, buying a home, caring for aging parents, and planning for your retirement. What are the major events you anticipate this year? Here are a few to consider:

Are you expecting a new baby? The birth or adoption of a child is one of life’s most fulfilling events. New parenthood naturally comes with new financial responsibility and raising a family presents new budgeting challenges. Start to review and estimate current and future expenses, from nappies to university fees! It is never too early.

Are you planning to get married this year?

Child-care is likely to be a major expense especially as many mothers must return to work. The costs of private education even from the earliest years can be very expensive and must be planned for. Although secondary school and higher education are decades away for your new baby, the sooner you begin to save for your child’s education, the better. You will have the benefit of a wider variety of investment and savings options to achieve your goals. An equity mutual fund would be ideal savings for all the early cash gifts that your child might receive, as there are strong prospects for long-term capital growth.

Money is an important aspect of marriage and one of the most difficult topics to deal with. As you build financial security together, you will need consensus and compromise for some money- related issues. Issues such as establishing joint bank accounts, home ownership, having children and funding their education are important matters that ought to be discussed. Don’t feel pressurised to have a huge wedding that you cannot really afford. You can have a small and simple yet classy wedding without the entire village being in attendance. Guests are merrymaking just for the day whilst you have a lifetime to build together.

Often, the financial burden of the wedding falls on the shoulders of parents already in retirement. If your child’s wedding is imminent, plan ahead and try to work within a budget appropriate for you so that costs do not spiral completely out of control and jeopardise your finances. Do not be in competition with your in-laws who may have far greater resources than you do.

Are you planning to buy or build your own home?
A home is one of the most significant purchases you will make in your lifetime. Before you start looking for a property you need to ensure that you are financially ready for such a major financial commitment. Approach your bankers to determine if you qualify for a mortgage. With a pre-approval from your bankers you will be able to determine how much you can actually afford. Do you have any savings towards a down payment? If you do not wish to or are not eligible for a mortgage, your savings will determine what sort of property is within your purview. Location is everything. Think of your future home as an investment as the neighbourhood amenities, including schools all affect its overall long-term value.

Is retirement on the horizon?
Retirement should be a fulfilling and exciting time of life. If you plan to retire this year or fairly soon, you should have been preparing long before now. Time, consistency and discipline are key to accumulating enough wealth to sustain you during your retirement years; this could end up being two decades or even more!

Assess your sources of retirement income, which should ideally include a pension, rental, dividend and other passive income. Yur Pension Fund Administrator (“PFA”) will be able to calculate what income your pension will give you in retirement. There are also numerous on-line retirement planning calculators that should help you in making these estimates of what is available and what the shortfall might be that you need to supplement it to be able to afford the lifestyle you envisage.

Whilst many financial erecommend shifting more of your assets from growth-oriented stocks into more stable, income-producing investments, such as money market deposits and bonds, it is advisable to retain some portion of your assets in stocks to increase your prospects for long-term growth.

By planning ahead of major life events, some of which can be anticipated, you can help preserve and protect your present lifestyle far into the future.

Nimi Akinkugbe has extensive experience in private wealth management. She seeks to empower people regarding their finances and offers frank, practical insights into creating a greater awareness and understanding of personal finance