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How your financial lifecycle shapes your future - all 14 formats
12 May 2023

How your financial lifecycle shapes your future

Navigating a cost of living crisis is about more than simply curbing your expenses in response to rising prices. How you respond to higher inflation will depend largely on your personal circumstances, so a solution that worked for someone else won’t necessarily be appropriate for you.

It’s important to recognise that not all financial strategies and tactics are universally appropriate. It is always highly recommended that you speak to your relationship manager or private banker who can help to guide you on the best approach.

Your personal and family finances are too important to leave to chance or guesswork.

When planning your finances, it helps to understand that you have a financial lifecycle in the same manner you have a biological one. At each stage you will have to navigate factors that demand different responses and priorities if you hope to keep your finances on track.

Understanding your financial lifecycle

Your financial lifecycle typically consists of five distinct phases that can be summarised as:

  1. Early adulthood: when you enter the workplace, with your focus on paying off student loans, saving for a down payment on a home, or starting to invest for retirement
  2. Family formation: when you’ve settled down in your 30s or 40s, when priorities shift to raising children and saving for their education, while still saving for retirement
  3. Peak earnings: usually in your 40s and 50s when you’re focused on maximizing your retirement savings, while paying off your mortgage
  4. Pre-retirement: at this stage you may be focused on paying off remaining debts, downsizing your home and fine-tuning your retirement plan
  5. Retirement: your financial priorities shift managing your retirement income and potentially planning for your long-term care needs.

Your relationship manager or private banker will be able to guide you along this journey, helping you to adapt and adjust as time goes by. Under normal circumstances, your long-term goal should remain steady although you’ll change your priorities in each lifecycle phase to stay on track to meet your goals.

The importance of a financial plan

Accumulating wealth for a comfortable retirement is easily your number one financial priority. And it’s a goal that is easily within reach if you start early and have a clear plan. Without a plan, you have a higher chance of getting distracted from your end goal, and possibly not achieving what you’d hoped for.

Having a clear goal is essential when you sit with your relationship manager or private banker  to devise a plan that will get you there.

Ultimately, you should be looking to generate income and wealth over your lifetime so that you can retire comfortably, or leave a lasting legacy for your family. While this sounds simple enough, you can’t rely on a few lucky bets or breaks.

Your financial plan has to take into consideration where you are in your financial lifecycle because that will determine which set of priorities you should be focusing on.

Even the most rudimentary financial plan should at least include long-term (retirement) investments, long and short-term savings strategies and a tactical use of long-term debt. Here are some of the ways that these financial tools can help you reach your goals.

Diversified, long-term savings

The cornerstone of your financial plan is your retirement investment strategy. Your goal is to invest in the years that you’re earning income so that you can draw on these funds for your future income.

So, if you start investing in your early working career you might be more heavily invested in growth assets. Investments that embrace volatility, for instance, are an obvious choice because your 30 or 40 year time horizon allows you to ride out market ups and downs.

You would probably prefer less risky assets closer to your retirement to shield your savings from short-term market shocks. It’s essential therefore that your financial plan accommodate changes in your investment strategy based on your life stage.

However, the one constant principle that should be followed is to spread your risks by diversifying the assets in your portfolio. You can discuss the appropriate ratios with your relationship manager or private banker, but it pays to heed the old adage of not keeping all your eggs in one basket.

Savings strategies complement your investments

There are as many reasons as there are ways to implement a savings strategy. After all, liquidity is invaluable if you find yourself in a pinch. Capital in an easy-access savings account can help you ride out unplanned emergencies, and relieve you of unnecessary stress.

While the case for saving today for tomorrow’s expenses is easily understood, the availability of short-term capital also benefits your long-term investment strategy. Liquid capital for emergencies or unforeseen expenses means your less liquid, longer-term investments can be left undisturbed.

International savings accounts have the added benefit that you can save in a major currency best suited to your international lifestyle, or as a hedge against a weakening domestic currency.

With international notice and fixed-term savings options to choose from, you can adapt your strategy to suit your cash flow needs. These solutions are ideal for a variety of future-planning needs like education, family holidays or a deposit on an overseas property.

Make long-term debt work for you

Tactical use of long-term debt, like a mortgage on a UK buy-to-let property, is one example of how you can use debt to build rather than squander your wealth.

Buying a rental property offers many advantages apart from using the income to repay the mortgage. For one, it’s a sensible way to further diversify your investments, plus buying offshore property might have the advantage of lower interest rates than you receive in your home country.

You can therefore diversify your investments, earn foreign currency to cover your instalments and build equity in a popular property investment destination.

What this illustrates is that debt is not a bad choice if you use it correctly. Being reliant on short-term debt to cover basic expenses is a different scenario entirely and may spell disaster for your financial plan.

When in doubt, take stock of where you are in your financial lifecycle and whether it’s appropriate to take on debt - long term or short term. And if you’re still unsure, speak to your relationship manager or private banker to develop a plan that will take care of your current needs while planning for your future needs.

Understanding your financial lifecycle makes all the difference between being secure in the knowledge that you’re making the right decisions, and hoping that you’re making the right decisions. Your future well-being is too important to leave to chance. If you are unsure or have questions, speak to your relationship manager or financial advisor to develop a plan that puts you in the best decision to have a secure financial future.