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The ‘25:65’ plan

By Finbar Garcia LUTCF, FSS, MFA

Okay, so you made that promise to stop procrastinating in 2024 and taking that bold step to carefully plan your financial future. In doing so, you will need to follow a simple planning process.

Let’s call it the ‘25:65 Plan’.

What this means, is if someone starts planning from age 25, and working this plan, by age 65, they would have achieved a lot more than the average person.

So, what’s the plan? During your life, you would encounter many life-changing experiences: some happy ones, sad ones, motivating ones, even near-death experiences.

However, in the financial section of life planning, an individual may have about nine life-changing experiences. These are: single; engaged; married; first home; investments; first child; education plan; second child; education plan; new job/higher income; additional investments; retirement.

From your first job while being single, your first life insurance policy should be intiated. As these events create changes in your life, your insurance policies should change with you.

The planning process starts from your first pay cheque. Let’s look at some steps at age 25 after someone graduates and lands that first job.

The process tells us that you should follow these figures 50-30-20. Fifty per cent of your income towards ‘Needs’; 30 per cent towards ‘Wants’; and 20 per cent towards ‘Savings’. You could switch ‘Wants’ and ‘Savings’ percentages to create more savings initially.

You will need to write down your goals. Where possible, indicate the dollar amount for each goal, and a time horizon to achieve them. This will allow you to adjust the amount you put towards savings if needed. These goals may not always be investments but other life-changing goals like marriage.

These do carry a financial cost and will require some detailed financial planning along with your intended spouse, as it will change the dynamics of things.

Stay focused on these goals and measure the progress. Are you on target or need to adjust?

 

Moving on, you are now 30. You achieved some of your goals and life now looks a little different. Marriage may be sooner than you think, if not done already. Your planning needs more of your time and attention. You’re looking to acquire your first home. What are some of the requirements needed?

  • Location of property: This is especially important as it’s a long-term investment and it’s where you will be bringing up your family and spending many years of your life.
  • Cost of property and downpayment needed: based on your preferred financial institution, you may qualify for 100 per cent financing on the property or you may be asked to have a downpayment of at least 10 per cent of the cost of the property. Depending on the cost, you may also have other statutory fees and charges, along with legal fees.
  • Based on your age, the bank may carry your mortgage to age 65, or earlier, this will determine your mortgage instalments. If the property is being purchased on both names, then the bank will require information on both parties. While the property will be held as the first security by the bank, you will be required (even if it’s not asked for) to have Life Insurance on each party equal to the cost of the property. This will assist in liquidating the mortgage in the event of the untimely passing of either of you, thereby saving the family of having to sell or lose the property.
  • Your Fire Insurance policy: all those nice things that you saved, to furnish that beautiful home, and of course the house itself. You will need to have adequate coverage to replace those items in the event of any loss. The bank will also need to know that you have this type of policy in force, as their investment will be at risk, and so will you.

 

Fast forward to age 40. The family is happy, two children or more, all expenses are being managed well. Now you will need to focus or refocus on tertiary education for the children and your retirement plan.

You are now fully appreciating all the sacrifices your parents made and trying to figure out how they did it. Saving for children’s education and your retirement together is not an easy task, as one can be deprived of the investment amount if not managed properly.

You will need to determine early what is the possible career you want for the children. Calculations for education funding need at least two types of investments, one based on life insurance and the other based on savings.

The exact future value of these programmes, local or abroad will need to be worked out before. (I can assist you if needed). This will allow you to have the correct investment and coverage in place.

 

Your retirement: So, you are now age 50. Looking down the road to retirement, the children are at secondary school or getting ready for it. You have between 10 to 15 years ahead before retirement. Look at your retirement investments. Are they on course to allow you to live your retirement dreams? Some adjustments will be needed if you are off track. Retirement planning is a serious issue as many people don’t look at it, and when they retire with little or no income, financial troubles begin.

I will elaborate more on these topics going forward: education planning; house hunting and financial preparation; retirement planning.

Until we meet again, remember these words: “Poor is a state of mind. Broke is, ‘I’m just passing through’.” -Dave Ramsey

 

Call me for more information on planning your financial future. Send your questions to myfinancialadvisor2020@gmail.com or call 620-1185.