Written by Sean Pollock

Wednesday, 18 June 2008 19:38

Why do we work? You need to work in order to meet current expenditure and you need to stash a little of it away to take care of yourself when you retire. Your earning years can range anywhere between 21 to 60, a span of almost 40 years. There are different phases that a person experiences in this span of 40 years. At the beginning of your earning life, you are single and by the time you retire, you may be a grandparent. Your financial needs through this span are different at every stage. The main point is, that at every stage, you have to earn enough to meet your current living expenses and also be able to save a little to create a corpus that can generate income on its own to tide over the future. It is not difficult. All you need is a personal asset management plan. During your earning years, you have to be clever enough to create enough wealth by letting your savings work for you. The amount of money you earn is limited to the salary you get paid if you are working for someone or the amount of profits your business can generate for you. So it is your savings that have to be consolidated and invested in income generating securities. The capital generated from these savings should be able to take care of all your expenses when you retire.
A personal money management plan starts with making a budget. The budget allows you to prioritize your expenditure. The next stage is drawing up your financial goals. These are based on needs and wants. Foundation goals are need-based while Lifestyle goals are wants-based.

Your basic needs are shelter, insurance, savings to pay for education of children, retirement corpus and creating an emergency fund to meet unexpected expenditure.
To meet Foundation goals, the options for investing are many. For buying a house, you can resort to a mortgage. Your income has to meet the mortgage payments; using a mortgage calculator will help you assess the amount of mortgage you will have to pay on a house in your budget.
The next foundation need is Life Insurance. There are a variety of insurance products available in the market ranging from term life insurance, whole life insurance, critical illness income protection insurance etc. There are a number of Insurance companies operating in the market and you can always get a life insurance quote from them to help you make a choice.
Another basic need is saving for education of children. For this you will have to start when the children are young. The cost of education will be different at every stage. You need to set aside money for providing towards the cost of Elementary school, middle school, high school and a university education. As this would span over 18 to 25 years, investing in mutual funds and annuities is the best bet.
Your retirement plan is important. Creating a corpus that can generate income to take care of your post-retirement years is being wise. There are a number of retirement plans available. Take a look at them and plan allocation of funds.
An emergency fund should be created with a corpus estimated on the basis of three months of current expenditure. This can be done through setting aside three months of income. Once this corpus is created, you can concentrate on other investment avenues.
Once you establish your basic needs, start saving and investing to meet these needs. After investing in avenues that can take care of these needs, you can then think of life style goals like owning a home in a ski resort or by a beach, buying the latest digital music equipment or taking a holiday to exotic places.
Having established your needs and having planned your investments, don't sit back and relax. Asset Management requires active monitoring to see that investments deliver as per plan.
You don't have to be a millionaire to have your finances taken care of. Just ask yourself what you truly need. You need to meet all your expenses (current and target) while you work, and you need to be able to meet those expenses when you retire. So all you really have to do is create a corpus by investing regularly. That should see you through active life and twilight years.