The planning structure may vary widely from person to person. However, there are a few common factors that everyone needs to consider while planning his/her finances:
Life Management Skills for Finance Planning – Age
The age of the individual is an important factor to be weighed in. For example, an executive in his early twenties may not wish to spend too much on his retirement funds; the dreaded day, after all, is a long way away. On the other hand, a person in the forty-something age bracket can see his retirement looming over the horizon; he would naturally have a stronger desire to save. Unfortunately, the time value of money is forever on an upward curve, and saving nominal amounts at an early age is wiser than saving huge amounts at a later age. Thus, if an investor starts saving at the age of thirty, then at a 10% rate of return on capital, and an annual saving of say $6000, the investor shall have roughly a capital of $ 1.1 million at the age of sixty when he retires. However, if he begins saving at the age of forty, he would be required to make an annual investment of $18000 to have a similar amount at his disposal at the age of sixty. Thus, if he starts saving at a later age, the annual saving burden is thrice the amount that he would need to forego every month if he starts saving ten years earlier. Again, if we assume that at age forty, our investor is in a position to save $15000 annually and not feel the pinch (as against $18000 which he is required to invest), then we find that if he starts saving $6000 per annum at age thirty and thereafter saves $15000 from age forty, at the retirement date he would have a capital of around $1.7 million, half a million more than what he would have if he starts saving at age forty at the rate of $18000 per annum (which would also cause him undue hardship to the extent of $3000 per annum).
Continue Reading…
