For most consumers, debt isn’t good or bad; it’s just the way of things. And while it’s true that change is part of many areas of life, how debt is handled isn’t one of them. What is required for a college student to manage their finances is the same for a retiree.
But what does change, are the life situations that will need your attention. Levels of income typically rise over time, while important milestones require a larger percentage of those funds – family, mortgage, retirement investments, etc. So for each life stage, specific financial goals need to be set with the primary objective of meeting or exceeding them.
As it has become more difficult for parents to fund their children’s undergraduate degrees, the responsibility has fallen on students to pay their own way. While there are grants available that may cover about a third of the cost, most students end up borrowing from the government or by taking out a personal loan to help fund their education, which can often be a staggering amount of debt.
This is the time in life that the foundations of moderate living need to be put in place. By avoiding additional debt, like credit cards, moving into the next stage of life will be smoother and repaying student loans will be accomplished quicker.
Young Single Adult
Whether this is the time to focus on repaying student loans or to establishing independence, finances are at the top of the list of concerns for young, single adults. Making it more difficult is the entry-level wages that most people earn at this stage of life, often inadequate. And for those without a degree, the economic realities are even harsher.
The danger of amassing large amounts of debt by using credit cards as a safety net will only make life down the road more difficult. The easiest way to prevent this from happening is by recognizing the nonessentials and superficial desires that waste money that could be better used to pay down debt or cover essential living expenses.
Before beginning a family it’s important to have paid off all college associated debt to begin with a clean slate. Having established a career with an adequate salary to cover essential family expenses with a little left over, this is the time when finances are fluid; balance is necessary while juggling a mortgage, car loan, children’s needs, living expenses, entertainment, etc. This is the stage of life to become knowledgeable in finances, live by a strict budget and begin to invest to ensure the best outcome for your future. If you put off saving for retirement until the kids are out of the house and out of school, you may not have enough time to accumulate adequate funds.
As your children move away for lives of their own and you’ve paid off your mortgage, life and debt stabilize to a more consistent hum and there’s a certain level of security. Cost of living is more predictable and the opportunity to save is greater than ever before. This is the stage when your insurance and investments should be reviewed to ensure the maximum benefit and when the discipline you’ve displayed over the years will begin to be beneficial. Diversify their investment portfolio and focus on more secure investments; draw up a will.
This is the time we all hope to reach with more than adequate savings and investments to be able to travel or do all the things we left until retirement. Arrange for tax effective income streams and make sure you understand your pension benefits and the best age to begin tapping into it. If you’ve handled your finances and debt well you’ll be able to enjoy your golden years, and not be filled with regret as you complete your income tax software each year.
No matter what stage you’re at in life, achieving your financial and personal goals takes commitment and discipline. Wise money management and good communication with the people in your life are the most important tools for avoiding financial worries.