This is how you stay financially fit at each stage of your life

Financial planning across life-stages

“No one's ever achieved financial fitness with a January resolution that's abandoned by February.’’ — Suze Orman, well-known American financial advisor.

Financial fitness is a lifelong journey that requires discipline, patience, and good financial habits. Financial fitness is your ability to manage your finances in a manner that allows you to achieve your life goals while also being prepared for any unforeseen financial challenges.

Just like good physical fitness not only protects us from ailments, but allows us to stretch and achieve beyond what we thought possible, financial fitness enables us to cope with shifting life events without money worries while also empowering us to chase our dreams. Want to buy that dream house? Or retire early and rich? Financial fitness holds the key.

Financial fitness is a long-term journey that involves six pillars: goal planning, budgeting and taxation, loan management, risk (insurance planning), investments, and estate planning.

Aligned with the pillars are the four life stages: foundation, accumulation, preservation, and distribution. Each of these stages have different priorities and challenges that require a different approach to maintain your financial fitness.

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In the foundation stage, which includes young adults in their 20s and 30s and newly-married couples, the focus should be on goal planning and budgeting. One key goal is building an emergency fund, ideally amounting to 6-12 times your monthly outlay for unexpected expenses or loss of income. Adequate amount of health and term insurance cover can be bought as it would be cost-effective at this age. Also, building a savings habit is crucial at this stage. One could consider SIPs in equity mutual funds to build a strong foundation for the future.

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In the accumulation stage, which includes young parents with kids and people in the age group of 30 to 50 with growing families, people tend to invest in buying a home and a bigger car. The thumb rule here is to keep your EMIs within 30-40 percent of your annual income. This is also the time where you should try and save at least 20 percent of your income.

Since this stage often coincides with your children's education, it is wise to secure a term life cover that's 20-25 times your annual income. While many would have health insurance provided by their employers, it's important to also have personal health insurance. Consider adjusting your equity-debt ratio to 70-30 by investing in equity-linked mutual funds and debt instruments to achieve a medium risk and high returns portfolio.

The preservation stage includes people in their 50s to 60s, which typically means people nearing retirement. By this time most of their children would have completed their higher education. This is the time when you can boost your savings further and try to save 30-plus percent of your annual income. Try to be debt free by this stage.

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As you build your retirement corpus, investment options during this stage could include a balanced mix of equity and debt products, as well as fixed income options. A 50-50 equity-debt allocation can help maintain a balanced approach to growing and preserving your assets.

Estate planning is another crucial aspect of this stage. Creating a will and nominating beneficiaries ensures that your assets are distributed according to your wishes. Additionally, consider upgrading your health insurance cover.

The distribution stage — typically above 60 —includes retired individuals, whose focus should be on generating regular income. Investment options during this stage could include Senior Citizens Saving Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY), the Post Office Monthly Income Scheme, and monthly fixed income plans.

These options can provide a steady income stream to support your retirement lifestyle. Health insurance should be increased ensuring that your retirement savings are not depleted by unexpected health issues. In terms of asset allocation, consider adjusting your equity-debt ratio to 30-70, depending on your risk appetite.

In conclusion, financial fitness requires a holistic approach. By following the six pillars of financial fitness and making the most of investment and insurance options, individuals can achieve their life goals and build prosperity, while also being prepared for any financial challenges that may arise.