Dear Future Me.. Are You Making Financial Decisions The Future You Would Be Proud Of?
Make friends with your future self, you'll make better decisions
It is natural to consider your future self as a stranger but who looks out for the future of people they don't know? Nobody. Eliminating the disconnection you feel towards the future you can help you make better decisions now. And that includes financial decisions. In fact, making good financial choices now could be the most positive and impactful decision you take for your future self, enabling you to enjoy a secure and comfortable retirement full of abundance and choice. But don't take our word for it. This connection between seeing your senior 'self' and making better decisions has been proven by science!
In research reported in the Harvard Business Review Professor Hal Hershfield discovered that exposing individuals to digitally mastered images of their future selves changes their spending and saving preferences. By becoming more connected to their future selves, they made better decisions for the future. FutureMe is another way to become connected to the older you. It's a fun website which allows you to send emails to your future self. Doing this will compel you to visualise and imagine your future and can be an effective catalyst for getting your financial affairs in order now to attain financial security when you are older and no longer earning. Are you able to tell your future self that you've got all bases covered? Or are you embarrassed to admit that there are gaping holes in your financial planning which might make life difficult for the 60 something you? Here are some of the most important financial commitments you should be making to your future self during each decade of your adult life.
Financial commitments for your 20s
- Learn to budget
- Live within your means - no unsecured debt
- Acquire an emergency fund
- Understand the basics of investing
- Set some long-term goals
- Start saving a percentage of your income each month to benefit from compound interest - the younger you are, the more 'free money' you can make from compound interest
- Diversify investments
- Invest for your age - you can afford to take higher risks with higher potential rewards because you have plenty of time to recuperate any shortfalls if the markets go against you
- Assign a higher proportion of your savings to equities.
- Make sure you are saving in a tax-efficient manner
Financial commitments for your 30s and 40s
- Continue saving a percentage of your income into a retirement fund
- Remain diversified but...
- As you get older begin reducing asset allocation in equities to less risky assets such as bonds
- Ensure you have life insurance
- Take out critical illness cover
- Start an education fund (if you have children)
- Increase your emergency fund
- Make a will
- Consider tax-efficient savings options which reduce IHT liability
Financial commitments for your 50s
- Avoid taking big risks with investments by adjusting asset allocation in favour of minimal risk investments - fewer equities, more bonds
- Consider income generation via dividend paying shares
- Ensure your portfolio is structured to minimise IHT liability to maximise the value of the estate your loved ones will receive
- Review projected pension and state benefits to compare likely retirement income to expected expenditure
- Set a goal of when you wish to retire
- Assess if there is a shortfall in retirement income and adjust your financial plan accordingly
Whatever your age, working with a qualified financial adviser is a great gift to your future self. A professional will help you get the best out of your investments with cashflow modelling software. Choose someone with experience of advising expatriates just like you to guarantee a stress-free and fulfilling retirement.