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Our ‘Lifetime of financial planning’ series has examined the importance of financial planning at each stage of life and charts how priorities change over time. In this week’s post, we take a look at the options and responsibilities which arise when people begin to move up the career ladder and earn higher incomes.
Generally, as people settle into their careers they start to earn more and generate greater amounts of disposable income. This key stage of professional life represents a significant opportunity for people to get ahead financially and grow their wealth. Financial decisions taken at this point in life can have a profound impact on the way they will be able to live in the future, most particularly in terms of the type of retirement they will be able to afford. At the same time, protecting wealth already accrued becomes a priority.
It is human nature that as someone’s income grows so does their spending. The temptation to splash out is often overwhelming, but there are financial dangers inherent in this kind of lifestyle inflation. People who succumb to the urge to spend too much of any gains resulting from a blooming career are missing out on the opportunity to significantly boost their savings and invest in real wealth generating opportunities.
There are a wealth of investment opportunities for higher earners to consider. Stocks, bonds, mutual funds, commodities and precious metals – the choices are endless. However, most people do not have the in-depth knowledge or time to personally manage a portfolio of investments. An excellent alternative to managing your own investments is to invest in a Multi Asset Portfolio (MAP). These are administered by a professional fund manager who will ensure a diversified portfolio aimed at maximising returns. Another alternative is to work at building a property portfolio which can provide both rental income and a healthy increase on capital value.
For people with families, something else to consider is the impact of higher education for their children. The cost of university is now one of the biggest financial commitments that a family will face. Starting education savings as early as possible in a child’s life will lessen the financial burden of tuition fees and living costs.
Earning a higher income goes hand in hand with obtaining more assets and having a higher personal net wealth. As this happens, protecting wealth becomes increasingly important. Unexpected health problems can quickly eat away at a savings pot which makes medical insurance for all the family a firm priority. Other insurance options such as critical illness cover and accident protection can cover against unexpected negative events. In the worst case scenario, life insurance can ensure a family is provided for in the event of the death of the primary wage earner.
It is easy to look at increased disposable incomes as ‘extra’ money that is available for spending. However, increased incomes and greater amounts of money are not guaranteed for life and it is simply wiser to save rather than spend the bulk of additional revenue. Making the right moves at this stage can literally set you up for life.
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