How to Create a Personal Investment Plan for Every Stage of Life
Investing can be described as the practice of committing money or capital to a venture with the hope of reaping additional benefits or income from it. The purpose of investing is to put your money into one or more investment vehicles with the promise of growing it over time.
Investing is a way of making our hard-earned money work for us. Most people spend most of their adult lives working. And with the stress and pressure involved it’s ideal to make our money do some of the heavy liftings for us. We can do that by starting to learn how to invest. According to a USNews article, investing without an investment plan is like driving in a strange city with no road map or GPS.
A personal investment plan is about prioritizing your future financial wellbeing over current desires. It’s all too easy to pander to your need for instant gratification. Whether buying the latest gadgets or going on a shopping spree – spending money is fun and enjoyable.
However, investing helps guarantee your future enjoyment. And it requires self-discipline.
So How Do You Create a Personal Investment Plan?
You can invest your money through several means – stocks, mutual funds, bonds, real estate, etc. These investment vehicles each have their advantages and disadvantages. Therefore, before you throw your cash at any of them, it’s necessary that you put in the required effort to understand how the different investment vehicles work.
As part of your investment plan, you need to find out what and where your money will be invested in; the capabilities of those managing the funds for you; the associated costs and any additional cost or penalties for accessing your funds when you want to.
The investment plan should also be about reading up on all related investment materials and carry out proper research. There’s no guarantee that you’ll make money from any of the investment vehicles, but a good knowledge of how your investment of choice work increases your chances of being a successful investor.
Any mistakes that I make is an investment in my future.
When should you start investing?
It’s always better to start immediately as soon as you began earning money. But if for some reasons, you have been unable to invest right away, there’s no better time to start than now. Do not put it off for any reason. It doesn’t matter if you are starting to save and invest late in life; no matter how old you are, it’s never too late to start.
As a crucial part of your long-term investment plan strategy, you need to cultivate a savings habit deliberately. And the key to successful savings is getting into the practice of “paying yourself first” no matter what.
Whether saving for investment, retirement, emergency or a considerable expense, the best way to go about it is by automating the process. Set-up an automatic transfer from your paycheck to your investment accounts.
Automation makes it easier to save as you won’t have to make the conscious effort to save each time you get paid.
Deciding How to Invest
To start off with creating a personal investment plan, you have to decide on the best way to invest the money you are saving.
- What are your investment needs?
- How comfortable are you with risks?
Answers to these questions will serve as a guide to help you decide the direction of the investment plan you should take. Let us take each of this in greater details:
- What are your investment goals? What are your reasons for investing? A huge retirement savings balance? To buy a new home? Your intentions for saving and investing will help you know if you should put your savings in an investment vehicle that has the potential to make money for you or just increases the value of your investment. For instance, your retirement fund isn’t meant to provide you income until you retire. Therefore, your retirement investment strategy should be focused on growing the value of your retirement until you retire. In retirement, your strategy should now center around generating an income from your investments while leaving the principal intact as much as possible.
- How much risk can you tolerate? Every investment carries some risks. How tolerant are you of fluctuations in the price of your investments? You need to balance this against your expected rate of return to find out the level of risk your investments should carry. If you intend to hold an investment over a long period, you will be willing to tolerate more risk because you still have time to make up for any possible losses earlier on.
- Investing for different stages in life. Your stage in life has a direct impact on how you choose to invest your money. While people handle investments and money in different ways, they also face similar life situations which similarly affects the way they invest. Every stage in the life cycle has its unique challenges and opportunities. For example, as you get closer to retirement, you will have to make changes in the way you invest your retirement money.
If you’re starting a family, you will have to find a way to arrange your finances to take into account the additional cost of raising a child or two. You may have to focus on income yielding investment to supplement your income. And by the time your kids are in college, your growth and income needs must have changed and with that, possibly your risk tolerance.
The 8 Stages You Need to Build Your Personal Investment Plan:
When you start working
Immediately you begin taking home a salary, start a savings account. No matter the size of your income, ensure you pay yourself first by putting aside a certain amount monthly. This will build up your cash reserve faster and set you on the right path to meeting your financial goals. Secondly, make sure you check with your employer about their 401k sponsored retirement plan and enroll ASAP. Check your finances and see if you can afford a maximum contribution.
When your income increases or when you get a raise
Do not adjust your lifestyle to reflect your increased income. Instead, add the extra income to your contributions towards your company-sponsored retirement plan. Some employers even match your contribution and will increase accordingly when you get a raise. Also, increase your contribution to your savings account and retirement accounts. Open a Health Savings Account with your employer.
Marriage changes the dynamics remarkably. And if handled right, could be to your advantage. Plan together how much money you can allocate to investments taking into cognizance the joint expenses and income. Talk things out with your spouse to make sure that you’re in the same boat regarding your money goals. Money can ruin relationships that’s why it’s necessary that you communicate well on this matter.
Purchasing your new home
Buying a new home is one of the most significant Investments for young adults. Put your savings into short-term investments to enable you to pay for the down payment, moving costs and expenses associated with setting up a new home. There are a lot of expenses ahead of you once the house is purchased. Shopping for furniture and possibly changing the paint colors can all add up if not planned accordingly.
Having your first child
Now, this is where it gets really exciting. Having a child or children come with additional expenses. Notwithstanding, this is the time to increase your savings. Also, increase your life insurance and start a college fund for your children as soon as you can.
According to Parenting.com article, a family can easily spend roughly $12000 on child-related expenses on a baby’s first year of life alone. It’s also advisable to start an estate planning at this point.
When your children grow and leave the house
This is the time you increase the amount of money you send to your retirement savings account. Critically examine your investment strategy and asset allocation and adjust accordingly to correspond with your new salary and benefits. You may also want to review your life insurance policies as well as your spouse’s to see if there are changes that you need to make.
At age 50 – 55
If you decide on working past 55 years old you may want to review your employer retirement contribution and distribution once again. With retirement nearly at hand, it’s also time to review how you allocate your other retirement fund assets taking into consideration the short time frame left. A lot of people also consider downsizing at this stage of life.
You may want to consider this option to set aside more money for retirement. Review your Social Security benefits. At this age, you should be focusing more on retirement planning.
Determine the best way to access money from your company retirement plan. Get advice from a professional if you can.
Review the total income you expect in retirement and arrange your investments to provide income for your living expenses. Also, your investments should still be able to appreciate in capital to take care of inflation while still funding your later years in comfort.
You’ve worked hard all these years and this is the time that both of you’ve been waiting for. Your top priority is to stay healthy and live to enjoy the remaining years of your life to the fullest.
Investing is a lifetime project that will go a long way to provide you with the life you want. However, it can be challenging to discipline yourself and save a significant part of your income consistently. Investing also requires some efforts on your part – regularly reviewing and adjusting your investment strategy to achieve your financial goals. You might consider getting help from a finance professional if the idea of investing seems a lot of work for you.