Life Lessons: 4 – Retire before forty five

I started writing the 100 lessons I have learnt in life so far. This is the Lesson number 4. click here to read lesson number 3

Most likely you may be saying ‘is this guy serious?’ well yes I am serious, I know it sounds outrageous but not only is it possible but it is more important that our generation aim for forty five as the self-imposed retirement age.

When my parent’s generation was my age, the normal life was to start kindergarten at age 4, primary school are 6, Junior High school at 12, Senior High school at 15, Tertiary education at 19, start their first job at 23, work for 35 years and retire at 65 and die at 70 or if fortunate have a bonus of 10 years to end it all at 80.

My parent’s generation is much different from mine, when my mother was twenty nine she had her brother in Germany. Their main means of communication was through letters, when my mama sent a letter, my uncle receives it two weeks later, he then replies and my mum receives it in another two weeks. A simple two way communication took one month.

My generation is different, I have emails which take micro seconds to reach its destination, I have Facebook, Twitter, Skype and the other internet applications and I haven’t even started with cell phones. I am a citizen of the global world. I have free access to more information in one day than my mother had in a whole year when she was my age. What does this have to do with retiring at forty five?

Our world is hundred times faster and with hundreds of opportunities than my parent’s generation. We have the ability to generate more income in five years than our parents could in ten years. With proper planning, savings and investment, we should be able to take half the time it took our parents to earn as much as they did to be able to retire.
Have a view on this? I happy to read it, write a comment below.

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Diversification – Young Professional & Rising Executive

In my previous post I completed the two part topic of how to diversify your resources among various resources ( Part 1 and Part 2). In this post and the subsequent two. I will touch on how five different individuals can diversify their resources based on their personalities. Specifically I will consider the cases of the following:

• Young Professional
• Rising Executive
• Manager
• Senior Executive
• Retiree

In this post, I will touch on the cases of the Young Professional and that of the Rising Executive.

Young Professional
Characteristics
Age: 30s
Annual Income: GHc 7,200 (Ghana) $50,000 (US
Net Worth: GHc 7,200 (Ghana) $50,000 (US)
Risk tolerance: High
Goals: Upgrade residence and personal property and begin planning for children’s education

Assert Allocation
Cash and cash equivalents………………………….……..5% to 10%
Fixed-income vehicles………………………………….….20% to 30%
Equities……………………………………….………….…..40% to 50%
Hard assets……………………………………...…………...15% to 30%

Financial Profile
You’re feeling optimistic about your life and career prospects. And you have a high tolerance for risk. After all, you reason, you can replace any principal you may lose, because your earnings are bound to spiral upward.
And since you have plenty of time for your investments to pay off, you can ride our any fluctuations in value common to growth stocks.
Moreover, you have little need for income other than your earnings, since your salary amply covers your living expenses.

You do, however want to protect your self against inflation over the long haul. So you invest in vehicles with a solid performance record over time
And you plan to make a down payment on a large house in the near future. So you want to keep a good portion of your holdings liquid.

Investment Strategies
Your portfolio is tilted quite heavily toward common stocks and real estates. The reason: although they fluctuate considerably in value, common stocks are historically, impressive performers over the long term. And they are very liquid.
Meanwhile, your hard assets – specifically your real-estate holdings – are an excellent hedge against inflation.

Rising Executive
Characteristics
Age: 40s
Annual Income: GHc 15,000 (Ghana) $100,000 (US)
Net Worth: GHc 75,000 (Ghana) $500,000 (US)
Risk tolerance: Medium to High
Goals: Educate children, buy a second home, begin planning for retirement and travel

Assert Allocation
Cash and cash equivalents………………………..………..5% to 10%
Fixed-income vehicles…………………………….………..25% to 35%
Equities…………………….………………………………....35% to 45%
Hard assets………………..……………………………….....15% to 30%
Compared with the young professional, the fixed income portion of your portfolio increases slightly while the percentage of common stocks decreases.

Financial Profile
You still have a long time for investment to pay off, but since you are beginning to consider retirement, you take a slightly more conservative posture than you did when you were younger. You still may replace any principal you lose with future earnings, but your time frame is shorter.
You are also less confident of you ability to slash money away, since your expenses are now higher than they were.

You have slightly less need for protection against inflation, because your investment planning period is shorter. But you may need additional income because of high living expenses.
And you still need to keep some holdings liquid. You want money for a sailboat and cash for a down payment on a second home.

Investment Strategies
By allocating less of your portfolio to common stocks and more to fixed – income vehicles, you reduce your overall risk and gain current income. Because you want ready access to your resources, you change the mix of your hard assets from natural resources, say to real estates.

In my next posts I will be considering the cases of the Manager ,the Senior Executive and the Retiree

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Financial Planning - Part 1

The Good Life

Building a Firm Foundation
Why, you may ask, do you need a financial plan at all? The answer is quite simple. There is only one sure way to achieve financial security: you must identify your goals, then adopt strategies to meet them.

True, if you’re like most people you seem to get by from year to year without a financial plan. You collect your salary, pay your bills, and keep yourself and your family housed, clothed and fed. But what happens if a financial crisis occurs, you may find yourself lacking the funds of insurance to cover mounting bills.

If you talk to people who are most comfortable in their lives – the people who have achieved financial security - you will find they took an organised approach to financial management early on. Some did the work themselves. Others hired competent advisers to help them. But, somehow, they made sure the job was done.

The bottom line to financial security: you can get what you want only with an organised financial plan and the discipline to make it work. And the best time to start planning is now.

The Importance of Organisation
Why do most people fail to achieve lifetime financial security? Lack of financial goals is one reason. Ignorance of the tax law and poor investment strategies are others. But the chief culprit is lack of organisation. Organisation is critical to sound financial planning.

Organising your finances provides and exceptional measure of security. It protects you from surprises, and it also places your finances – both current and future – under a ‘master control’ programme that gives you a system of checks and balances. The system provides security when the unexpected occurs. Ant it even allows you to indulge yourself occasionally.

Then too, an organised plan can save you and your family from financial disaster. It helps you establish a pattern of spending, saving and investing that ensures financial stability now and growth for the future. Above all though, an organised plan builds financial independence. And financial independence equals financial peace of mind.

My Approach
The wrong way to begin the financial planning process is by making investments. It is far more valuable first to develop a financial profile of yourself, then to match appropriate strategies to your specific needs.

My approach to financial planning is built on answers to three deceptively simple questions:
• What do you have?
• What do your want?
• How do you get what you want?

Answer these questions in as much details as possible, and you’ll create a flexible, workable and successful financial plan. Repeat the exercise in a year or two or when your circumstances change, and you’ll update your plan.
The job is not as easy as it sounds. To answer these questions in a way that is truly helpful to you requires considerable effort. But the results are worth it. In the next series of articles, I will provide you with the information you need to answer these key questions. First, though, let’s look a little more closely at the question themselves.

What Do You Have?
Step one is the financial planning process is to determine what you have. And that involves developing your personal financial profile. Your profile is a composition of you stage of life, lifestyle, tolerance for risk, responsibilities and financial resources.

I will provide you with the tools you need to construct your personal profile in a separate article. For example, you’ll learn that stage of life is the sum of your age and circumstances – married, single, supporting children, not supporting children, and so on.

And you will see that life-style is about choices – your career choice, say, and how you choose to spend and save.
You will also learn about how to evaluate your responsibilities- elderly parents, perhaps, or other relatives who require financial assistance – and weigh your tolerance for risk. Can you afford to take risks with your money? And, if you can, what risks are you willing to take?

Your financial resources are simply what you have in Cedis and Pesewas or Dollars and Cents. How much do you have in your current and savings account? What is your cash flow – the amount that comes in and goes our each month? How much is tired up in retirement funds? Do you own a car? A boat? Is your house furnished with antiques? What about art on your walls?

The fact is; you can’t make informed financial decisions without first evaluating your financial health. In my next article I will show you how.

What Do You Want?
If you don’t know where you are going, you will probably end up somewhere else. Perhaps the most valuable aspect of a personal financial plan is that it forces you to state your financial objectives in Cedis or Dollars and milestones. What do you want and when can you get it?

In subsequent articles, you will learn in detail how to set financial goals that take into account your unique circumstance and aspirations.

How Do You Get What You Want?
Once you know what you have and what you want, you’re ready to develop comprehensive strategies for every aspect of your financial life. These strategies much be flexible enough to respond to changes in your personal and financial fortunes.

Your financial plan also much include a blueprint for implementing these strategies – a blue print that lets you know when and how to act. Later articles will help you develop flexible strategies for getting what you want. And they will show you how to direct your financial resources to reach your goals.

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