By Livingstone Mukasa
Something weird happened last year. As the pandemic was raging, the rich made even more money. By some estimates they added more than $1 Trillion to their portfolio and they are on course to do the same this year 2021. That’s why you should not take your eyes off the money even as it seems all doom and gloom around you. There is never a better time to start building wealth than the present. Yet how you go about it may depend on your age and it requires you to take a longer term view of your finances. Longer term here means about 10 years (a decade) on average. So let’s look at how this would mean for you at different life stages.
In your 20s
The first thing to do is to find a source of consistent income. Whether you find a salaried job or take on side gigs or you become self employed, the goal is to earn an income and wean yourself off from support of others. For some it may mean accepting that you can’t afford to live on your parent’s standard of living and agree to start at a lower level. By all means find your own home even if you rent 1 ram shackled room. Buy your meals and take care of yourself. Once you are sure that you can take care of your own bread and butter issues then you can start looking at creating a family of your own. The sign usually is when you see that you are saving some money and if you are a Man, you can ably take care of someone’s daughter. You should also aim to create an emergency fund which can be between 3 months to 12 months of worth of living expenses just in case you lose your job or want to strike out in an economic direction that might be risky but likely to be more profitable. Your late 20s is also a good time to buy a piece of land where you will build a home in future. You should also start contributing to longer term saving plans like NSSF or other Voluntary Pension Plans like Mazima Retirement Plan. Also start making strategic contacts and engage with the world outside your comfort zone or your country. The point is to take on more calculated risks aiming for exponential growth. For example, rather invest in Unit Trusts at this age, plant trees. They are sure risky but would give you possibly a 5X exit in a couple of years.
During your 30s
This is the time to settle down with someone you love and in a promising career. You should build businesses and/or competencies that make you stand out and allow you to charge a premium in the market. It’s also a good time to start a family and have children. As you grow in your career, don’t fall victim to “lifestyle inflation” and risk becoming a spend drift. Lifestyle inflation is a situation where every time your income goes up, the expenses rise at the same or an even higher rate. This leaves you punting for more and explains why people can’t wait for the month to be over so you get paid only to get broke two weeks later and the cycle repeats. The best advice I can ever give you is to live below your means at any given moment in time. It’s the only way I know how to save and create wealth. Continue contributing to your longer term savings account. Start building a home and just make it habitable, the thrills and flings will follow later. The goal is to run away from “Mzee Guweddeko” so we can start building some serious wealth.
At this point you should be aiming to put away 20% of your income (Gen 41:34) to use the plentiful years as preparation for the lean years of retirement. In your late 30s you may want to speak to a financial advisor to see if you are on the right track. You should still be investing for growth with the aim to double your asset portfolio every 5 to 7 years. This is a great period to play the compounding game.
The action-packed 40s
You are potentially now in your peak earning years and may be dealing with the cost of raising children and supporting aging parents but don’t use this as an excuse not to finish that house and also fund your retirement account/investments. You are surely not planning for your children to be your retirement insurance policy. It’s time to break the cycle of poverty if it’s been a problem in your family. Save for university education for your children and this is also a good time to stop producing more children. You don’t want to be in your 60s with primary school going children.
By now you should have fired “Mzee Guweddeko” but it’s a good plan to become “Mzee Guweddeko” yourself. In a country like Uganda there are hardly any other safe assets that beat investing in rentals especially when we consider a 10+ year horizon. Start imagining what your retirement would look like and what skills and hobbies you need to carry with you in your sunset. At this point you should have over 50X your Monthly expenditure in assets and aiming for 100X past 50 years. It’s also a good time to start thinking about a side hustle to improve your income stream beyond your job. Think of it as a Plan B if you lose your job, as well as something you can continue when you decide to leave.
Getting serious in your 50s
Retirement is potentially five years away, so it’s time to get serious about how much you are truly spending, and whether you are on track to save enough to support you throughout your life. For many, the possibility of working until their dying day looms large but even then you can direct your efforts to areas of economic activity that do well with advanced age. The ball park figure that determines if you are ready for retirement is 125X your monthly expenditure in total assets. You sure need the service of a financial advisor or planner to determine your readiness for life without a monthly income. You should also consider what kind of university your kids will go to and it’s worthwhile to remember that expensive doesn’t usually mean better education. Also listen to your children for what they want to do in life rather than trying to achieve the dreams that failed you through them.
This is also a great time to balance your asset portfolio to become more conservative and lean towards generating cash flow to support your chosen lifestyle. It’s better to avoid splash purchases and stay within an agreed budget. If you are married it’s advisable to check in with your better half and have agreed plans for retirement.
In your 60s and beyond
At this point, you need to have a retirement distribution strategy generating the cash flow you need to support your retirement dreams. You should also have a well defined succession plan especially if you have substantial business assets. Here you need to build an investment strategy based on a proper asset allocation, taking on only as much risk that is needed for the income you require and your legacy goals.
One asset that may need a critical review is that big house you have called home for a couple of decades. With children getting out of the way, will you still need that big home with all the attendant costs that come with it? Could you sell or rent it out and generate money out of it while you downsize especially if you will spend a significant amount of time traveling.
One last thing, please don’t neglect your marriage if you are still married. Divorce rates among senior adults are going up and are now 2X those of young couples.
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The author is a Financial Advisor, Entrepreneur, People’s Professor of Streetnomics and the Author of “The Great Financial Rebuild” & “Investing for the Future”
Contact +256772459167 & email: [email protected]
2 thoughts on “A Guide to Building Wealth by Age Brackets”
It’s a rich article with educative pieces of each stage of life.
Thank you very much.
This is good advice. We need more of these. Thank you.