- Date : 26/01/2020
- Read: 6 mins
Learn what financial freedom may mean to different people across different age groups.
The word freedom has different meanings across different age groups. Right from the freedom of practising one’s religion to having the freedom to exercise one’s vote, the concept has evolved with time. When a leading investor was once asked, “What is the best part of owning wealth”? He replied without batting an eyelid, “It allows me to be free.”
The meaning of financial freedom is not the same for all ages. The financial responsibilities and requirements are different for all ages and stages of life. Let us explore how individuals across age groups respond to the idea of financial freedom.
In the 20s
Those born after 1981 and before 1996 are considered to be millennials. So those in their 20s today can be regarded as millennials. Research has shown that millennials value experiences more than material possessions. They don’t wish to be bogged down by limited choices. This means they may choose to rent a house rather than investing in one. You could expect them to use ride-sharing transportation facilities instead of owning a two-wheeler or a car. They would enjoy homestays instead of splurging on premium hotels. One would not be surprised to witness them preferring to freelance and be a part of the gig economy without holding full-time jobs.
Their idea of freedom could be defined as ‘carpe diem’ – which means to seize the moment. Therefore, they would want to live their lives according to their own terms.
Pro tip
The young adults in their twenties must firstly create an emergency corpus and also purchase health insurance. Savings and investments will simultaneously help them remain independent and allow them to savour life’s experiences without letting uncertainty come in the way.
It is also important to remember that the younger you are, the better are your chances of creating wealth through investing. This is because of the magic of compounding. These individuals could begin investing with meagre amounts through SIPs in some aggressive funds (small or mid-cap funds) for longer-terms (at least for 7 to 10 years). They can also begin dabbling in stocks by investing in fundamentally strong companies.
Related: 7 Pillars of financial planning
In the 30s
Most individuals in their 30s are fairly well set in their careers with a clear plan. They may also end up shouldering family responsibilities. Either they would be starting their families, or their parents would be on the verge of retiring. You can expect those in their 30s to start shunning risk and be attracted towards stability. They may be keen on planning for the future and could look at either booking a small property or buying that dream hatchback.
Their idea of freedom could be creating a strong foundation for the years to come for their loved ones and themselves.
Pro tip
The rockstars in their thirties can look at taking on some manageable debt and building assets. They could invest in a mixture of equity and debt with the former getting precedence. These individuals are likely to have both short and long term goals. Apart from investing across mutual funds, they must also look at increasing the size of their emergency fund. As these individuals have more responsibilities, they may wish to purchase both life and health insurance or add their family members into existing policies.
In the 40s
The ones in their 40s are those at the prime of their careers. They are likely to be either holding leadership roles or are very close to these roles across organisations. Individuals in this age group would not only wish to splurge on the finer things of life but also create a plush future for their children and themselves. These individuals may have recently purchased a house, would be saving up for their children’s higher education or even preparing to create a corpus for their retirement. Such individuals would be taking yearly holidays to exotic destinations as well.
Their idea of freedom could be expanding horizons as they are earning a substantial amount and also creating assets.
Related: Tax planning tips for every age group
Pro tip
Insurance policies and emergency funds must already be in place for these individuals as they have a lot to lose if something unfortunate happens. They must also create a plan to start paying off pending debts quickly. They should start with expensive ones like personal loans and work towards clearing a large chunk of long term loans such as a housing loan. This is because they are at an age when their income would be almost touching new peaks every few years. At this point of time, their financial assets should be optimally diversified across mutual funds of different classes as well as in debt, liquid and fixed income instruments.
In the 50s
The grizzled veterans in their 50s are aware that they are on the verge of retirement. Their children are either about to begin working or are already financially independent. These individuals have almost paid off all their debts and may have also created assets that offer them income. In fact, they may have multiple sources of income, such as rental income, dividend income and interest income. They would already be owning a house or would be planning to move to a senior home with plush facilities. These individuals would be keen to savour the slow pace of retired life and focus on keeping themselves healthy.
Their idea of freedom could be wealth preservation.
Related: Does financial independence mean retiring early?
Pro tip
As these individuals are wealthy, they are likely to be approached by several organisations or individuals promising a quick and attractive return on invested capital. One should maintain a healthy distance from such pesky offers. They must also create a will which clearly defines the names and share of those who will inherit their wealth. In case, such individuals still don’t own health insurance; they must immediately invest in a health insurance policy which is specially created for seniors. All their capital must be
invested only in debt or fixed income instruments. They could have marginal exposure to equity by investing in fundamentally strong stocks or large-cap mutual funds.
Thus the idea of freedom is different for individuals across different age groups. Have a look at the 9-Point Guide to achieving long-term financial goals to understand how discipline, patience, research and planning should be adopted by all individuals irrespective of which generation they belong to if they are planning to attain financial freedom.
