Put your own financial needs first

Most parents would like to give their children everything, which can sometimes mean that they have to put their own needs and wants after those of their children.
 
However, Ronald King, head of technical support at PSG Wealth, argues that it is important for you to place your own long term financial needs first, so as not to become a financial burden to your children in the future.
 
King reveals: “Scoring your own financial goals first puts your child in the best position for the future. Too many children find themselves in the ‘sandwich generation’ – those who are caught between the financial needs of their own children and those of their parents.
 
King adds that we are living longer these days.
 
“If both parents are older than 60, one of them will on average reach the age of 95. This means that there will be a good innings to cover financially once retirement comes,” said King.
 
Giving your children the best
 
According to King, giving your children the best opportunities that you are able to is important, but this needs to be weighed against your finances. It is important to rather look at the long term gain for yourself and your child over the short term benefit that spending money on specialised equipment and private coaches might bring.
 
“Spending money on coaches and expensive equipment at the expense of retirement saving makes you a good sport in your children’s eyes, but is equivalent to choosing a short-term benefit for your child over a long-term gain,” emphasises King.
 
According to King, by investing in your long term financial needs with as much passion as you put into investing into your child’s future, you will reap the rewards.
 
“Over and above your retirement savings, you can still provide for these extras if you can afford to, but remember that next to a good education, the most important gift you can give to your child is your own financial independence.”
 
The cost of retirement
 
King points out that it is expensive to retire. According to him, for every R4 000 per month that you need, R1 million is needed in capital at today’s monetary value.
 
Having a medical scheme is vital too. This is to ensure that all of your medical costs, including those unforeseen expenses, are covered.
“A good scheme will require about another R1 500 000 in capital, to fund comprehensive cover for two until age 95.”
 
King provides the following example to highlight the importance and the impact that long term saving can have:
 
“Take an example of saving R2 000 per month for a period of 18 years (from when your child is born until they reach Grade 12), with the amount increasing according to the inflation rate and assuming an annual investment growth rate of 14%.
 
“Then imagine you stop contributing and let the investment grow and compound for another 20 years. This will make for quite a sizeable sum. You would be able to withdraw a monthly pension of R9 300 at today’s value, which would increase with inflation every year,” explains King.
 
For more information on how much you will need in retirement, click here.