So you own a house, two cars, and you don't bounce cheques. This means you're financially well into adulthood, no? Not so fast. You may have the investment debts of an adult, but if you're not financially securing your future, you're younger than you should be, financially speaking.
In a youth-worshipping culture such as our own, I must admit to being surprised by this concept, explained to me by TD Waterhouse Senior Vice President Patricia Lovett-Reid (she's the one you see in the TV commercials dispensing nuggets of advice to couples facing a financial conundrum). Lovett-Reid says there's more to being a financially mature adult than mere household debt; you have to be actively planning for your future, too.
Contrary to your "brain age" or "body age" where it's better to be younger, it's better to be older when it comes to finance.
Financial "seniors" have their savings on track
There is a whole quiz (click here to take it) from TD Waterhouse to find out what this age is, but you can approximate it quite simply. Your financial age simply refers to how far along you are in terms of saving for retirement, says Lovett-Reid.
"To work out your financial age, you first need to have a clear picture of what you want your retirement to look like. When do you want to retire, and how much money will you need to retire comfortably?" she says.
Then look at how much money you have saved so far, and ask yourself if you continue saving the way you are, will you reach your retirement goals? "If you are 60, but your savings are equivalent to those of a 40-year-old, than your financial age is 40," she says.
Page 1 of 3 - How will knowing your financial age help plan for your family's future? Find out on page 2.
How knowing your age will help you plan for the future
If your financial age pegs you as a fresh-out-of-university, loan-saddled 22-year-old when you've just turned 38, that's not ideal. But, at least you know where you stand.
"You may not be getting any younger, but the great thing about your financial age is that you can change it," says Lovett-Reid. Knowing your financial age allows you to see what your long-term financial goals should be and just as importantly.
Also, your financial age is an easy-to-understand number that lets you measure if you're on track for a secure retirement.
Help, I'm really immature!
It's a shame so many of us stopped preparing when it came to our adult finances. Whereas kids have guidance counsellors, teachers and parents to help keep them on track, adults can hire a financial advisor to help us do the same.
"A financial advisor can help you choose financial products that will improve your returns, reduce your risk and steer you towards your dream retirement," Lovett-Reid says. Once a plan is in place, if you find you're veering off, you can revisit it, she adds.
How to increase your financial age - without the growing pains
Can you guess how much Canadians are in debt? You're probably thinking in the billions. Think bigger:
Canadians are actually $1.5 trillion in debt as of this writing, according to Lovett-Reid.
Given this debt load, the financial planning process is now more important than ever before, and it's never too late to start getting your finances in order, she adds.
Page 2 of 3 - Wondering what your savings gameplan should look like? Read expert advice on page 3.
Start with a budget, but be realistic
"Building a retirement nest egg is vital, but don't save until it hurts. It's important you allow yourself some little luxuries to enjoy life and reward yourself for good budgeting," she says. Get the family together, and make it a project everyone is on board with.
"It's pointless to have a budget that no one is committed to following," she says. "Have a meeting to discuss the issues such as goals and needs. A comprehensive budget will not only tell you where the money is going now, it can also give you a road map to tightening expenses and saving more," she says.
Ideally, you should be saving at least 10 per cent of your pre-tax income.
Two of the easiest ways to start saving (and getting older) now:
1. "Make RRSP contributions early, start small. If you haven't already, set up a monthly contribution plan. You can invest as little as $25 a month," she says. Starting at age 25 and contributing $100 month to an RRSP, earning 6.8 per cent return per year, compounded monthly will grow to $234,562. "Pretty impressive considering you contributed a total of only $48,000," Lovett-Reid says.
2. Set up a pre-authorized transfer. "I find the most effective way to save is to put money out of the way before you have a chance to spend it. Set up a pre-authorized transfer with your bank to automatically move a portion of your pay cheques from your everyday bank account to your savings account," she says.
Page 3 of 3 - Discover your financial age on page 1.