Choose your life partner with care

You are "wired" with the emotion "love", to be attracted to another person, to marry that person, and to have children (usually). With marriage, you sign the most significant and enduring contract of your life, and you live with this other person for 50-60 years. This other person is an individual who has opinions, passions and idiosyncrasies often different from your own. The divorce statistics indicate that most marriages fail.

An unhappy spouse and a divorce can affect your career, your finances and your offspring in a devastating fashion. In many cases divorce leads to a doubling of expenses (two homes) and a halving of income / assets. The consequences for your FSG can be profound.

Given the high price of housing and good education, it is more usual that both partners / parents are in employment / own businesses. It is therefore important to choose a life partner who is well educated. This is especially the case when one considers the possibility that one of the partners / parents may pass on or become disabled. This also has implications for life insurance (covered below).

Nurture your health and family life

This rule ties in with being jealous of your time. You only have a certain quantity and quality of energy. You need to undertake a life-long programme of maintenance of your energy level by participating in a physically-demanding sport. A fit person is a competent co-breadwinner / breadwinner.

Your career and sport take up time and what is left over should be devoted to your spouse (a good marriage demands effort) and children in their required nurturing. For these reasons avoid at all costs becoming a workaholic, because work can become addictive. A good balance between your career, sport and family life makes you a better spouse, parent, friend and colleague. A person who consistently spends eighteen hours a day at work is being irresponsible. It is incongruous that workaholics boast of this attribute.

Underspend

The personal finance equivalent of the property market's axiom "location, location, location" is "underspend, underspend, underspend" and this should become a lifelong mantra. While there are many demands on income, it is essential to start off this phase with an I > E = +S approach. Underspending should become a persistent financial state because it facilitates attaining one's FSG at an earlier stage. The rule of thumb is save 20% of income. The condition I < E leads to ruin.

Insure your life only

Part of underspending is to avoid overinsuring. Some insurance saleswo/men will pressure you to purchase many different policies, because they are usually remunerated on a commission basis and/ or their bonuses are a function of their targets. There is a need for pure life/disability insurance, house insurance, house debt insurance, and possibly car insurance, but avoid the rest. Your priority in this phase (and the next phase) is to repay debt as quickly as possible (see next section).

As to the extent of life/disability insurance: you will have a spouse and children; insure against debt, and your life / your disability, for an amount that is sufficient to cover household expenditure until your spouse is able to provide for them. The latter is dictated by the ages of your children and the level of education of your spouse; your spouse may need to advance his/her education in order to better provide for the children and him/herself.

Pure life insurance is termed risk life assurance (RLA), and it is differentiated from policies which combine RLA and investment assurance. The reason for separating RLA and investments is that your investment and RLA requirements change as you age. Generally, as you age and your assets increase your RLA needs decrease. It can be expensive to change combination policies, whereas there are no penalties for canceling RLA policies.

There are various RLA policies, including:

- Whole life assurance.

- Term assurance (increasing, decreasing, convertible).

- Credit life assurance (covers debt).

- Joint-life assurance.

- Disability assurance.

- Impairment assurance.

- Critical illness / dead disease assurance.

- Terminal illness assurance.

Take on debt, but with much thought

You need a home and a vehicle and you will need to incur debt to acquire these (see Figure 2). It is important to ensure that the debt service (i.e. interest) amount, which is part of E, is such that the condition I > E is upheld.

Figure 2: four phases of life

It is wise to live in a modest home and drive a modest car, because this keeps E at a low level. If there is a comfortable excess (S) over time, repay debt at a faster pace. If you have a business, borrow only if your business plan is sound, and reduce the debt asap. If you are an employee and are offered shares / options, sacrifice income or borrow if this is the way to buy the company shares or share options. However, only do so if you and your colleagues "believe" in the business. In these ways assets are built.

At all costs avoid buying lifestyle assets with borrowed money, even if E can accommodate the additional debt servicing cost. Rather repay your mortgage debt at a faster pace. Keep in mind that owning a boat or a holiday house is not wise; they can be hired and E will be lower and S+ higher.

Do not bow to peer pressure

Do not be influenced by your peers; in fact set the (modest) standard for your peers and friends. You will be surrounded by peers, and many of them will have impressive visible assets, such as a large home and expensive vehicles, as well as lifestyle assets such as a boat and a holiday house at the seaside. Many of them will also take their families on expensive overseas holidays. Keep in mind that the visible assets are the asset side of the balance sheet, and that the liability side, which funds the asset side, is invisible.

Bowing to peer pressure is especially rife in the professional fraternity, and many of them are obliged to continue in their professions until a late age. This is not a pitiable situation (because it is advisable to remain active), but it is most satisfying to have the option to live off savings. By all means have a comfortable lifestyle, and acquire lifestyle assets, but only when you can comfortably afford them.