As we grow, finance management becomes the central part of our lives. Whether you like it or not, getting your money in place is mandatory. With time, people become more responsible for what they earn and want to lift a stable yet financially pleasing life. You cannot spend all your life buying expensive things and not worry about savings.
A financial plan is designed for people of all ages who wish to spend their money in a refined manner. Whether you are an older man close to retirement or someone young and fresh in the working class, the right financial plan helps you stay on track.
Did you know there are five main financial planning life cycle stages? Let’s elaborate on them to find out which one you fit in.
Five Stages of a Financial Life Cycle
These are the stages of a financial life cycle. You can decide which category you fall into based on age and career level.
The first stage begins when you’re young and single. You might start out saving money for retirement or college tuition, but it’s unlikely you’ll be thinking much about long-term planning.
Stage 2 starts once you’ve established yourself professionally and begun paying off student loans. At this stage, you probably won’t be thinking about investing for retirement, either, because you haven’t had the opportunity to build up savings.
In Stage 3, you’re married and starting a family. This is where many people think about buying a house or starting a business. But there’s still plenty of time to save for retirement. It’s now possible to retire earlier than ever before.
Finally, Stage 4 occurs when you reach old age. Perhaps you’ve retired or maybe you’re just getting close to retirement. Now you have some extra cash to spend on travel, hobbies, and maybe even philanthropy.
Early Career
It can be tough to make ends meet when you’re just getting started in life. Many still live with their parents during this phase of their lives, while others work multiple jobs to pay rent. Many young adults find themselves making less than $10,000 per year. As such, it’s crucial to establish good habits early on. You’ll be ahead of the game if you save even a small amount of money each month.
Of course, there are some things that you can’t avoid spending money on. For example, you may need to purchase food, clothing, and shelter. However, you can cut down on unnecessary spending by setting up automatic payments for recurring monthly bills. By doing this, you won’t have to worry about forgetting to make a payment every single month.
Another thing you can do to build up your savings account is open a bank account. While banks aren’t always the most exciting places to go, having access to a checking account is very helpful. It allows you to write checks, deposit cash, and transfer funds, but it can also help you monitor your balance. A positive balance will enable you to earn interest, which is one way to grow your savings.
Finally, it would help if you considered taking advantage of student loans. These types of loans are designed specifically for students and come with low rates and long repayment periods. Additionally, many schools offer scholarships and grants that you can apply for.
People who become vigilant about their finances early set the benchmark for their overall performance throughout life. Most people start their career as early as teenage. It takes less effort to realize your goals if you develop good money management habits at that stage.
You may not earn as much at the early stage of life. Your primary focus should be managing cash flows and ensuring that your current dues are paid on time without worrying about deadlines. Also, save a minimum of 5% of your total income.
In the early stages of your career, think about what you wish to achieve in the near or distant future. Do you want your own home? Are you planning to upgrade your phone? What vehicle do you like? Is there a need to buy a bulk of new clothes? Regardless of your plans, think about the things you wish to accomplish.
Always save more than what you spend at this stage because you never know when there is an emergency lurking around the corner waiting for you to take out some cash. Early in your career, we recommend that you develop a savings habit, define your goals, pay off your loans and establish parameters for success.
Mid-Career
Mid-career is a phase of life when you have enough earnings and experience to support yourself financially, but there is still a long way to go. People in the middle of their careers are usually wise with savings and know where to put a break. If you are not, it’s never too late to stop and think deeply about what you have been doing so far.
Instead of just managing cash, your focus should now be on looking for opportunities that make you rich. Think about that business plan that you have been looking to achieve—or investing money in some stable companies? It all depends on what you wish to do that delivers an extra source of income to support you.
Most people also plan to start a family by marrying or having kids. Ensure your bank account and sufficient funds support everything without breaking you. This is the right time to work towards your long-term goals and make them happen.
You can also start saving for a retirement plan and look for insurance for yourself and your family. Apart from this, day-to-day expenses, short vacation plans, regular home maintenance, and paying for kids should not be a big issue for someone in their financial career.
When you start making more money, you can begin investing. If you’re starting, consider opening up a high-interest checking account. Then, once your money starts building up, open up a savings account and/or a money market fund. For now, keep your investments at low risk. As your income grows over time, you’ll be able to move toward different types of assets like stocks and bonds.
Pre-Retirement
Who doesn’t like an early retirement? We all want to skip the days of working hard and get some rest. Unfortunately, this plan only works if you are focused on your goals and savings from the early stages of your career.
People who consider pre-retirement can identify the shortcomings in their financial plans. It also helps you understand whether your career is an ideal choice or not. Consider the different goals and objectives that are still left to accomplish and whether you can do that after retirement or not.
You can boost your plans to achieve pre-retirement by working extra jobs, saving more money, and paying off your long-term loans like a car lease or mortgage. Investments in businesses or buying shares is also a common practice performed by people in this stage as they wish to maintain a constant income flow in emergencies.
Tax is also a concerning factor for people looking to retire soon. It is possible to reduce your tax liability with the proper steps and plan. Regardless of income, the right strategy and statements deliver beneficial results without any tax-related fraudulent activities.
Early Retirement
At this stage, you will probably have accumulated enough wealth that you now want to start thinking about how to protect and grow it. You will also likely have several dependents, and your lifestyle may have changed, so you will need a way to manage your finances and your investment portfolio. This is where most people often hit a roadblock.
Retirement might be a life changer for many people who want free time and to avoid burnout from their daily work routine. It would help if you were prepared for this stage and had all the goals in the bag.
If you are entering early retirement, make sure that a regular income comes to your home from the investments made in stages two and three of your career. This ensures you are not just living off the funds in a bank account.
Most early retirees have the habit of overspending and doing everything they have been ‘missing out on.’ This can be quite a dangerous habit, especially if you suffer from a lack of self-control. Try to manage your money and remind yourself that it’s just a retirement, not the end of the world.
At this stage, you will probably have amassed enough wealth that it is essential to consider how to protect it and nurture its growth. You will want to consider the following questions:
• What do I want my legacy to look like?
• How much money am I willing to risk losing?
• Do I want to retire early or later?
• Will I spend my days traveling the world or working at home?
• Is there anything else I want to accomplish during my lifetime?
• How can I ensure I have enough resources to achieve these things?
These are just a few examples of the questions you might ask yourself at this stage. A good financial planner can help you answer these questions and develop strategies to ensure that you maintain a secure future.
Retirement
Most people reach this stage when they are reaching their older days. In most countries, the retirement age is between 60 to 65 years old. However, it might increase or decrease if needed. This age is about living your days peacefully and managing your deteriorating health. You may meet any unexpected medical injury that results in high bills.
When you retire, you still make money, just not enough to support yourself. You’re no longer getting paid—you’re now paying bills. And because you’ve been saving for the big day, you’ll have some extra cash left over for fun stuff like travel and leisure activities. But what happens next? Well, there are four main stages of retirement planning.
You’ll take out whatever money you need to meet your needs here. For example, you’ll withdraw funds from your savings account if you want to buy a house. As a general rule, you don’t want to spend too much. Otherwise, you could run out of money down the road.
Make sure you have enough insurance to cover health and a budget to opt for regular assistance. Consider closing your business or passing it to the rightful heir to avoid any last-minute emergencies.
Popular Misconceptions about Personal Finance
Personal finances are one of those things that most people think they know everything about. They understand how to manage money well enough to survive but don’t know much else. There are many myths surrounding personal finance, such as “you must save up for retirement,” “if you spend less than you earn, you’ll go bankrupt,” and “personal finance is boring.”
The truth is that personal finance isn’t just about saving and spending – it’s about managing your life. You need to make sure that you’re making wise decisions every day, whether it’s where to eat out or what to buy.
Final Thoughts
Financial planning is essential and delivers multiple money-related perks. You can achieve long-term goals and live a balanced life. Today’s article discussed the five main stages of a financial plan and how you can make the best of your money without missing out on anything.
