Knowing which of the financial phases of life you are in can help you better plan to build, protect and enjoy your assets, no matter what your age.
How does knowing a financial phase pattern help? When it comes to financial planning, the answer is a lot.
What are financial phases?
There is a natural ebb and flow to money habits throughout the year. For example, most of us tend to spend more around the holidays because of gifts and parties. When January hits, people take a look at their budget, set goals for the year, and attempt a “financial diet”. The same can happen in the summer as people splash out on vacations or enjoy a plethora of activities with their families.
Patterns can also occur throughout, showing up in spending and savings habits. Recent college grads probably live on a tight budget with fewer savings, whereas an established professional might be more focused on long-term goals, such as buying a home or saving for retirement.
Is it the same for everyone?
While the year can offer similar periods of spending and saving, each individual has their own plans, priorities, and habits that make them unique. If you enjoy saving, maybe you take vacations during shoulder seasons to take advantage of lower hotel and airfare prices, Or if you always go big on your birthday each year, you create a plan to automatically save money every month into a “birthday fund” so when the time comes each year you’re ready.
The same is true when looking at life patterns or saving and investing. It’s important to understand that each person has their own goals and priorities, and sometimes life gets in the way with unexpected obstacles.
How does knowing this help?
Knowing the patterns can help you plan for the future. When you know something happens annually that you want to enjoy to the fullest and not worry about your cash flow, you can budget it in fun ways beforehand.
Taking the time to write down important things to you, both annually and in the bigger picture, is a great starting point.
What phase am I in?
The economic life phase you’re in isn’t necessarily tied to your age, as many people assume. We’ve uncovered that the phases actually better reflect where you are in your life, which is split into three different phases: (1) build and grow, (2) transition (3) and finally, distribute and deploy.
Assessing your stage and adjusting your plan should be an ongoing process, but you can only know the phase you are in after you articulate your goals.
Financial phase No. 1: Build and grow
During this phase, decide on your long-term goals and plan for them. Is saving for retirement a top priority? Work toward maximizing your contributions to your retirement savings account.
Or, is buying a home a priority? Then, figure out a savings plan for a deposit, mortgage, and other realistic expenses and build on it.
The build and grow phase is also about protecting your future earnings. This is an excellent time to look at life insurance and create an estate plan for you and your family.
Financial phase No. 2: Transition
During this phase, it’s important to understand what you’ve built during your years of saving. It’s also the time to figure out how you want to live once you decide to leave full-time employment.
Working with us on your financial goal assessment is an important piece in projecting how well you’ve saved for your future.
If you haven’t done a budget yet, it’s critical to understand your spending to know what you will need to live off of.
During this phase, it’s essential to factor in possible moves – do you want to stay in your home, downsize or even upgrade? Are there any plans to buy a second home to travel to since you’ll have more time? These are factors to take into account.
It’s also critical to assess how much risk you’re taking in your portfolio – this is the time to have a good plan for protecting your assets in case of the worst-case scenario.
Financial phase No. 3: Distribute and deploy
In this phase, understanding where and how you are going to pull from your assets is crucial. In addition, there are important strategies to think about and tax consequences to consider.
If you are well-funded and have excess assets, thinking about how you are going to leave your legacy is also important. There are many ways to give, including charities, foundations, and personal gifts, and these can be structured to be given while you are alive or after you pass.
No matter what financial phase you are in, planning and preparing for the next step will always yield positive results.
The better you articulate your goals, for both the short and long term, the more likely you can achieve them.
Source: Kiplinger
Content in this material is for general information only is not intended to be a substitute for individualized financial advice. Please consult your legal advisor regarding your specific situation.