The Financial Stages of Life

Life and money are entwined and it’s important that they are addressed together. Financial planning should be specific to personal financial goals and priorities. Yet there are common areas for most people – three major financial life stages that are defined more by financial, career and family situations. These life transitions are outlined below, along with relevant planning and investment strategies to discuss with your family and trusted advisors.

Starting Out

Typically, from the ages of 25 to 35, life’s journeys have just begun and this is where most encounter their first major life events. A challenge can be learning to develop priorities among competing goals. These include paying off school debt, exploring career paths and saving funds for a wedding, buying a home or car and planning to have a child.

Planning and investment strategies include:

  • Develop good financial habits – Budgeting, starting a savings account and deciding how you/your partner will make the financial decisions.
  • Debt reduction – Free yourself from school and credit card debt possibly using the “debt snowball strategy.” You payoff the smallest debt first and make minimum payments on the rest. Then you move on to the next smallest, and so on, until you’re debt-free.
  • Cash reserves – Build a rainy-day fund for emergencies equivalent to three to six months’ of living expenses.
  • Enroll in company benefit programs – These include insurance, retirement and education programs. An important investment strategy is diversification. This can be conservative or more aggressive, possibly using a target date or life cycle funds.
  • Network – Now is the time to find others who can help you with your decisions and planning. They include professional organizations, mentors and financial advisors.

Peak Earning Years

A person will generally earn more money from the ages of 35 to 55. Life events might include kids graduating, career advancement and personal development. This is the time to build your retirement accounts, business value and protect you and your family from future financial hurdles.

Planning and investment strategies include:

  • Funding college and trade school accounts – One of your options is including 529 plans or personal accounts to help fund your children’s schooling.
  • Minimizing income taxes – Take advantage of tax reductions using tax-free or tax-deferred investment vehicles such as 401k and HSA plans. Make effective use of your business structure and consult with your accountant.
  • Protection – Estate planning includes working with financial advisors and attorneys for wills, trusts, powers of attorney, entity structures and beneficiary designations. Review insurance for adequate coverage and cost competitiveness, income replacement, and property and risk exposure/liability.

Nearing Retirement and Retirement

People get serious about retirement planning around 55 to 65. Some life changes you will encounter are a career change, downsizing your home and being debt-free. Retirement can last two or three decades, and goals include maintaining your lifestyle, not running out of money, independence and transferring wealth.

Planning and investment strategies include:

  • Retirement assets – Accumulate sufficient wealth to last your lifetimes. Prepare forecasts of various scenarios including travel and discovery, maintenance and repairs, relocation, healthcare and assisted living with aging.
  • Business considerations – Develop and execute exit strategies if you own any businesses.
  • Maximize your Golden Years – Explore, enjoy and reflect. Prepare for the process and changes from aging. Share your wishes and expectations with family, build a network for living assistance and navigate healthcare. Prepare for the potential of losing your spouse.
  • Transferring wealth – Plan for transfers during your lifetime and after your death. Coordinate and collaborate with your advisors. Review and update trust provisions and successor trustee designations. Review your wishes for charitable giving.

Personal financial planning is an on-going process. These stages aren’t always performed in sequence, and some people might find themselves “starting over” depending on windfalls, career resets, divorce, etc. To avoid major complications, have a financial plan ready and stick to it, and review and adjust along the way.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

About Brian Loy

Brian Loy writes insightful and inspiring articles about the ever-changing world of personal finance and the global trends that affect the risk and return on investments and shape the financial- and retirement-planning process.
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