Learn The 3 Phases Of Your Financial Life

Not all may be aware of this, but did you know that a man’s financial life goes through 3 different stages with regards to building wealth? You can now financially plan more effectively as you become conscious of these 3 phases. They are as follows:

Stage 1 : Man At Work (The Accumulation Phase)

Stage 2 : Man And Money At Work (The Preservation Phase)

Stage 3 : Money At Work (The Income and Distribution Phase)

A person generally does not earn income during the first 18 years of his life. At this time, most people are still in school and relying on their parents for support. Once they leave school and start working, the financial cycle begins.

The first stage applies to persons who are part of the workforce. They belong to the early 20’s to 54 age bracket. The early years may not be the same for every person. Some haven’t thought of saving at this time and prefer to spend more rather than save. These are the “YOLO” (You Only Live Once) persons.

Others, however, start to develop good financial habits at the early stage of their career. Most of them rely heavily on their paycheck for their daily needs and financial obligations. Some prefer to save part of their money in the bank. Others, especially the single ones, prefer shopping, dining out, travelling during the weekend living from paycheck to paycheck. As they age, their goals change also. They begin to focus on career development and accumulation of wealth. Their priorities are directed more to paying down debts such as credit cards, car loans and mortgage. 

They get married, raise a family, save for an emergency fund, buy a car, a house and lot and start a retirement and investment plan. As they move on to their 40s to mid-50s, they improve their earning prospects, upgrade their career skills, move to a larger home, increase their insurance protection and retirement savings and set up a college fund for their children. Their life centers on living for today and planning and saving for tomorrow.

The second stage covers ages 55 to 64 years. At this stage, you are still working, but preparations for your retirement are increasingly done. You begin reducing the amount of risks on your investments in the market. You prefer to take lesser risks with a reasonable rate of return. Also, career prospects level off and the financial needs of the family decline as children graduate from college and start working themselves. As you get older, spending will exceed earnings, so sound discretion and careful review of your finances must be made. At this point, the gains and returns of your investments such as mutual funds and stock market, will indicate when and how you will retire. You have built up enough emergency funds for any unexpected event in your life.

The third and final stage are your retirement years, from ages 65 and older. This is the time when you start enjoying the fruits of your investments and your money is now working for you. This phase can be the most fulfilling time of your life, especially if you have the financial freedom to live the lifestyle you choose. You now end your working career and rely on your retirement nest egg for your income. Your income must not only cover your bills, but your lifestyle expenses as well. If you set up your retirement right, you can have the option to go out to dinner, travel or play golf or just devote more of your leisure time to your family and friends. Health issues may ensue as age advances, so be ready for rising healthcare costs.

Be proactive and consider these 3 phases when setting up your financial plan to smoothly transition through the three stages of your life. Start your finances right and be financially literate, otherwise, you will be paying it for the rest of your life.

Happy Planning!