Which stage of the Financial Life Cycle are you in?
Not everybody fits neatly into each of the stages of the Financial Life Cycle. Our job as trust officers, wealth advisors and CERTIFIED FINANCIAL PLANNER™ professionals is to understand your current situation, your wants and needs. We help you enact a plan that keeps you moving forward through the stages of the Financial Life Cycle so you can ultimately reach your goals.
FORMATIVE STAGES - AGES 0-19
During the formative stages, we form what we believe to be our principles surrounding finances. Many of these principles prove to be relative to our emotions. We learn the value of compounding, which is key to financial independence.
BUILDING THE FOUNDATION - AGES 20-29
Building the foundation is typically the first stage in which we are no longer dependent on our families. While building the financial foundation, net worth is typically less than annual income. This is a great time to get established with The Trust Company’s financial planning team for assistance with debt management and cash flow.
EARLY ACCUMULATION - AGES 30-39
Net worth is beginning to grow and is typically 1-3 times your annual income in the early accumulation stage. Due to the increase in net worth, investors usually begin to take on more risk in the early accumulation stage by diversifying their portfolio. Meeting with the investment team at The Trust Company will be essential in establishing an asset allocation that strives to meet your financial goals.
RAPID ACCUMULATION - AGES 40-54
The key factor of compounding begins to impact our financial life during the rapid accumulation stage. The beliefs we establish in the formative stages begin to become a reality at this point in our lives. Due to an increase in income and wealth, net worth is typically 3-7 times annual income. Discussions with our financial planning team begin to shift focus to retirement planning. However, other aspects such as insurance and estate planning will be significant as well.
FINANCIAL INDEPENDENCE - AGES 55-69
In the financial independence stage, a standard of living has been established and individuals are more focused on how they are spending their time. Income and earnings from your portfolio are typically at an all time high, allowing more flexibility in other areas of life. Net worth shifts from a relation to income to our annual living expenses.
At this point, net worth is typically 7-10 times annual living expenses. Meet with our financial planning team to ensure your retirement projections are on the right track.
CONSERVATION YEARS - AGES 70-84
During the conservation years, risk usually decreases in order to maintain and preserve your retirement income. Although age can vary, typically when your portfolio reaches 10-15 times annual living expenses you have reached the conservation years. Our teams at The Trust Company are here to assist in protecting your assets for the remainder of your life and help plan for your legacy.
DISTRIBUTION YEARS - AGES 65+
A main reason for conservation is to ensure the funds are available for distributions throughout retirement. As your portfolio reaches more than 15 times your annual living expenses, distributions will occur. Those distributions vary based upon your personal goals such as charitable giving or providing for the future generations of your family.
FAQs
We help you enact a plan that keeps you moving forward through the stages of the Financial Life Cycle so you can ultimately reach your goals.
- FORMATIVE STAGES - AGES 0-19. ...
- BUILDING THE FOUNDATION - AGES 20-29. ...
- EARLY ACCUMULATION - AGES 30-39. ...
- RAPID ACCUMULATION - AGES 40-54. ...
- FINANCIAL INDEPENDENCE - AGES 55-69.
Life cycle financial planning refers to the process of identifying and managing the financial needs and challenges that arise at different stages of life, from childhood to what comes after retirement age.
What are the 7 steps in the financial planning process? ›
7 Steps of Financial Planning
- Establish Goals.
- Assess Risk.
- Analyze Cash Flow.
- Protect Your Assets.
- Evaluate Your Investment Strategy.
- Consider Estate Planning.
- Implement and Monitor Your Decisions.
- AWM&T: Your Choice for Financial Fitness.
The 4 Stages of Your Financial Life
- The budgeting years. Roughly between the ages of 21 and 41, we typically spend more than we make, as shown in the first part of the curve. ...
- The accumulating years. Roughly between the ages of 41 and 57, we reach the accumulating years. ...
- The managing years. ...
- The distributing years.
The business life cycle is made up of four stages that every business goes through as time progresses. These stages are Launch, Growth, Maturity and Decline/Renewal.
What are the three main phases of your financial life cycle? ›
Generally, financial life stages fall into three categories: wealth accumulation, preservation, and distribution. An individual's needs change through those stages of life. By understanding your savings, investment, and banking options, you will be better equipped to meet your money goals and needs during each stage.
What is an example of a life cycle? ›
A life cycle is the series of stages of life for an organism, beginning with life and ending with death. An example would be the life cycle of a bird. A bird's life cycle consists of four main stages, which include 1) egg, 2) hatchling, 3) fledgling, and 4) adult.
What is the 7 stage business life cycle? ›
The 7 stages of a business life cycle are conception, start-up, the early stage, growth, rapid growth, the maturing stage, and innovate or decline. If you want your small business to succeed, you must understand how each stage works and what to do during those stages to win.
What are the 10 steps in financial planning? ›
Here are 10 golden rules that one must follow to plan their finances well.
- Manage Your Money. ...
- Regulate Your Expenses Wisely. ...
- Maintain A Personal Balance Sheet. ...
- Dealing With Surplus Cash Judiciously. ...
- Create Your Personal Investment Portfolio. ...
- Planning For Retirement. ...
- Manage Your Debt Wisely. ...
- Get Your Risks Covered.
Financial Planning Process
- 1) Identify your Financial Situation. ...
- 2) Determine Financial Goals. ...
- 3) Identify Alternatives for Investment. ...
- 4) Evaluate Alternatives. ...
- 5) Put Together a Financial Plan and Implement. ...
- 6) Review, Re-evaluate and Monitor The Plan.
Finance experts advise that individual finance planning should be guided by three principles: prioritizing, appraisal and restraint. Understanding these concepts is the key to putting your personal finances on track.
What are the three most common reasons firms fail financially? ›
In conclusion, the three most common reasons for financial failure are lack of financial planning, ineffective cost management, and insufficient market research. Firms that proactively address these issues increase their chances of achieving and maintaining financial stability.
What is the most important step in financial planning? ›
Establish Clear Goals
In order to kickstart the financial planning process, the first crucial step is to establish crystal-clear goals. This entails identifying your financial objectives, be it saving for retirement, creating an emergency fund, or eliminating debt.
What are the six steps in the financial management process? ›
The Financial Planning Process
- Step 1: Set Goals. While this seems pretty basic, this step often gets overlooked. ...
- Step 2: Gather facts. ...
- Step 3: Identify challenges and opportunities. ...
- Step 4: Develop your plan. ...
- Step 5: Implement your plan. ...
- Step 6: Follow up and review yearly.
Generally, financial life stages fall into three categories: wealth accumulation, preservation, and distribution. An individual's needs change through those stages of life. By understanding your savings, investment, and banking options, you will be better equipped to meet your money goals and needs during each stage.
What is the rule of 5 financial? ›
The rule suggests that you should not invest more than 5% of your portfolio in a single stock.
What is the first step of the five step financial process? ›
Final answer: The first step in the five-step financial planning process is to develop personal goals. Your personal financial goals guide your financial decisions. Writing financial problems, implementation, and adjustment of the plan come after the goals are well defined.
What are the five core principles of the financial system? ›
The five principles are based on Time, Risk, Information, Markets, and Stability. The first principle of money and banking is that time has value. At some very basic level, everyone knows this. If you take a job at the local supermarket, you will almost surely be paid by the hour.
