for Your Financial Life Stages
Having a sound overall
financial strategy requires that you to recognize that your finances are
in a constant state of change. Not only do financial markets fluctuate,
but your financial needs also change over time. Luckily, it is easier
to predict the changes in your financial life stages than it is to predict
the direction of the financial markets.
Most individuals pass
through three primary financial life stages as they age. Income levels,
spending patterns, family situations and areas of financial concern, while
not exactly predictable, tend to follow a pattern.
||Enter work force
|More home purchases
Accumulation of wealth
Funding college educations
Death of spouse
|Greater tax sensitivity
Stage One - Building a Financial Foundation
Young adults face the task of learning how to manage spending and saving
within the constraint of their income level. Developing sound financial
habits is critical. Here are some issues to consider.
- Learn how you
are spending your money to identify ways to save. Prepare a household
- Use a wise borrowing
strategy. Borrow for things that provide long-term value. Control the
use of credit cards.
- Establish a saving
pattern. Consider an automatic savings program so that some amount is
deposited into a savings account each paycheck.
- Set some savings
goals. Whether it is accumulating a down payment for a home, paying
for a car or saving for a vacation, connecting a tangible goal with
your saving can provide the motivation and discipline you need to save.
- Make sure you
have adequate insurance.
- Take advantage
of employee benefit plans at work.
Stage Two - During
Your Prime Earning Years
This is often a time when your income is rising as well as expenses. Nicer
homes, nicer cars and children can easily consume your increasing income.
This is also the time when the financial decisions you make will have
the greatest impact on the financial lifestyle you will enjoy during retirement.
By now, you should have developed some savings and the expertise to make
- Start early to
save for children's college expenses. Consider using custodial accounts,
Section 529 Plans or Coverdell Education Savings Accounts (Education
IRAs) to get additional tax advantages with the college funds.
- Take full advantage
of employer offered retirement plans. If you have a 401(k) plan available,
contribute as much as you can or at least enough to get the full employer
- Invest wisely.
Consider an asset allocation strategy that matches your time horizon
and risk tolerance. Don't ignore the potential long-term returns of
equities, but do your homework or rely on a qualified advisor.
- Be sure your insurance
protection has kept pace with your needs. Having adequate life insurance
to protect your family, in case of your untimely death, is critical.
- Prepare an estate
plan to minimize taxes and to ensure that your custodial, financial
and medical wishes are carried out.
Stage Three - Nearing
or During Retirement
These years can and should be some of the most enjoyable and fulfilling
times of your life. If children and grandchildren are part of your life,
having the financial ability to help them can be rewarding. A successful
career, the freedom to live the retirement lifestyle of choice and a sense
of satisfaction with what you have accomplished can make your "golden"
years truly enjoyable. However, there are still financial issues that
should be addressed.
- Be sure your medical
insurance is adequate. The costs of medical care continue to rise and
we are living longer. Medicare, Medicaid and private health insurance
will all be important.
- Be sure your estate
plan is up to date. Changes in your financial situation, moving to a
different house or state and changes in your family should all be triggers
for reviewing your estate plan with a qualified estate planning attorney.
- Continue to manage
your investments carefully. If you are using an advisor or stockbroker,
be sure to fully understand their recommendations before accepting them.