Financial Lifecycle

FINANCIAL LIFECYCLE The Financial Life Cycle is a guide through which you can effectively determine your current financial stage. The Life Cycle provides us with a strategy for effectively manoeuvring through each stage of life. But don't be fooled; within the cycle there is great room for variation and rapid movement forward and backward. What stage of the cycle are you in? START (1) TODDLER 6 (0-5 YEARS) "WE EAT MONEY" At this stage, the only thing we really want to do with money is literally eat it. During these years our parents teach us that eating money is a rather unhealthy habit - not to mention a rather poor way to improve our financial situation. 2) CHILDHOOD "WE BUY THINGS WITH OUR (6-12 YEARS) POCKET MONEY" During childhood, our parents teach us three basic financial concepts: Relative value: We learn that one pound is worth more than 50 pence. Accumulation: Our parents give us pocket money and piggy banks to teach us the fundamentals of saving. Convertibility: We learn that we can convert our money into toys. 3 TEENAGE YEARS(13-18 YEARS) "WE BEGIN TO EARN OUR OWN MONEY" During these years we typically learn these two additional concepts: Budgeting: Our parents encourage us to begin paying our way with our earnings for things such as lunch at school, trips to the cinema or clothes etc. Earned income: We learn that we can earn money by babysitting, cutting grass, or working part time in a shop. 3.5 "WE ATTEND UNIVERSITY" (19-21 YEARS) UNIVERSITY During university some students must pay their own way, while tuition is covered for others. Either way, we put to work all the skills that we have previously learned as we are finally out of the house and on our own. BUILDING YOUR FINANCIAL HOUSE "YOU ACHIEVE FINANCIAL FREEDOM" (21-29 YEARS) Our 20s represent the foundation-building stage. During these years we completely leave the safety of our parents' financial care and support ourselves. We often start families and are forced to put into action the financial lessons we have learned thus far. We also establish the financial habits that we will take with us for the rest of our lives. The most important fundamental we learn is how we can use our money to make money - through saving and investing. ISAS are a popular vehicle for securing our future, as the interest and capital gains earned are completely tax free. INDIVIDUAL SAVINGS ACCOUNT (5ACCUMULATION (30-39 YEARS) "OUR NET WORTH EXCEEDS OUR ANNUAL INCOME" This stage involves accumulation of money – to the point that our total net worth (total combined value of all our assets) matches or exceeds our annual income. During accumulation, more diversified investment strategies are sought in order to maintain financial stability and growth. RAPID ACCUMULATION (40-55 YEARS) "OUR NET WORTH IS AT LEAST THREE TIMES OUR ANNUAL INCOME..." This stage of the cycle is marked by rapid accumulation of money – which occurs when our investments begin to generate more money than our annual savings. This growth speeds up as the years go on. SE TICKER FISCAL OINDEPENDENCE "OUR ASSETS ARE WORTH BETWEEN (56-69 YEARS) SEVEN TO 10 TIMES OUR ANN UAL LIVING EXPENSES. " At this stage, a fundamental change occurs in the calculation of financial characteristics – they are now measured by our living expenses and our investments. Because our investments are making us significant amounts of money, we have financial independence, giving us the option to change jobs, or retire altogether. Caution: if we aren't smart with our investments we can easily return to stage six. SOLD 8) CONSERVATION (70-75 YEARS) "OUR ASSETS EQUAL 10-15 TIMES OUR ANNUAL LIVING EXPENSES" Our investments exceed our annual savings. This stage represents a change where we shift our portfolio into more conservative investments so that we might preserve our wealth, allowing us to live off the money we have set aside for our retirement years. AUTUMN YEARS(75+) "OUR TOTAL NET WORTH IS GREATER THAN 15 TIMES OUR YEARLY EXPENSES. " This stage represents another fundamental shift in our life cycle as we begin to distribute our wealth to family members, ensuring their future security, as well as our financial legacy. This may be done by setting up a trust or estate plan, by gifting money, and by spending a large sum to cover the cost of a family holiday. (10) SUNSET (LAST YEAR OF LIFE) "FINAL DISTRIBUTION OF ASSETS " Our last year of life (although this usually can't be determined) is when we make final arrangements for the distribution of the majority of our investments – including equities, property, and cash. 3. Confused.com SOURCES: www.peoplesfinancialadvisor.com | www.cambridgefinancialadvisors.com