Part of the Cambridge System of financial planning, the financial life cycle is divided into a series of stages based on your financial situation and progress in saving for retirement. These life stages usually correspond to certain age ranges, but don’t worry if your financial stage is out of sync with out your age. There is always time to save for retirement. Read on for information on determining your place in the financial life cycle.
Formation
During childhood, most people develop their fundamental beliefs about money. When your parents took you shopping, you learned that money can buy things like food and toys. Your parents may also have helped you save money. As a teenager, your first job taught you the importance of budgeting money you earn. These lessons become vital to later stages of financial life.
Accumulation
As a young adult, you are in the beginning of the accumulation stages. At first, despite any debt you may have, earning money makes you feel rich. Instead of spending the money, motivate yourself to start saving for retirement. During the accumulation stage, which lasts until about age 55, you should save as much as possible.
Conservation
When the income generated by your portfolio exceeds half your annual income, you have achieved financial independence. This is the time to make your portfolio more conservative to give yourself peace of mind. Your portfolio continues to generate income for you to live on in your retirement.
Distribution
In this final period of life, you have the opportunity to pass your wealth on to others, whether it be family, charities, or friends. As you reach your final years of life, you can direct how the money you have earned and invested will be distributed after your death.
No matter where you are in life, it is never too late to save for retirement. Financial planners are essential to this process. Plan and Act is a fee-only financial advising firm that earns money only through stewardship of your investments. To get started with your financial plan, call us at (720) 897-7966 or Like Us on Facebook for a FREE FINANCIAL ASSESMENT.
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