Every year we experience the same months, holidays and seasons – all of which can be expected. Although you may not know when a winter storm will hit, you can usually count on the colder weather of the winter. The same can be said about the financial stages. While it’s not always easy to predict, you can find patterns if you look for them.
But how does knowing the financial stage pattern help? When it comes to financial planning, the answer is many.
What are the financial stages?
There is a natural ebb and flow for money habits throughout the year. For example, most of us tend to spend more around the holidays because of gifts and parties. When January comes, people take a look at their budget, set goals for the year, and try a financial diet. The same can happen in the summer when people vacation or enjoy a large number of activities with their families.
Patterns can also appear all over, showing up in spending and saving habits. Fresh college graduates may live on a budget and lower savings, while an established professional may be more focused on long-term goals, such as buying a home or saving for retirement.
Is it the same for everyone?
While the year can present similar periods of spending and saving, everyone has their own plans, priorities, and habits that make them unique. If you enjoy saving, maybe take vacations during the shoulder seasons to take advantage of lower hotel and air travel rates or sign up for a credit card (of course, paying it off every month) that supports your travel habit – think free rooms, discounted flights, etc., Or if you’re always big on your birthday each year, you can create a plan to automatically save money each month in a “Birthday Box,” so when the time comes each year, you’re all set.
The same is true when looking at lifestyles or savings and investing. If you get a well-paying job outside of college, you’ll probably spend lavishly more than the average 20-something early on. Or anyone who has joined the FIRE movement might contribute to retirement and saving differently because their goal is different. It is important to understand that each person has his own goals and priorities, and sometimes life encounters unexpected obstacles.
How does knowing this help?
Knowing the patterns can help you plan ahead. If traveling home for the holidays with a Santa gift bag is a source of pride and joy to you, you can plan ahead by only eating or cutting back on entertainment a few months in advance. When you know something happens annually and you want to enjoy it to the fullest and not worry about your cash flow, you can budget in fun ways beforehand.
For example, if you love spending happy hour with friends every week, maybe offer to host it in your home for a month. Take turns bringing drinks and apps each week, and what you spend in a month can easily equal what you spend in a week out in the city.
Taking the time to jot down the things that are important to you, annually and in the bigger picture, is a great starting point. If some of these items have dates that occur regularly, such as holidays or birthdays, you can create specific timelines for when you need to focus on memorizing.
Sometimes there are unplanned events, such as weddings or concerts, but you can find ways to save year-round so you have a sturdy fun chest waiting for you when you need it. (Of course, you should only set up a fun fund after you have a strong emergency provident fund.)
What stage am I in?
The stage of economic life you are in is not necessarily related to your age, as many people assume. We have discovered that the stages actually best reflect your place in your life, which is divided into three different stages: (1) building and growing, (2) moving and (3) finally distributing and spreading. For example, a 35-year-old in the FIRE movement and a 68-year-old late saver for retirement can focus on their transition into retirement.
Evaluating your stage and adjusting your plan should be an ongoing process, but you can only know what stage you are in after you clarify your goals.
First financial stage: build and grow
During this stage, identify and plan your long-term goals. Is saving for retirement a top priority? Maximize your contributions to your 401(k) plan. (Tip I learned early on: When you receive bonuses, save more and live on the amount you were already comfortable with.) Or, is buying a home a priority? Then discover a savings plan for deposit, mortgage, and other realistic expenses and build on it.
The build and growth phase is also about protecting your future earnings. This is a good time to consider life insurance and create a property plan for you and your family. I’m currently at this point and wanted to make sure (as scary to think!) my husband and kids would be okay if something happened to me. We purchased life insurance for each of us and created an estate plan to dictate what would happen if something happened to me or my husband. This gave us peace of mind.
Financial Phase 2: Transition
During this stage, it is important to understand what you have built during your saving years. It’s also time to figure out how you want to live once you’ve decided to quit full-time work. Working with a financial advisor to conduct an assessment of financial goals is important for predicting how well you will save.
If you haven’t created a budget yet, it’s important to understand your spending so you know what you’ll need to live off of.
During this stage, it’s important to consider potential moves – do you want to stay in your home, downsize or even upgrade? Are there any plans to buy a second home to travel to where you will have more time? These are factors to take into consideration.
It is also very important to assess how much risk you are taking in your portfolio – this is a good time to put in place a good plan to protect your assets. If something big happened in the market, it would be terrible to lose a large amount of money and delay your plans to make that transition.
Financial Phase 3: Distribution and Publishing
At this point, understanding where and how to withdraw from your assets is critical. There are important strategies to think about and tax consequences to consider.
If you are well-financed and have excess assets, it is also important to think about how you will leave your legacy. There are many ways to donate, including charities, foundations, and personal gifts, and they can be organized to be given while you are alive or after your death. Its beauty, its all your choice as long as you have a good plan.
No matter what financial stage you are in, planning and preparing for your next step will always yield positive results. The better you formulate your goals, both in the short and long term, the more likely you are to achieve them.
Managing Director of Growth and Customer Experience, Halbert Hargrove
Kelly Kimley is the Managing Director of Growth and Customer Experience at Halbert Hargrove and has been with the company since 2007. Kelly received a Bachelor of Science degree in Business Administration – Business Communication/Marketing from the Marshall School of Business at USC in 2006.