Each person’s financial situation and monetary needs are different. Even if you may receive the same salary as your colleague, you are certainly not going to be spending or saving it the way he does. If you are single and he has a family, your concerns are going to be quite different. You may be able to eat out every night and still be able to put some amount into your savings account. Your married coworker, on the other hand, will have to find a way to provide for the family’s daily needs, save some amount for retirement and contribute to your children’s college savings plan. These are hefty expenses and would often entail giving up some discretionary spends—such as eating out— in order to be able to stick to a budget.
That being said, everyone goes through similar stages in their lives. At each stage, certain life events are commonly shared by everybody. These life events also have their corresponding financial events that ought to go along with it. Just to be clear, the life stages that we will be discussing here will start at adulthood because that is when you will be financially independent and responsible for all your money decisions. The stages will end at retirement. We will be discussing them in more detail in the sections that follow.
First Stage: Young Adult
This stage refers to that of the young adult who has just graduated from college and entered his first fulltime job. Because of the entry-level salary, young adults generally have to learn to start managing their money well so that they can live the kind of life they want while providing for their needs. This is also the time when they start getting serious about their relationships with other people. This is the stage where marriage and starting a family are fairly common. For those who want to, this is the time to start raising children.
Moreover, you may have bought a car now or have been paying for it for the past year. You may also have obtained a mortgage for a starter home where you can start raising your family. This may also be a time when spending for wants using your credit card is at its peak.
If you are a young adult, learning how to manage your money at this point is crucial. What your attitude is about money at this stage will carry over until you grow older. At this point, you are developing financial attitudes and practices that will impact how your family will fare later on. Thus, it’s essential to start exploring how you use money and whether there are ways for you to save based on how much you are handling your finances now.
It’s important to control credit card spending and start paying down your debts. You have to learn how to properly manage your funds as early as this stage if you want to send your kids to college, avoid foreclosure of your home or repossession of your car and basically achieving your savings goals. Make sure that you enroll in your employer’s 401k plan and take advantage of your employer’s matching contributions. That is free lunch money that can beef up your retirement funds later on. Be sure that you are also taking advantage of employee benefits in your place of work. Some employers pay off student loans, give employees the chance to get their degree and even provide young mothers with a daycare facility in the workplace. See to it that you maximize the use of these benefits.
If you haven’t started developing good savings habits yet, now would be the best time to do so. If you need to borrow, see to it that it is something that has value for the long-term, such as a mortgage. Set goals that will encourage you to save. In order to prevent your savings goals from being derailed, you should see to it that your insurance coverage, especially that of your health, is sufficient.
Stage Two: Middle Adulthood
The second stage in life happens in middle adulthood when your income has increased. Your have advanced in your career and your family has grown as well. You should have already accumulated some savings at this time. Moreover, you are already paying off your mortgages and perhaps even have made additional real estate purchases.
With your children already growing at this stage, it’s important to have a concrete plan to send your children to college. If you haven’t done so yet, now would be the best time to invest in 529 Plans or Coverdell Education Savings Accounts. These do not only help ensure that your children will have a college education but will also provide you with valuable tax breaks.
Now would also be the best time to start getting serious about your retirement. Maximize your contributions if your budget allows it. If you can’t maximize your counterpart, you should strive to contribute enough to be able to get the full match from your employer. You should also make wise investments. Diversify your investments among stocks, bonds, mutual funds, cash and real estate, among others, always taking into consideration your penchant for risk and the time you have before you retire. Savings alone won’t cut it.
With your family getting bigger, it’s essential that you review your life insurance coverage. Make sure that it is enough for the loved ones you leave behind in the event that you pass away. You should also start planning your estate. This is necessary so that you can minimize or eliminate the estate taxes that your heirs will have to pay in case you pass away. Creating a will to ensure that your wealth goes to the people you want it to go to is important. A living will and a health proxy are also necessary.
Stage Three: Late Adulthood
The final stage in the financial life of an adult is late adulthood. It is here where major promotion at work happens. You are nearing or are already retired. Your kids have already started families of their own and you are already spending a lot of time with your grandchildren. You have most likely paid off your mortgage. If you can’t stand the thought of doing nothing at all while in retirement, you may have started your own entrepreneurial venture or are still partly active in the workforce as a consultant. All-in-all, this is going to be the best stage in your life especially if you have the money to spend for activities that you like to do with your kids and grandkids.
As you age, the possibility of death looms. You should face the reality that you or your spouse is going to pass away soon. That being said, you also have to take into consideration that people are living longer in this day and age. Healthcare is going to be a primary expense. Thus, you should see to it that you are adequately covered through private health care insurance, health savings account and Medicare. Hopefully, you already have a long-term care insurance in place in case you need to avail of skilled nursing care. It’s better to buy coverage when you’re younger and in good health because it’s bound to be more affordable.
Review your estate plan and make sure that it reflects your current situation. If you have just moved to a different state, gotten divorced or married again, you should review your estate plan with your lawyer to see if there are changes that you need to make.
At this point, you want to preserve whatever wealth you have accumulated. You should see to it that your investments are still carefully managed. You don’t want to lose out on your investments at this critical time. Remember that retirees live 20 to 30 years longer after they retire these days due to advances in healthcare. You don’t want to run out of funds in the middle of retirement. Discuss your investments with your financial advisor thoroughly.
Many retirees also use this time to increase their giving. They donate to charities as part of their estate planning strategy and as a way to leave a legacy to the world. From feeding the hungry in third world countries to helping children with disabilities, they make donations to organizations that do this work. Those who have accumulated enough wealth even make these organizations a part of their will so that they will be able to continue their work even if they already pass away.
Finally, don’t forget that this is a time for you to enjoy your life. While it is good to still be mindful about your finances and know how your investments are doing, it’s also important to make the most of your life. Enjoy this time that you have, doing all the things that you have always loved to do but did not previously have time for. Have fun!
No related posts.
No related posts.