The Four Phases of Your Financial Journey

When I started my career as a financial advisor, I felt I needed to include every bit of information possible for any situation upfront - every tip for personal finances, every helpful trick I'd learned for navigating the different stages of life.

What I discovered, however, was that more often than not, if the information presented wasn't relevant to my client's life at the time discussed, the information wasn't retained.

Life is busy. With everything going on in our lives, hearing information that we don't need at the time we hear it just isn't effective.


What Are the Four Phases?

I found that dividing the information into separate phases made it easier for most people to digest and retain the information. When a new chapter of life begins, the phases are evaluated and adjusted accordingly. Three of the phases happen sequentially, and represent the different stages of financial planning in your life, while the fourth one is more unpredictable, and can be moved into and out of at any point in one's journey.


Phase 1: Savvy Savers

The Savvy Savers phase starts when we're kids. We are just starting out in the world, and learning about money - earning, managing, saving, and spending. Many of us earned an allowance or had summer jobs that paid us a little bit of money.

As children, most of us were taught a little bit about budgeting. My parents taught me that putting away half of my money in a savings account was an important part of life. They also taught me that I could spend the other half of my income if I wanted, or I could save that cash and build towards something special.

Savvy Savers know that the golden rule is to spend less than what they bring in. They're committed to putting money into their retirement savings and are actively building their emergency fund. They use their credit cards for rewards benefits and pay off their balance every month.

Some Savvy Savers are buying a house, putting money in a college savings account, looking at term life insurance, and building their investment portfolio. Others might be caring for aging parents, exploring a career change, or even accidentally creating expenses that could derail their financial future, depending on the circumstances.

How much should you save each month? It is recommended that 10-15% of your take-home pay be set aside. If you're not in a position to save quite that much, perhaps set a goal to spend a little less every month, and put that amount towards your retirement, slowly increasing your percentage of savings.

This Savvy Saver phase is generally the longest phase, starting when you're young and lasting until you transition into the next phase around retirement age.


Phase 2: Ready to Retire

The Ready to Retire phase of life is when most people seek the advice of a financial planner. You might already have a retirement plan in place and a date in mind. You might be ready to leave corporate life behind to focus on hobbies and interests that aren't easily done with a full-time job.

This time in your life can be full of anxiety and uncertainty. Questions start to creep up - Have I saved enough? Can I retire and still enjoy the same lifestyle I have now?

In this phase, your life transitions from being a saver to actually spending the money you've saved. This transition begins anywhere from three to five years before retirement and could last a couple of years post-retirement.

This stage of life is sometimes described as the "sandwich" generation. You're at the point where you're seriously thinking about retirement. Meanwhile, you still want to be able to support your kids if they need it, but you also might need to help support your parents as well.

The Ready to Retire phase is where you get to know your upcoming retirement benefits fully and ensure your future financial security with certainty. A financial advisor can help you manage your personal finances in order to be financially stable in the years to come.


Phase 3: Loving Legacy

The Loving Legacy phase is that wonderful time in your life when you get to plan your wealth distribution to those you love, and the organizations you support.

In this phase, you have been retired for a few years. Your income is a steady blend of investments, social security, savings accounts, and retirement benefits. Your income comfortably exceeds your expenses, and you're spending your time doing the things you've always wanted to.

Now is the time to make plans for what will happen to your estate and your wealth at the end of your life. Who, or what will benefit? Now is the time to review, or draw up a trust and beneficiaries, if you haven't already. It's recommended to do a review of your trusts and beneficiaries every three to five years. Life can change quickly in a short period of time.

One of the most important considerations to make is who you will appoint as successor trustee, as it needs to be someone who is trustworthy and will be able to handle the responsibility.


Phase 4: Life Quake

The Life Quake phase occurs when unpredictable situations happen throughout your life. You move into this phase suddenly, and it can last for an unknown period of time, but eventually, you'll move out of this phase and back to one of the other three. This can be for any number of reasons - a death or serious illness in the family, loss of a job, natural disaster, etc.

This phase can feel overwhelming, so it's important to remember to give yourself compassion and understand that this phase is temporary. Allow yourself to take the time you need before you make any major financial decisions.

When dealing with a Life Quake, it's important to handle the costs, emotions, and potential repercussions in a way that will not derail your investment portfolio or that will have as minimal effect as possible on your retirement budget. This is where an emergency fund savings account has the potential to prevent your retirement benefits from being negatively affected.


What Phase Are You In?

Recognizing the different phases that we all navigate throughout our lives will help guide you in your personal finance journey. By knowing which phase you're in, you will be able to focus on specific tasks without the worry of forgetting important personal finance issues.

Are you and your spouse still figuring out your retirement plan? Are you funding your retirement accounts as much as you can?

Have you set a date for your exit from the business world? Have you met with a financial advisor who will help you plan your retirement?

Are you ready to draw up your trust to ensure that your kids are taken care of in the future?

Knowing the answer to these questions will you navigate through the phases in your life and into retirement with confidence.