You need to know which “financial stage” you are in

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You’ve probably experienced monthly or yearly (or weekly) fluctuations in your budget and spending. Hey, inflation). From time to time, you may just look like hanging out for a life you love. But if you think about your financial well-being in the long run and in the big picture, there are general structures to help you earn, save, and spend on your goals.

So what is it Financial planning phaseAnd why do you need to understand them?

Three Phases of Personal Finance

The three phases of personal finance are wealth accumulation, wealth conservation, and wealth distribution.

Phase 1: Build / Accumulate

The accumulation phase focuses on construction and growth. This is where you earn, save and plan for the future. It is important to think early and often about your long-term financial goals and plan your accumulation accordingly. For example, would you like to buy a house? Do you want to save it for your child’s education? Do you want to retire early? Do you travel often?

“I tell my clients to think in terms of financial or life goals, really clarify what they want to achieve, come up with a realistic plan and execute it,” said Maryland-based official recognition. Andrea Brashears-Lusk, Financial Planner and President, said.And founder Wise financial adviser..

In this phase, whether you’re planning real estate, buying life or disability insurance, you’re ready to protect your assets and those who depend on them.

“My human capital is very important when I’m in the accumulation stage,” said Michelle Petrowski, a certified financial planner and founder based in Arizona. Be abundant.. “For young people, we need to ensure proper risk management.”

Phase 2: Migration / Save

The second phase includes an additional assessment of the values, goals, and financial planning work you have done so far. You will start thinking more about your retirement plan and what you need when you are no longer working. You should also consider your investment strategy, current and desirable risk levels, and possible changes to your assets (for example, home upgrades or downsizing).

Phase 3: Distribution / Deployment

The final stages of financial planning are most likely to occur at retirement when you no longer receive salary. Distribution and deployment withdraw from savings. In other words, you need to consider the tax implications when doing so. You can also focus on heritage, whether you’re giving a financial gift to an organization of interest or leaving something for your children or grandchildren.

Why Your Personal Financial Stage Is Important (Something)

Knowing the current phase will help you plan and prioritize your earnings, savings, investments, and spending. However, it is important to note that the three phases listed provide one way to configure a financial plan, but not necessarily individually.

For example, retirement can be a “more gradual shift,” says Petrowski. Some people may leave the corporate world around retirement age and start their own business. Layoff or a mix of families can bring someone back to accumulation from migration and preservation.

Similarly, Brashears-Lusk believes that preservation over the entire financial life is important to protect an asset, even if it is preparing to accumulate, grow and pass on wealth. ..

“I think preservation is actually part of each phase, but in the end we’re looking at ways to continue the legacy and make money last longer,” says Brashears-Lusk.

How to know which financial stage you are in

Note that the three phases of financial planning can be loosely correlated with age and stage, but many additional factors, such as values, goals, and key life events, can also affect your position. It is important to do.

“You can identify where you are based on your goals and the life events that are happening,” says Brashears-Lusk. “It’s not necessarily age-dependent, but it has a strong relationship.”

Existing financial bases, including generational wealth, can also change the way phases are navigated. “With access to a variety of financial resources from the beginning, we can quickly overcome those who build from scratch or start from the negative,” she says.

Petrowski says he asks clients to clarify their values ​​and inform them of their goals and plans. It also helps you understand where you are currently. For example, caring for your family can mean having children, or traveling with your siblings every year. Or, your values ​​may shift from career success and spending to layoff relief and savings.

“It goes back to values ​​and what’s important to them,” she says. “It’s done, not one.”