Your Age Determines Where You are in Your Own Financial Life Cycle.

It doesn’t need to be so!

In general your age very much determines where you are in your own financial life cycle.

The earning money phase

At the start of your financial life cycle, in the main once you have entered the job market, during the first 10, 15 or even 20 years or so of your career your income tends to increase (rapidly).

However, in those early years, your savings are likely to be relatively low, as much of your income is spent on establishing a family, renting or buying and furnishing your home, putting your children through education, paying for family holidays, etc.

During this part of your financial life cycle, the amount of your debts is likely to increase substantially due to mortgages, loans to cars or other debts.

Over time, as long as you remain in sufficiently high paid employment, you are likely to be able to convert some of your debts, such as your mortgage, into an asset. At that stage, you are increasing your capital base in your house.

The wealth accumulation phase

Then, say from your early to mid 40’s you enter into the earn to save phase of your financial life cycle. You start realising that you should save for your retirement and as a result your longer-term savings start to grow.

The wealth preservation phase

At the end of the accumulation phase of your financial life cycle, you enter the stage where:

  1. your immediate outgoings are likely to be getting smaller, in particular during the latter part, as your children have left
    home, you have (almost) repaid the mortgage, etc.,
  2. your income start to exceed your expenses,
  3. your invested assets are starting to grow rapidly, and
  4. your main focus is on maximasing wealth for your retirement.

You have entered the retirement stage of your financial life cycle.

What happens next?

Your savings rate turns negative as you begin to live off your life savings, such as your pension(s), State Pension and investment income, (all hopefully enough to) replacing your salary.

In this stage of your financial life cycle your priorities are focused on making your investments last long enough, i.e. throughout your whole retirement stage, till the end of your life, and, to have a life style in relative comfort.

This final stage of your financial life cycle main emphasises lies in:

  1. the need to preserve your capital,
  2. generating enough income for an ongoing retirement in comfort, and,
  3. to finance long-term care if and when required.

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