Which stage of the Financial Life Cycle are you in?
Not everybody fits neatly into each of the stages of the Financial Life Cycle. Our job as trust officers, wealth advisors and CERTIFIED FINANCIAL PLANNER™ professionals is to understand your current situation, your wants and needs. We help you enact a plan that keeps you moving forward through the stages of the Financial Life Cycle so you can ultimately reach your goals.
FORMATIVE STAGES - AGES 0-19
During the formative stages, we form what we believe to be our principles surrounding finances. Many of these principles prove to be relative to our emotions. We learn the value of compounding, which is key to financial independence.
BUILDING THE FOUNDATION - AGES 20-29
Building the foundation is typically the first stage in which we are no longer dependent on our families. While building the financial foundation, net worth is typically less than annual income. This is a great time to get established with The Trust Company’s financial planning team for assistance with debt management and cash flow.
EARLY ACCUMULATION - AGES 30-39
Net worth is beginning to grow and is typically 1-3 times your annual income in the early accumulation stage. Due to the increase in net worth, investors usually begin to take on more risk in the early accumulation stage by diversifying their portfolio. Meeting with the investment team at The Trust Company will be essential in establishing an asset allocation that strives to meet your financial goals.
RAPID ACCUMULATION - AGES 40-54
The key factor of compounding begins to impact our financial life during the rapid accumulation stage. The beliefs we establish in the formative stages begin to become a reality at this point in our lives. Due to an increase in income and wealth, net worth is typically 3-7 times annual income. Discussions with our financial planning team begin to shift focus to retirement planning. However, other aspects such as insurance and estate planning will be significant as well.
FINANCIAL INDEPENDENCE - AGES 55-69
In the financial independence stage, a standard of living has been established and individuals are more focused on how they are spending their time. Income and earnings from your portfolio are typically at an all time high, allowing more flexibility in other areas of life. Net worth shifts from a relation to income to our annual living expenses.
At this point, net worth is typically 7-10 times annual living expenses. Meet with our financial planning team to ensure your retirement projections are on the right track.
CONSERVATION YEARS - AGES 70-84
During the conservation years, risk usually decreases in order to maintain and preserve your retirement income. Although age can vary, typically when your portfolio reaches 10-15 times annual living expenses you have reached the conservation years. Our teams at The Trust Company are here to assist in protecting your assets for the remainder of your life and help plan for your legacy.
DISTRIBUTION YEARS - AGES 65+
A main reason for conservation is to ensure the funds are available for distributions throughout retirement. As your portfolio reaches more than 15 times your annual living expenses, distributions will occur. Those distributions vary based upon your personal goals such as charitable giving or providing for the future generations of your family.
FAQs
We help you enact a plan that keeps you moving forward through the stages of the Financial Life Cycle so you can ultimately reach your goals.
- FORMATIVE STAGES - AGES 0-19. ...
- BUILDING THE FOUNDATION - AGES 20-29. ...
- EARLY ACCUMULATION - AGES 30-39. ...
- RAPID ACCUMULATION - AGES 40-54. ...
- FINANCIAL INDEPENDENCE - AGES 55-69.
Life-cycle finance begins with the premise that households prefer relatively smooth consumption from year-to-year and have a strong dislike for abrupt shifts in consumption, particularly on the downside. In economics, this premise is known as consumption smoothing (described below).
What is the life cycle approach in CFP? ›
Life-cycle financial planning helps to understand the dynamic nature of your family's financial risks presented and developed in a plan that evolves over time to meet those changing needs. The stages of life-cycle planning can be seen in 3 simple phases: Accumulation, Preservation and Transfer.
What is the financial planning cycle? ›
The steps in the Financial Planning Process typically include: (1) gathering financial information, (2) setting financial goals, (3) analyzing the financial situation, (4) developing a financial plan, (5) implementing the plan, (6) monitoring the plan, and (7) making adjustments as needed.
What are the 5 phases in life cycle model? ›
There are typically five project life cycle phases: initiation, planning, execution, monitoring and controlling, and closure.
What is the financial cycle in order? ›
The eight steps of the accounting cycle are as follows: identifying transactions, recording transactions in a journal, posting, the unadjusted trial balance, the worksheet, adjusting journal entries, financial statements, and closing the books.
What is the financial cycle in your company? ›
The financial cycle can be thought of as economic fluctuations that are amplified by – or stem directly from – the financial system. It typically manifests itself as a co-movement between credit aggregates and asset prices with a possible impact on real economic developments as well.
What are the 4 stages of financial life? ›
Let's take a look at some key financial planning tips for four different life stages: early career, mid-career, pre-retirement, and early retirement.
What is the business life cycle in finance? ›
A life cycle in business follows a product, business, or industry from development to decline. Product life cycles are the most common and include the following stages: development, introduction into the market, growth, maturity, and decline.
What is the CFP rule? ›
A CFP® professional must: Place the interests of the Client above the interests of the CFP® professional and the CFP® Professional's Firm; Avoid Conflicts of Interest, or fully disclose Material Conflicts of Interest to the Client, obtain the Client's informed consent, and properly manage the conflict; and.
In LCA, there are multiple items that can be evaluated for environmental impact, such as “ozone layer destruction, acidification, ecosystem destruction…” etc., while CFP targets only “GHG emissions”.
What is the financial life cycle model? ›
Life cycle financial planning can be separated into five stages: teenage years (13-17 years old), young adulthood (18-25 years old), starting a family (26-45 years old), planning to retire (45-64 years old), and successful retirement (65 years old and above.)
What are the five financial life stages? ›
Consider your life's overall financial arc as consisting of five pivotal phases:
- Youthful exploration. From age 13 to 17.
- Blossoming adulthood. Age 18 to 25.
- Family and foundations. Age 26 to 45.
- Pre-retirement. Age 45 to 64.
- Retirement. Age 65 and older.
Experts have identified three distinct phases that we experience: wealth accumulation, wealth preservation, and wealth distribution. During these three phases, your financial needs will change. Understanding how each phase works can help you better prepare so you can meet your goals.
What are the 5 steps in financial planning? ›
Plan your financial future in 5 steps
- Step 1: Assess your financial foothold. ...
- Step 2: Define your financial goals. ...
- Step 3: Research financial strategies. ...
- Step 4: Put your financial plan into action. ...
- Step 5: Monitor and evolve your financial plan.
8 Steps of the Accounting Cycle
- Identify transactions. ...
- Record transactions in a journal. ...
- Post transactions to general ledger. ...
- Determine unadjusted trial balance. ...
- Analyze a worksheet. ...
- Adjust journal entries. ...
- Generate financial statements. ...
- Close the books.
Generally, a product life cycle consists of product development, market introduction, growth, saturation, and decline. By studying product life cycle (PLC) stages, companies try to predict the progression of products in the market.
What is the rule of 5 financial? ›
The 5% rule says as an investor, you should not invest more than 5% of your total portfolio in any one option alone. This simple technique will ensure you have a balanced portfolio.
