The Six Financial Stages of Life
June 17, 2019
I was talking with my friend, Sue, the other day about life and the peace of mind that comes from financial freedom. Like so many Americans, Sue and her husband, Walt, have juggled their work life with family life and have always been forced to prioritize their spending and investments to address their family’s evolving needs. Sue, a 52-year-old mother of two who works as a massage therapist and has always been passionate about health and happiness, reminded me that our financial goals change as we move through the different stages of life.
As an old-school financial advocate with more than forty years in the industry, it’s my job to focus on the end goal and ensure that the clients I serve have achieved the financial goals and independence they desire. But as Sue noted, it isn’t always a straight line and I found her point of view so valuable that I wanted to share it with you here.
Phase One: Getting Started. It’s never too early to begin accumulating wealth and I always recommend paying yourself first. But as Sue stressed, it can be hard to do so when you are first going out on your own and starting your career. Sue told me that she had to put herself through college and cover all of her expenses so at that time in her life, her focus was on keeping her head above water and not amassing debt. This, in reality, is it’s own form of wealth accumulation. If we can stay out of debt, we save thousands of dollars of interest and this is one of the first steps to financial freedom.
Phase Two: Raising a Family. The next phase for Sue — as is the case for so many of us — was the family phase. Not long after graduating college, Sue and Walt married and started a family. Their financial goals shifted to their two children. They wanted to provide a nice home, an enriching childhood, and a family centered life. For Sue and Walt, this meant adopting a divide-and-conquer strategy. Sue chose to be at home with their children while Walt pursued a career as a pilot for a commercial airline. While they did save a little bit of money, their children became their priority.
Phase Three: Successfully Launching their Children. Like most parents, Sue and Walt understood the importance of a quality education. They were determined to finance this for their son and daughter so that they could start their life without the stress of a mountain of student loan debt. Sue acknowledges that they were fortunate enough to be able to provide this. But she also emphasizes that it was not without compromise. “We’ve always been frugal and never been materialistic. My husband and I drive old cars and I’ve never been into make up or expensive clothes,” explains Sue. “We all go high or low on something. We went low on cars and high on colleges.”
Phase Four: Sock It Away Time. Sue and Walt have always made their two children their first priority. But now that they are on the tail end of college expenses, they are shifting their financial focus to themselves. This, as Sue sees it, is their “sock away the money” phase. While they have accumulated about a quarter of the wealth they would like to amass over the next thirteen years, Sue readily admits that they have a long way to go. But they also have a plan —which once again centers around being frugal. They have cut out luxuries and search for coupons and sales whenever they shop. They are also making sure that the money they put away is prudently invested in the financial markets. “If we sock it away and the market does well — and if we continue to be frugal and don’t do dumb things — the math is realistic,” explains Sue.
Phase Five: The Golden Years. As a commercial airline pilot, Walt will be forced to retire at age 65. But that doesn’t mean they want to stop working. Sue is passionate about whole body health and plans to expand her massage therapy business into other health services. As Sue puts it, “we hope to live off the money I bring in and the interest from the money we’ve saved and never have to touch the principal.”
Phase Six: Leaving a Legacy. Everyone has a different view of what it means to be financially secure — for both themselves and the generations that follow. For Sue and Walt, the ideal scenario is to be able to end their life with two homes that they own outright and $4 million that they can pass on to their children and grandchildren through a trust that minimizes inheritance tax and attorney fees. “We want to create this base so that it’s not like every generation before that has lived hand to mouth,” notes Sue. “This is not about enabling laziness. Instead it’s about giving our heirs the freedom to pursue the work that matters to them rather than just working for a paycheck.”
In my view, Sue’s message has two important takeaways. First, there’s always something competing for our money, time and energy and we all have to prioritize and make sacrifices if we want to address the needs that are important to our values and still achieve financial independence. Second, we all have different purposes for our wealth and these purposes evolve over the course of our lives. This is why I always emphasize the importance of writing out a detailed Purpose of Wealth statement and reviewing it regularly. It’s the secret to keeping you motivated and on track. To get you started, I offer a free Purpose of Wealth model on my website. To access, click here.