Financial well-being August 14, 2023 By
According to experts, about 95% of the money you will have later in life is determined by how much you accumulate in the first phases, which lasts between 20 to 30 years.
Life is about change. Whether it’s graduating from school, moving to a new city, or starting a family, our lives change and mature. Your financial goals and priorities also change throughout your life. In this article, we’ll look at five financial phases and how to navigate them.
What Are the 5 Phases of Financial Life that Impact Well-Being
At First United Bank, we utilize our path to Financial Well-Being through five steps: Start, Grow, Enhance, Enjoy, and Secure. During these phases, your financial needs will change. Understanding how each phase works can help you better prepare to meet your goals.
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Start
Everyone needs a place to start, and we all have a starting place in our journey. During this phase, you’re working hard, earning money, and establishing credit. But don’t spend all your money just because you have it. During this stage, you should focus primarily on saving and investing, which includes retirement.
- Create a Budget: We recommend the 50/30/20 rule at First United.
- Emergency Fund: You’ll want to have cash on hand for things like unexpected car repairs or medical bills. How much should you put away? Experts recommend setting aside at least three to six months’ of living expenses in an interest-bearing savings account. You can start small and put aside a little monthly cash to prepare for an unexpected expense.
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Grow
You’ll also want to focus on liquidity and having access to a certain amount of your savings. The key to accumulating wealth is to start early. The earlier you start, the more your money can grow and the better off you’ll be – thanks to the magic of compounding interest. Consider these options for a strong build and grow phase:
- 401(k) Plan: These tax-advantaged accounts are generally available through your employer. To meet your retirement goals, make sure you contribute enough each month. If they’re offered, take advantage of any employer matching options, which can help grow your savings.
- Individual Retirement Account (IRA): If you don’t have a retirement plan through your company, think about traditional and Roth IRAs. It’s wise to consult a financial planner who can help you explore your retirement account options and advise you about saving for your future.
You’ll also want to focus on liquidity and having access to a certain amount of your savings.
- Money Market Accounts: These typically earn higher interest rates than savings accounts. Plus, unlike a savings account, money market accounts usually allow you to write checks and use debit cards for withdrawals, just like checking accounts.
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Enhance
You’ve made it far, you’re right in the middle of living what you have planned for in your Start and Grow phase. But, now what? You have budgeted your money well, saved, and established a plan for later life. Now consider continually upping your retirement contributions, diversifying your portfolio, and learning more about tax strategies.
If you stay on track and continually plan ahead, you’ll be in good shape to preserve your wealth as you enter into Enjoying your hard work.
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Enjoy
This phase can be tricky, as people don’t always realize they’ve entered it. At what age does it start? Experts generally agree you’ve entered the preservation phase when you’re about 10 years from taking withdrawals from your portfolio. For some, this might be at age 52; for others, it could be 62.
During this period, it’s a good time to reevaluate your investment portfolio. Determine where it’s working well and where it can be improved. You might want to diversify and choose an asset allocation strategy – a mix of stocks and bonds – that works best with your retirement goals. Remember, the closer you get to retiring, the less time you’ll have to recover from downturns in the market.
You can also consider annuities, tax-planning strategies, business-succession plans, and your real estate portfolio as part of your strategy to preserve your wealth. Will you still have a mortgage? Will you invest in a vacation home? Or will you be downsizing? Discuss your goals with a financial advisor who can help you make the best decisions for your individual situation.
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Secure
As you plan, consider reallocating part of your portfolio to safer investments. You don’t want to get caught in a sudden market shift that could substantially affect your earnings.
The way you choose to distribute your money will affect how long it lasts. It’s especially important to speak with an experienced wealth manager at this stage. This professional can help you prepare for this stage by discussing investment strategies and tax considerations. Similarly, you will want to consult with an estate planning professional who can help you allocate your legacy and distributions to your beneficiaries.
Don’t forget to research long-term care options. You have worked hard saving and investing your money, make sure you take care of yourself when this phase of your life starts to approach.
Planning Is Essential
Everyone will go through these financial phases and taking charge of your finances is the best way to be prepared and maximize your money. Of course, working with a qualified professional is always sound advice.
For additional help with budgeting or managing your finances,
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