Defining Financial Life Stages
There are four fundmental financial life stages, and knowing in what financial life stage you are is critical in planning and formulating your goals. It is the first step in the long journey towards financial independence.
The four fundamental financial life stages are start-up stage, build-up stage, asset allocation or fine-tuning stage, and retirement stage.
"Knowing where you are tells you how far you are going and how to possibly get there."
Start-up stage is when your only source of income is your earnings from active participation in terms of talent and time. On the average start-up stage begins when you’ve managed to claim your first job. Start-up stage is the most critical in the four fundamental financial life stages. This is because here you set your foundations to your future financial life. Here you will start to encounter most of the obstacles that will block you on your way to financial independence, and so it is here that you must learn all of the important things needed along the way.
Plan accordingly; a different financial stage needs a different approach.
Build-up stage is when you now have the capability to generate passive income through investments which contributes to about 20% of your total income. This is when you start to know important things that you should do. Continue to beef it up and you’ll make it to the asset allocation stage.
Asset allocation stage
Asset Allocation stage is when a significant fraction of your income (about 30-60%) is now being generated through financial assets and investments.
This is when the income generated by your financial investments accounts for the total income and is capable of supporting your living expenses. It should be at this stage where you should have attained financial independence.
Keep in mind that these financial stages are not directly proportional to your age. Some may still be young but are already in the asset allocation stage yet some maybe in the verge of retirement yet is still in the build-up stage.
Proper planning is what makes financial independence at reach. Your every financial decision must be properly analyzed with your current financial stage in consideration. Remember that financial independence is one long term goal that is a product of attaining consecutive short term goals. Specific goals should be set at each financial stage so that you’ll be able to assess yourself whether or not you are advancing in your quest for financial independence.
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