Life cycle of financial planning 1.11.2.g1

Life Cycle of Financial Planning

Take Charge of Your Finances

© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 2

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Financial Planning

Financial planning is a tool used to achieve financial success based upon the

development and implementation of financial goals.

Many people follow a similar financial pattern during their life

BUTEveryone has an individualized

financial plan.



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Financial Plan Influences

Financial planning is influenced by many factors:

These factors can be

expected and unexpected.



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Financial Goals

• Financial goals are specific objectives to be accomplished through financial planning

• Financial goals should be SMART goals:– Specific– Measurable– Attainable– Realistic– Time Bound

An essential step to

creating a financial

plan



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SMART Financial Goals



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Lifestyle Conditions



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• There is a typical life cycle pattern that applies to most people

• Includes three stages • The amount of time it takes to

move through the financial life cycle varies for every individual

Financial Life Cycle

A life cycle is a series of stages in which an individual passes during his or her

lifetime



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An Individual’s Financial Life Cycle

$

Approaching

Retirement

Years

Retirement Years

Single * Marriage * Start and Raise Family

0 20 30 40 50 60 70 80Years of Age

Stage 1: Basic Wealth Protection

Stage 3: Wealth

DistributionStage 2: Wealth Accumulation



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An Individual’s Financial Life Cycle



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Personal Financial Management Pyramid

Risk and Tax Management:goal setting, insurance, protection against

economic loss, income tax reduction

Building Long Term Wealth:

goal setting, retirement

planning, investments

Cash Management: goal setting, emergency, cash reserve, record

keeping, spending plans, net worth, and income-expense statements

EstatePlannin

g

Credit and Debt Management: goal setting, credit use, avoiding credit abuse,

debt reduction

Building Financial Security: goal setting, savings plan, home ownership, children’s

education

Wealth Distribution‘giving it to your

chosen ones’Wealth

Accumulation‘giving it to yourself’

Basic Wealth

Protection

‘quit giving it to others’



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Life Cycle Events Activity

• People in certain age groups tend to have similar life cycle needs

• What activities and events require financial planning during each stage?– High School Ages 13-17– Young Adult Ages 18-24– Adult With or Without Children Ages 25-34 – Working Parent or Adult Ages 35-44 – Midlife Ages 45-54 – Pre-Retirement Ages 55-64 – Retired Ages 65 and older

Identify someone you

know in each

category



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Traditional Age Group Financial Planning Needs

• High School Ages 13 – 17– Developing a plan for eventual

independence– Preparing for career– Evaluating future financial needs

and resources– Exploring financial systems –

banks, etc.– Developing a personal system of

record keeping



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• Young Adult Ages 18 – 24– Establishing a household– Training for a career– Earning financial independence– Determining insurance needs– Establishing credit– Establishing savings– Creating a spending plan– Developing a personal financial identity– Developing a personal financial system



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• Adult With or Without Children Ages 25 – 34– Child-bearing– Child-raising– Starting an education fund for children– Expanding career goals– Managing increased need for credit– Discussing and managing additional

insurance needs– Creating a will– Maximizing financial management by

all members of household



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• Working Adult or Parent Ages 35 – 44– Upgrading career training– Building on children’s education fund– Developing protection needs for

head-of-household– Need for greater income due to

expanding needs– Establishing retirement goals



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• Midlife Ages 45 – 54– Assisting with higher

education for children– Investing– Updating retirement plans– Developing estate plans



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• Pre-Retirement Ages 55 – 64– Consolidating assets– Planning future security– Re-evaluating property transfer– Investigating retirement part-time

income or volunteer work– Evaluating expenses for retirement and

current housing–Meeting responsibilities of ageing parents



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• Retired Ages 65 and older– Re-evaluating and adjusting living

conditions and spending as related to health and income

– Adjusting insurance programs for increasing risks

– Acquiring assistance in management of personal and financial affairs

– Finalizing estate plan– Finalizing will or letter of last

instructions



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True or False?

Everyone has the same financial plan.

Life cycle of financial planning 1.11.2.g1

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