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In financial planning, four distinct stages are often described in a so-called Lifecycle Chart. These stages are the Accumulation, Consolidation, Spending, and Gifting stages.
The Accumulation Stage (Early Years):
The first stage is called the Accumulation stage. This is where you use your time well and make or earn money. It is critical to utilize this time in the best way to make money. The goal here is to generate cash flow either from a job, side hustles, working longer hours, cutting unnecessary expenses, saving etc.
The Consolidation Stage (Mid Years):
The focus of this stage is to move from saving to investing. At this stage, the income earned and credit scores must have improved. This is when you start thinking and talking of buying a home or starting a businesses. The key measure in the consolidation stage is the Rate of Return which is essentially how much has been generated from the investments you’ve made.
The Spending & Gifting Stage; (Spending and Gifting)
The spending at this stage usually includes buying annuities or perhaps relocating to another city, etc. At this stage, typically you begin to use your assets to generate cash flow and time. You’re spending from the return of prior investments. Withdrawal Rate is the key measure at this stage which is basically involves how much of investment can be withdrawn as cash annually to ensure we do not outlive our investments.
Retirement Stage
This stage is typically about living on passive income, which is the income we are making from investing from the accumulation and consolidation stage that is now sufficient to generate income and reduce expenses to meet our expenses in the spending/gifting stage.
*Never Forget This*
“Long term thinking and planning enhances short term decision making. Make sure you have a plan of your life in your hand, and that includes the financial plan and your mission.” ― Manoj Arora, From the Rat Race to Financial Freedom.
“Financial fitness is not pipe dream or a state of mind it’s a reality if you are willing to pursue it and embrace it.” ― Will Robinson
