Constructing Your Financial Profile - Your Stage of Life

This article is the continuation of the earlier post 'Financial Planning - Part 1'

When you sit down with a professional financial planner, the first thing he or she does is construct your personal financial profile. You should begin there, too.

A financial profile is a snapshot of your life as you live it day by day. And it is the cornerstone of your personal financial plan.

Your financial profile is more that just your income and net worth - although income and net worth are certainly part of the picture. Rather your profile is a composition of your stage of life, life-style, tolerance for risk, responsibilities, and financial resources. In this article, we’ll start stage of life and how it affects your financial planning.

Your Stage of Life

Evaluating your stage of life is the first step in building your financial profile. What we mean by 'stage of life’ is simply your age and circumstances - general sense of where you are today.

Why is this information so important? Knowing where you stand helps you set your financial priorities.

Say you are thirty years old, single and with bright career prospects. You obliviously have different goals and needs than a retired person of seventy.

Here's one simple way of looking at your stage of life: Are you accumulating assets or disposing of them?

If you are in the accumulation stage, you are building wealth. But if you are in the disposition stage, you are building wealth. But if you are in the disposition stage, you are consuming your assets. Typically, you remain in the accumulation stage until retirement, and then shift to the disposition stage.

Another way of categorizing stage of life is by decade. In our twenties, most of us begin our career and possibly, a family. By our thirties, we may be advancing in our careers and raising your children. In our forties, we’re probably earning – and spending – more money and beginning to pay for college education for our children.

During our fifties, most of us cease contemplating career changes, and our earnings peak. We think seriously about retirement. And, if we have children, they are becoming more self-sufficient.

What about the sixties? This is typically the bridge to retirement. Estate planning becomes more impotent to us, and our grandchildren may be a priority. By our seventies, the majority of us are retired, and one focus of our financial planning may be making gifts to our families.

Naturally, theses patterns don’t apply to everyone. Far from it. You may, for example, be a late boomer – someone who did not start a career until your thirties. Or you may have retired very early – in your middle forties, to say.

More over, the circumstances of people’s lives today are almost infinitely varied.

Here are some typical categories into which you may fall:

• Single
• Married with no children
• Married with children
• Single with children
• Living with a significant other – with or without children
• Divorced with children
• Divorced without children
• Divorced and remarried with stepchildren
• Divorced and remarried without children
• Widowed

As you see, the list can go on and on. And each of these categories requires different approaches to financial planning. What is important: assessing our own stage of life and circumstances and tailoring our financial plan to meet them. The next article looks at the second of the five tools needed to construct your personal profile – Your Life Style

You can also read the preceding article that set the tone for this article 'Financial Planning - Part 1'

Email me with any queries or comments.