How to Use Your Money to Prepare for Different Life Stages (2024)

Think about who you were five years ago. What about 10 years ago? Just as you grew and matured during that time, so did your financial needs. As you accumulate wealth and go through stages of life, it is imperative that you identify applicable strategies and techniques to manage your assets and reduce debt.

Generally, financial life stages fall into three categories: wealth accumulation, preservation, and distribution. An individual’s needs change through those stages of life. By understanding your savings, investment, and banking options, you will be better equipped to meet your money goalsand needs during each stage.

How to Use Your Money to Prepare for Different Life Stages (1)

Stage 1: accumulation

During the accumulation phase, focus on savings and liquidity — think about an emergency fund or money market. This is also the phase when you develop a credit relationship, which will allow you more flexibility in your financial future, especially when it comes time to take out a loan or get a mortgage. It's a good idea to start working with afinancial planner or advisorat this time, so you can make sure you're taking a 360-degree approach to reaching your financial goals in life.

This is also the time to employ investment strategies, such as accumulating wealth in a tax-advantaged retirement account like a 401(k) or individual retirement account (IRA). This gives your money more time to grow and multiply, thanks to the time value of money: Basically, you can earn interest on your interest and continue to compound your returns. Because younger people have a longer time horizon, this is also when you will be heavily weighted in equities. Stocks' high-risk, high-return potential is well-suited to young people with plenty of time before retirement to weather any risk.

Stage 2: preservation

During this stage, it maybe wise to diversify1 your holdings to preserve your wealth. Choose an asset allocation2 (essentially, a mix of stocks and bonds) that aligns with your long-term investment strategies. In general, the more risk you are willing to take, the higher the potential for reward.

Still, if there were to be a major market correction and market dislocation, you would not necessarily have enough time left in your life to recover from it as you did when you were 25. That is why it is so important to make sure you have enough low-risk options to cover your bases for near-term and imperative financial needs. Short-term investment strategies are completely different from long-term investment strategies. Be sure to discuss both strategies with your financial advisor to make sure you are making the right decisions for each, so you can choose the best investment strategyand make tax-smart decisions to reach your money goals.

Stage 3: distribution

In the distribution phase, your goal should be to reduce risk. One way to do this is to draw down equity exposure (remember, equities — stocks — offer the potential for high returns at the price of high risk). By lessening your exposure to these riskier options, you can focus your portfolio on assets that might have lower potential for return but are safer. This less-aggressive approach will pad your investment accounts against risk as your time horizon shortens.

Your path to financial freedom begins now. By preparing and planning your money-saving strategiesfor each stage of life, you'll be better equipped to meet yourmoney goals at every phase.

At Cathay, wetake our role in equipping you for successvery seriously. Ultimately, we want to help you be in a position to leave a legacy for your family if you so choose, or for the causes you care about. We are here for you no matter what stage you're in to help you learn what strategies are most effective for saving money, how to set money goals, and how to use the right investment strategiesto reach your financial life goals. We will work with you to execute a strategy tailored to you and your family's particular needs.

Related links:

  • Striking the balance between debt payments and savings

  • Aiming to grow your wealth? Start by tracking your expenses

This article does not constitute legal, accounting, or other professional advice. Although the information contained herein is intended to be accurate, Cathay Bank does not assume liability for loss or damage due to reliance on such information.

* Wealth management services does not assure a profit or protect against loss in a declining market.

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How to Use Your Money to Prepare for Different Life Stages (2024)


How would you use a budget plan differently in different phases of your life? ›

At different stages of life you'll want to put more focus into each category: 20s (short-term), 40s-50s (long-term), and your 30s are about goal-based or medium-term savings. Your goal-based savings is for major purchases in 3-10 years, for example saving for a family, car, house, or vacation.

What are the stages of money life? ›

Where are you in your life?
  • Start your financial journey. Foundation stage: 20s. ...
  • Build on your foundation. Accumulation stage: 30 to 40. ...
  • A time for growth. Growth stage: 40 to 55. ...
  • Establish your financial plans. Establishing stage: 55 to 65. ...
  • Time to enjoy your retirement. ...
  • The key to conservation.

How do you financially prepare for life? ›

Here's what you'll want to consider as part of your plan.
  1. Review your total income. ...
  2. Determine what kind of debt you have. ...
  3. Make a spending plan. ...
  4. Create security for later. ...
  5. Assess your risk management. ...
  6. Build an emergency fund. ...
  7. Save for college. ...
  8. Save for retirement.
Feb 13, 2023

What are the 5 stages of the financial life cycle? ›

We help you enact a plan that keeps you moving forward through the stages of the Financial Life Cycle so you can ultimately reach your goals.

How can you apply budgeting in your daily life? ›

By tracking expenses and following a plan, a budget makes it easier to pay bills on time, build an emergency fund, and save for major expenses such as a car or home. Overall, a budget puts a person on stronger financial footing for both the day-to-day and the long term.

What are the 4 steps to use this method of budgeting? ›

4 simple steps to creating a budget
  1. Calculate your earnings.
  2. Pay your bills on time and track your expenses.
  3. Set financial goals.
  4. Review your progress.
May 2, 2024

What are the different stages of money? ›

Money has evolved through different stages according to the time, place and circ*mstances. Some of the major stages through which money has evolved are as follows: (i) Commodity Money (ii) Metallic Money (iii) Paper Money (iv) Credit Money (v) Plastic Money.

What are 4 types of money? ›

Different 4 types of money
  • Fiat money – the notes and coins backed by a government.
  • Commodity money – a good that has an agreed value.
  • Fiduciary money – money that takes its value from a trust or promise of payment.
  • Commercial bank money – credit and loans used in the banking system.
Jul 11, 2023

How do I organize myself financially? ›

Review Your Budget Monthly
  1. Even routine expenses like utility bills go up or down from month to month. Keep track of them and adjust your discretionary spending accordingly.
  2. Keep a checklist of monthly bills to avoid unpleasant surprises.
  3. Coordinate day-to-day spending with significant others.

How do I prepare for adulthood financially? ›

Saving for retirement is an integral part of any financial plan, and your nest egg can grow with the power of compound interest.
  1. Pay With Cash, Not Credit. ...
  2. Educate Yourself. ...
  3. Learn To Budget. ...
  4. Start an Emergency Fund. ...
  5. Save for Retirement Now. ...
  6. Monitor Your Taxes. ...
  7. Guard Your Health. ...
  8. Protect Your Wealth.

How do I financially prepare to live on my own? ›

How can I afford to live on my own?
  1. Find a budgeting technique that works for you. If you want to live on your own and have done some research, you're probably experiencing some sticker shock. ...
  2. Create your budget. ...
  3. Explore your rental options. ...
  4. Break bad spending habits and build discipline. ...
  5. Shop smart for necessities.

What are the stages of life and money? ›

Meanwhile, wealth management stages across a person's life can be categorized into three stages: wealth accumulation, wealth preservation, and wealth management. As your clients go through these stages and life changes, their responsibilities, needs, and financial capabilities are likely to shift.

What is the life cycle of money? ›

Generally, financial life stages fall into three categories: wealth accumulation, preservation, and distribution. An individual's needs change through those stages of life. By understanding your savings, investment, and banking options, you will be better equipped to meet your money goals and needs during each stage.

What are the life stages financial needs? ›

Often, people want to take less financial risk as they move through the life stages. Greater financial demands may be placed on them as they get older, such as being responsible for dependent children and older relatives, and saving for their retirement.

How can budgeting improve your quality of life? ›

Improved Quality of Life

A benefit of managing your finances well — and budgeting is a great tool to accomplish this — is that you will never feel trapped from having too much debt, with too much of your monthly income going toward payments — and especially interest.

How would your life be better with a financial plan in place? ›

Having a written financial plan gives you a measurable goal to work toward. Because you can track your progress, you can reduce doubt or uncertainty about your decisions and make adjustments to help overcome obstacles that could derail you.

How will having a budget help you cope with personal changes? ›

But without a budget, it is extremely difficult to track where you might be going wrong and what steps you can take to spend less and save more. Once you're back in control, you'll see a decrease in your stress levels and sleep better knowing you took action to make a positive change in your life.

How do life stages affect financial decision making? ›

Age and stage of life affect sources of income, asset accumulation, spending needs, and risk tolerance. Sound personal financial planning is based on a thorough understanding of your personal circ*mstances and goals.

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