Financial independence is the endgame of your financial life. It’s what you’re aiming for and how you plan to get there. Your finances will go through different stages as you mature, build wealth, and prepare for the future. And it all starts with your first mortgage payment. That’s where a financial life cycle comes in handy.
It helps you visualize your financial journey and plan for the long term rather than focusing on short-term goals alone. After all, a financial life cycle shouldn’t be about reaching some arbitrary milestone but about serving your longer-term goals over time.
What Does A Financial Life Cycle Look Like?
For many people, the first thought when someone mentions ‘financial independence’ is, “I need to save more than my income to make it happen.” But it’s more than just putting more in your savings account. Your financial life cycle is an important planning tool to help you achieve your financial goals.
There are a few key things you’ll want to build into your financial life cycle. You’ll need a clear plan that lays out how much you’ll need to save to retire comfortably, how you’ll get there, and what steps you’ll take along the way.
You’ll also want to ensure that you’re taking full advantage of all the financial products and services available to you. Your financial life cycle won’t work if you don’t know what you’re doing.
Why Is It Important To Know About Financial Life Cycles?
A financial life cycle is one of the best ways to get an overall sense of where you stand financially. It’s a great way to quickly identify your short-term financial health and get a sense of where you are financially. You can even use your financial life cycle to identify financial goals and see how long each goal will take you to achieve.
Knowing your financial life cycle will help determine whether you’re on track with your longer-term financial goals. It can help you identify if you’re falling short of your goals and provide you with a better sense of what your financial life will be like in the future.
How Long Does It Take To Reach Financial Independence?
This mostly depends on your situation and your expected investment returns over time. Generally, it’ll take anywhere from 30 to 40 years to reach financial independence and retire comfortably. The reality, as you might have expected, is that retirement isn’t one specific date. It’s a complicated series of events that unfold over time. No one particular event is the end of the road for most people. Instead, it’s a long and messy journey involving many steps but isn’t always easy to see.
What Happens In Between Now and Financial Independence?
As you move through your financial life cycle and build up savings, you’ll want to take advantage of all the financial products and services available to you. This is particularly true as you get closer to retirement.
There are several things you’ll want to make sure you’re doing. You’ll want to take advantage of matching contributions, employer-sponsored retirement plans, and flexible retirement accounts. You’ll also want to ensure that you contribute enough to your employer-sponsored retirement plan.
The 3 Stages Of A Financial Life Cycle
We’ve talked about how your financial life cycle looks and what you need to build it. Now it’s time to talk about the stages of your financial life cycle and what needs to happen in each one.
Stage 1: Pre Retirement
In the Pre-Retirement stage, you’re just beginning your financial life cycle. You may not be able to retire yet, you’re getting started. At this stage of your financial life cycle, you’ll want to focus on building up your savings as quickly as possible. You’ll also want to make sure you’re contributing enough to your employment-sponsored retirement plan. This will enable you to take advantage of any employer-sponsored retirement plans and flexible retirement accounts.
Stage 2: Turning Gold into Gold
In turning gold into the gold stage, you’ve reached financial independence. You’ve saved up enough money to retire comfortably, and you may even have some extra money left over that you can use to help others. It’s time to take better advantage of all the financial products and services available to you. This is where you’ll want to focus on diversifying your financial portfolio. You’ll also want to ensure you’re taking full advantage of all the financial products and services you have access to.
Stage 3: The End Game
In the end game stage, you’re enjoying your retirement. You’ve done all you can to ensure that you’re set for retirement and ready to take advantage of all the financial products and services available to you. It’s time to relax and enjoy your retirement. This is your end game stage. And it’s also where you’ll want to start making plans for your financial future. You’ll want to start thinking about what comes next in your life after retirement and how you’ll be able to sustain your lifestyle.
Wrapping up
Congratulations! You’re on your way to financial independence. Now it’s time to take stock of where you are and where you’re headed. This is the time to start thinking about your financial future while you’re still in the moment.
You can use your financial lifecycle to identify your short-term financial health and immediate financial goals. It can also help you determine how long it’ll take to reach your longer-term financial goals.