By Joel Barretto, CFPⓇ | via Negosentro.com |
One of the fundamental foundations in planning toward your financial future, is an increased awareness in knowing where you came from, where you are now, and where you are headed.
Thanks to modern technology, the invention of the GPS has helped us get to our destination with about 95% accuracy, at the shortest amount of time possible.
A carefully thought out financial plan works about the same way. Charting your course to get to where you want in life will require more than just your imagination.
As you read this piece, I suggest you bust out a pen and paper or your laptop, and start drawing out your financial life map, so you can start programing it on your financial GPS. I don’t care how well you know your financial situation right now. It is always better to see it all in black and white.
To put this into proper perspective, it is important to gain some understanding on the 5 phases of your financial life as follows:
- The Discovery Phase – This is typically about the time you started working until you can financially establish yourself between the age of 20-35ish. I call it the discovery phase because you are new to making money and starting to discover the process on how to spend your money wisely (or not so wisely). You are thinking about paying rent, buying a new car, buying furniture and appliances, having a family, having a good time, traveling, etc.. Hence, saving money is rarely one of your top priorities at this stage, as the expenses of starting off in the real world are still quite overwhelming.
- The Accumulation Phase – So now you got the hang of it. You’re a little more financially stable between the age of 35-55ish. You have a better handle on your cash flow and have an idea what your discretionary income (or lack thereof) might be depending on the lifestyle you have established at this point. Unless you started saving money during your discovery phase, you will be stressing about saving for the children’s college education, saving for retirement, buying a house, etc.. Unfortunately, unless you solicit help from a qualified financial professional at this stage, you will have a hard time breaking your bad saving habits.
- Pre-retirement Phase – At this stage, unless you have had a good savings discipline from your earlier years; panic starts to set in. The kids are grown, debts are starting to get paid down, you may or may not own a house by now, and you are wondering where all the years have gone and why you don’t have a gameplan for retirement. This is also what I call the catch up phase, as you start to try and focus on your retirement and wonder how you will support the retirement lifestyle you’ve always dreamed of. Unfortunately, time is no longer on your side at this point. As for those of you who have not saved much for retirement at this stage, you will justify it by saying that you will never retire and work until you die anyway. After all, who wants to have the financial freedom to do anything they want to do at a ripe old age anyway, right? Blah!
- Retirement Phase – Unless you have been systematic with your financial planning in your earlier years, there will be a lot of confusion at this stage of your life. Although the standard retirement age is 65, you will begin to doubt whether it’s a good idea to retire at this stage, considering that you might live another 20-40 years. Some of the questions that come to mind are… Do you have enough funds to sustain your lifestyle for that long? What is your idea of retirement? Is it that time in your life to tighten your belt? OR is it that time in your life to enjoy your remaining years, harvesting the fruits of your labor, and not worrying whether you can afford to do the things you have always wanted to do?
- Legacy/Transfer Phase – During this final phase of your life, you hope to transfer your assets, as well as your human and intellectual values to the succeeding generations. You think about how you will be remembered by your children and the stories they will tell their children’s children for generations to come. How effectively and efficiently you will do this, is the question. In a country where estate tax is a money maker for its government, transferring assets may be quite a challenge, especially if you didn’t plan way ahead of time. I have seen estates shrink by 70% – 80% from ignorance on how estate planning works. Take Elvis Presley for example. He died with a net worth of $10,165,434, only to end up leaving his heirs with $2,790,299; shrinking his estate by 73%.
“People who fail don’t plan to fail, they simply failed to plan”
Joel Barretto, CFP sold his financial planning practice in Irvine, California U.S.A. to promote financial literacy and awareness in the Philippines. He is a respected Certified Financial Planner practitioner with over 24 years of experience in helping people optimize, manage and protect their wealth.
He is a public speaker and lecturer on a variety of financial planning issues and strategies. With a passion for entrepreneurship, Joel dabbles in venture capital projects and mentors up and coming entrepreneurs on growing their start-up companies. He is a 2nd degree black belt in the martial art of Kempo and enjoys performing and directing stage musicals for community fund raisers. You can reach Joel at firstname.lastname@example.org.