Which of the 3 financial phases are you in?

Every year we see the same months, holidays and seasons – it’s all pretty predictable. Although you may not know when a winter storm hits, you can usually expect cooler weather for the winter. The same can be said about economic phases. While not always easy to predict, you can find patterns if you look for them.

But how does it help to know an economic phase pattern? When it comes to financial planning, the answer is a lot.

What are economic phases?

There is a natural ebb and flow to money habits throughout the year. For example, most of us tend to spend more around the holidays because of gifts and parties. When January hits, people take a look at their budget, set goals for the year and try an economical diet. The same can happen in the summer when people splash out on vacations or enjoy a wealth of activities with their families.

Patterns can also occur throughout, manifesting in consumption and saving habits. Recent college students are likely to live on a tight budget with less savings, whereas an established professional may be more focused on long-term goals, such as buying a home or saving up for retirement.

Is it the same for everyone?

While the year may offer similar periods of consumption and savings, each one has their own plans, priorities, and habits that make them unique. If you enjoy saving, you might take holidays during the shoulder season to take advantage of lower hotel and air fares, or sign up for a credit card (of course it pays off every month) that supports your travel habits – think free rooms, reduced flights, etc. Or if you always go big on your birthday every year, you make a plan to automatically save money each month in a “birthday fund” so that when the time comes every year, you are ready.

The same is true when looking at life patterns or saving and investing. If you land a well-paid job outside of university, you might spend more lavishly than the average in their early 20s would. Or someone who joined the FIRE movement would contribute to their retirement and save differently as they have a different goal. It is important to understand that each person has their own goals and priorities, and sometimes life gets in the way of unexpected obstacles.

How does it help to know this?

Knowing the patterns can help you plan for the future. If it’s your pride and joy to fly home for the holidays with a Santa bag of presents, you can plan ahead by only eating or cutting down on entertainment a few months in advance. When you know something is happening annually that you want to fully enjoy and not worry about your cash flow, you can budget it in fun ways in advance.

For example, if you love having happy hour with friends every week, you might offer to host it at your home for a month. Rotate who brings the drinks and apps each week, and what you spend in a month can easily match what you spend in a week out on the town.

Taking the time to write down important things for you, both annually and in the bigger picture, is a good starting point. If some of these items have regular dates, such as holidays or birthdays, you can build specific timelines around when to focus on saving.

Sometimes there are unplanned events, such as weddings or concerts, but you can find ways to save all year round so you have a solid fun fund waiting for you when you need it. (Of course, you only need to build a fun fund when you have a solid emergency savings fund.)

What phase am I in?

The economic life phase you are in is not necessarily tied to your age, as many people assume. We have revealed that the phases actually better reflect where you are in your life, which is divided into three different phases: (1) build and grow, (2) transition (3), and ultimately distribute and implement. For example, a 35-year-old in the FIRE movement and a 68-year-old late saver for retirement may both be focused on their transition to retirement.

Assessing your stage and adjusting your plan should be an ongoing process, but you can only know the phase you are in after formulating your goals.

Economic phase no. 1: Construction and growth

In this phase, you need to decide on your long-term goals and plan them. Is retirement savings a top priority? Work on maximizing your contributions to your 401 (k) plan. (A tip I learned early on: When you receive increases, save more and live off the amount you were already comfortable with.) Or is buying a home a priority? Then find a savings plan for a deposit, mortgage and other expenses that are realistic, and build on that.

The build-up and growth phase is also about protecting your future earnings. This is a great time to look at life insurance and set up a property plan for you and your family. I am currently in this phase and wanted to make sure that (as scary as it is to think about!) My husband and boys would be OK if something were to happen to me. We bought life insurance for each of us and made a property plan to dictate what would happen if something happened to me or my husband. This gave us both peace of mind.

Economic phase no. 2: Conversion

In this phase, it is important to understand what you have built during your years of savings. It’s also time to figure out how you want to live when you decide to leave full-time work. Working with a financial advisor to make a financial goal assessment is important to project how well you have saved.

If you have not made a budget yet, it is important to understand your spending so you know what to live on.

At this stage, it is important to take into account possible relocations – will you stay in your home, reduce or even upgrade? Are there plans to buy another home to travel to since you have more time? These are factors that need to be considered.

It is also important to assess how much risk you are taking in your portfolio – this is the time to really have a good plan to protect your assets. If something big happens in the market, it would be awful to lose a large amount of money and delay your plans to make this transition.

Economic phase no. 3: Distribute and implement

At this stage, it is crucial to understand where and how you want to deduct from your assets. There are important strategies to think about and tax implications to consider.

If you are well-funded and have excess assets, it is also important to think about how you will leave your legacy. There are many ways to give, including charities, foundations and personalized gifts, and these can be structured to be given while you are alive or after you have passed. The beauty of it is that it’s all your choice, as long as you have a good plan.

No matter what financial phase you are in, planning and preparing for the next step will always yield positive results. The better you formulate your goals in both the short and long term, the more likely you are to achieve them.

Managing Director of Growth and Customer Experience, Halbert Hargrove

Kelli Kiemle is Halbert Hargrove’s CEO of Growth and Client Experience and has been with the firm since 2007. Kelli earned her Bachelor of Business Administration-Business Communication / Marketing degree from the Marshall School of Business at the University of Southern California in 2006.

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