Illustration by Diya Paul for 1 Finance Magazine

We think of financial planning as a holistic exercise that should be attuned to who you are, and where you’re at in life. What that means is that we’re concerned with a lot of things about you, like your age, the industry you work in, how far you’ve studied, what your job involves. All of this, to us, counts as insight into what you need your money to do for you at the stage of life you’re in — and what you have to put in place so you’re prepared for what’s to come. 

While your financial trajectory will take its own course based on a host of factors — especially the profession you choose to pursue — we’ve tried to broadly classify life stages into four phases, in the order they typically unfold. The age groups we consider here are representative, and not a rule of thumb.

Building Phase (26–35 years)

This is when you start working or studying further to set a strong foundation for your future — accumulating skills, figuring out what field to work in, taking on roles of responsibility, and getting a taste of financial independence and stability.

Growth Phase (36–45 years)

You start consolidating your knowledge and establishing expertise in your field, while simultaneously exploring opportunities to broaden your skill set and experience — maybe, if you feel saturated, you even look into switching job profiles or building a business. Financially, this means you’re also taking calculated risks for wealth creation, and possibly increasing your expenses as you upgrade your lifestyle, grow your family, or become financially responsible for your parents as well.

Sustainability Phase (46–55 years)

By this point, your active income has likely peaked and you’ve probably taken on a leadership role. You have a good financial foundation that you’re expanding on, which allows you to give more time to big-picture ideas instead of execution. You want to sustain the growth you’ve worked towards and continue learning, but you also decide when you’d like to retire and make a more concrete plan for it.

Pre-Retirement Phase (56–60 years)

In the last few years of your professional life, you start delegating responsibilities; review your retirement, insurance, and estate plans; prepare to transition to a more relaxed lifestyle; and set up a regular inflow of passive income. 

The age at which you enter or exit a certain phase could vary, and the phase could look different for each person — that’s alright. But whenever you arrive at a particular stage, you need to revisit your finances. It goes to show how financial priorities change over the course of life. Not everything needs to be accomplished all at once, but there’s a right time to take each step.

We’ve found that most people only plan a couple of years ahead and don’t anticipate their needs at various financial life stages. Looking at your finances through this lens helps us plan better, not just for asset management, but across every aspect of your finances. For instance, the building and growth phases are when you would typically witness the highest income growth in your life. At this time, it might make sense to make riskier investments for the long term or maybe take on a home loan, if you’d like to. This might not be advisable later, during the sustainability or pre-retirement phases, when you might want to eliminate any potential threats or stress. Generally speaking, as you ascend the phases, the risk element in your portfolio should progressively reduce and the contribution of passive income to your total income should increase.

Bearing your life stage in mind when planning your finances makes apparent what you need to do, or not do, at any given point. It could help you appreciate the importance of financial planning and put in action simple practices like, say, reassessing your family’s insurance policies after the birth of a child or revising your budget when your parents become dependent on you. Our idea behind this classification is to help you prevent piling up risks and get you closer to financial well-being — the state where both your current and future needs are met.

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