Financial Planning
The Life Cycle of Financial Planning
People’s financial needs change throughout their lives. While there is a typical financial life cycle pattern that applies to most people, every family and individual might be faced with unexpected events at any time that are difficult to predict if and when they might occur, and are not planned for in the financial life cycle.
Figure 1 – An Individual’s Financial Life Cycle and Corresponding Financial Objectives
There are certain commonalities in a typical financial life cycle such as the need to protect your family against risk; accumulate wealth; and distribute your wealth and provide for an orderly transition of your assets. Lifestyle situations will affect your financial situation and requirements at different stages in life.
The lifestyle situations include but are not limited to the following:
• Marital Status – single, married, divorces, widowed
• Employment Status – employed, unemployed, facing unemployment
• Age
• Number of Dependents – children, spouse, parents, other family members
• Economic Outlook – interest rates, employment level
• Education – education level of family members, tuition needs for children
• Health Status
Although each person sets specific financial goals throughout one’s life cycle, five basic financial objectives apply to most people.
Objective #1. The first financial objective is to protect yourself against risk in two ways. The first way is to protect against risk of the unexpected by setting up emergency funds. The second way is to protect against risk ...