Your life can be divided into three distinct stages: childhood, adulthood and old age. Same goes for the various stages your financial standing goes through. The problem with money is that it doesn’t stay at the same level for long. It can grow or decrease as per your actions and decisions. But you cannot expect the money you have today to be with you in the future. Your financial situation will vary and change throughout your life. Financial experts have come up with three life cycle stages in light of your finances. Each of the stages has a different impact on your finances.

The 3 Life Cycle Stages

The 3 life cycle stages have been determined keeping in mind a number of factors. There are various things that have to be taken into consideration such as age, bank account balance, employment status and relationship status along with debt settlement. The factors don’t remain stagnant. At some point, your income increases. You might be single now but would be married in the next few years. Few things remain stable in life so the factors keep changing.

Understanding the 3 life cycle stages can help improve your financial situation. You will know the factors that come into play at each stage and how you have to deal with them. Also, you have to consider the possibility of falling into debt which is not advisable in any situation. Therefore, a look at the 3 life cycle stages and the way they affect your finances is necessary.

Stage 1: Asset Accumulation

The name is pretty self-explanatory. This stage covers the period of life during which a person is looking to accumulate assets to improve his/her wealth and net worth. Generally, it is believed that this stage begins from the age of 20 and lasts till a person is 50. This is the ‘peak’ time of employment for many people. Around this stage, a majority of the people are starting their first jobs and getting used to the feeling of having cash to spend.

This is one reason why they love spending excessively and end up going into debt settlement. That being said, most of the spending is based on accumulating assets. Buying a car and house are the priorities but the more ambitious people want to have the best of everything. There isn’t much emphasis on financial planning or dealing with potential risks mostly because there aren’t any responsibilities.

Stage 2: Conservation and Protection

Conservation and protection begins at the stage of life where a person feels he/she has enough assets to protect. The 20s mostly fly by in the accumulation of assets so it can be safely said that stage 2 begins in the early 30s, even later for some people. This stage also lasts till the middle age. Around this time, the person begins to feel responsibility and concern for protecting the wealth he/she has made.

The financial situation improves as more money and assets flow in. People also begin using debt as a tool rather than an option. Future planning with respect to any expected or unexpected setbacks also starts as a person grows older and becomes more mature.

Stage 3: Gifting and Distribution

The third stage, gifting and distribution, commences when a person is nearing the end of his/her working life. People feel they have worked hard enough for the money they have and now it is time to spend it to improve their quality of life. The stage can start early provided a person has made enough money. This is usually the stage at which people buy homes, go on vacations or sponsor their children’s education.

The striking part of this stage of the life cycle is that there is no debt in most cases. Even if there is, it is low so can be easily dealt with. At stage 3, a person is in the financial prime of his/her life and can decide what he/she wants to do with his/her wealth.

These are the three life cycle stages and the way each of them affects your finances. Keep in mind that it is probable you go through multiple stages at once, but the next stage only starts when the previous one has been completed.

Emily Steves is a financial writer associated with many finance related groups and communities as their freelance and staff writer. She excels in writing articles related to financial topics such as personal finances and debt settlement.

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