By Dallas Morning News, August 28, 2010
Although each life is different, there are certain stages that everyone goes through – and each new phase brings with it financial responsibilities, needs and goals.
The Certified Financial Planner Board of Standards, which grants the respected CFP certification, has laid out five key phases in a person's life.
Each stage is a building block to help you reach your financial goal.
"Every stage has its financial work to do," said Eleanor Blayney, the CFP board's consumer advocate.
The starting-out years
Ages 18-25: "If you're in your 20s and broke, you're in very good company," said Rick Salmeron, certified financial planner at the Salmeron Financial Network in Dallas.
The financial habits you form during these years will determine whether you will have a secure retirement or have to work later in life. You're laying your financial foundation.
"When you are starting out, you may have more debt than assets," Blayney said. "Your game plan is to get yourself out of the negative and to stay on the right financial path."
Ways to do that are to "fight the urge to splurge, plan your purchases and don't get too excited about a good deal," she said.
Be very careful about taking on debt. If you do take on debt, make your payments on time so you can start building a good credit history.
"Getting off on the right foot can impact their ability to build and accumulate wealth throughout their lives," Blayney said. "Money saved in this phase or invested does so much more work for the individual than the 50-year-old who wakes up and says, 'Oh, dear, I've got to start saving or investing now.' "
The nesting years
Ages 25-40: This is when you're making big lifetime decisions about marriage and children and buying a home.
"Once the career phase starts, there is a material accumulation phase," said Gary Silverman, a certified financial planner in Wichita Falls. "This is where the person, usually a couple, is getting their kids, their house, their cars, their appliances, their furniture, etc."
The timing of those choices will have a huge impact on your ability to build wealth.
Save before you start investing.
"You want nine months of living expenses saved before even thinking about investing," Blayney said.
Max out on your employer's 401(k) plan, especially if the company matches your contribution.
This is also the point in life to consider your insurance needs. But spend wisely.
"If you are single without dependents, do you need a million-dollar term-life insurance policy? Probably not," Blayney said.
But if you have children, consider life insurance because you want them provided for if you die prematurely.
If you're on track for retirement, you've paid off your consumer debt and you've got a decent emergency fund, it's time to start saving for your kids' higher education.
"A realistic goal for most families might be to save for one-third to one-half the cost of public school education and rely on borrowing to cover the rest," Salmeron said.
Read the entire article by Dallas Morning News, August 28, 2010