What do we live for? If you stop to reflect, you will understand that the answer is unique: we live in pursuit of happiness.
But the concept of what it means to be happy for me may be extremely different from what it is for you. The curious thing is that even with the change in priorities, which can occur over the years, the search for happiness remains.
In other words: regardless of the differences in trajectory, what we all do aims at something common: happiness. And I believe that when we plan financially, we have a better chance of getting there — or at least having more happy times.
Talking about financial planning, I believe it becomes more tangible when you understand your moment in life and know what you want. With this, you accept each phase of the construction of your goals and acquire resilience to achieve them, step by step.
When we think about personal finance, it is assumed that most people make consumption and investment decisions based on available resources and time in life. Based on this, a life line is drawn that applies to most people, called the Life Cycle.
There are four cycles in all and I’m going to explain each of them. Will you accompany me?
Cycle 1: up to 25/35 years old
This is the phase where the person becomes economically active and able to build the evolution of personal income. The investment priority is focused on education, through a postgraduate degree, MBA and specialized courses.
There may be some financing to be paid, given the investment in education or in the consumption of some desired object, such as a car. It is also the initial phase of investments, building an emergency reserve, or investing to make a dream come true, such as a trip.
It is less common, but the ideal is that the young person already starts an investment plan aimed at retirement, which is still far away, and precisely for this reason, they can use the time in favor. Generally, at this stage, the personal profile is more optimistic and bold about investments, and this is positive because short-term negative variations will not impact down the road.
Cycle 2: from 25/35 to 35/45
In general, at this stage comes the constitution of the family, with the birth of the first and/or second child. There is an increase in income because it is no longer individual, but there is also an increase in expenses, including investments in professional qualification and home ownership, in addition to the costs of children.
This is the phase of asset accumulation, whether fixed or financial. The investment profile usually tolerates risks, as they want to accelerate the process of wealth growth, however, associated with the security and stability they want for their family. Maintaining an appropriately sized emergency reserve is a priority, as well as studying life insurance options and pension plans.
Cycle 3: from 35/45 to 45/55
This is usually the peak phase of professional life, which is reflected in income, consolidating a standard of living and wealth. The children are entering adolescence and the costs are high, partly offset by the finalization of mortgages.
As the income is higher, there is a risk of increasing the consumption pattern above what is desirable. If there is not yet a plan for retirement, it is time to focus and make a greater effort to implement this plan.
Cycle 4: Over 55/60 years old
In general, the children are already independent, which significantly reduces family costs. This is the final stretch to retirement, a time that calls for a review of the investment profile and products, so that they can meet the need for future cash flow.
It is time to reflect on the legacy built through succession planning. Instruments such as life insurance that were contracted in previous phases or pension plans are added to this planning, in addition to possible legal structures that allow the family assets to be housed, enabling the donation of assets during life.
I emphasize that the world is increasingly dynamic in terms of family formation and professional evolution, so if you are at any point in life totally different from the mentioned cycle, don’t worry.
You’re not late or fast-paced, you’re on your time. Plan ahead and be happy along the way.
