Navigating Major Life Phases

The Dependency Phase

We could describe major phases in one’s life from a financial perspective several different ways, but in order to organize this view according to the different strategies that emerge from these phases, we can say that there are four major ones, dependence, accumulation, consolidation, and distribution.

These phases generally progress as one reaches a certain age, but age alone does not determine this, and some may remain in a particular phase for an extended period of time. This is especially true with the accumulation phase, as some people simply do not plan for the future very well and are always spending most or all of their money right up until retirement, the distribution phase, and may skip the consolidation phase altogether.

Navigating Major Life PhasesEven though we might not think that the dependence phase, our formative years while we are still living at home, doesn’t have much of an impact upon our overall financial well-being, there are still certain things from this period that clearly do influence our future prospects. An obvious example of this is the amount and quality of financial education we receive, and while this may be influenced somewhat by our parents, we usually have at least some input here.

There’s much more to this phase than this though, as this is the period where we develop and establish habits that may end up serving us very well throughout our lives. Kids who establish the habit of saving or being more industrious or dedicated than average children tend to do better at this later as well. We might say that this just flows from one’s personality, but we know that desirable traits like this can be developed and nourished, especially if we set good examples for our children.

If one’s parents are living a life of financial irresponsibility, this can have their children rebelling against this and seeking to avoid such things when they grow up, but more often than not this will end up establishing the same bad habits as their parents have.

Whatever influences we may be exposed to in our childhood can be overcome though, even though this may have us a little behind at first, especially if our parents are not in a situation to help us very much financially while we develop. In the dependence phase, we’re not just dependent financially, we also have other dependencies, such as ideological or behavioral ones.

Once we near the final phase of this time of our lives, we do end up gaining at least more autonomy and also tend to be in a position to think for ourselves more. There’s no doubt though that the developmental phase of our financial lives shapes our experience in further phases.

The Accumulation Phase

Once we start our careers and move out on our own, this is the phase we call the accumulation one. We’ll be accumulating something here, whether we save very much money or not, and the major type of accumulation here isn’t liquid assets, it’s illiquid ones.

We go out and buy things like cars and houses, get married and raise children, as well as spend quite a bit on money on the things that money can buy. At this point we’re mostly focused upon the present, and while we may also have an eye to the future, it doesn’t tend to be seen with as much of a priority. When it does, we’ve actually graduated into the next phase.

When people finally move out of the house and start making more serious money, this can be seen as gaining one’s freedom, and a big part of this freedom is the ability to make financial decisions, to spend our money on whatever we choose to.

As it turns out, among couples, there is often one partner who serves as a restraining factor to this, perhaps like one’s parents did or perhaps much more so, and if we are too prodigal this can be a steadying influence. If both partners are prone to overspending, this usually leads to trouble, and plenty of it.

Ideally, both partners will demonstrate an above-average level of financial restraint, as this life stage is categorized with less restraint than other phases. This phase doesn’t mean that we are stuck spending too much while in the accumulation phase, as we can instead accumulate quite a bit of savings if we choose to, but the tendency is for this to be more of a struggle at this point.

With years often come wisdom, and people in the accumulation phase need to accumulate more of it to get to the point where they can transition to taking a longer-term view of their decisions once they reach the consolidation phase.

One of the big decisions that comes up during the accumulation phase is how many children we wish to have, and although what we wish for and what we end up with doesn’t always match, as a general rule we do decide this for the most part.

Like all species, there is a strong desire to reproduce, although from a financial perspective at least, we need to take financial considerations into account when we choose our family size, not only for our own sakes but the sakes of our children as well. Some may have beliefs here that may be harder to grapple with, but we do exercise control whenever we do choose to follow them.

The major decisions here are concerned with just how much of our earnings we will be spending on the present versus how much will be saved for later, including saving for retirement. Even though this time may be decades away, what we manage to do in this regard during this earlier phase will greatly influence the next one, our consolidation phase, and especially the distribution phase when we stop working eventually.

The Consolidation Phase

This phase normally occurs in middle age after our children have left home, and can be a relatively short one. This all depends on several factors, how large our family has become if we do have dependent children, as well as how fast we learn from any mistakes that have been made in the accumulation phase, mostly from spending too much and saving too little.

A lot of this does come down to planning though, and if you have a large family and spend almost all of your money on the necessities of life, this is not really a matter of exercising the wisdom of preparing enough for the future because there is so little opportunity to do so.

Unlike moving from the dependency phase to the accumulation phase, gravitating to the consolidation phase isn’t really based that much on life events and is mostly an aspect of greater financial maturity. This is a gradual progression and some mature faster than others financially and may be significantly further along in this regard at a given age or in a given situation.

What’s really consolidated in the consolidation phase isn’t so much wealth as it is experience, where we leverage what we have learned more as well as come to a greater realization of the sense of urgency that is present for us to get our financial act together more.

People take their impending move to the distribution phase more seriously at this point because it’s no longer far off in the future like it is in the earlier part of the accumulation phase, it’s actually a lot less far off now.

Our expenses may or may not be reduced in this phase although they often are. We may have more discretionary income as our careers move toward peaking, and we usually will look to get more long-term mileage out of this extra money.

If we do not, we are really still stuck in the accumulation phase. As spending defines that phase for the most part, the consolidation phase is more defined by saving, as we come to realize more the importance of doing more of this.

The Distribution Phase

Finally, we reach a point where we are dependent once again, although this time we aren’t dependent upon our parents, but rather our past selves that have engineered the route toward where we end up in this final life phase.

Depending on how our past selves have done, we may be in a very comfortable position at retirement or we may be just scraping by. We might actually become dependent upon our children to some degree, especially once we can no longer care for ourselves or fall below a certain threshold of standard of living, but the goal at least is to rely on our own resources to get along.

The threat of failing to be able to maintain what we consider to be a minimally acceptable standard of living is what has been driving us to do more to prevent this, although we don’t always succeed with this. There are many who do fail, although this depends at least somewhat on what we consider to be acceptable, and many seniors live quite happy lives on very low incomes due to their very modest standards.

This is really what it is about when it comes to saving for retirement anyway, envisioning what we would consider to be acceptable and then doing our best to achieve that or better.

Once we’re in the distribution phase though, the die has pretty much been cast, but this doesn’t mean that we can’t help ourselves at this point. We certainly can benefit from things like budgeting well, managing our investments properly, and looking to increase our income overall if we’re able to.

The distribution phase is characterized in fact by management, where we’ve saved a certain amount and we now have to manage it, or if not, how we’re going to manage on the money we do get every month.

The less comfortable our situation is, the more important management will be, because we’ve got less to manage with and we really need to be careful how we use it. This includes situations where our money will probably run out if we’re not careful, where being careful with it becomes more of a priority.

There is a lot to think about in each of life’s financial stages, and how we progress though one stage will certainly have an impact upon the next. We tend to think enough about finances in the later stages, but it’s never too early to start taking these things seriously enough and if we do, we can really make a big difference and benefit throughout our lives.

John Miller


John’s sensible advice on all matters related to personal finance will have you examining your own life and tweaking it to achieve your financial goals better.

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