How to Thrive in the 3 Phases of Financial Life (2024)

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How to Thrive in the 3 Phases of Financial Life (1)

Life is about change. Whether it’s graduating from school, moving to a new city, or starting a family, our lives change and mature. Your financial goals and priorities also change throughout your life. In this article, we’ll look at three financial phases and how to navigate them.

What Are the 3 Phases of Financial Life?

Experts have identified three distinct phases that we experience: wealth accumulation, wealth preservation, and wealth distribution. During these three phases, your financial needs will change. Understanding how each phase works can help you better prepare so you can meet your goals.

  1. Accumulation
    This is also known as the build and grow phase. During this phase, you’re working hard, earning money, and establishing credit. During this stage, you should focus primarily on saving and investing, which includes retirement.

    The key to accumulating wealth is to start early. The earlier you start, the more your money can grow and the better off you’ll be – thanks to the magic of compounding interest. Consider these options for a strong build and grow phase:

    • 401(k) Plan: These tax-advantaged accounts are generally available through employers. To meet your retirement goals, make sure you’re contributing enough each month. If available, take advantage of any employer matching options.
    • Individual Retirement Account (IRA): If you don’t have a retirement plan through your company, think about traditional and Roth IRAs. It’s wise to consult a financial planner who can help you explore your retirement account options and advise you about saving for your future. You’ll also want to focus on liquidity and having access to a certain amount of your savings.
    • Money Market Accounts: These typically earn higher interest rates than traditional savings accounts.
    • Emergency Fund: You’ll want to have cash on hand for things like unexpected car repairs or medical bills. How much should you put away? Experts recommend having at least three to six months’ worth of living expenses set aside in an interest-bearing savings account. You can start small and put aside a little cash each month to further prepare for an unexpected expense.

    If you stay on track and build your retirement fund and other savings, you’ll be in good shape to preserve your wealth as you enter the second phase.

  2. Preservation

    This is also known as the transition phase. This phase can be tricky, as people don’t always realize they’ve entered it. At what age does it start? Experts generally agree you’ve entered the preservation phase when you’re about 10 years from taking withdrawals from your portfolio.

    During this period, it’s a good time to reevaluate your investment portfolio. Determine where it’s working well and where it can be improved. Remember, the closer you get to retiring, the less time you’ll have to recover from downturns in the market.

    You can also consider annuities, tax-planning strategies, business-succession plans, and your real estate portfolio as part of your strategy to preserve your wealth. Will you still have a mortgage? Will you invest in a vacation home? Or will you be downsizing? Discuss your goals with a financial advisor who can help you make the best decisions for your individual situation.

  3. Distribution

    This phase is also known as the distribute and deploy phase. Once all your hard work has paid off, you are set for this phase, which begins one year before you begin taking withdrawals. As you did with the preservation phase, you’ll want to look at your investments again with this time frame in mind. The goal of the distribution phase is to reduce risk.

    As you plan, think about reallocating part of your portfolio into safer investments. You don’t want to get caught in a sudden market shift that could substantially affect your earnings.

    The way you choose to distribute your money will affect how long it lasts. It’s especially important to speak with an experienced wealth manager at this stage. This professional can help you prepare by discussing investment strategies as well as tax considerations. Similarly, you will want to consult with an estate planning professional who can help you allocate your legacy and distributions to your beneficiaries.

Planning Is Essential

Everyone will go through these financial phases – accumulation, preservation, and distribution – and taking charge of your finances is the best way to be prepared and maximize your money.

If you need help getting started, reach out to your local Pinnacle Bank branch.

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How to Thrive in the 3 Phases of Financial Life (2024)


What are the three phases of financial life? ›

Experts have identified three distinct phases that we experience: wealth accumulation, wealth preservation, and wealth distribution. During these three phases, your financial needs will change. Understanding how each phase works can help you better prepare so you can meet your goals.

What are the three steps to financial success? ›

Get started on path to financial success with these three steps: determining budgets, tracking spending, and creating realistic savings goals.

What is the step 3 of the financial planning process? ›

Step 3. Analyzing Your Current Financial Situation. With your financial information meticulously gathered, it's time to delve into a comprehensive analysis of your current financial commitments. Scrutinize your income, expenses, assets, debts, investments, and other financial commitments.

Which of the following are the three stages of the financial planning life cycle? ›

Generally, financial life stages fall into three categories: wealth accumulation, preservation, and distribution.

What are the 3 main goals of the financial system? ›

The objectives of the financial system are to lower transaction costs, reduce risk, and provide liquidity. The main financial system components include financial institutions, financial services, financial markets, and financial instruments.

What is the 3 financial statement? ›

The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.

How to succeed financially in life? ›

10 Steps to Financial Success
  1. Establish goals. What do you want to do with your money? ...
  2. Evaluate your current financial situation. ...
  3. Create a spending and savings plan. ...
  4. Establish an emergency savings fund. ...
  5. Seek advice and do research. ...
  6. Make sure you're covered. ...
  7. Establish a good credit history. ...
  8. Delete your debt.

What are the 3 keys to financial literacy? ›

Three Key Components of Financial Literacy
  • An Up-to-Date Budget. Some tend to look at the word “budget” as tantamount to the word “diet,” but at its most basic, a budget is just a spending plan. ...
  • Dedicated Savings (and Saving to Spend) ...
  • ID Theft Prevention.

What does the rule of 72 tell you? ›

Do you know the Rule of 72? It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.

What are the stages of financial stages? ›

Which stage of the Financial Life Cycle are you in?

What are the stages of wealth? ›

The customized financial plan we create for you is designed to guide you through the entirety of your life, and its three distinct stages of wealth management.
  • Accumulation (your working years) ...
  • Preservation (nearing retirement) ...
  • Distribution (retirement)

What is a financial life cycle? ›

The Personal Financial Life Cycle describes the financial resources we require to meet our needs and wants at the different stages in our life.

How many stages are there in financial life? ›

Life cycle financial planning can be separated into five stages: teenage years (13-17 years old), young adulthood (18-25 years old), starting a family (26-45 years old), planning to retire (45-64 years old), and successful retirement (65 years old and above.)

What are the phases of the financial cycle? ›

Key Takeaways

An economic cycle is the overall state of the economy as it goes through four stages in a cyclical pattern: expansion, peak, contraction, and trough. Factors such as GDP, interest rates, total employment, and consumer spending can help determine the current stage of the economic cycle.

How many stages are in the financial life cycle? ›

From the time we first begin to earn our own money to the moment we give up our income altogether as we enter our retirement, our lives tend to follow four stages that make up our financial life cycle, with each stage determining what we should be doing to nurture our financial health at that particular time.


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