Understanding the life stages

The key to financial planning is to understand the different life stages that an individual will go through. Now, this will obviously depend on the background, gender and several other attributes. It is difficult to make a generic model that will fit all here. For the purpose of simplicity and learning we can make a good approximation.

Let us assume an individual X who is born in a middle class or upper middle class household in any of the Indian cities. By and large, X will be completing his school and graduation till the age of 21/22 and maybe his post graduation till the age of 24 or so. As we are talking of financial planning, which requires income, we will start looking at the financial life of X after he starts earning at 24, presumably in a job, though it could be from other means as well.

Here is how the model of X’s financial life can mirror his real life:-

  • Age 24 through 27/28 can be called the Eligible bachelor stage. X has limited responsibilities financially, is looking to spend money in acquiring some indulgences, has reasonable income but low savings/investment.
  • Age 27/28 through 35 can be called the Settling down stage. X probably gets married and has 1/2 children in this period. His income rises but so do his expenses. The spouse may have to break from work due to kids, possibility of high loans to acquire assets.
  • Age 35 to 45 can be called as School going years ( for children not X ). Incomes continue to peak and expenses continue to rise. This is the best period to invest in equity for future goals.
  • Age 45 to 50 can be called as College going years ( again for children ). The characteristics are the same as before but outflows are much higher and X may now look at other avenues apart from his regular job.
  • Age 50 to 60 can be called Early financial independence. This is the time when X can theoretically not bother about regular expenses as financial independence has arrived. Note that this may or may not equate to early retirement, which is a different issue altogether.
  • Age 60 to 70 can be called Stage 1 of sunset where X will still lead an active life and therefore have fairly high expenses.
  • Age 70 to 80 can be called Stage 2 of sunset where activities diminish and so does the need for expenses.

I am stopping here as anything above 80 will really be a bonus for most of us !! Actually, I am not even sure whether we should try to live beyond that. Anyway, while X may want to live the life in a different manner, I think the model described above will largely fit many of the readers of this blog.

The goal of this blog is to see how most people can follow the above model and put money strategies in place so that they are financially independent by the time they are 50. Having done this myself, I definitely know that this is eminently possible.

Before we talk about the different money strategies at different points in life, two more things need to be done. We must have an idea of the dynamics of spending and also an understanding of what constitutes real financial independence.

I will cover these in my next two posts. Keep reading and give me feedback so that I can fine tune the blog.

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13 thoughts on “Understanding the life stages

  1. An excellent , impartial blog, Sir .. Since you have used your own life as an analogy for the argument , It
    ‘s only fair that I would try to fit it into my life(nowhere as illustrious, but more common, certainly :)) and see how it goes and may be then figure out how it would fit us all. So the first two stages look good and more or less are identifiable with most.Three onward is a little different , though.. My argument is ,that these days , the age of marriage and “settling down” has advanced quite a bit , It will be normal for today’s educated , professional youth to marry and have children late and many of us might see us paying for our children’s or at least the younger child’s professional education after having retired or after having achieved the retirement age in pvt. sector, generally at age 55. I think that needs to be planned for , the assumption that one will be free of financial liabilities of children by the time one retires might not be universally true anymore. Some of us can probably also add the expenses on the marriage of children too. Another very important point , is the generally deteriorating health standards of the people in general , the ones living in big cities in particular.I think , and it might be removed from the topic at hand , but we should also try and discuss how to plan to be available in good health to fulfill the financial commitments and how to go about it.Any serious health issue, specially preventable ones will be a big dent on the financial preparedness. Also , I think we as a society will live longer , though diseased. After paying towards EMI’s , children’s education and general indulgences, I think most middle class people are feeling more and more pressurized towards being able to take out enough money to plan for future goals , In other words, present is becoming difficult already and future is well, in the future …
    And you are an inspiration to all of us , Sir , So well done !! ..

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    • Thank you for your comments Vikas. Most of the issues raised here by you are very pertinent and need to be looked into.I will be addressing these in several of my posts over the next few weeks. Keep reading and continue with your comments !!

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    • Well Leston, a way out can be to avoid having children 🙂 In India though, that will normally not be seen as a good idea. My thoughts however are that we may well be moving towards a single child family at least in the cities.

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  2. If you remove the children from the equation, I guess one is pretty much set for financial independence. 🙂
    Thanks for starting this blog. I will keep visiting with my below expectation ( or rather demand ? 🙂 ):

    1) Please share your real life experience and how you dealt with it.
    2) Knowledge which you acquired after doing MISTAKE.
    3) Some general Life gyaan for millennials for different stages of life.

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  3. Dear Sir,
    Thanks for all posts…..it lookslike, elder of the family guiding us through the path of financial planning and independence……… once again thanks for all the advices….

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  4. Sir;whenever i read these data…i feel i belong to a rare minority community…doctors!!!i never find any article or strategy for us in any blog….we start medical college at tender age of 17 or 18 and it roughly takes a decade or so to finish postgraduation in a good clinical branch.if one plans to do super specialization; 3 or4 more years….and if we start to earn decently from third decade of our life…then according to most examples given by bloggers;we totally loose benefit of compounding!!!i sincerely hope that you would write an article for young and aware doctors who can not start at 22 but if he starts at 32;what are his options?positive point is no retirement age;lots of money in later life.thanks.

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    • Absolutely Kartik, I will make sure that Doctors are addressed. My sister and a whole lot of cousins in my family are Doctors too, not to speak of several friends. About compounding etc, I think you guys can still benefit from the same except that you have to shift each phase by about 8-10 years 🙂 So normal retirement for Indian Doctors would probably be at 70 and early retirement at 60?

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