FIVE STAGES OF LIFE FINANCIAL CYCLE for most Malaysian.
1. Support from family/others (Age between 1 to 25)
2. Begin self sufficient (Age between 16 to 26)
3. Start saving (Age between 21 to 30)
4. Start Investing (Age between 25 to 50)
5. Enjoy the fruit of planting.(Financial Independencet) (Age between 35 to 80)
Every human being will have a chance to go through the above 5 stages, however, not all will be lucky enough to go through each stage and reach stage 5. Some people reach each stage earlier than the other people especially those grow up in family which emphasize on personal financial education and start the correct path of financial planning in very young age. Above stage elaboration are for public at large and ignoring those exception who come from wealthy family and inherited the huge fortune ever since age one.
Stage 1. Support from family/others
When a baby is born, his journey of these five stages of life financial cycle is begun, at this stage, a baby become, kid, teenage and high school student until he stop study and start working to earn living for himself. Normal ages for this group of people are 1 to 25 year old. Some people do not pursue tertiary education, probably after their SPM (age 16), they have ceased or partially depend on family for financial support. If you are at age 25 or having huge debt, you are still dependent on support from others, see ways to reduce debt.
Stage 2. Self sufficient
At this stage, a young fresh graduate begin to work and start feeling the pressure of reality in life. This is the most important stage for getting building financial foundation to achieve stage 5. Normal age for this group of people are 16 to 26 year old, if you are exceeded 28 years old and has not reached the minimum requirement for self sufficient meaning you are still depending on others "charity" or "borrowing" for living, better start to wondering and look into your financial situation seriously.
Stage 3. Start saving
This is a stage whereby one have able to earn sufficient money to support for himself and have spare money to save in bank. You have entered into the era of Independence (no longer dependant from others) though not yet financially independence, this is encouraging stage and one step entering into financial independence journey. Most people at this stage also, will start to incur loan, especially loan for motor vehicle and get married and start buying the first house. Normal age people for this group are 21 to 30 year old. See steps to improve saving.
Stage 4. Start Investing
At this stage, one have gathered reasonable sum of saving to begin with investment. The investment can be in share market, Fixed deposit, mutual fund or real estate. You may argue that, one may not necessary to have sufficient saving (stage 3) in order to start investing by using the debt to invest, however, unless you really have proper guidance from expect to do this type of full leverage investment, otherwise, you are better to follow the normal way, use your saving for investment.
There are only 2 ways to earn money. Time and money, or a combination of both. Smart people will make their money work harder for them by investing wisely.
Investments play an important role in your overall strategy to build wealth. There is no single investment that is right for everyone. Your investment portfolio should be tailor-made to suit your financial needs and goals. Therefore, it is vital that you select the appropriate investment vehicles that will make up your investment portfolio.
There are 6 steps to investment planning and they are as follow:
- Identify and set your financial goals.
- Understand the different types of investment vehicles.
- Develop a strategy.
- Implement your strategy.
- Monitor the performance of your investment portfolio.
- Review your investment portfolio.
Normal age for this group of people is 25 to 50 year old.
Stage 5. Enjoy the fruit of planting (Financial Independence). Normal age for this group of people is 35 to 80 year old
This is the destiny of financial freedom but not final destiny as you can adjust your goal to higher level every time you reach to set target.
I classify financial freedom at 3 levels:
1. Financial freedom at secure level
2. Financial freedom at comfortable level
3. Financial freedom at rich level
The difference at this stage is you adjust your next target without pressure, you adjust it simply because you have achieved your set target and motivated to move forward to higher challenge. For example, previously you set to achieve RM 5000 passive month income to reach financial freedom(your total monthly expenses is RM 4999 or less at secure level) and when you achieve this level, you will have time, resource, skill and experience to get more passive income. And you adjust your goal to RM 8000 passive income per month so that your lifestyle can be upgraded to comfortable level and beauty part is, this process never stop or unless you are too lazy to continue further. You will soon be reaching your financial freedom stage at rich level.
