In biology, Life-cycle can be defined as the series of changes in the life of an organism including reproduction. Insects like butterflies and mosquitoes develop through a process called metamorphosis. This is a Greek word that means transformation or change in shape. Insects have two common types of metamorphosis. Grasshoppers, cockroaches, crickets, and dragonflies have incomplete metamorphosis. The young (called a nymph) usually look like small adults but without wings. On the flip side, butterflies, moths, beetles, flies and bees have complete metamorphosis. The young (called a larva instead of a nymph) is very different from the adults. It also usually eats different types of food. There are four stages in the metamorphosis of butterflies and moths: egg, larva, pupa, and adult. The entire life cycle, from an egg to an adult, takes approximately 8-10 days.
A life cycle is a series of stages that people pass through on their life’s journey. At every stage in life, we have different wants and different needs. According to Moneymade, ‘a good understanding of the four stages of the financial life cycle, one can know what to expect, as well as what to prioritize financially and how to invest to get ready for what’s to come’. As young children, our parents or guardians are responsible for our needs and wants. As we grow older, we become more independent and many of us have our own incomes through part-time jobs. As we get employed, our wants and needs develop. The development of our wants and needs changes as we begin to have our own families. Finally, in retirement, our wants and needs change again. As we pass through each stage, the ever-changing ability to earn income and our ever-changing wants and needs can be described as our financial life cycle. Below is a summary of the four stages by MoneyMade website updated by Becca Stanek. https://moneymade.io/learn/article/four-stages-of-financial-life-cycle
Stage one: Accumulation of wealth (early career)
This is the initial stage of one’s financial life cycle occurs during your first few years in the working world. You may have just graduated from college, and your income is likely relatively low, perhaps not entirely supporting your spending, which could lead to debt. It’s unlikely you have any dependents at this stage. You may be starting to accumulate assets for the first time, like buying your own car. During this stage, it’s critical that you make it a priority to pay off any debt and build your credit to put yourself on stable financial footing for the coming stages. You should also make an effort to snag salary increases whenever possible.
Stage two: Growth and management of wealth (mid-career)
In stage two of your financial life cycle, finances are likely to have stabilized. One might be starting to have dependents and this will have an impact as expenses will increase though one’s earning power is expected to have improved. The focus at this stage should be growing wealth and investing in children’s education and retirement. It’s important to begin formulating your plan for retirement to ensure you have an exit strategy as you continue progressing in your career. You might also be considering other financial goals at this time, such as buying a house or saving for your child’s college education.
Stage three: Preservation of wealth (late career)
At the third stage of the financial life cycle, your late career, your income likely exceeds your expenses as your dependents move out on their own and your spending decrease. At this point, you’re well-established in your career and retirement is on the horizon. Wealth preservation is the primary financial focus of the third stage of your financial life cycle. You’ll want to start shifting your portfolio away from growth, eliminating any remaining debt by paying off the last of your mortgage and making sure you have a concrete retirement plan nailed down. This includes looking at healthcare and insurance options for when you’re retired. Additionally, this is the point at which you will want to start thinking about how you’ll pass your wealth on. Make sure your will is in order, and consider the legacy you’ll want to leave behind.
Stage four: Distribution of wealth (retirement)
The fourth and final stage of your financial life cycle is retirement. Your working days are over, and you’ve officially entered your golden years. With your income from work likely at $0, you’re now living off your retirement accounts (assuming you’re of age to take distributions) and either selling off your investments or taking distributions from your savings or investment accounts. Your spending might be comparable to what it was in the previous stage, or it could be even a bit lower, as you might be spending less on your dependents and may have paid off your mortgage. In this stage, you’ll want to keep an eye on managing your retirement funds to ensure they last throughout the remainder of your life. This might mean creating a budget and sticking to it, or committing to living off of a fixed income. Now that you are in the final phase of your financial life cycle, this is the time to make sure you’re totally set up to pass off any wealth you have to your loved ones in a tax-efficient way. Make sure your will is up-to-date. It could be helpful to meet with someone to discuss your estate plan. Investing in stage four of the financial life cycle is all about playing it safe and strategically cashing out. You’ll want to shift any risky investments still lingering in your portfolio to safer ones.
