FINANCIAL LIFE STAGES

ABE JOY S. ISARAN

School Principal I
Kalibo Elementary School
OBJECTIVES:

• To describe the different financial life stages.

• To learn valuable insights to improve financial
management and achieve financial freedom.
Financial Life Stages

• It’s not about age;

• It’s about how much passive income you have in

order to cover your living expenses or lifestyle
It has five stages, namely:

1. Financial start up
2. Financial independence
3. Financial growth
4. Financial stabilization
5. Financial freedom
What is passive income?

• An income derived from investment.

• Income that does not come from active
participation in a business.
• Is money that flows into your pocket while you’re
sleeping. Or eating cake.
Examples of Passive Income

• Dividend from stocks bought

• A profit-sharing in a business you invested in
• Interest income from bank deposits
• loans lent out
• Rent
• Capital gains from appreciation of assets sold
• Pension
FIGURE 1. FINANCIAL LIFE STAGES AND PASSIVE INCOME
100+%
or greater

51%
PASSIVE INCOME to 99%
AS % OF EXPENSES
11%
to 50%

1%
to 10%
0%

1 2 3 4 5
FINANCIAL FINANCIAL FINANCIAL FINANCIAL FINANCIAL
START-UP INDEPENDENC GROWTH STABILIZATION FREEDOM
FIGURE 1. FINANCIAL LIFE STAGES AND PASSIVE INCOME
100+%
or greater

51%
PASSIVE INCOME to 99%
AS % OF EXPENSES
11%
to 50%

1%
to 10%
0%

1 2 3 4 5
FINANCIAL FINANCIAL FINANCIAL FINANCIAL FINANCIAL
START-UP INDEPENDENC GROWTH STABILIZATION FREEDOM
Reflect:
Financial Start-Up Stage
 Is the first stage of the financial life
stage.
 At this point in your financial life stage,
you will experience a lot of firsts.
 It is quite rare for a typical person to
have passive income at this stage.
 Most people have active income-
income derived from labor or work.
Financial Independence Stage
 At this stage, you try to live
independently and you cease to
receive “help” from your family.
 Is often characterized by modest living.
 At this stage, you should have already
saved enough for your emergency
savings and have a passive income that
covers 1% to 10 % of your expenses.
Financial Growth Stage
 The most productive years
 Your income should be more than your
expenses
 Most people at this stage get married
 At this stage, you should have
adequate insurance protection, have
enough emergency savings, and have
passive income that covers half of your
expenses.
Financial Stabilization Stage
 This should be the stage when you
enjoy the highest income you could
possibly earn and your expenses
start to decrease.
 Your passive income at this stage
should be able to cover most of your
expenses.
Financial Freedom Stage
 At this point, your passive income
should be able to cover all your
expenses until you retire or die.
 You may choose to quit your job.
Figure 2. Suggested Length ofmean
Does this Financial Life
then that youStages
have to rely onchoose
passive income
DoesCan
thisyou
mean to spend
you can’t stay
topassive
cover your
START-UP longer inexpenses
income ascover
a financial
that will you
life
1 – 2 YEARS progress in the financial life
100% of your expenses?
stage?
INDEPENDENCE stages?
1 – 3 YEARS
GROWTH
5– 20 YEARS
STABILIZATION
5– 15 YEARS
FINANCIAL FREEDOM
UNTIL DEATH

20 25 30 35 40 45 50 55 60+
AGE
Figure 2. Suggested Length of Financial Life Stages

START-UP
1 – 2 YEARS
INDEPENDENCE
1 – 3 YEARS
GROWTH
5– 20 YEARS
STABILIZATION
5– 15 YEARS
FINANCIAL FREEDOM
UNTIL DEATH

20 25 30 35 40 45 50 55 60+
AGE
• Figure 2 describe the financial life stages
with active income
• It suggests the length of years one should
stay in each of the financial life stage.
• Active income as a percentage of expenses
decreases as one progresses in the financial
life stages.
• The idea is to make your active income
cover your expenses until you have passive
income that will cover 100% of your
expenses.
START-UP STAGE

• At the financial start-up phase, active income

covers 100% of expenses.
• Filipinos get a lot of help from family member.
Most of the expenses are subsidized.
• Help from family members-who, by the way,
always come with good intentions-results in
more harm than good.
START-UP STAGE
• The financial start-up phase should be the
shortest of your financial life stages.
• Allot only one to two years of your life at this
stage and work hard to move to the financial
independence stage.
• Start practicing the 5-15-20-60 rule. This will
fast-track you to the next financial life stage.
INDEPENDENCE STAGE

At the financial independence stage,

strive to make passive income cover at least
10% of your expenses. Having this in mind will
compel you to think of creative ways to earn
more income so that you can invest these
instruments that provide you with passive
income
INDEPENDENCE STAGE

At the financial independence stage, you

have no one to count on but yourself. Build
your courage and gain the confidence to be
self-sufficient and self-reliant. Solve your own
financial problems or challenges instead of
taking the easy way out and asking family
members to help you.
FINANCIAL GROWTH STAGE

• Your goal is to move out of the financial start-up

and financial independence phases, and to move
into the growth and stabilization phases as soon as
possible.
• The ordinary person will spend 20 years on average
for each of these two stages-a total of 40 years. But
many will never get out of this stage until they die.
 The first reason is ignorance about investments.
 The second reason is planning for retirement too
late.
 The third reason is the rate of increase in lifestyle is
faster than the rate of increase in income.
 The last reason is not practicing family planning,
whether natural or artificial.
 FINANCIAL STABILIZATION STAGE

• At this stage, most of your expenses should be covered

by your passive income. I suggest that at this stage you
move your portfolio to safer investment vehicles,
especially as you are getting older. When you are
older, you have a lower risk tolerance so, to be on the
safe side, you have to make sure that your portfolio
provides you with passive income that is not exposed
to too much risk.
 FINANCIAL FREEDOM STAGE
• Do you understand that retirement is not about age?
• Do you have enough assets that earn passive income to
finance a lifestyle of your choice until you die?
• Can you support your lifestyle until you die even
without the help of your children or relatives?
• Do you have adequate insurance coverage?
• Do you get to choose to do what you deem is
meaningful to you?
FINANCIAL FREEDOM STAGE

If your answer to all the questions above is “YES”,

Congratulations!

You have succeeded financially and are ready for

retirement.
Sharing of one’s reflection on financial life
stages