Planning Personal Finance with Regards to Life Cycles - Essay Example

Section/# Financial Planning: An Analysis and Discussion with Regards to Life Cycles It is without question that consumer demand place at powerful role with regards to defining the types of products or services that are represented to individuals in different demographics. As a function of this realization, the following analysis will seek to describe the various stages of the typical lifecycle of an individual in the United Kingdom today and identify the most relevant financial products that should be considered at each stage. Through such a level of inquiry, it is the hope of this author that the reader will gain a more informed and nuanced understanding with respect to the manner through which personal financial decision-making is affected as well as the tactics and tools that can and should be integrated with at each and every stage of the financial planning cycle of the individual investor (Irving, 2012). Of all of the understandings that will be represented within this brief analysis, perhaps the most important is with respect to understanding the fact that the most relevant financial products that should be considered at every stage of life are neither uniform nor static. What is meant by this is that the changes in the overall financial outlook of the individual investor, the changes in career, the changes in wealth, the changes in savings, the focus upon different aspects of resources, and the manner through which all of these focuses evolve throughout the lifetime of the individual investor. The first and most obvious stage of the typical financial lifecycle of an individual is with regards to early childhood. Within this particular stage, few if any resources exist for the individual to promote their own financial independence and the future. However, within this particular stage, the individual is presented with an understanding of the value of money and needs to which it can be earned, state, and instruments such as interest can be engaged as a means of maximizing the overall amount of money that the individual has. Rather than merely glossing over this particular stage of financial lifecycle development, it is extraordinarily important that stakeholders within society seeks to engender a level of understanding within young people of this demographic that money has been innate and tacit value that must be understood and appreciated. Moreover, by choosing to make wise financial decisions, the value and overall utility that the money can bring to the individual is also a tool that can be understood and utilized within this particular period of life (O’Neill, 2011). Whereas many individuals might seek to merely gloss over this particular financial stage of development, it is within this very stage that lifelong traits and financial cultures are first illustrated within the individual. Oftentimes, the determination of whether or not an individual will be a lifelong saver or whether or not the individual will survive from paycheck to paycheck is dependent upon the manner through which the individual integrates with the need for planning, saving, and investment within their early childhood years. However, it should strongly be noted that within this early childhood stage, the overall financial products that exist for such an individual are necessarily limited. Outside of a shared bank account or another such saving regimen/institution, the individual has few if any choices with regards to the financial products that they can use to benefit themselves in the future. Ultimately, even though there are few choices, this might ultimately be a good thing as an individual within this particular demographic is oftentimes unable or unwilling to analyze and understand the unique nuances of the manner through which such financial products might differentiate from one another. The secondary stage within this “typical lifecycle of an individual within the United Kingdom” has to do with the high school and university years. In much the same way that early childhood is able to present the individual with the need and benefits of proper savings, the high school and university years are an important opportunity for work ethic to develop. As is invariably the case, the high school and/or University student is an individual that does not have especially deep pockets and must find the necessary funding to provide for those elements of their own personal life that their parents/guardians may either be unwilling or unable to provide for them. With regards to the financial products that exist for individuals within this particular demographic, it must be understood that this is the approximate age in which stakeholders within society become aware and/or interested in the possibility of investing as a means of accruing a financial benefit and the immediate future. Furthermore, credit planning as well as insurance and liabilities planning are two elements of financial products that began to have an impact upon individuals within this age group. For instance, if an individual within the high school or university demographic is fortunate enough to own or operate a motor vehicle, they are required to insure it. As anyone familiar with United Kingdom’s insurance rates is fully aware, insuring a new motorist upon the highways of the United Kingdom is most certainly not a cheap task. Instead, it is one that will require the individual responsible for paying for this insurance to scour the market and ascertain that they are receiving the very best price for the insurance and liabilities coverage that they seek. By much the same token, although a great deal of governmental assistance exists with regards to higher education within the United Kingdom, certain expenses associated with this must be shouldered by the individual who seeks to further their own education (Stearns, 2010). As such, credit planning is another important financial products that individual within this particular demographic might find useful. By much the same token, even if the individual does not actively seek to provide additional funding for a university education, they might find it necessary to leverage credit as a means of integrating with another of their early goals in life. Once again, the need to thoroughly review the market, understand the unique nuances of credit approval and the requirements of debt repayment is a core and fundamental element that will impact upon them as long as they hold this debt. The next stage of the typical lifecycle of an individual within the United Kingdom is that which is referred to as “family formation” is within this particular stage that a very wide variety of relevant financial products are available for the individual to integrate with. For instance, it is within this stage the retirement and estate planning begins. Although many individuals attempt to put this particular decision off into the future, it is within this very stage that retirement and estate planning should be affected so that the individual has the capability and retirement plan to provide for themselves once their working career has come to a conclusion. Furthermore, as the individual is generally at this point in their life somewhat established, tax planning and the manner through which the individual will provide payments to the government from their earnings must also be engaged (Fitts, 2012). As compared to the first determinant that is been discussed above, tax planning is a necessary and required elements of planning that must be done by every individual that is gainfully employed within the entire system. Similarly, savings and investment planning is also engaged within this particular period. The differential between savings and investment planning and retirement and estate planning is oftentimes difficult to denote; however, suffice it to say that these two are interrelated and both come to an increased level of importance within this early stage of career development and financial planning (Youngwirth, 2013). Similarly, as with the other stage that was discussed, credit planning as well as liability and insurance planning is also part and parcel of the financial products and services that are available and should be considered that the “family formation” stage of financial decision-making. The next stage that has been defined within the typical lifecycle of an individual in the United Kingdom is termed as the “career development” stage. Within this particular stage, retirement estate planning, tax planning, savings and investment planning, credit planning, and liabilities and insurance planning all take place. Ultimately, the career development stage of planning is merely an extension of the family formation stage and espouses the very same attributes. The only differential that exists has to do the actual scale of each of these particular financial products and the manner through which they are leveraged (Clatworthy, 2013). Naturally, retirement and estate planning takes on an even more important role within the career development stage due to the fact that the individual is more likely to accrue a higher wage and have a higher level of disposable funding that they can apply towards this particular financial planning tool. Furthermore, tax planning and savings and investment planning also take on a higher level of importance due to the increased wages that an individual is likely to garner during this particular stage of their lives (van Zutphen, 2010). Similarly, liability and insurance planning is somewhat static due to the fact that these are requirements that will continue to exist during almost every single stage that has been discussed thus far. The one diminishing aspect is with regards to credit planning. The eventual hope of each and every stakeholder within society is that by middle age or at least during the “career development stage”, credit planning and the need to pay off existing debt will begin to decrease with time. With wise financial choices and careful investments, the necessity of this particular aspect of financial services will necessarily decrease. A further stage has been determined as the “pre-retirement stage” (Cull, 2009). This stage engenders all of the financial products that existed within the earlier two stages that have been discussed; however, a reduced focus is once again placed upon credit planning as it is hoped and assumed that most individuals will no longer be repaying debts during this particular stage of their lives. The level of growth for savings and investment begins to plateau during this particular period in time; due to the fact that individuals are not expected to continue to earn higher and higher salaries within this particular stage of their lives (Hughes, 2010). Further, the need to continue to expand investments and savings decreases as the compounding effect of these is reduced; as a result of the proximity to retirement. Naturally, the final stage is the retirement stage. Logically, this is the stage in which all of the financial products that have been utilized within earlier stages are leveraged as a means of providing for the comforts of retirement; while concurrently allowing for a decreased level of spending as a result of the fact that the individual is likely no longer working (Chaffin & Cummings, 2012). The financial products that have thus far been discussed do not simply cease to be important in this period of the individual’s life. Rather, the level of resources that are directed towards these financial products are ultimately reduced as it is hoped and expected that financial planning and retirement forethought has created a situation in which earlier investments and decisions can provide for the material needs of the individual during this particular stage. From the analysis that has thus far been engaged, it is clear and apparent that different unique stages in financial planning exist within the life of the individual. Although a primary focus between aspects of these resources shifts between successive stages, the root goal remains the same; to plan, save, invest, and reduce debt early in life so that a benefit can be seen within later retirement. Naturally, the success of this particular process and the point at which it begins, as well as the level of resource allocation that the individual is willing to focus upon each of these processes, is a fundamental determinant of whether or not the retirement will come early, last a sufficient amount of time, and/or be able to address the physical and material needs of the individual retiree. It is the hope of this particular author that the analysis that is thus far been presented will be beneficial towards allowing individuals to better understanding of the tools of financial planning that exist within the various stages that have been analyzed. Reference List Chaffin, C, & Cummings, B 2012, Application of the Dreyfus Model of Skill Acquisition to Financial Planning, Journal Of Financial Service Professionals, 66, 6, pp. 53-60, Business Source Complete, EBSCOhost, viewed 29 January 2014. 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