Page 551 - Introduction to Business

CHAPTER 15 Personal Financial Planning 525

both your own desires and the money you have, is an art based on sound financial
principles. Learning how to allocate your financial resources in a way that provides
for a quality lifestyle now and in the future is the key to financial success. Financial
success results from planning, not from worrying about the use of your financial
resources.

Identifying Your Stage in Life
Identifying your stage in life helps in effective financial planning. Different stages
usually have different financial needs. The American Institute of Certified Public
Accountants (AICPA) identified five stages in an average person’s life.

Stage one. Employed, before marriage. With little responsibility to others, the
single person can afford to take risks. Long-term growth is one objective
during this phase. Clothing and recreation are important. Insurance gen-
erally is not relevant.
Stage two. Married, before children. This is a time to begin accumulating
assets, despite heavy pressure to spend on other things. Careful budgeting
is essential. Furnishings for the home are important. Insurance becomes a
factor, although perhaps not a substantial one.
Stage three. Married, with precollege children. Insurance protection
becomes very important. Income may increase significantly, but so does
the need to spend. Budgeting becomes even more important. So does tax Solomon wrote that our lives are
planning. Concern about future college costs begins. like a morning mist, here and gone
Stage four. The empty nest. Earning power may be at its peak. Risk avoid- so quickly. Make the most of where
and when you are.
ance becomes important; investment
strategy tends toward building up capi-
tal. Travel may become more important.
Stage five. Retirement. A steady, comfort-
able income is now a concern. Invest-
ment strategy must be balanced. There
is greater freedom, but risk must be lim-
ited because the time necessary to
recover from a disaster is no longer
there.

Spending patterns differ at the various stages
of life. You need to consider your stage as you
plan your budget. If you are a typical college stu-
dent, you are about to enter stage one.

Turning to Experts
King Solomon wrote, “Plans fail for lack of coun-
2
sel, but with many advisors they succeed.” That
bit of wisdom is particularly appropriate for per-
sonal financial planning. No one can singlehand-
edly keep track of all aspects of financial plan-
ning. A team effort is required. Depending on
your personal goals and financial objectives, you
may need advice from several different experts,
such as stockbrokers, insurance agents, lawyers,
bankers, and accountants.

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