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On our path to wealth it’s handy to know where we’re at. Much of our financial outlook is based on how old we are and our “stage of life.” What do we mean by stage of life? Humans have a pretty clear path through life. We pass through stages from being taken care of to learning to caring for others then full circle to being taken care of again. I believe the most important thing we can do is first and foremost to understand ourselves. We need to understand what drives us and what drives us changing as we go through life.

The two most important factors for reflection are first understanding your personality and then understanding your stage of life. We’ll talk about your personality in another article so let’s concentrate on stages of life right now.

Some of the oldest writings on the stages of life may be traced to Hinduism. The human life is believed to consist of four stages called “ashramas.” These appear mainly to apply to men but woman play a role in each stage also.

The first is Brahmacharya or The Celibate Student. During this time the young man undergoes formal education. This stage lasts until age 25.

The second is Grihastha or the Married Family Man (Householder) stage. This stage is obviously for procreation and recreation! At this point Hinduism says it is ok to pursue wealth and sexual pleasure as you are making a family and then trying to support it. At this stage man enjoys his family and maintains a household for them. He also pursues a career. This stage lasts until age 50; however you can see how most people wouldn’t want to give this up.

The third is Vanaprastha or the (Wandering) Hermit Stage. At this stage a man is expected to retire. He is done making babies and his children are adults and no longer need support. Accordingly, the good Hindu should give up all physical, material and sexual pleasure and become a hermit. He can take his wife along but he should have little contact with the rest of his family. This doesn’t sound like much fun and is becoming quite unpopular as you can imagine. During this time most Westerners are enjoying the fruits of their labor in retirement.

The fourth stage is the most severe. Sannyasa or The Wandering Recluse stage requires a man to give up all worldly attachment in preparation for death. This stage begins at age 75 so you have to be long lived to get there. Wondering around in the woods in your seventies doesn’t sound like very much fun.

Apparently these stages of life appeared sometime around 500 BC but even then were considered only guidelines for young men. However, they do fulfill a basic need that most people, man or woman has to try to find their place in society. In our modern society it is sometimes hard for a young person to determine where they fit into society. Especially at the awkward age around legal adulthood, many young people are still partying vigorously into their mid twenties if not into their thirties. So age is not a very good determination of your stage in life.

I remember being a student with little to no responsibility and really having a good time. Unfortunately, it later caught up to me when I had to repay student loans, loans that my wife didn’t have because she was more financially responsible. She had moved ahead in the stages of life faster than I had, which is not uncommon for women.

So in our modern Western society what are the stages of life? Whereas the Hindu stages of life are very much related to religion, we find our self in a society where religion is playing a much smaller role in our lives. In previous generations religious events marked milestones in a persons life. This was one of the ways people passed through the stages of life with baptism, communion, confirmation, wedding and then death rites. We however must find a more secular way of defining the stages of life.

Stage One: The Student

Humans are by their nature life long students. One of our only advantages of the animals in the wild is our brain. We can continue to learn almost through our entire lives. So the first stage of our life is dedicated almost entirely to learning. At this stage we are the student.

During this stage of our life most of our time is spent either formally or informally studying. Whether it is learning to crawl and walk as a baby or learning Calculus as a freshman in college we are mostly learning. This stage is marked by the amount of support we receive from our caretakers, in most cases our parents. They support us almost one hundred percent. During our later student phase we explore employment options, whether that is a job at McDonalds or an internship in an office we are still learning the basic skills needed in adult life.

What’s changed in recent years is the amount of formal schooling required to function in society. In the past an eight grade education may have been adequate for a large portion of the population, especially considering that most of them were engaged in agricultural or manufacturing pursuits that required more manual labor than anything else.

However, computers and advanced machinery have changed every aspect of our society dramatically in the last century and a half. Whereas farms used to be very labor intensive requiring large families, now they require only one skilled operator of machinery to perform the same work as a family of ten. However the farmer of today would be well served to finish high school and go to college to receive training in agronomics, agribusiness, agricultural engineering or some related field. A modern farmer has to understand a diesel engine, a computer, the futures and options markets, and still has to know how to plant a seed and harvest the results.

Most people finish college in their early twenties but doctors and others with advanced degrees take several more years. All during this time their potential to earn money is limited and they are dependant on others or their future income (in the form of loans) for support. So we may pass to early adulthood anywhere from our early to late twenties.

Action

At this stage there are certain things a student has to do to prepare for the future. The first and by far most important is choosing the right career. The choice of profession is critical in today’s society. Your income potential and prestige (if your care about that) will depend on your chosen field. If you become and academic you may have high prestige buy low income potential however choose engineering, law or business and you may have both. Choose a job like programming and you will have neither (that’s supposed to be a joke but I’m not sure if it is).

Also during this phase you can make a major contribution to your financial future by finding a way to finance your education that doesn’t require you to take on a large debt burden. Grants, scholarships and a part time job are all good ways to finance your education. I used all of these but I still borrowed money. In retrospect I probably could have worked harder and avoided the loans but I would have missed out on all the fun that the college experience can offer. You will have to decide for yourself if that is a good or bad thing.

Stage Two: Early Adult

This is what I call the “sweet spot” of life. In this stage we get our first job and have real disposable income for the first time. We don’t have to answer to our guardians any more (meaning we don’t have beg Mom and Dad for money!). At this stage you may buy your first car, get your first apartment, enter your first adult relationship which may lead towards marriage. However we have not been saddled with the responsibilities that true adulthood brings. We don’t have a mortgage or children. It’s just us.

This can be one of the best times of your life. You can enjoy the fruits of your labor and you’ll find that you may have more fun than college because you actually have money to do things. You can go to concerts, road trips, vacations, etc because you can afford it. Plus you may still enjoy many of the activities you participated in during college. You can also find new activities like golf which may have been too expensive back in school.

You might think that a financial site concerned with accumulating wealth and practicing frugality would frown upon some of these things. I however believe that you need to have fun. You can’t live your whole life for retirement. I believe you should have fun while you are young enough to enjoy it.

Action

In this stage you have the most opportunity to influence your future wealth. Life isn’t all fun and games. You can choose to get an advanced degree as many employers will pay for this. That’s why I did, believe me it is much easier to do it while you are young and don’t have children. As a teacher I saw many parents struggle to divide time between academics and family. This isn’t a choice I would want to make. Do it now if you’re going to do it.

Also don’t get a brand new car. A used car will work just find. Also consider keeping that college clunker around a few years. You’ll be amazed at how much more money you have without a car payment. Take half that money and have fun and save the other half. That’s a much better idea than wasting your youth on a car. Memories last a long time, cars just rust.

You could consider buying a house. One of the trends I’ve noticed in the last several years is young single women buying houses. I don’t quite understand it as a house is a major responsibility but if you can afford it and you buy a reasonable house, it can offer a decent return on investment plus you don’t have to pay rent. However, you are tying yourself down, so instead of spending Saturday morning at the golf course you are mowing your lawn and trimming the hedges. The choice is yours of course.

Use this time to really hammer on your student loans. Try to get them paid as soon as possible. Also make sure you start saving for retirement. The miraculous time value of money is on your side. Compounding interest is truly a force of nature. Dollars invested in your twenties are tremendously more powerful than dollars invested in your fifties. Make sure you try to invest enough to get a match from your employer’s 401(k) program. Because you are used to living on noodles and beer you won’t miss the money anyway!

Stage Three: Parenthood

Nothing causes you to mature (or age!) faster than having a child. Parenthood typically causes even the most wild among us to settle into a steady routine. Most parents feel the need to buy a house at this stage if they already haven’t.

Having a dependant causes you to think about your own mortality for the first time. If you die there are now real consequences. Now other people depend on your livelihood and if you die or get injured they will suffer. You now need to worry about life insurance, a will, education expenses and many other minor things.

The career of one or both parents can be affected. Just as many young adults are hitting their stride career-wise, a new baby can really change things. One parent may choose to stay home to raise the kids. It seems that all of a sudden your comfortable dual income life style is squeezed by reduced income and higher expenses at the very same time.

This is why early adulthood is so important. If you have prepared for parenthood then the extra expenses are rather easy to manage. However, if you have a large house payment and 2 car payments plus day care, diapers and baby food to buy, you are going to experience financial pain.

During this phase a many people are focused just on survival. Young families often struggle to stay afloat. You can limit the impact of baby expenses by buying used baby clothes and toys. Rummage/Garage sales are a great way to find bargains. Besides you’ll be amazed how fast kids grow out of clothes and toys.
You must also decide if you will send your kids to a private school or public school. This is a discussion for another article but if private school is the choice then you need to plan for the additional expenses. Also are you going to pay for you child’s college expenses. I’m of the opinion that you shouldn’t do this. I know its probably very controversial so this is another topic for a separate article. I will say this; you can borrow for college, you can’t borrow for retirement.

Action

At this stage often the most important thing you can do is hang in there. You are filling so many new roles, father, mother, nurse, teacher, etc and getting less sleep and leisure time than ever. Let’s not kid ourselves, its tough. You have to hand in there and manage your finances very well as its more important that ever that you are responsible with your money. Make sure you don’t neglect retirement savings.

Stage Four: Employed, No Kids

There are two ways to get here. Either you’ve raised your kids and they are out of the house, the so called “empty nester,” or you didn’t have any kids. This is an increasingly more common situation.

At this phase you are mature, you have a house, your bills should be at a minimum and you should be enjoying the fruits of your labor. However, at this stage you can judge how well you played the money game. You should have your house paid off. You shouldn’t have any credit card debt. You should have a well funded retirement.

At this stage with your finances in order you should be in the peak of your career. You should be enjoying the highest income of your life. You will probably have a large amount of vacation time as you have some seniority at your job. You should be taking long vacations to all those places you always wanted to go. You should really be savoring life at this point. However, not everyone is in this position.

If you don’t have adequate retirement savings you really need to catch up. You should be dumping the max into your retirement savings at this point if you need to catch up. I’ve heard many people say they will just keep working if they can’t retire. However, I’ve seen way too many with health conditions that may prevent them from working. Often in middle age those aches and pains turn into real problems and ankle, knee and hip problems can take their toll. If you’re in a physical job, whether it requires walking, standing or heavy manual labor, you can’t count on your health forever. At some point you will probably have to retire.

If you had children, you may become a grandparent. Do you want to spoil your grandkids, spend time with them, or even pay for their education? Then you need to have adequate savings at this stage of your life.

You should be enjoying the rewards of your hard work and planning. If you didn’t save and didn’t plan then there is very little you can do about it now. That’s why the previous stages of life are so important.

Action

At this stage you will probably want to take some money out of the stock market and put it into more stable investments like bonds. You don’t want to risk too much of your hard earned savings at this stage in the game.

Stage Five: Retirement

And now retirement, the pinnacle of a life of hard work and planning, it’s time to enjoy life. If you’ve been successful at the previous stages of life then you have nothing to worry about. If not you will experience misery, plain and simple. You don’t have the youth and vigor to work hard enough earn a good income. Many women find they are widows at this point, on their own for the first time.

Unfortunately, medicine, health care, living assistance and a host of other expenses can drain your savings. At a time when you should be enjoying life, visiting the grand kids, traveling, pursuing hobbies, don’t let poor planning ruin what should be your golden years. I’ve experienced this first hand and it’s a drain on the whole family. It’s not just about you. Every time you tell your daughter how you can’t visit because you don’t have enough money this month, you are putting undue stress on your entire family. Do you want to be a burden on your kids? Most people would answer no.

Action

At this stage wealth preservation is the primary goal. Your investments should be very conservative. CD’s, Bonds and cash will be the majority of your investments unless you are very wealthy or planning a long retirement. If that latter is the case then you will want to keep some money in the equity markets in order to have enough money to last throughout your final years.

One final thing to consider is your legacy. Are you leaving money to your children? If you don’t have any that that’s any easy answer. However many people fell the need to donate money to their church or some kind of charity. Now is the time to consider making any such gift.

Stage Six: Finale

This is the one most of us don’t want to think of, the end of our life. Are your affairs in order? Is the will up to date? Do your heirs know about your final wishes. If you have a wife/husband or any other person that depends on you, you will want to make sure they are taken care of. I still remember my grandfather telling me on his deathbed to take care of grandma. He needn’t have worried as they were well off and she had a large family very close. However, it illustrates the point that when you die, you no longer matter, you can’t do anything. You need to have everything in place. Your will and your plans can outlive you; help those you cared about and doing things for the causes you cared about long after you are gone. Make sure you have everything ready.

Conclusion

One last thought on the stages of life. William Shakespeare has his own take on this. I’ll leave with his poem Seven Ages of Man:

All the world's a stage,
And all the men and women merely players,
They have their exits and entrances,
And one man in his time plays many parts,
His acts being seven ages. At first the infant,
Mewling and puking in the nurse's arms.
Then, the whining schoolboy with his satchel
And shining morning face, creeping like snail
Unwillingly to school. And then the lover,
Sighing like furnace, with a woeful ballad
Made to his mistress' eyebrow. Then a soldier,
Full of strange oaths, and bearded like the pard,
Jealous in honour, sudden, and quick in quarrel,
Seeking the bubble reputation
Even in the cannon's mouth. And then the justice
In fair round belly, with good capon lin'd,
With eyes severe, and beard of formal cut,
Full of wise saws, and modern instances,
And so he plays his part. The sixth age shifts
Into the lean and slipper'd pantaloon,
With spectacles on nose, and pouch on side,
His youthful hose well sav'd, a world too wide,
For his shrunk shank, and his big manly voice,
Turning again towards childish treble, pipes
And whistles in his sound. Last scene of all,
That ends this strange eventful history,
Is second childishness and mere oblivion,
Sans teeth, sans eyes, sans taste, sans everything.

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