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It’s common to feel like you’re behind when it comes to building wealth, especially if you are measuring your progress against traditional age-based milestones. Many people have been taught to follow a set path: start saving for retirement in your twenties, invest a set percentage of your income in your thirties and increase contributions later in life.
In reality, financial lives rarely follow a straight line. Career changes, caregiving responsibilities, divorce, periods of unemployment or simply getting a later start can all shift your timeline. As a result, you may not be where you expected to be for your age.
That does not mean you are behind. It means you are in a different phase. When you focus on your current financial position instead of your birth year, you can build a plan that meets you where you are and helps you move forward at any stage of life.
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The four phases of building wealth
Rather than focusing on wealth-building phases as defined by your age, this four-phase approach provides a broader overview to help you build wealth based on your progress. It is designed to meet you where you are financially and give you clear next steps, no matter when you start.
Stability: Build your financial foundation
During the stability phase, you focus on building a strong financial foundation that supports every phase that follows. As your finances become more stable, day-to-day stress often becomes easier to manage.
Prioritize these four goals during this stage:
- Build an emergency fund: Open a savings account that you’ll use only for your emergency fund and start building the fund until it includes three to six months of your living expenses. If that’s overwhelming, start with a smaller goal of building up $500 or $1,000 in savings, and then continue to build the fund from there.
- Debt paydown strategy: Work to pay down any existing debts, such as credit card, student loan and car loan debts. Pay off the debts with the highest interest first, then put the money you were paying on that account toward your debt with the next highest interest level.
- Develop consistent income and budgeting: Work to develop a consistent income, whether that’s through traditional employment or freelance work. This is also the time to create a budget and stick to it.
- Start your retirement contributions: Begin contributing to your retirement savings. If you’re employed, this is a great time to take advantage of an employer 401(k) match to maximize your investments.
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Growth: Increase savings and start investing seriously
Once you are financially stable, you can start increasing your savings and shift your focus more toward investing. This phase is about building momentum, growing your assets and making your money work more consistently for you over time.
Focus on these key strategies to strengthen your progress:
- Raise your investment rate: If possible, increase your contributions to 15% or more of your income. This helps accelerate long-term growth and keeps your investments aligned with your financial goals.
- Maximize tax-advantaged accounts: Accounts such as 401(k)s, IRAs and HSAs can lower your tax burden while helping you save for long-term goals. Aim to contribute as much as you can within annual limits to get the most benefit.
- Automate investing: Setting up automatic contributions helps keep your investing consistent and removes the need to make decisions each month. Use tools that regularly transfer funds into your investment accounts so you stay on track.
- Avoid lifestyle inflation: As your income grows, it can be tempting to upgrade your home, car or daily spending. Keep your lifestyle aligned with what your income can comfortably support so you can continue building wealth.
Optimization: Make your money work harder
In the optimization phase, the focus shifts to making your money work more efficiently. With a solid foundation and consistent investing in place, this is the time to refine your strategy and improve.
Focus on these key strategies:
- Implement tax strategies: Explore tax strategies that align with your goals. For example, a traditional IRA offers tax-deductible contributions today but taxable withdrawals later, while a Roth IRA uses after-tax contributions and provides tax-free withdrawals in retirement.
- Asset allocation tuning: Review your portfolio regularly to ensure your investments are aligned with your goals. Adjusting your asset allocation over time can help manage risk while keeping you on track to meet your long-term objectives. For more complex decisions, you may consider working with a financial adviser to refine your approach.
- Real estate or additional income streams: Look for ways to create additional income streams, whether that’s investing in real estate or doing some freelance work on the side.
- Invest in HSA and brokerage accounts: Consider investing in HSA and brokerage accounts. While a traditional HSA helps you save for current medical expenses, pairing it with brokerage accounts can help grow your money long-term.
Preservation and income: Protect and use your wealth
Once you have built a solid level of wealth, the focus shifts to protecting it and using it strategically. This phase is about managing risk, preserving what you have worked to accumulate and creating a plan to support your long-term needs.
Focus on these key priorities:
- Focus on risk management: Work with a financial professional to develop a risk management strategy that fits your needs. This goes beyond your investment portfolio and may include added insurance or other protections to help safeguard your assets and provide peace of mind.
- Develop a retirement income strategy: Identify your expected income sources and plan how they will support a comfortable retirement.
- Withdrawal planning: Determine when and how to withdraw from your investments to support your income needs. A tax professional or financial planner can help you structure withdrawals in a tax-efficient way.
- Review estate planning: Revisit your estate plan to make sure it still reflects your wishes. Update your will and consider any additional steps needed to protect your assets and beneficiaries.
You can start in any phase but you can’t skip the order
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You can begin this process at any phase, but you cannot skip the order. Each phase builds on the one before it, and a strong foundation is essential, no matter when you start.
For example, a high earner with little or no savings still needs to establish financial stability before moving forward. A mid-career saver with a solid financial foundation may be ready to focus on growth and optimization.
If you are nearing retirement, blending the optimization and preservation phases can help you make the most of what you have built.
How to figure out your current phase
To get started, you will need to identify your current phase so you can focus on the right priorities. A quick self-assessment can help you understand where you stand and what to tackle next. Ask yourself these questions:
- Do you have emergency savings? If not, start with the stability phase.
- Are you consistently saving and investing? If so, you may be in the growth phase.
- Are you actively managing taxes and fine-tuning your investments? You are likely in the optimization phase.
- Are you planning how to generate income from your assets? You are in the preservation and income phase.
How to move to the next phase faster
There are several ways to build wealth and move into the next phase more quickly. Increasing your income, whether by negotiating a raise or taking on side work, can accelerate your progress. At the same time, look for opportunities to reduce fixed expenses, such as choosing a less expensive vehicle to lower or eliminate a car payment.
You may also benefit from consolidating and simplifying your bank and investment accounts. This can help reduce fees and give you a clearer view of your overall financial picture. Avoid setbacks that can slow your progress, such as taking on high-interest debt, and stay focused on your long-term goals.
No matter where you start, progress can happen faster than you expect. By focusing on your current phase rather than comparing yourself to age-based milestones, you can take control of your finances and continue building wealth over time.
