Know Your Financial X-Curve
The financial X-Curve will show a trend of your responsibilities and wealth as you age. From the time you start earning and starting family to the end of your retirement, it depicts the trend of your responsibility and wealth.
The blue line indicates how your responsibilities start high and trend downwards as you become old. The yellow line indicates wealth and will start low when you are younger. The wealth will keep growing and has the possibility to reach its peak when you are older. Now let's discuss the things to take care when you are younger and older.
Younger self - Things to take care - Risks to handle
When you are young and just started family, your typical responsibilities include
- Income to run the family
- Kid's care and their activities
- Saving for home/pay mortgage
- Saving for kid's college education
The risk to handle is the risk of "Dying too soon". In case of some unexpected things happen, how your responsibilities will be handled. List of things you should do to handle the risk are
- Proper Will and trust to make sure every cent your earned so far reaches the family
- Plan to handle the pending mortgage
- Income replacement
- Funding the deficit for kid's college education
Older self - Things to take care - Risks to handle
As you age, the kids finish their college and home mortgage gets paid. Your responsibilities will decrease. At the same time, from many years of working, you might have accumulated enough wealth. When you are old, you should have the following
- Generate recurring monthly income from your accumulated wealth
- Supplement health care insurance
- Updated will and trust to make sure your wealth reaches next generation
- Transfer money to next generation in tax efficient way
The risks to handle are
- Shielding the wealth against lawsuits and market risks
- Losing big portion of income generated to taxes
- Handle Living too long risk - Long-term care
Considering your age, review your responsibilities and risks to handled. See whether your financial portfolio has all the tools needed to fulfill the responsibilities and handle the risks. That's a wrap this week.
Happy learning!
