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Are You a Financial Adult or a Toddler?

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Where are you in the financial life cycle?

Financial maturity is developed in stages. As with all skills, you must begin at the beginning. Skipping ahead before mastering fundamentals will lead to glaring deficiencies, like the time I tried snowboarding a black diamond trail before taking any lessons. A permanently damaged knee proves this strategy doesn’t work out so well.

So let’s take a look at the stages of financial maturity, and how to master each one.


Crawling begins as you start to exercise and strengthen your delayed gratification muscles. Learning self-control in an advertising-dominated society requires a determined spirit.

If your paycheck is regularly gone before the month is out or if you’re sinking further in debt, you haven’t yet left your hands and knees. You need to plug the holes in your bucket.

Many adults feel a great amount of shame because they’ve been stuck in this infantile stage. If you’ve been stalled for a while, it will help to begin talking about your finances with friends and family. Confessing your financial sins and verbalizing your goals is often the first step on the path to financial maturity.

Mastering this stage will require a system to keep track of spending. For those just getting started, I recommend the austere “envelope system.” Others may use my Budgeting Lite system or a customized spreadsheet.


Financial Life Cycles

After bringing the true condition of your finances into the light of day and addressing your financial emergencies, you have joined the walkers. The walking stage is mastered as you create margins that lead to greater financial freedom.

Walkers begin by creating an emergency reserve fund. If losing a job today means destitution tomorrow, you’ll find no peace living on the edge of this cliff. Saving six months of income is ideal, but you can make it on less. Each dollar saved is purchasing a sliver of your financial freedom.

If you have bad debts, this is the stage where you pay them off. Bad debts are debts incurred for anything that is not improving your financial condition. A home mortgage and educational debts are typically excluded from this category. All other debts lay constant claim to a portion of your mental capacity and must be banished from residence.

Mature walkers review all of their insurance needs to make sure a catastrophic event will not capsize themselves or their surviving family members.

This is the stage to begin budgeting for charitable giving. None of us can thrive without the support of others. It brings great energy and meaning when you can pass this gift along to those in need.

Mastering this stage will typically require some interior work that involves exploring the emotional and spiritual connections to your personal finances. George Kinder, often dubbed the father of life planning, suggests that many financial resolutions go unfulfilled because of painful life experiences that have never been addressed. For this reason, I recommend that all young couples write and share their financial autobiography with each other. This exercise can help to uncover hot buttons that can cause your financial plans to go awry.


Financial Life Cycles

Runners have mastered their stage when they become financially literate in all essential areas of personal finance or they have assembled a team of trusted advisers who will help them achieve their goals.

Runners establish benchmarks to assess their pace and their progress. They have financial goals, and they review and update these plans at least annually. As retirement approaches, they have an efficient plan for withdrawing from their several retirement savings buckets.

Runners don’t just pay taxes. They have a plan to handle a complex tax code efficiently. They use appropriate tax shelters for savings. They gift appreciated investments rather than just writing checks.

Their estate plans are in order and will not leave the surviving members of their family with a financial mess to clean up.


Financial Life Cycles

After navigating your way through financial complexity, it is time to consider how you can pass these lessons along to the next generation.

Too many children grow up financially illiterate because their parents failed to discuss important financial life lessons as they were encountered. The next generation doesn’t just need to hear about your success. They’ll likely learn the most from your failures if you’re willing to share them.

Those in need of financial coaching extend beyond your family. If you are part of a religious community, there are young people who are often very interested in being mentored in this area. If you’ve run a business, you can coach those who are just beginning to take some entrepreneurial baby steps.

If, after reading this, you know that it’s time to grow up, then you are ready for the challenge of mastering new skills. Those who are willing to put in the hard work will be rewarded an emotional ease that comes with money maturity.

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Images: Brian McEntire; bst2012; Dirima; Ljupco

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