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On our journey through life we tend to go through stages. The stage we find our self in will have an impact on our financial planning. Modigliani and Brumberg (1954) devised a model to explain these stages. Here is a simplified version:

Individual supported by parents
income very low
few financial decisions

Young single
income barely matches expenditures - no significant savings
financial decisions tend to be mostly short term
purchase car, clothes, music systems
budgeting is important

Young couple, no children
income greater than expenditures - some savings
purchase home furnishings
purchase home

Couple (or individual) with children

income approximately equal to expenditures
upgrade house
purchase children’s toys, clothing, and supplies
purchase life insurance
college tuition expenses
debt management is important

Empty nesters
income greater than expenditures
purchase investments
retirement planning is important
tax considerations are important

Retired
income less than expenditures
live off of savings
purchase medical and nursing services
estate planning is important


These financial activities need not occur in the stages as described. In fact, it is beneficial to do many of them as early as you can. Estate planning, investment planning, and retirement planning should all be done as soon as possible.

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