Four Phases of the Family Financial Cycle

money jarBy David John Marotta

In 1985, an MIT professor won the Nobel Prize for a simple technique that squirrels have known intuitively from birth — you have to “squirrel” away some nuts during times of plenty so you can survive during times of scarcity. Economist Franco Modigliani won his Nobel Prize for modeling how humans manage their household finances over a lifetime.

Modigliani looked at the income and expenses of typical people over their life from the time they entered the workplace, raised their families, and retired. He found there were times when the household’s income was more than sufficient to meet their expenses and other times when money was tight. Preparati


[Continue Reading at]

This entry was posted in Saving Money. Bookmark the permalink.

4 Responses to Four Phases of the Family Financial Cycle

  1. Traciatim says:

    Sure that works in a perfect world where people are all mindless robots and nothing happens outside of plans.

    I much prefer the David Chilton version of simply save 10% your whole life, and retire wealthy. (a little simplistic, but it works). At least this way you spend the excess any way you wish.

    There is also the David Bach version of the baskets for security, freedom, and dreams. This works pretty well too for real life since they can be used for the down times.

    I think the underlying message in all of the plans though is ‘Stop spending all of your money’. Personal finance and financial security all comes down to that one single point. If that one single point could be mastered by the general public I bet the world would be a much better less stressful place.

  2. Juan20 says:

    That is a great article. I never thought of the squirrel adage. It is so true though.

  3. a says:

    but traciatem’s comments are even more useful, thought-provoking.

  4. LC says:

    My DH and I are 27. We have saved enough for retirement already that even if we never save another penny we will have $1M at 50 (assuming only 8%). We will also have our mortgage paid off well before then. We are planning kids in a few years and we have already started saving for their college and we have a fund started for all the “startup costs.” It’s really not that hard if you start young. Good advice though.

Leave a Reply

Your email address will not be published. Required fields are marked *