Income, Expenses and Age- Excerpts of the book “Finance for dad”

The above figure shows the usual performance of someone’s income throughout his life. It increases in relation to age. At first, it rises very rapidly, slowing its acceleration considerably until it reaches its maximum peak at around the age of 45 or 55. Then it starts to decline. 

 Income level is the basis on which Personal Financial Planning lies. Since it´s received and calculated in cash, some readers probably expected to see figures in the chart, but this is not possible on a general scale, since it varies greatly from region to region, even within the same country. The amount required for a comfortable quality of life in an area can be far from sufficient in another. Nevertheless, income performance, in relation to age, is similar everywhere. Let’s see what some statistical parameters show, so that you can do your own calculations. 

•     The income peak (ages 45 – 55) is approximately 2.5 times the obtained at the age of 25. 

•     Income during retirement is around 60% of the maximum peak. 

The previous data is based on a constant value, in other words, deducting inflation. 

Keep in mind, however, that having a high income is not necessarily a synonym of having a high-quality life. In order to reach this, it is necessary to consider the other part of the equation: The expenses. Their cycle is similar to the income cycle. Soon after we initiate our professional life, we enter into a stage of creating a family, with the needs that this involves: purchase of essential goods, children’s education, insurances, home, the creation of an emergency savings and retirement fund; and, of course, taxes! 

The planning process helps us to maintain a balance between income and expenses in such a way that we can enjoy a comfortable quality of life in the present and we can consolidate a financial basis for the future when the flow of income from active work stops. The wealth growth of the self-privileged is not measured in money, but in assets that they can provide in order to maintain a comfortable quality of life: education, safety, vehicles, home, entertainment, retirement fund, etc.