As I have moved into real estate investing in an attempt to generate income for when I retire, I have been thinking about the "flow of wealth" over the course of a person's lifetime (or at least the flow someone who manages his money well will experience). Here's how I see the flow taking place and changing over time:
This stage is early in a person's working career. They are focused on their job, trying to buy a house, paying down debt (usually from college), and so forth. They are using their income to become established financially and there's not much left over after the basics are covered. Unfortunately many people have a broad view of the "basics" and thus spend much of their lives in this phase. IMO, you should be in this phase for five years at the most.
On to Wealth-Building
Over time, the person gets a handle on his expenses/debts and his income starts to climb. He begins seeing a bit left over and works on growing his wealth. He saves and invests more and more each year, increasing his net worth over decades until he has created significant wealth for himself. This is the bulk of a person's lifetime -- perhaps 40 years or more in length.
Back to Income
Once a person has accumulated enough wealth and wants to retire, his challenge is to transfer this wealth into income, at least in part. He will likely need to spend part of his wealth as well as income that wealth generates in order to provide for himself in retirement. Or, if he is ambitious and has the financial ability, he could develop a plan where he lives only on the income the assets generate (I plan to do this using real estate and dividend investing. For those of you interested, here are the details on my real estate holdings so far: Property 1 and Property 2).
I'm currently between the "wealth-building" and "back to income" stages. Where do you fit on this spectrum?