Time is an important element of financial planning. If we misjudge its meaning we become frustrated and error-prone. Neither provides a clear path to financial independence.
Each step in the financial planning process has a time aspect. In each of the zones, there is a priority and there are limits. The priorities and the limits change as we age. One set of tools will not work indefinitely.
The limits include taxation, yield available for a given risk, ability to save, skill, ability to earn, help from others, the marketplace, and government activity.
In the very beginning help from others is the only serious limiting variable. Sometime in high school probably, it begins to include the ability to earn. The single priority is to acquire skills that will earn money. Time management becomes a real thing.
Eventually skill and ability to earn replaces help from others. In the second phase the limits are the marketplace, your skill and experience, taxation and the ability to save. The priority is to be come established as an independent adult. That requires considerable spending on assets you use. Home, car, and furniture being common. The ability to save is important here, but is often overlooked in the impatience to acquire things. Debt skyrockets.
Once the buying need shrinks, new financial skills like cash management erode the accumulated debt and begin to provide savings for the future. Financial skills may be lacking. No one taught you about cash flow, cash management, risk, taxation, debt and investment. Ability to save remains a limit and paying down debt incurred in the spending phase becomes the priority.
Saving becomes a habit and investment skills grow. Taxation becomes serious. Balancing the time to save, the quantity, the yield, and the taxes against the time to use the money is a good trick to know. (No one knows it, by the way) As time passes, predictability replaces yield as the largest priority. Flexibility is a value.
After retirement, ease of management should appear. What if only one of you is there to look after the money? Yield and taxes matter, but incoming cash is the highest priority.
Eventually there will be an estate to settle. Liquidity and clear instructions matter.
People are impatient so this orderly transition seldom works. Life is volatile.
In 1908, the Olympic marathon standardized at its current distance. American Johnny Hayes won in a time of 2:55:18. Ten minutes slower and Johnny could not have qualified for the Boston Marathon this year. His time was the best in the world at the time, but compares badly to today. We know more now.
Planning for an estate or for retirement requires reaching an unknowable future target. Everything has a time and place to be discovered. Techniques change. Attitudes change. Experience makes sense only in context. You will find your way.
A time of 2:15 might not win an Olympic marathon medal now. Back in 1908 what would Johnny Hayes had to do to chop 40 minutes off his time and run 2:15? Nothing he could have done. Records evolve. Nutrition, training, and technique have to be learned. Just like your retirement fund.
Impatience is a killer. Most mistakes happen when you try to perform outside your parameters. Frustration certainly lives there. Adapt as you go.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772