Financial planning is just part of life planning. Have you thought about why it matters?
If not, think about this. Money can’t buy happiness, but it can buy choices. Too little money is life-limiting.
All the money you earn is earned in the present. When working, you essentially trade time for money. The price you can charge varies depending on your skill, your experience, and your availability. Scarcity is a price builder. What you have to use is what you earn, less the taxes you will owe on the income. When you earn your money in the present, you must allocate it to three time spaces.
The present – what you consume. Consumption defines your lifestyle. Learn how much that comes to each month.
The past – what you must repay. It could be a student loan or a mortgage. Debt is a tool to drag your future earnings back to the now against the promise to pay back from your future earnings.
The future – what you need after you stop earning. Saving and investment are tools to move your money forward in time.
The conceptual simplicity of financial planning is to balance the time zones and the taxes so you have the greatest predictability and yet achieve your preferred lifestyle.
This is where it gets harder. Knowing what you want to do and knowing how to do it are fundamentally different things.
Here’s why. Knowing your vision or idea of what you want is strategic. It’s about resources, time, and people. You know about them.
To do it, you have to choose ways to get what you want. Those ways are tactics. Things like an RRSP, an education saving plan, a will, insurance, or an investment plan fit here. In the beginning, and maybe later, you will want to use a helper. Tactics are very detailed and ever-changing. You cannot know enough to make it easy unless you do it full time. I know tax experts who spend several hundred hours a year just keeping up to date, and they are already competent. Regular folks haven’t a chance.
It is not so different for insurance or investments. It looks easier than it is because they are packaged, so the hard things are outside your view. Sometimes those things matter.
Most of all, we are emotional beings, and the world is variable. Sometimes we need another person to reassure us that the world is unfolding as it should. That might be the most outstanding value. I know someone who is a skilled professional who twice a month sets $600 aside in an account to reduce his mortgage when it matures. After 4 years, how much did he have? Surprisingly less than $4,000. Why? Because there were emergencies and impulses, and it was conveniently available.
If he had an outsider involved, they might have said, “When you put it away, it was to reduce the mortgage. Is a new leather couch for the family room more important?”
The fellow I see in the mirror is often my worst enemy.
Don’t overcomplicate financial planning.
The tools look simpler than they are.
Investing and debt rely on compound interest. Unlike other things in your life plan, it is better to receive than to give. Get out of debt soonest.
I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, 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. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.
Be in touch at 705-927-4770 or by email at email@example.com.