An Insight For Young People

One of the hardest things for young people to come to grips with is the amount their cost of living should cost. Having first paycheques from an actual job seems to provide near infinite possibilities.

The insight

The money you earn is always in the present, but it must provide for other commitments and timezones, the past, the future and the present. The present is lifestyle and is the one least often managed.

Thinking about it.

Your paycheques will go in four directions:

Them -primarily taxes the government takes, for income taxes, but other amounts go for employment insurance, Canada Pension Plan, company pension plan, and union dues.

Then – the past. Borrowing money allows you to move earned income from the future to the present. Moving money in time is an essential part of financial planning; you should see that insight. If you borrow the money, you pledge your future income as the way to repay it.

Then – the future. Like borrowing, investments are a time machine. Some of the money you earn now must move ahead in time to satisfy needs that will appear after earning stops or to meet other expenses like education for your future children. The company pension plan will fit here together with group insurance and personal savings.

Lifestyle – What remains is spending money in the present that was earned in the present. Gas, food, shelter, hydro, cell phone, internet, vacation, clubbing, and a dozen more.

The trick is to balance all these. If you overspend on lifestyle, what of the other three siloes will take the reduction. Probably the future. You cannot do that forever.

Anticipatory balancing

Suppose you think you should buy a new car. Suppose, with nothing down or with a lease, you would need $500 every month. Where will it come from? Specifically! If nothing is left over at the end of the month now, will it come from lifestyle? If so, what parts.

As an alternative, suppose you decide to save $400 a month for a year to buy a car. The new car might still cost $400 a month to finance after a year because you have a downpayment. You do not have to adjust your lifestyle to accommodate it. What you saved each month is now replaced by a car loan payment. But planned.

Savings for other purposes can restart with a raise. Again with no effect on lifestyle.

If you do not anticipate the cost of future lifestyle, cars, children, house and so on, things will quickly get out of balance.

The bits to take away

Learn to be very careful with credit cards. They are an insidious claim on future income.

Build lifestyle slowly and match earnings as they increase.

Most young people cannot reasonably have a lifestyle that costs more than 40% of what they make. Be sure to notice how your income from the present is allocated before taking on more than you can afford.


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 startup, 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 Federal Business Development Bank.

Be in touch at 705-927-4770 or by email at

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