Things Financial - 04 Have a Plan for Your Money

Whether you’re making it, spending it, saving it, investing it, giving it away; you should have a plan for your money. Without a plan money tends to drift away from people. It seems to evaporate. So make a plan.

Make a realistic plan.

It’s easy to imagine fabulous wealth or abject poverty. But most people will never have one and will work hard to avoid the other. Try to come up with a realistic plan for that middle ground that so many people occupy. - A lot of people end up in the middle ground so you should have a plan to make the best of it.

I may be able to help frame things with a little bit of math.

If you work 40 hours a week and 50 weeks a year (2 weeks holiday, yipee!) that’s 2,000 hours a year. If you’re ambitious and start working from your 15^th birthday to your 65^th you’ll work 100,000 hours. As I write this (near the end of 2024) a tradesman in my area can expect to make about $32 per hour and could make $3.2 million in a life time. Try figuring how much you might make in a life time.

It may look like a lot when you see it written like that but the number needs paring down. First, you’re unlikely to work 100,000 hours. You’re unlikely to start working full time at age 15. You could start at 18 and work until you’re 68, but good paying, steady employment for 50 years will be hard to find. Even the most employable people have down times. There will be economic downturns and lay-offs and down-sizings. Unemployment will cut into lifetime pay. Or you might go to university and not start working until you’re 23 or 28, perhaps graduating with substantial debt.

Whether you go to university or straight into the workforce you can expect to fall short of the 100,000-hour mark. 80 to 90,000 hours is more realistic and 70,000 wouldn’t be out of the ordinary. I’ll say 85,000 hours for this example. (Which is pretty close to the number given at moderngov.com.)

With the reduced hours our tradesman makes $2.72 million in his lifetime. Of that he can expect to hand 20% or so over to the government for income- and various other withholding taxes. Now he’s left with $2.17 million with which to live most of his life. This amount is about 2/3’s of the first number that we worked out, $3.2 M. How much is 2/3’s of the number that you worked out for yourself?

We can toss in a little over $200,000 for Canada Pension and Old Age Security during the expected 16 years of retirement. The tradesman now has $2.4M has to last him from 18 to 81 years old (Eighty one years being the average life expectancy in Canada; but half of all Canadians live to 90).

The money has to stretch out for 63 years (or 72 years for half of Canadians). It has to cover food, heat, light, phone, housing (rent or buy), transport (vehicle + fuel + maintenance + insurance or public transit), clothing, entertainment (restaurants, movies, vacations, toys, electronics, hobbies), raising the kids, charity (if he can afford it) and geriatric care when he gets old. If you just divide out the numbers it comes to around $3,800 per month. It’s better than minimum wage but still not very much in today’s economy. The tradesman needs a financial plan to make sure that he won’t run short of money.

Everyone needs a financial plan. It doesn’t need to be elaborate or be cast in stone but you need some sort of a plan. The oldest and most basic is the “pay yourself first” plan. It’s been around, in some form, for centuries.

“Pay yourself first” is just another way of saying that you can’t spend every cent that you make as you make it. You have to save something for the future. Hold back some amount from every pay-cheque. Ten percent has been the recommended amount for many years. Recently some folks are calling for 15 or 20% but I don’t believe that is possible for most wage earners. When I started saving I started at about 4 or 5%. It was hard but got easier. And the percentage went up over time.

Once you have some money put aside some portion of that (but not all) should be invested for long-term growth. This is also a system that has been around for some hundreds of years. If done properly it can lead to a better life for you and Generational Wealth for your descendants.

Start by thinking about a plan to put some money aside. Plan how you’re going to get it. Plan how you’re going to keep it. Your future self will thank you.