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Si, si, si – Translating YES into your financial planning

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For many people – especially young adults breaking into their careers – financial planning may feel like learning another language.  There are new concepts, words and phrases, and time required to master how and when to apply them.

Now I’m not suggesting that Spanish is required, but you probably know that “si” means yes. By repeating that three times, si-si-si, you have a simple acronym that takes you through common stages in your actual life as a way to look at decisions in your financial life:

Schooling – Income – Saving – Investing – Spending – Inheritance

Elements of all of these are at work at any time, so these titles are really meant to highlight the principal focus at a particular stage. As well, the time spent at any one stage will vary from person to person, sometimes with significant overlap and blurring of lines between them. In fact, you may go back through repeated cycles over your life, so think of this as isolating key issues to help you identify, build and apply your financial planning skills.

Schooling that fits your outlook

Education is the foundation for your life ahead. Choices you make at this stage can both open up and close off where you may be going, whether that’s formal schooling, hands-on experience or a blend of the two. Whatever path you take, this is when you are almost always spending more than you are earning, but it is truly an investment in yourself.

Income that supports the lifestyle you are living

As an income earner, you will be able to pay off education debt and move into positive cash flow for your current purposes. Managing this flow can be tricky, so be aware how much of your spending is going to needs and how much is consumed by wants. Those wants are what makes life more livable, but if they push beyond your current financial means, it’s time to either scale back or look for ways to improve your earning capacity.

Saving towards your future self

You have a past, you are in the present, and you will have a future. With a good handle on your present finances, you can devote a manageable amount of excess income to feed your future. With increasing clarity of that future vision as savings grow, you won’t experience saving as a pain of loss, but rather as a gain of future comfort and flexibility.

Investing your savings

Investing is not saving. It is what you do with savings. To this point the emphasis has been on building your skills and behaviours, in order to create savings distinct from your own earning power in the labour market. Investing layers on top of that, providing the opportunity and necessity of putting your money to work in the capital market, delivering the growth, protection and accessibility to meet your later life requirements.

Spending later rests on the decisions you make much earlier in life

Obviously you spend throughout your life, but in retirement it is the dominant feature of your finances. You may continue some work as a way to ease into it, but eventually your only income will be from your invested savings, with assistance from government sources. While retirement coincides with advancing years, a comfortable retirement is not simply based on reaching a particular age, but rather relies on having accumulated sufficient financial resources to sustain you in what will be your non-earning years.

Inheritance

Just as we are tied by love and emotion to the family and friends around us, we often have intertwined and interdependent financial lives. Providing an inheritance to others is a combination of moral force, financial need and legal obligation. Be conscious how this affects your planning, so that that you have a high degree of certainty that you will meet your needs and expectations through your life and beyond.

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Meridian Credit Union communications are intended for informational purposes only and do not constitute financial advice or an opinion on any issue. We would be pleased to provide additional details or advice about specific situations if desired.

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