I apologise for the long time since I last wrote a blog post. There has been no shortage of news to report on but I have to keep in mind that what I find interesting might put readers to sleep faster than drinking a glass of warm milk.
Let’s begin this 2 part blog post with an exercise and a few questions.
Take your yearly salary or household income and multiply it by the number of years you expect to be able to earn that amount. You can consult your recent tax returns if needed.
Example: $50,000 multiplied by 30 years =$ 1,500,000. Now say something like: “are you kidding me?”
This is an important exercise for 2 notable reasons:
The day to day routine and expenses gobble up a lot of our attention, and often we lose sight of the bigger picture. You don’t want to look back many years from now and wish you had done something different. That is why clients tell me our professional relationship is so important.
Now I am going to ask you a question:
What is your most valuable asset? It goes without saying that family and relationships are #1. But of your material and financial assets which is the most important? Most readers will probably answer incorrectly.
Your human capital, and your ability to earn an income are the most valuable of your financial assets.
Your house, car, investments are less important than your ability to work. It is interesting that we willingly have insurance on things that are more easily replaced than earning power.
How well do you respect your earning power?
What would you or your family do if you were suddenly unable to earn an income? Think job loss physical impairment, accident?
How long could you maintain your lifestyle and pay your bills? Dip into savings if you have, rely on a spouse, hope you will get employment insurance benefits or…?
There are fancy words for the planning of this eventuality, risk mitigation, contingency plan. But the essence is that the planning must be done before the unfortunate circumstances occur. We cannot predict the future. The risk mitigation must be in place while you still have your earning power. Part 2 will elaborate on that.