December 10, 2002

Where Are You On The Economic Food Chain? Part 1
By Marcel Chartier

Over the past week I have been down with a miserable cold, and as we all know getting over a cold means you go through various stages; in the first stage I just felt lousy all I wanted to do was sleep. After a few days of that, once I was feeling a bit more human, I stared at the TV, and thankfully after a day or so I could start to read - and think about the stages of financial planning!

I recently read an article on canada.com that Canada’s top 100 richest are poorer this year - they are only worth 111 billion dollars. Being a bit, well average, I have a hard time getting my head around what a billion dollars can do ... so I went to my province’s web page (BC) and found that the entire yearly operational budget for British Columbia, Canada (about 4.25 million people) is 10.2 billion dollars .... less than a tenth of the value of the top 100 of Canada’s richest. Oh, to enter the count for the top 100 you have to be worth at least 270 million dollars. So, you can just imagine what the top 1000 Canadians are probably worth. To put that in perspective Bill Gates the richest man in the world is worth about 34-55 billion - it has gone to as much as 100 billion, depending on Microsoft stock values. Warren Buffet the second richest man with very close to what Bill has, is worth about 36 billion and growing. I guess the reason why I am bringing this up is to show that even if you are a millionaire, you are poor compared to the super rich, but to most people being a millionaire is rich.

Wealth, and measuring wealth is perspective.

Most people, when asked, say they are “middle class”, because people don’t want to consider themselves poor. Maybe I’m having a radical moment, but I would say most of us are poor - compared to the rich. Many of us do fine, or very good for ourselves, but we are poor - compared to the rich.

So, how does this information help me, or you? Well, it helps me focus my financial planning by clearly defining the hierarchy of goals that the poor person that I am needs to do: it puts the goals in perspective, albeit as a humbling experience.

Here is the list of economic stages that the very wealthy may not even have to deal with, which most of us do have to deal with:

1) securing a steady predictable income source that covers basic needs easily and allows for at least 10% investable income.

2) securing or ensuring the means to be able to secure permanent shelter (throughout life)

3) planning for (wage) income reduction or loss, disability or death - estate planning. Securing, ensuring loved ones are able to be cared for despite health or other problems that may occur.

Here is the list of economic steps in a financial plan which the very wealthy (and some of us) do have to deal with:

4) establishing an ongoing plan and strategy for investment.

5) planning to reduce tax payments and maximizing income - wealth management and growth.

6) passing on the building blocks of a financial plan for beneficiaries.

Think of these stages as embedded in each other, you don’t necessarily need to do one before the other, but generally it makes sense to move from stage one to stage six, focussing on the lower incomplete stages as one moves through the stages. You may have to take on two stages concurrently, just think about how many people are buying a home and getting a better education for a better job at the same time ( Stages one and two).

Most financial planning or wealth building information tends to focus on the last three stages, and leave the first three stages out of the equation. I think, this is the reason many people look at financial planning information and shake their heads, throw up their hands and give up on trying because they are thinking: how can I invest if I live from pay cheque to pay cheque, and can barely afford the bills I have now? The planning information is not “meant” for them, it is targeted at someone who has already gathered or can readily gather the “tools” to benefit from them.

If you are in Stage one - just getting by on minimum wage, your first priority is to get a better paying good job, or to establish a business - get a steady source of income. Only after you have achieved, or mostly achieved this stage should you think about Stage 2 - establishing a permanent, or the means to have a permanent home. If you have a good job, and are buying your home/securing shelter with family, then you need to move into stage three to ensure not all is lost if something happens to you or what you have. Get home, life and disability insurance!

Notice that the more you have the more you have to plan?

Once you have a good job/ business, a home, loved ones and insurance protection for you and you loved ones, ( don’t over insure - more on that in later articles) you then can start to really think about investing and get into Stage four. Once you actually have money to plan for, then you will find yourself getting into Stage five, and ultimately when you have some serious bucks (about 500,000 plus) then getting into Stage six (sophisticated financial vehicles such as trusts, or large charitable donations/ philanthropy might be an option for you).

Where are you on the economic food chain? Where should you be focussing? How much, and in what areas?