December 18, 2002

Where Are You On The Economic Food Chain? Part 2
By Marcel Chartier

In part one, I outlined the six stages of financial growth and described the reasons why I feel most people glaze over when you start talking finances, the fact that most financial information is geared to people in the last three stages of financial development and most people are mostly the first three stages - hard to relate to information when it doesn’t seem to be pertinent to your situation. I will focus on the first three stages in this part.

The stages:

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.

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.

Stage one is the foundation stage, without a good predictable level of income you will never rise above poverty or marginal levels. Generally minimum wage work is the first level of employment that is affected by economic downturn, it is the weakest in regards to specific job security, but most secure in the fact that there is a lot of it and growing. Raising your income significantly above the minimum wage helps in two significant ways, firstly, it means you will have some disposable income, secondly, it means you may not be the first to go in a downturn.

The fastest way to get above minimum wage is to get educated or trained in something specific. Someone with a university degree makes on average, double that of an untrained person. Don’t want a university degree, OK, you don’t need one. Some trades pay more than university grads. Some very short term training can reap very high wages depending on the job market or specialty. Sometimes, you may have to put in some significant time in an apprenticeship, but considering the financial rewards, and mobility, sometimes its really worth it.

Stage two is the beginning of the building stage. Once you have that income, time to think about how you want to ensure your “permanent shelter”. Ok, people move all the time, so I don’t mean not moving, I mean having the means to always ensure you will have the means to have a place to live. Notice I did not say you have to “buy” a house. You could buy a house, an apartment, townhouse, whatever. You could rent or lease, but you may also need to invest earlier in greater amounts to ensure you have the income to cover shelter expenses in the future. And, above all, you need to ensure that eventually the income from those investments would pay enough to cover your shelter costs. Notice I say shelter, not rent or a mortgage payment: you must include taxes, electrical and phone, and cable costs.

Stage three is almost a concurrent or immediate stage after stage two, because you will have to get mortgage insurance, and if you have dependents at least a minimum of life and disability insurance is required to ensure not all progress is lost if you or your spouse pass away.

Next, once you have actually ensured shelter, and insurance, you will need to develop a serious investment plan.