“Time is on my side, yes it is…” – The Rolling Stones
For millennials born between the early 80s and mid 90s, the above quote rings true – particularly in the quest for financial independence. What we know today is that millennials generally have relatively little savings, are carrying debt and have mixed expectations about their chances of retiring comfortably in the future. But we (yes, I’m a millennial) have time on our side. At this point, it’s our best asset.
But, time is fleeting. Once it’s gone, it’s gone. There’s increasing pressure to get your act together as soon as possible because life tends to become more complicated as time goes on. You may have pressures, stresses and responsibilities from other areas of your life, be it from your relationships, your career or your health.
In my employee financial wellness seminars, I often present the challenge in this way. If you’re sitting in one of my seminars, it’s because you have a job and your employer is paying for this benefit. So, congratulations on having a job and getting paid. If you’re fortunate, you may be able to receive income for your work for many decades to come. The sum total of all this income over time can be quite significant. But much of it is spent on lifestyle expenses, paying down debt, paying income taxes and other obligations. Over time, the decisions you make in these areas, guided by your behaviours, will impact your future net worth. This will ultimately determine whether you’re able to reach financial independence in time for you to enjoy it throughout the final years of your life.
So, what are these critical behaviours that influence our financial decisions? Basically, they’re encompassed in these four areas: earning, spending, sacrificing and saving & investing. Let’s explore each.
1. Earning behaviour
Your earning behaviour is your ability to earn income. This is the “money in” part of your basic financial equation. What can you do to influence this? Certainly, education and skills will play a role. Your ability to evolve and acquire new skills over time will help, so that maybe you can move on to a higher-paying job in the future. Just working more is another option. Whether that’s working longer hours with one job, or adding a secondary job on the side – even if it’s one that you do intermittently around your main job. The challenge is finding the right balance of hours worked so that it doesn’t negatively impact you in other areas of your life.
2. Spending behaviour
You’re likely spending in a way that lets you maintain the lifestyle that suits you. But be aware that your lifestyle comes with a financial cost and you need to assess that cost periodically. Do this by tracking your spending over a period of time – perhaps over a few months – and then analyze the results. I find this a fascinating exercise to do because it can reveal a great deal about what an individual values and prioritizes. You may recognize that some of your spending goes into things you value a great deal, whether that’s particular hobbies, vocations or interests. You’ll likely want to maintain these expenses, assuming you can afford to, because they bring significant benefits to you. But you’ll also see that some of your spending goes into areas that you do not place high value on. This gives you an opportunity to reduce the unnecessary spending, leaving you with greater flexibility to pursue your interests and goals, and to significantly improve your future net worth.
3. Sacrificing behaviour
Sacrificing behaviour speaks to your ability to maintain expenditures on your high-value items while reducing or eliminating your low-value expenses. This behaviour should be reviewed on a regular basis, as your views on what is high value versus low value may change over time. The goal is to be able to afford your lifestyle while having some money left over at the end of the month to pursue other goals with, whether it’s saving for something special or paying down your debt.
4. Saving and investing behaviour
If you’re living within your means, congratulations! But, how are you putting your surplus cash to work? The answer to that question is really what underpins your investing behaviour. Think of it as the ability to supercharge your net worth with the help of compounding. This doesn’t just apply to savings. Paying down debt also uses the principle of compounding to reduce your balance, which will impact your future net worth. This is especially true if you’re carrying high-interest debt, like credit cards. You may want to prioritize paying those down immediately.
Whether you’re fortunate enough to have a company-sponsored savings plan or are doing it on your own in a personal RRSP or TFSA, recognize that your long-term horizon is an advantage and that you should be taking an appropriate level of risk in your investments. In due time, it will be prudent to reduce your risk, but now is the time to go after growth. Completing an investor profile questionnaire can help you determine an appropriate level of investment risk.
If you pay attention to these four financial behaviours, it’s more likely that time really will be on your side. Your future self will thank you.
Consultant, Financial Education & Employer Services,
This article was published in T.E. Wealth’s Strategies newsletter, March 2019 edition. Read the full edition here.