When we talk about liquidity, we are talking about your access to money right away in the event of an emergency or an opportunity. Examples of an emergency can range from the brakes failing in your car, to a family emergency overseas that requires you to book a plane ticket to tend to the situation. Opportunities can range from new business opportunities, to upgrading your family to a bigger home.
Experts have shown and believe that you should have 3 to 6 months of your expenses put away in case of this emergency or opportunity. This ensures that if a situation does arise, you have the cash readily available to take care of your situation.
Think about your situation today, if an emergency or opportunity were to arise, where would you turn for the money?
One way we can make sure that we get you to this state is through paying yourself first, or in other words a “me tax”.
To illustrate what I mean when I say to pay yourself first I will use two different people, Person A and Person B.
What this illustration shows is what happens when each person’s paycheque comes in.
Person A receives their paycheque every two weeks and goes out to the bar, pays their car insurance, and IF there is any money left over, they then put that money into some sort of savings plan.
Person B however receives their paycheque every two weeks and right away takes a percentage off the top (just like the government does) and saves that money. Then WHEN there is money leftover, they can then take care of their needs and wants.
Now think, have you ever heard a percentage that you should be taking off the top of every paycheque? I know over the years I have heard 10-15%, but before I go further lets ask ourselves a few questions.
- Are people today living longer or shorter lives?
- Is the government and our employers providing more or less money for our retirement?
- To people today want to retire sooner or later in life?
Experts believe and have shown that we should be taking anywhere from 15-30% off the top of every paycheque and putting it into some sort of a plan! What’s even more alarming, is that only approximately 1-2% of Canadians today are doing this!
So what can you do now? Start with SOMETHING! Since 98% of Canadians are Person A, I wouldn't be surprised if you were there as well!
Start with taking a small percentage off of your paycheque. Put it away and forget about it until you absolutely need it. I'm not talking about that new gadget or new purse; I'm talking about a real emergency!
Next, find yourself a trustworthy advisor who can help you allocate your money into an effective plan. Then you can tell your friends you are one step closer to being financially independent!
Next, find yourself a trustworthy advisor who can help you allocate your money into an effective plan. Then you can tell your friends you are one step closer to being financially independent!
My personal goal with all of my clients is to take them and move them more and more to be Person B.
Stay tuned for the next cornerstone where I will talk about retirement!
In the meantime, I would love to show you this in person! Please contact me at Scott.Loney@Freedom55Financial.com or by phone at (905) 475-0122 EXT. 411 to set up a meeting!
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