Does Your Money Have A Job?

Job. Defined as : 1) a specific duty, role, or function or 2) something that has to be done i.e. a task.

Why does my money need a job? I have a good income and I have a surplus at the end of each month. I have no debts and I pay all my bills on time. Ideally, everything should have a job or a function or task because it’s the easiest way to measure its worth or usefulness. Without setting a goal or expectation, how can you measure success? How do you know that you have arrived at the point you needed/wanted to get to?

We start setting goals from a young age (I want to play in the NHL, I want to be a doctor.) Goals can be daily and small sometimes (I want to have a cappuccino) or larger and less frequent (I want to buy a house.) Jobs/tasks are the actions necessary to complete our goals.

Money is the trading value (currency) we earn from our physical or mental activity so that we can exchange it for objects or experiences that we need and want. You may have heard that most Canadians spend more than they earn which is indicative of more planning and goal setting needed by many Canadians.

Let’s start at the beginning when your money first comes to you via pay cheque or other earnings. Okay— it’s in my bank account. Now what?

Usually, the first thing to do is to pay your bills including fixed expenses like housing and utility bills. These costs occur regularly (monthly or biweekly) and are often the same amount each time, or they only vary slightly. To save time and effort, and so as not to forget, you can often set up auto-payments on these items. The job here is to pay your bills and other costs you incur on a regular basis. You can also include regular contributions to savings like Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) or Registered Education Savings Plan (RESP) etc. More to follow on this below.

At the same time, you need to pay your variable expenses. This job includes items that are spent regularly but the amount will vary according to consumption. Items like groceries, gas, entertainment/dining out, adult beverages, pocket money. The individual amounts may vary but it’s likely that the total amount in this category will overall remain constant notwithstanding seasonal variations. Groceries are one of the areas where there is a lot of ‘leakage’ from the budgeted amount and little tracking or accountability done. Note: Canadians spend about $200 -$250 average per adult on food per month.

The next job is the items with irregular costs that occur throughout the year or just once a year. Think of car or home repairs. You can set aside a monthly amount to accumulate the funds needed for a project or to have on hand for emergencies. This is easily accomplished using online savings accounts. Also consider categories like gifts, healthcare, travel, annual fees if you pay insurance or property taxes once a year. Some of these costs are necessary (car repairs, taxes) and others are discretionary (gifts, travel.) This also can supplement some of the seasonal variations in your variable spending such as additional food and beverages around family occasions. Many people underestimate what they spend throughout the year on items like activities, gifts, clothing. Give each category the job of gathering and holding your money until needed. The added bonus is less stress and worry when you finally need the money to pay that bill that inevitably turns up.

You have a job in this also. You need to be aware of your numbers of your expenses in all categories. Start with the numbers you can grab from your bank or credit card statements for regular expenses.

Then estimate what you expect to spend in the next one-year period in categories like hobbies or travel. For example, all your hobbies and activities might add up to $2400 for the 12 months coming. You don’t always pay that amount in one lump payment but sporadically throughout the year. It’s much easier to save $200 monthly and allow it to accumulate until needed, rather than possibly create debt at payment time. The job of the $200 monthly is to be ready to spring into action when called upon.

Once you have assigned multiple jobs to your money to meet the responsibilities of your fixed, variable and annual needs/goals, you will have a surplus amount to also give jobs to. This assumes that you are still living within your means and only spending money you earn, without using credit.

These jobs should be linked to your goals and values with things that will make you happy and help you to reach the future outcomes you and your family deem important. For example, serious items like your kids’/grandkids’ educations, your retirement, a legacy after your death, or fun things like travel or hobbies. This is also where you are not just saving money short-term, you are investing this money for a longer-term result. It’s still a job. Just a full-time job instead.

And since we know that investments can be found in many locations like RRSPs or TFSAs, again refer to the above goals/needs to further clarify the location of the investments and the timeline of when the funds may be needed. It will become more obvious what you need your money to do and how much you will need. This is the basis of investment planning which should also be goal-centred. It helps with your risk allocation and maybe even the tax planning around your investments in terms of which investment products (RRSP, TFSA or Non-registered) are better suited. For example, your goals help to clarify what amount needs to be liquid for immediate jobs like bill payment and what amounts should be invested for mid- or long-term savings goals. The job of investments is to help you achieve your goals and live the job (life) you want.

The results of some jobs are more visible and accountable than others (mostly due to the more immediate nature like paying bills soon after getting paid) versus investing for a goal in 20 years (which takes patience and persistence.)

And with anything or anyone, once the parameters and outcomes have been defined, the job is clear and everyone and everything knows what needs to be done.

Don’t forget that part of your job is to monitor the goals against the actual results. Review on a regular basis (monthly is best) to course-correct as needed. Perhaps you have new information that will change the direction you had been going in. Maybe there are new tax laws or factors outside of your control. The more often you check your progress, the less disruptive the corrections will be.

Many will agree on the importance of financial planning and all its aspects around taxes, estate, investments and cash flow management. Don’t forget to take the extra step of giving all your money a job so you can be confident that it’s being used in the most meaningful and effective way that allows you to obtain your goals.

Janet Gray, B.A., B. Admin., CFP®, CHS, EPC, CPCA, Fee for Service FinancialPlanner/MoneyCoach with Money Coaches Canada