Jed Levene, MBA(FS) Class of 2013
I grew up with a very popular sister. As such, I often had front row seats to some of the best/worst pick-up lines out there. My favourite was, “I’m writing a phonebook; can I get your number?”
When you are young, being asked for your number is usually a flattering experience. Being grown up and having a financial planner ask for your number is not quite the same compliment, albeit much more important.
The number in question is the number required to maintain your dignity. Financial planners and their clients alike can use this number as a basis for nearly all aspects of your financial planning.
Arriving at this number is relatively simple. One could argue that to maintain your dignity you need to ensure that you always have enough money to: stay in your home, maintain your current form of transportation, and eat.
Three simple areas to ensure that you will always be able to maintain a certain quality of life (financially).
So, for example, if the cost of carrying your home is $1,700/mth; transportation is $600/mth; groceries are $700/mth, then your number is $3,000/mth. This means that as long as you have $3,000 coming in each month, you will experience at least a basic level of comfort. No fun money, but no financial devastation.
This number can be used in all aspects of financial planning. For example, knowing this number makes it easy to determine the minimum amount of various insurances one should have. For instance: Life Insurance – Pay off debt and ensure my survivor has enough to maintain their dignity. Disability Insurance – ensure that there is at least $3,000/mth of coverage. Remember, these are minimums and very generalized examples.
In retirement, you should ensure that there is enough income coming from guaranteed sources to at least cover your dignity number. So, if you don’t have an employer pension and Canada Pension Plan (CPP) and Old Age Security (OAS) are not enough to cover your dignity number then it might be a good idea to cover this shortfall with personal investments/products that offer guarantees.
CEGE Connection Editor’s Note: Republished with permission from OurWindsor.ca and Simcoe.com
Jed Levene MBA(FS) 2013 is President, Rockwater Wealth Management Limited and Investment Representative of Quadrus Investment Services ltd. He is a Certified Financial Planner® and holds a certificate in Behavioural Finance from Duke University. His articles on financial planning appear regularly on Orillia Today, Simcoe.com, CEGE Connection is pleased to advise that Jed has graciously agreed to be a repeat contributor on CEGE Connection.