Financial Wellbeing

Financail WellbeingWe are going to take Ted and Gail through the Financial Wellbeing portion of the Life Plan and the necessary considerations therein. Financial Wellbeing is a state of financial balance where inflows of cash exceed cash outflow demands and the attainments of the goals set are on track. If the reverse situation occurs, where one is spending more than one is earning or one is short of goals set. This of course causes STRESS affecting your Spiritual Wellbeing which also affects Ted and Gail’s Relationship Wellbeing. Life Plan’s sound financial strategy corrects that negative cashflow state of affairs and will immediately begin to reduce the Stress levels. Here are the major elements of family finances found in Life Plan’s Financial Wellbeing.

Revenue Sources

Active Income 

There is the potential for having several revenue sources. There is Earned Income, money derived from someone working at something for a pay cheque. This is sometimes referred to as active income, meaning your active participation in generating that income.

Passive Income -

Income that does not require one’s labour, mental or physical effort to materialize. Passive income can come from two principal sources. Investment income and rental income. One can argue that the two are technically the same, investment income. We are distinguishing rental income from investment income as there are different tax treatment between the two.

Investment income 

Investment Income– is where you take some form on cash, usually referred to as capital and invest it in something with an expectation that the thing you invested in will either increase in value, called a capital gain or pay you a dividend which is a share of the profits of the thing you invested in. Some investment can pay you one or the other or both. A third type of investment is actually a loan, often called a mortgage. You loan someone money and they pay you interest on the money borrowed. 

Rental Income

If Ted and Gail had a piece of property and rented part or all of it to individuals or businesses for a consideration (usual cash), such consideration would be classes as rental income.

Expenses Categories

Expenses come in several main categories, Essential Expenses, Discretionary Expenses and a couple of sub categories. Destructive expenses and Constructive Expenses. We will drill down on each of these for a better understanding.

Essential Expenses.

Simply put, these are expenses created by food, shelter and clothing. The size of these expenses is deemed normal for you lifestyle based on the family income coming in, thus establishing the lifestyle of the family. Messing with this set of expenses means altering your current lifestyle, up or down.

Discretionary Expenses

These are expenses caused by non essential expenditures. They don’t have to be spent, but you wish to spend money on them. Items like, dinner out, theater tickets, sporting events, birthday gifts, vacations etc.

Destructive Expenses

Expenses that feed a habit. Gambling, drinking, drugs all fall into this category. They are called destructive as they can get out of hand and start to eat into essential expenses and negatively impact one’s Spiritual Wellbeing. It usually begins with deficit spending through the use of credit cards lowering to loan sharks etc.

Constructive Expenses

Is sometimes referred to as investment loans where you borrow money to invest with. If done prudently it can be rewarding.

Expenses come in two major categories. The first is current expenses, expenses that are payable in the current year like auto or home insurance, property tax, utility bills and so on. The other is long term expenses, expenses that have to be retired or paid off over a period longer than one year. Examples of these are a house mortgage a car loan. Even long term expenses have a current year’s portion like your monthly payments on the house mortgage or car loan.


Asset are typically split into two major categories, Depreciating Assets and Capital Assets.

Depreciating Assets

Depreciating Assets are assets that lose value over time due to wear and tear, out of date due to improving technology or user appeal. Most depreciating assets have a normal shelf life. Example of depreciating assets are vehicles like cars, trucks, boats etc.; electronic appliances, computers cell phones and so on.

Capital Assets.

Capital Assets that can decrease in value but also have the potential to increase in value. Real Property like one’s house or cottage are examples of Capital Assets. Stocks, Bonds, and other financial investable instruments are classed as capital assets. Precious metals held in the form of bullion or coins, rare stamps, antiques, paintings and collectibles would also fall in the same class.

Keeping track of your finances through a family Income Statement and Balance sheet is important. Why? If you have an objective/destination you want to know if you are on track. The Income statement and Balance Sheet does that. The more frequent your review, the shorter your course corrections need to be if you are off track.

Continuing with the Life Plan’s Financial Wellbeing, Ted and Gail have had the Dream Cession, they do have a Dream that they both visualize. The steps necessary are as follows:

  1. The Dream & Timeframe

For example, Ted and Gail’s dream is to retire from their 9-5 jobs and down size their home, buy a nice house in Mexico. They want to retain their Canadian residence as the kids are in Canada and they want to stay in touch. They plan to retire at age 60. They are both 32 with time horizon of 28 years to realizing their dream.

  1. The Objective

The dream now needs to be converted to a financial objective. Knowing what Ted and Gail want, we need to guesstimate as closely as possible what it will cost to make that dream come to reality. Once we know that, we have an Objective to shoot for. To do that Ted & Gail need to complete a financial summary questionnaire that details their current income, expenses, assets and liabilities. Once we have these numbers, and based on the lifestyle they aspire to in retirement and their anticipated life expectancy, we can develop a dollar value of their capital needs at retirement to sustain their lifestyle. Clearly when we make projections, we need to use a variety of assumptions, such as to investment yields, inflation, interest rates etc. to come up with a range of dollar values.

  1. The Strategy

In the Strategy Phase we in concert with Ted and Gail, analyse the cost of financing the Objectives. The analysis will conclude one of three outcomes. The Objective is doable given the cash inflows without having to modify either the objective or modifying Ted & Gail’s lifestyle. The other options are that the objective is doable with some modification to lifestyle and lastly both the objective and lifestyle needs to be modified to realize the goal.

Once the target number is agreed upon, the strategy of what savings and investment strategies should be employed to achieve the goal. Utilizing the investment options available for capital asset accumulation utilizing one or more of the following:

    1. Leveraged investing;
    2. Managed funds
      1. RRSPs
      2. TFSAs
      3. Open investments;
    3. Real estate investing
      1. Domestically;
      2. Internationally;
    4. Mortgages
    5. Active business (running your own business, primary)
    6. Active business (own business, as a cottage industry)
  1. Mechanics of Money Handling

Ted and Gail have some decisions to make about the practical methodologies of money handling so that a Savings Plan can be devised.

    1. Are family incomes co-mingled into “one pot” or separately managed and liabilities for specific expenses assigned to each other. Ted and Gail comfort level is the “one pot” method of finance handling.
    2. Is the investment execution strategy a joint collaborated effort or the two singular individual’s effort totals the objective. Ted & Gail choice is the “joint collaborative” methodology.
  1. The engines of earning

Ted works for a large manufacturer as an electrician and Gail is a successful realter. Ted also likes to tinker in his shop in the back of the house repairing kitchen appliances as a cottage industry. Gail like to dabble in real estate investing. By way of example here is the income revenue

Gross Monthly Gross Annually

Ted: Job: $6,700 $80,400

Biz Appliances: $2,000 $24,000

Total: $8,700 $104,400

Gail: Job:

Realtor: $25,000 $300,000

Family Income: $33,700 $404,000

  1. Earnings Diminution by Expenses



Mortgage: $2,500

Ins Auto Home: $250

Life Insurance: $300

PropTax: $500

Utilities: $1,200

IncTax: $11,800

Total Essential: $16,550

Discretionary: $10,000

Total: $26,550

Balance: $7,150

Ted & Gail have bought two rental properties whose 25 yr. amortization mortgage is being carried by the rental income presently.

  1. Protecting the engines of income


Both are Working and contributing to the family income. The next logical question is what happens to these engines of income if something were to happen to either one of them due to death or disability. No one questions the need for insurance protection against the perils to home or auto. Thus, similar examination needs to take place for that. Both during the period or funds accumulation towards the objective and the current lifestyle accommodation.

Contingency Remedy

Death Life Insurance

Disability LTD, Critical Illness, Long Term Care

  1. Computation of funds needed for retirement

  1. Computation of savings required to meet retirement income needs.

  1. Contingency options

If assumptions used do not materialize, what are the contingency options.

  1. Investment choice considerations.

Where is the best place to invest your savings to have them grow at a reasonable pace within Ted & Gail’s risk tolerance and comfort zones and how to co-ordinate them such that they have little correlation.

  1. Tax considerations

How to arrange assets and asset classes and investment strategies to best take advantages of tax allowances.

  1. Estate Transfer Strategies

What happens to assets left after Ted & Gail and how is it to be distributed.

The planning process involves the following:

    1. Addressing each item line by line;
    2. Discussing and having a meeting of the minds;
    3. Discussing the possible contingencies;
    4. Documenting the decisions;
    5. Initiating the implementation steps;
    6. Agreeing on a systematic monitoring steps & frequency.

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