Personal Financial Planning

Skyler and Lori are just one semester shy of graduating from First Nations University of Canada. Both are good friends and have supported one another throughout university. Skyler is getting a bachelor of administration degree with a major in accounting. Skyler wants a job that offers security and opportunities for career growth.

Lori is getting a bachelor of social work degree and hopes to eventually become a school counselor. She has interviews lined up at nearby schools. Both Skyler and Lori will need additional training to get the jobs they want, and they are already in debt for their education.

Lori qualified for a student loan. She will owe about $30,000 of principal plus interest. Lori plans to start working immediately after graduation and to take classes on the job or at night for as long as it takes to get the extra certification she needs. Unsubsidized, the extra training would cost about $3,500. She presently earns about $5,000 a year working weekends as a home health aide and could easily double that after she graduates. Lori also qualified for a grant of around $5,000 each year. She was a full-time student and paid for her rooms in an off-campus student housing unit.

Skyler was awarded post-secondary funding from his First Nation and received some money from his relatives to support his education. He has also taken out a small loan from his credit union. He has been attending classes part-time year-round so he can work to earn money for university and living expenses. He earns about $19,000 a year working for catering services. Skyler feels very strongly about repaying his relatives who have helped finance his education.

Lori has managed to put aside $3,000 in a savings account earmarked for clothes and gifts. Skyler has sunk all his savings into tuition and books, and his only other asset is his trusty old pickup truck, which has no liens and a trade-in value of $3,900. For both Lori and Skyler, having reliable transportation to their jobs is a concern. Lori hopes to continue using public transportation to get to a new job after graduation. Both Skyler and Lori are smart enough about money to have avoided getting into credit card debt. Each keeps only one major credit card and a debit card and, with rare exceptions, pays statements in full each month.

After graduation, Skyler plans to rent an apartment. Skyler also has a rent-free option of moving in temporarily with his brother. Lori feels very strongly about saving money to buy a home. Although still young, Skyler is concerned about being able to retire – the sooner the better – but he has no idea how that would be possible. He thinks he would enjoy running his own catering firm as a retirement business one day.

Lori's starting salary as a school counselor will be about $32,289, and as an entry-level accountant, Skyler would have a starting salary of about $38,000. Both have the potential to double their salaries after fifteen years on the job. Aside from Lori's savings bonds, she and Skyler are not in the investment market, although as soon as he can, Skyler wants to invest in a diversified registered retirement savings plan (RRSP) that includes corporate stocks and municipal bonds.

Lori and Skyler certainly have a lot of decisions to make, and some of those decisions have high-stakes consequences for their lives. To understand their decision-making process, we should consider some of the following questions:

1. What individual or personal factors affect Lori's and Skyler's financial thinking and decision-making?
   
   
2. When should Skyler and Lori invest in the additional job training each will need, and how can they finance that training?
   
   
3. How will Lori pay off her university loan, and how much will it cost? How soon can she get out of debt?
   
   
4. How will Skyler repay his loan, reflecting his family's investment in his education?
   
   
5. What are Lori's short- and long-term goals? What are Skyler's?
   
   
6. What should they do about retirement needs?
   
   
7. What should they do about saving and investing?
   
   
8. What should they do about buying a home and a car?
   
   
9. What is Skyler's present and projected income from all sources? What is Lori's?
   
   
10. What budget categories would you create for Lori's and Skyler's expenses and expenditures over time?
    
    
11. How could Lori and Skyler adjust their budgets to meet their short- and long-term goals?
    
    
12. Based on your analysis and investigations, what five-year financial plan would you develop for Lori and Skyler?
    
    
13. How will larger economic factors affect Skyler and Lori's decisions and the outcomes of those decisions?

You will make financial decisions all your life. Sometimes, you can see those decisions coming and plan accordingly; sometimes, well, stuff happens, and you are faced with a more sudden decision. Personal financial planning is about making deliberate decisions that allow you to get closer to your goals and sudden decisions that allow you to stay on track, even when things take an unexpected turn.

Blair Stonechild states, "Currency is only a medium of exchange and not a goal itself." As a medium of exchange, it trades goods and services instead of barter. Money measures the value of goods and services and the value of stores that can be used for future purchases. Indigenous Elders offer a distinct perspective on money in many of the interviews shared throughout this text. Elder Ermine, for instance, states that "Money is a tool" that you use to create certain conditions.

According to Richards, "Tools are meant to be used. They are not meant to sit on a shelf and collect dust." Richards provides an example of a family that saves for a family vacation. Instead of judging the expenditure of money as bad or good, positive or negative, he views it as a tool that has helped that family to achieve their objective, which is more time together. To fully benefit from our tools, we must understand how to use them and what we are using them for. Some students might want to pursue a degree, others might want to buy a home for their families, and some might want to go on a vacation. It is difficult to accomplish any of these goals without money. Money is a way to achieve our goals and not a goal in itself.

The idea of personal financial planning is really no different from the idea of planning almost anything: you figure out where you'd like to be, where you are, and how to go from here to there. The process is complicated by the number of factors to consider, by their complex relationships with each other, and by the profound nature of these decisions because how you finance your life will, to a large extent, determine the life that you live. The process is also complicated – often enormously – by risk: you are often making decisions with plenty of information but little certainty or even predictability.

Personal financial planning is a lifelong process. Your time horizon is as long as can be – until the very end of your life – and during that time your circumstances will change in predictable and unpredictable ways. A financial plan has to be re-evaluated, adjusted, and readjusted. It has to be flexible enough to be responsive to unanticipated needs and desires, robust enough to advance specific goals, and all the while be able to protect from unimagined risks.

One of the most critical resources in the planning process is information. We live in a world full of information – and no shortage of advice – but to use that information well, you have to understand what it is telling you, why it matters, where it comes from, and how to use it in the planning process. You need to be able to put that information in context before you can use it wisely. That context includes factors in your individual situation that affect your financial thinking and factors in the wider economy that affect your financial decision-making.

Source: Bettina Schneider, https://opentextbooks.uregina.ca/financialempowerment/chapter/chapter-1-personal-financial-planning/
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 License.