Quick Tip #12 – The Value of Planning Ahead


A sound financial security plan can help households enjoy the life they dream:

  • 74 per cent of advised households said they would be able to take an annual vacation.
  • 61 per cent of advised households said they’d have enough money to live the life they want.
  • 65 per cent of advised households said they’d have enough money for splurges.

[FPSC, Value of financial planning, 2012]

4 Keys to Rock Financial Literacy Month


Financial freedom is available to those who learn about it and work for it. [Robert Kiyosaki]

flm2016So November is Financial Literacy Month in Canada.

To be honest, I’m not sure what that means. Personally I don’t put much stock in setting aside specific months, or days to talk about specific issues. Especially issues of day to day significance, like Financial Literacy.

We need to get better at teaching financial literacy in this country. That much is certain.

In 2009 Statistics Canada in conjunction with Human Resources and Skills Development Canada (HRSDC), Finance Canada and the Financial Consumer Agency of Canada, conducted a broad ranging study known as the Canadian Financial Capital Survey. The survey was conducted to shed light on Canadians knowledge, abilities and behavior concerning financial decision making. In other words, how Canadians understand their financial situation, the financial services available to them and their plans for the future. The results were sobering and as a result the agencies involved decided to sponsor Financial Literacy Month every November since 2011.

thumbsdownHow did we do? Overall, Canadians average 67% on the survey. But lower incomes meant lower scores, highlighting the need for financial education, especially in lower income demographics.  Canadians who earned less than $67,000 per year generally received a score of less than 60%, those with incomes of greater than $95,000 generally received a score of 70% or above. The vast majority of Canadians earn between $67,000 and $95,000 per year, making the scores in the mid 60s the most statistically significant.

In my opinion the fact that even so called wealthy Canadians rarely got better than a B on the survey says something not only about the state of financial education in this country but also our expectations about what constitutes financial literacy.

There are a few fundamentals I think everyone must learn in order to be considered financially literate enough to function in society:

1 – Start a Budget.

Budgeting does need to be fancy or scary. If you prefer, call it a spending plan instead because in essence that’s what it is. Start with figuring out how much money you have, spend it all on paper before the month begins and then stick to it. If you’re on a limited or variable income it helps to triage your money as well, break your expenses down into the 3 main categories – Food, Shelter and Transportation, everything else is luxury anyway.

2 – Pay yourself second.

thinkagainYou read that right. Conventional wisdom says pay yourself first but the conventional wisdom is just plain wrong. Instead, pay your highest interest debts first. By doing that, in a way you are still paying yourself first because every dollar spent on interest is a dollar you can’t spend on anything else. Once your debts are under control then paying yourself first makes sense, until then you’re putting the cart before the horse.

3 – Reduce, reuse, recycle

It’s not just a good slogan for environmental responsibility. In terms of financial literacy it could be rephrased as spend less, keep longer and re-purpose. We live in a throw away society. Not only is it hurting our planet, it’s killing our wallets. When done right, environmental responsibility is very economical. Start small, buy a reusable shopping bag and carry your own insulated travel mug, you’ll save anywhere from 5 to 15 cents every time you shop or go for coffee.

4 – Save, save, save

Save for a rainy day by building an emergency fund of at least 3 months of expenses, preferably 6. Save for retirement.  You’ll need enough to replace 70% of your pre-retirement income if you don’t want to take a major hit in your lifestyle once the pay cheques stop coming. And Save for major purchases like kid’s education, new cars and major repairs.

As part of financial literacy month I put together a little quiz of my own. This one focuses on the types of products and services I offer through my financial practice. Check it out here https://laurensheil.typeform.com/to/uC5wUu Add your email address at the end to be entered in a draw for a $25.00 Tim Horton’s Gift Card.

Happy Financial Literacy Month.

 Training the Money Muscle


I used to be a competitive runner.

marathon

That’s me, third from the back (just kidding).

But I was on the Track Team in High School. I ran a 5 minute mile at 14 years old and got my personal best time down somewhere close to 4:45. Don’t ask me how good that is, I have no idea, at my one and only track meet I pulled a muscle rounding the second curve and never finished. I gave up running shortly after that but have always fancied myself a great long distance runner.

I’ve returned to it a few times over the years as a way to get and stay in shape. About 4 years ago I started running in the spring and managed to run 5k just about every day for 6 months. I lost 10lbs and got my time down to under 30 minutes. Then it got cold outside and since I’m too cheap for a gym membership I took the winter off and never returned.

Since then I’ve gained 20lbs and developed Sleep Apnea so my wife tells me it’s time to try again before she smothers me in my sleep. I am of the firm opinion that there is no better way to get into an exercise routine that to start running. It is both physically demanding, and rewarding, you can stop and start as you go while building up your stamina (interval training) and it’s inexpensive which is great for a cheap-skate like me, see above. In short anybody can do it.

So I’ve been running every morning for about a week now and I feel great except for one little thing. My right calf muscle ceased up on day two and it still hasn’t completely let go.

I was thinking about my sore leg when I sat down to do my budget for this week and I realized that managing money is a lot like running, or any physical training for that matter.  If done properly, with a clear plan, some goals and a little grace for how out of shape you are you can transform your life in immeasurable ways. It might be painful at first. There might be areas of your life that need special attention and that take longer to bring in line, like my leg.  You might need to be massaged, stretched and even rested from time to time but through consistency and care your money muscle will get stronger. That’s what training is all about.

Here are my 4 steps to exercising your money muscle and building an effective budget.

1 – Change your thinking.

Budgeting is not scary, it’s fun. With an effective budget you get to tell your money where to go instead of wondering where it went.

2 – Track every penny.

I mean it. Forget about trying to allocate money to specific categories at first. Just be conscious of where it’s going and write it down. You’ll be amazed at how much that morning Latte adds up to over the course of a couple of weeks, or even just a few days.

3 – Give ever dollar a job.

Now consciously spend every penny, on paper, on purpose before you receive it. Now as the money comes in you’ve already spent it once so it’s easier to spend it again to obtain the things you said you needed. If there is money left over put that first toward paying down debt and second to savings.

4 – Celebrate successes.

When I cracked the 5 minute mile I was ecstatic and I told everyone who cared to listen. Same thing when I cracked the 30 minute 5k, when you reach personal milestones like paying off a debt or buying a new car for cash that’s a big deal, tell the world!  Winning is fun and inspiring, just ask any Olympic Athlete!

For more information on The Meekonomics Project and our Financial Coaching program write to;  themeekonomicsproject@gmail.com

 

Every Dollar Has A Name – Every Dollar Has A Job


Four Rules of Zero Base Budgeting

I love making my monthly budget!

I'm not crazy

But I get it, most people hate budgeting and I used to too. That is until I discovered the technique known as Zero Base Budgeting. The goal of Zero Base Budgeting or ZBB is simple. You start with nothing, you end with nothing and in between you get to spend everything.   Sounds like fun right?

It is!

I can hear you already, “wait isn’t that irresponsible?” No, ZBB is actually the most responsible, cleanest and most logical way of managing money I have found. And believed me, I’ve tried everything.

But in order to make ZBB work you have to follow a few simple rules.

Rule # 1 – Spend every penny on paper, on purpose before the month begins. Or as the title of this post suggests, give every dollar a name. That way, as the money comes in there is never any conflict as to where it needs to go.

Rule #2 – Escrow funds for monthly expenses. A lot of the things we pay for, rent, car payments, etc are due in lump sums once a month. But most of us get paid every two weeks. Rather than have to come up with a large sum of money all out of one pay cheque, divide those payments in two and set half the money aside. Then when the bill is due you already have money in your escrow account. You can do this on paper but I find I lack the discipline to leave money alone in my chequing account. I set up a separate savings account that I transfer the escrow funds into every payday. I transfer it back out again on the day the bill is due.

Rule #3 – Make savings a line item. If you want to save $100 a month for your retirement or some other future goal but you never seem to have anything left at the end of the month it’s likely because you’re not being deliberate enough. Put it in the budget and stick to it. This is the old “pay yourself first” adage but it’s not really. First or last is irrelevant, you’re paying yourself just like you would any other bill.

Rule #4 – There is no such thing as extra money. If a budgeted item costs less than expected, or you end up bringing in more than anticipated that is awesome! But be careful not to let it side track you from the ultimate goal. There are always items in your life that you could throw more money at if given the chance; paying down debt and saving for the future are two. You could also treat yourself to a night out or some other small luxury. But the goal here is to have a plan, stick to it and start over at zero at the beginning of the next month.

In my experience ZBB prevents overspending and promotes both saving and debt repayment.

Does anyone else have experience with ZBB?

What did you find?

What are some other techniques people use for budgeting?

 

 

Myth Busters


One of my favourite guilty pleasures is to watch the TV show “Myth Busters” on The Discovery Channel.

mythbusters

It’s a great way to kill half an hour when there is nothing else on and learn how urban legends and Hollywood stunts either do or don’t work in the real world.  In particular I remember one episode where the hosts deconstructed a scene from Raiders of the Lost Ark.  Indian Jones tosses a rod through the spokes on a motorcycle’s front wheel causing the bike to flip forward and throw the rider twenty feet into the air. With a really big explosion to boot!

Spoiler Alert! – physics doesn’t work that way, the force required to change the trajectory of someone on a speeding motorcycle from forward to vertical is far greater than would be provided by a simple iron rod, not to mention the fact that nothing about the scenario would suggest any kind of explosion.  It’s still a pretty cool effect though, watch the clip here…

We are surrounded by these kinds of myths every day.  Most of them are just harmless entertainment but believing certain things as they are portrayed in the media and perpetrated through urban legend can be harmful.  Not the least of which are some of the myths we’ve been taught to believe about retirement planning.

Earlier this month I found this following article in the Wall Street Journal.  “Five Retirement Myths That Could Cost You.”

Now granted this article takes things from a US perspective and I am the last person who would suggest Canadians take seriously a lot of advice they get from south of the boarder, I’ve written on the pitfalls of that strategy before, but a lot the principles, if not the actual practices still apply.

Points 4 and 5 are especially worrisome to me as a Financial Advisor.  I can’t tell you the number of times I’ve counselled people in their early retirement years who are shocked to learn that their expenses did not drop as much as they thought they might, in a lot of cases expenses actually rise in early retirement when, as the article suggests, people have nothing but time on their hands and are still in relatively good health.  What else is there to do but spend money on things you didn’t have time to do before?  Golfing everyday isn’t free after all!

And what about your health care?  While most prescription drugs are covered by the Ontario Health Plan for Seniors many are not, and the benefit doesn’t start until you turn 65.  What if you decide to retire early?  Neither does the plan cover other things usually taken care of by company health plans like dentists and optometrists.

Most myths and urban legends like the ones portrayed on Myth Busters are just fun facts to ponder but when it comes to your retirement why take the risk?  Get the facts first, what you don’t know can hurt you.  For more information and a free personal retirement consultation write to: themeekonomicsproject@gmail.com