Tag Archives: budgeting

Are You Running Your Own Ponzi Scheme?

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A few months ago, 60 Minutes re-ran a story on the 2nd biggest fraud since Bernie Maydoff, with reporter Steve Kroft. It was an interview with Marc Drier, whose ponzi scheme defrauded people of almost $400 million.

I want to read you a section of the interview, and then translate it to you and me:

Kroft: So you were digging yourself into a hole?

Dryer: Very much so. You start with something that is manageable and small. You know it’s wrong, but you think you can fix it and you can’t get out of it. It becomes quicksand. I had to keep meeting obligations that became bigger and bigger. (I was) creating an illusion, all mortgaged to the hilt.

I recognized in the last couple of years that what I saw as a $20 million mistake had grown into a mistake of a few hundred million dollars. And then, I did some increasingly irrational things, because I wasn’t thinking clearly…(and) I’ve lost everything.

Now, let’s translate that to the financial situation so many people face:

So you were digging yourself into a hole?

Very much so. I started with some borrowing that was manageable and small. You know it’s wrong, but you think you can pay it off soon, but can’t get out of it. It becomes quicksand. I had to keep meeting obligations and payments that became bigger and bigger each month. (I was) creating an illusion of a lifestyle that was all mortgaged to the hilt.

I recognized in the last couple of years that what I saw as a small mistake had grown into a mistake of (however many dollars).

And then, I did some increasingly irrational things, because I wasn’t thinking clearly. Like taking cash advances, stretching my car loan, getting a line of credit, living on my overdraft, going to a Payday lender, getting behind on my bills…(and) I’ve lost everything.

That’s millions of families that don’t or won’t do a budget. Families that refuse to live on less than they earn, and still kid themselves into thinking that loans and borrowing are a blessing and part of a solution.

Some Financial Resolutions That May Actually Work

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Sometime last summer I shared with you that there are a number of psychic web sites claiming to predict your financial future – yea right. But let me try to predict one or two things that most of us will go through tonight: We will drink too much, eat too much, stay up way too late, get depressed about things from 2009, or the coming year, or make some wild New Years resolutions that don’t have a chance of surviving for more than a week or so.

It’s something that diet plans and fitness clubs count on. We get excited, sign a one or two-year contract, and show up for a month – tops. We’re still paying payments on the contract, but haven’t seen the place in months. When it comes to our finances, I want you to make this year’s resolutions different. I want you to be smart about it, and give yourself a fighting chance of achieving your dreams and goals.

For your financial resolutions, and I hope you make some, they need to include a few things:

They must be YOUR goals. In other words, they cannot be handed down to you by your spouse, or someone else. You cannot make a goal of getting your car or credit cards paid off without agreeing to it with your partner. You’re not Moses. You don’t get to hand a list of things to someone else. It won’t work.

They must be specific. Just a goal of getting your credit cards paid doesn’t work, and you’ll never do it. A specific goal would be to pay off these particular cards, in this order, not charging on them anymore, and cutting them up. THAT is a resolution you’re way more likely to keep.

You need a time-frame: Sometime next year, in the future, down the road – those words don’t get it done. Set a day and a month to make it happen.

Goals must be in writing and tell the world: Achieving your goals is 5 or 10 times more likely if you write them down. And I suggest posting them on the fridge so that they’re in your face every day. You’ll also massively increase your odds if you tell a bunch of people. They’ll hold you accountable, if they care about you, and you’re more likely to be disciplined if you feel that others are watching.

But the big one is that you have to want to want it in the first place. There is no feeling in the world like being debt free. Most of us have never been there, so we really have no idea. But it’s worth it and you’re worth it.

Start by sitting down with your spouse, if you’re married, and agreeing to some financial goals for 2010. And take 10 minutes to do a budget and a list of your debts. No TV, no kids – just you and a piece of paper. That’ll be more than 99% of the world will accomplish.

I wish you a great New Year and may all your financial goals come true for 2010!

More Often Than Not, Being Broke Is Our Choice

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A survey weeks ago by the Canadian Payroll Association found that around 60% of us live paycheque to paycheque. While their president stated he was very surprised that people were so close to the line, we shouldn’t be surprised at all. In fact, I believe the figure is actually higher!

Being poor and broke is most often a choice. We create our own mess, the mess doesn’t just happen to us. No, not consciously, but in the financial decisions we make, the debts we take on, and our priorities with money. I know that if I spill a cup of coffee, right now, this minute, I’m going to clean up the mess. That’s a cup of coffee – why don’t we take that same attitude towards our finances?

To change it around, we can spend less, or earn more. Either one works, both together change our financial situation that much faster. If we wanted to, by next week, we can make around $1,000 extra each month delivering pizza, the newspaper, or a bunch of other part time jobs. If we wanted to…

If we wanted to, we can sell our car with the big payments by next week, and drive a $2,000 beater until we’re debt free. Just not having that car payment is a huge amount of money that could go to paying off other bills. If we wanted to…

People don’t move until they’re fed up and mad with their financial situation. When we no longer want to live in the state we’re in, you’d be amazed how quickly we can change it around. But until then, we keep confusing our needs with wants, and just give our money to everybody but ourselves.

We’re like an ATM – two paycheques go in, and all the money quickly goes out to make every payment in the world, and we just hope that we’re not out of money before we’re at another payday. Everybody has their hand out for our money and we give it to them voluntarily, and then complain that we’re broke. That’s not a life – that’s surviving, and it’s not a fun way to go through life!

At some point, all the stuff we’re still paying for isn’t worth the financial pain we’ve taken on. At some point, hopefully soon, it has to become an issue of the heck with the cheeses, I just want out of the trap!

In relationships fights over money is one of the #1 issues with couples. It’s the biggest cause of divorces, and a huge contributor to male suicides. We hear this, we experience the fights, and we STILL keep doing what we’re doing? Does that make sense at all?

People know how to get wealthy and know how to avoid making their financial situation worse. But why don’t we take the steps to make it happen? The bottom line is whether we’re prepared to do what it takes to turn it around? If so, it starts with some easy steps that very few people take:

Sit down without the TV and the kids and do a written budget with your partner. Every dollar is planned, and nothing gets spent over and above the budget. It’ll really clearly show you where all your money is going. If the budget is $600 for groceries, $300 cash goes into an envelope or a jar for the coming two weeks. When that money is gone – you’re done spending.

Step two is to get an emergency fund of one week’s gross pay into a separate savings account. Stop being naïve – there will be an emergency. This small rainy day fund is critical. It will rain – you know that!

Step three is to focus on paying off your debts. No RRSP savings, no investments, no vacations, and you’re not seeing the inside of a restaurant unless you work there. But rather a 100% focus on getting debt free except the mortgage. The It’s Your Money book has an easy to understand section that has you list your bills smallest to largest, then every dollar goes to the smallest debt until it’s paid off. Then it rolls to the next one, and so on.

There was a survey done of the richest people in the world from the Fortune 400 list. Seven out of ten started with nothing. Their wealth was built entirely on their own, without inheritances. When they were asked what the number one key was to building wealth, the answer was always: Get out of debt and stay out of debt.

It might seem cruel, but if were to be honest with ourselves, would we agree with this line from Larry Winget’s book jacket: People want what they’ve got. It’s a simple formula: You have what you want because your actions produced your results.

Can you get out of the life of living payday to payday? You bet. Do you want to? I’m guessing we all do. Will you do what it takes to make it happen? Ah – that’s where 90% of people choose not to…

Financially, Can You Afford To Be A Stay At Home Parent?

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Last week, Alberta Finance Minister Iris Evans raised the issue of making staying at home with younger kids more of a priority than money. Whether she was right or wrong, she is the Finance Minister and many families may agree with the Minister, if only they could make it happen.

In families were both partners work, the thought of one parent staying home to raise the kids is often a goal and a dream. It might not be for everyone, but those who want to do it, often feel they can’t afford it, financially, and the dream dies right there.

Yes, almost all couples who have decided to have one partner stay at home, and to make raising their kids a priority, will share that it was hard. But note that it WAS hard – in the past tense.

For sure, the most challenging steps are mainly in the initial adjustment pains. Can it be done? Yes. Is it worth it? You decide. But just make sure the decision is more about your values, priorities, family, and kids, than it is about finances. After all, your credit card companies and lenders shouldn’t be setting your priorities. But in reality, our debts and monthly payments do dictate our lives.

But money is almost always where it starts. The most common feedback is: “We’d love to be able to, but our family can’t possibly make it work without my partner’s income.” Often, however this “what’s the use” mindset is not true, because gross income doesn’t count. If your partner makes $2,000 a month, you need to deduct the taxes, EI, CPP, staff fund, and all those other deductions which come off the top, and chances are the real take-home is more likely to be around $1,400 tops.

Now subtract the bills which are mostly as a result of earning this second income. For the most families, that starts with a second vehicle, just to be able to get to work. Are there $200 or $300 car payments? That alone adds another $200 or so for insurance, gas and maintenance. What else? Perhaps there are current (or future) daycare expenses of another $400 or more, and probably at least another $100 for lunch, clothes, etc.

Without these “work bills,” the real net income in this example is $400 a month at best, not even considering the working partner may now also move into a lower tax bracket. That’s less than twenty bucks a day! Sure, each situation is different, but ten minutes of looking at your finances from a different perspective can have a big impact. It’s the old saying: You have to spend money to make money. But in this decision, it totally works against you, and makes things worse and not better.

Oh, and one more question: What’s the value of your car? OK, how does that compare to the value of your kids’ education savings plan? Or what’s the monthly payment on your vehicle? Is that the same amount you’re contributing each month towards your kids’ education? Aren’t those fair questions about your choices and priorities? But how often do our actions speak louder than our words?

If your desire is to have one partner stay at home, can you really afford not to do it? Yes, it’s a one-time adjustment, but it can also create opportunities, bonds, and memories that money just can’t buy. So here are a few questions to get you started thinking about the “how to,” instead of the “can’t be done:”

• What’s the real net pay you’re dealing with?
• How much money are you paying out of pocket each month directly related to the job?
• What monthly bills or payments (such as car payments, etc.) would you be able to drop?
• How much (if any) would your partner’s tax drop by with only one of you working?
• What bills can you consolidate into a lower payment (or pay off with current savings) to increase your cash-flow?
• Can you get rid of your current car payments by paying off the vehicle, terminating the lease, or trading down to a less expensive vehicle you’re able to pay cash for?

It’s time to start our “No Spend Week”

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This started with a story in the Washington Post a couple of months ago about a lady name Kate Wheelock and her family who made it a 14 day plan (and did survive).

Now, we’re always ahead of the curve so don’t be surprised if you catch Oprah now doing the same thing. But remember – we were there first!

Our plan is to go through a full week without spending any money. No credit or debit cards and no need for cash – you won’t need any of it. Pay your regular bills such as your utilities and other monthly obligations but that’s it.
So today you’ll need to fill up your gas tank and get to the grocery store. Yes, that’s it. Then you can leave your cash, credit and debit cards at home for the week.

Now as I’m more experienced by two days, here’s a couple of things:

You have to make the tank of gas last. Plan your errands, don’t do them, or walk wherever you can.

If you have kids – get them involved. If possible, take them shopping with you so they can buy into the idea that what you buy is what you get – period. If not, you’re just being weird again. You can also have them play along. Yes, make it a game and not a pain and you’d be amazed how your attitude changes. Give them an envelope and every time you and your son or daughter agree that today you would have bought this or that for them, the cash goes into the envelope, instead.

Kids learn quickly and real cash in an envelope vs. the chocolate bar that’s long gone makes a big difference. They’re visual – the chocolate bar is barely remembered but the cash is still there – as is the lesson of foregone treats or spending results in REAL money. Maybe all of us could use that lesson a little more often…

You won’t be seeing the inside of a restaurant. That’s not a bad thing anyway as they are usually 20% food cost and 80% ambiance that you’re paying for.

That’s the hard one for me so I’m expecting Subway and Domino to be really hurting for a while. The food you have in the fridge or freezer does turn into meals! But now you have to think vs. just going back to the store!

Whether you do it to just see if you can, or to find out if you can make it for a week without all that extra (and 99% unnecessary) spending, let us know. There’s strength in numbers and perhaps you can share some of your insights.
If you’re a Christian like I am, consider doing it for Lent this year as we approach the Easter season. Lent is from the Anglo-Saxen word to lengthen.

In the 1st century the Lenten season was originally six days, now it is the 40 days before Easter. I was actually inspired to make it two weeks after my Pastor’s sermon this past Sunday sharing his three items.

In the words of President Obama: Yes you can!

Join us and let’s stay in touch. Do remember that when you tell people why you brought lunch to work or the likes they’ll want to make fun of you. It’s always amazing how many and how often broke people want to give you financial advice!
Oh, and if you’re not participating: Why?

I don’t want to put you on the spot but is it that you’re afraid of what you’ll learn? Afraid to let go of those fancy coffees or impulse spending? Or afraid to fail? Come on – there’s no failure even if you make it one day! It’s between you and your wallet. It’s your money!

But would you at least give yourself a credit limit for a week? Make it $10 bucks and that’s all you can spend for the day. Gas, food, Tim Horton and everything…would that be something you’d consider?

How the Real Business Credit Crunch Is Unfolding

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Today, I’m going to try to make you smarter than 98% of the population by giving you a real example insight of the business credit crunch. And without giving you a headache or making you sleepy:

Let’s say you’ve got a house full of antiques and know they’re worth around $100,000.

Now, you got to an antique auction in town and nobody is bidding on anything. I mean, you can hear crickets in the place – there’s just nobody bidding and the prices are averaging 60% of their actual valuations.

At home, you can tell all your friends your antiques are worth $100,000, but that’s just talk. For someone that relies on your financial statement, the true value right now is $60,000 because that’s what the last market value was out in the word! In the same way, you can’t count next months’ paycheques on your bank balance today.

It’s a law called Mark to Market and started because of Enron Energy frauds more than a decade ago where they counted billions of dollars of next years’ maybe profits as today’s income. The financial statement now has to show the actual true market value each day!

The logic of this regulation is solid but in our example it’s also totally stupid, right? Well, there’s also a law of unintended consequences and that regulation is responsible for a huge part of the credit crunch for businesses.

Here’s a “today” example of it: Drug giant Pfizer is buying another drug giant Wyeth. One lender was approached to do a $10 billion finance package as part of the sale. Maybe the rate was good, the deal was solid – I don’t know. But today, lenders have to value commercial loans at about 70 cents on the dollar. So the day the loan gets made, if it does, it isn’t a value of $10 billion – it has to be shown as $7 billion. So on paper, this lender has lost $3 billion the day the cheque is written! THAT is a problem and that’s part of the reason business lending has slowed down so much.

One other thing:

I have a great idea but I don’t want to do it alone:

The Washington Post recently featured a story about Katie Wheelock and her family who went two weeks without spending a dime. The original family went a month but how about you join me for seven days of No Spending Week.

Fill the fridge, gas up the car and keep paying your normal payments like utilities, the rent or mortgage payments and car payments. But nothing comes out of your pocket, off your debit or credit card. No Tim Horton, no lunch out, make the tank of gas last or take the bus, no restaurant meals or take out. Yes, on day five or six you’ll need to reach a little deeper into the fridge or further down into the freezer and get a little more creative. But you can do it, I guarantee it.

Now, I don’t want to be a lawyer here but you know exactly what I mean. Try it for a week and you’d be amazed at the lessons you’ll learn and the insights you’ll get about yourself, your habits and the money that just mysteriously leaks out of your pocket. As Canadians, our so called burn rate of a $100 is 3 ½ days! And that doesn’t count what we put on credit cards.

I hope you’ll join me because there’s definitely strength in numbers. We’ll start next Wednesday night to let you go shopping and to the gas station and go until Wednesday March 4th.

In the worlds of President Obama: Yes we can!

Happy Boxing Day

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Today, and it should probably be Boxing day, too, don’t head back to the stores for anything other than food stuff. Last minute shopping and impulse purchases are huge financial killers. Today, just say no. You’ve done enough, bought enough and are enough. One more present isn’t going to impact your Christmas, honest!

You know Christmas is coming again next year, right? That’s not going to be a surprise. Just like your car insurance and money for a vacation. There are a few annual bills that seem to always catch us by surprise. But nothing is further from the truth. We know they’re coming! So make a decision to set up a separate savings account that’s not hooked up to your ATM card. Then either do it yourself, or ask your bank or credit union, to transfer over a fixed amount of money each month. It just needs to be one-twelfth of what these annual bills add up to so you have the money when they come due.

Lastly, there’s the biggest, best and most powerful Christmas present you can give to yourself and your family. It’s the gift of financial freedom. And it all starts with two simple steps:

Firstly to make the decision to be debt free and dream ahead a little of what that’d be like to have literally no bills to pay and nobody sucking huge amounts of interest and fees out of your income.

The second step it to sit down with your partner if you’re married. One hour with no television, no kids and no interruptions. All you need is an open mind and heart and a genuine conversation. I know, most people would rather talk about the weather and sex than their finances, but few conversations are more important.

Talk about your dreams and your finances in an honest and open way. Then get a piece of paper and write down your net income each month and every dollar that’s going out right now. Each dollar has to have a label on it before it gets spent.
The 2nd part is just to list your bills and debt. Because it can only get paid with what you have left over after food, shelter, clothing and transportation.

The game plan is to pay minimum payments on everything but the smallest debt. Then the next smallest one, and so on. You’d be amazed how quickly you get traction and a huge level of confidence.

The section in the It’s Your Money book walks you through it really simply. It’s worth it. You’re worth it, and one of the best gifts you can give yourself and your family.

When you run out of money you run out of peace of mind

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Less than 45% of us have any kind of savings for retirement. The simple reason is that we don’t pay ourselves first. We pay ourselves last – but since there’s no money left over right now, last means…well never. To start saving, most of us need to make some payments go away first in order to free up some money.

When our debt and payments start getting carried away, we can do one of three things: We can stay in denial and continue our optimism that it will somehow take care of itself.

We can get frustrated, depressed and throw our hands up, or we can have the courage and discipline to view these payments and debts in realistic terms and make simple and fundamental changes to turn things around.
Yes, it takes courage and discipline – nothing is easy, but it’s well worth it. After all, those who understand interest want to collect it. Those who don’t are the ones paying it.

An easy place to start is in the debt chapter of the It’s Your Money book on the step-up debt payments. It walks you through a simple example of $25,000 of debts and pays it off in less than one-quarter of the time with just $100 more each month.

Even if becoming payment free seems impossible, two easy things are to take your smallest monthly payment and do whatever it takes to pay it off. That alone frees up a bunch of money.

The second one is to cut $200 of your expenses each month. If you make it a game and not a pain and honestly look at every dollar going out the door you’ll easily do it.

We may not want to face it today, but at some point we have to change from a consumer mindset to a savings mindset. At that point it shouldn’t take a decade just to get back to zero in paying off your bills.

To have some different results, we have to do some different things. We have to make some better choices which are not based on old patterns, fixed beliefs or previous habits.

Because you and I have experienced it: When you run out of money, you run out of peace of mind.

Getting Financially Fit For 2008 – Part I

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Well, here we are at the start of a New Year, and now is a great time to focus on the wave of bills coming this month, and how to make the coming years a lot different, financially, than the past years have been.

But please don’t make it like the wave of fitness club memberships where everyone shows up for a week and by February they’re all a ghost town again. Getting financially set for 2008 is one of the longest lasting gifts you can give yourself. Financial freedom really does change lives and also changes relationships, because the number one fight in relationships is about money!

1. Just once – make a budget. You cannot see where your money is going unless you put in on paper. Half an hour with your partner, no TV, and no kids. By the time you’re done you’ll get some huge surprises of where your money is going and how little you really have to live on, once the bills are paid.

2. Get proactive. Don’t make it a scramble again next year to have money for Christmas or for all your annual bills that we never seem to have money for. Open a savings account but DON’T hook it up to your ATM card. It’ll be too tempting to tap it. Add up what you need for Christmas next year, your annual car and house insurance and your property taxes if they’re not paid monthly or through your mortgage. Divide it by 12 and start putting that money aside monthly.

3. Cut up all but one of your credit cards and learn to live without plastic, and no more borrowing – period. It’ll take a month of whining and adjustments, but by February you’ll be amazed at how much extra money you have and how you start looking at your spending in a whole different way.

4. Put your list of debts on the fridge so it’s right in your face each and every day. Then get mad. Really mad that everyone is getting rich off your money and you’re broke. Start attacking these one at a time, starting with the smallest bill because it’s the one you can pay off the quickest. When it’s gone, roll that money to the next one, and so on. It’s in the budgeting chapter of the It’s Your Money book in easy to follow steps.

5. When you’re in a hole – stop digging. You’ve now stopped borrowing and living on make-belief money with your credit cards, and you’ve got a game-plan to attack your debts starting with the smallest.

Now speed it up. These ideas will make it really clear how serious you are in becoming debt free:

• Have a garage sale and sell so much stuff the kids are getting nervous that they’re next.
• Sell the car with the killer payments and get a $4,000 car you can pay cash for.
• Take any savings account at 2 or 3% and put that money onto your debt. 3% savings vs. 19% interest is an easy choice.
• For at least 90 days, don’t set foot inside a restaurant unless you work there! Think macaroni and cheese – that alone will put you $300 or $400 ahead each month.

Is it worth it? Only you can decide. But don’t tell me that you’re hurting your family when you do this. It’s quite the opposite. Debt freedom and financial responsibility is one of the greatest gifts you can give to your family.