Tag Archives: savings

The Huge Payday of Today Savings

Trying to save money for the long-term when you’re in your 20s is kind of like the challenge with climate change. We know we need to, or should, do something, but we’re not really willing to pay a price to do it. Why? Because the payoff is so incredibly far down the road, and most people don’t want to make many today sacrifices in order to achieve it.

Yes, there’s a price to pay to set aside savings. It’s the stuff you’ll need to give up right now in order to have the investments way down the road. And that’s a value judgment where the long-term typically loses out to the “today” spending.

That’s the reason it almost has to be savings that come directly out of your bank account automatically. You can’t spend it if you don’t have it. My biggest financial regret is definitely not saving a few bucks every payday into an S&P ETF (electronically traded funds) index fund. Set it and forget it, because it’s a basket of the top 500 companies where you now own a tiny piece of each of them. That’s great diversification and it’ll take you less than 30 seconds to search that the S&P historical returns over the past 50 years are over 10%.

One more way to save, or likely to pay off about half your student loans in a year is also in the Money Tools book chapter called: Broke is the new rich.

If you’re graduating from university, you’ve had two or four years of living on mac and cheese. Now going into the work force with a paycheque, you have an incredible pent up demand for spending and buying stuff that you really couldn’t and didn’t for all those years.

However, if you just live like a poor student for one more year, you’re not really make any lifestyle adjustments. You’re just living on very little money for one more year. If you can do that, you’ll be able to pay off a ton of your student loans in the coming year. Only one problem: Stay on your tiny student spending plan. Once you have a credit card, bought a vehicle, stepped up for some nicer furniture, or moved to a nicer place, it’s next to impossible to give all that up again.

Maybe two or three people in your entire grad class will do what we talked about the last four weeks. I hope you’re in touch with one of them for the next couple of decades as you watch them become incredibly successful financially…

Want to Assure Your Teenager Succeeds? It’s Three Things

The Wall Street Journal recently reported on an extensive study of teenagers and their odds of being in poverty. The stats were pretty depressing, but the way out was also quite impressive and easy.

No matter what background, ethnicity, poverty growing up, etc. the odds of any teenagers getting into, or staying, in poverty are less than six percent if they just do three things:

Finish high school

Hold a full-time job

Don’t marry or have a kid until after age 21

That doesn’t seem so hard. If that’s true, the odds are more than 94% that your teenager will have financial success for a lifetime. If any one of these three isn’t done, the odds increase quite quickly, because each have a significant ramification on their income and lifestyle.

These three basic things really are incredibly important for any teenager to know – and to carry through on.

Step two would be how to now become financially successful. That also isn’t that hard to do. In the Money Tools book is a two page chapter on how to make your teenager a millionaire. In short: Save $9,300 by the time you’re 21 and invest it. The money will double every seven or eight years until they’re ready for retirement. At that point, it’ll be over one million dollars without saving another dime.

The challenge for parents or grandparents is that their kids or grandkids don’t listen to them. Yes, it’s true – I hear that over and over again. It doesn’t help that 80% of parents don’t talk to their kids about money or finances, but that was then – this is now. You can’t live for a better past and you need to remember that you can’t make a horse drink. Lead them to water and remember that, when the student is ready, the teacher appears.

Go to Mosaic (they have a bunch of signed copies) or to Amazon and get the Money Tools book. When they’re ready, they’ll use it. But don’t wait for the “ah-ha” moment where they tell you that you’ve been right all along and now they’ve seen the light. It won’t happen! You have to know that they’ll learn when they’re ready. All you can do is give them the tools and the information and keep an open line of communication. That way they know they can ask without judgments or lectures.

That’s it! I harp on this every week and maybe get one or two emails a month with positive feedback. If I were to think I should be getting hundreds of emails, I’d be incredibly depresses. It’s my job – and your job – to plant the seeds. It’ll be their job to grow up and to grow those seeds into something beautiful – if they choose to – and when they choose to.

Financial Worries Are Literally Making Young People Sick

A study of millennials, those around 18 to 35 years old by Northwestern Mutual, found them to be anxious, worried, sick, and often depressed about their debts and finances.

The study found about 70% of this generation experienced anxiety because of their incomes, and 53% because of worries in losing their jobs. More than a quarter of them admit that their financial stress impacts their job performance. Of course it would! Imagine a lot of debt and barely being able to make it through the month. Now your boss wants to see you. What do you think is one of the first things to flash through their mind? Oh boy – I might lose my job. And what do you think the odds are that someone in financial stress will every stick their head above the crowd or would ever make any suggestions for fear of being targeted? No chance.

Their cell bill gets paid on their credit card, one paycheque is wiped out with rent, the other will their car payment, utilities, and other necessities. Then the credit card for spending money to keep up appearances while they’re sinking further into the hole.

It’s not a fun way to go through life – whether it’s older adults, or those just out of school and now working. That kind of stress leaks out. It’ll manifest itself in physical sickness or depression. But that happens when nobody is around. I’ve been there – I’m not making this up! To the world, and most often to their parents, they continue to put on their happy face as if everything is great.

There are solutions. They’re not complicated and won’t take all that long to implement – honestly.

First, get down to Mosaic, or go to Amazon, and invest the $20 in the Money Tools and Rules book. No, it’s not a cop-out for me to make a net of $4 from you. One-third of the book is literally targeted to millennials. Three chapters in there will give you the tools and confidence to change your life around. You may not do it – but that’s up to you. Here are a few steps that will decrease your financial stress in a hurry:

Pay out your cell contract and switch to a 2nd tier carrier like Koodoo or Fido for around half of what you’re paying. There’s $60 a month

If you have a credit card balance, switch it to one that’s 11% not 20% and no annual fee. On a $4,000 balance, there’s $150 or so a month

No more lunch, snacks, or coffee out until you get your finances under control: Your work has coffee – no it’s not the same, but it’s free! There’s probably $200 if you were to be honest with yourself.

$400 saved right there is the same as a $600 raise. Now get a no fee savings account and put at least $75 a paycheque in there. Within six months you’ll have $1,000 in emergency savings and $2,400 less spent that’ll show up in your lower credit card balance or chequing account.

There’s more – but just do this for a six month test drive. If you’re overwhelmed, email me off the back of the book at yourmoneybook.com

My Savings Are Missing

I’m confused, and don’t have a good answer here – just questions:

If you lose five pounds, you can step on a scale and see that your weight is down and – yes – your five pounds are gone. You have actual evidence of it!

That’s not the case when it comes to our so-called savings. If a store sells you something at 30% off, where’s that 30%? You paid $200 and saved $60, but you never see the actual savings! Sure, you have less of a charge on your credit card, or that supposed extra $60 still in your bank account – but it’s not the same as seeing it.

When you realize you should cut out one of your many weekly stops at Tim’s or Starbucks, intellectually you realize you’ll be ahead about five or six bucks every week. You might even do the math and get pumped that this translates to almost $300 a year, and you’d be right. Except there’s one problem: Where’s the money? Show me the money! There isn’t a cashier or someone who sends you that $300 a year and THAT is what makes it hard to stick with the plan, at least in my opinion.

I recently quit smoking and converted to vaping. It was a $130 one-time expense for the battery, cylinder and liquids, and it is a lot less chemicals in my lungs, and a lot of so-called savings over buying cigarettes. I actually did a little excel sheet now taped on my fridge to motivate me by looking at the savings in not buying cigarettes. That excel sheet says I’ve saved $244 bucks so far. But I don’t see it, or feel any richer! Where’s my money?

I’m still motivated, but not as much when I started to realize there wasn’t actually any extra money coming my way. It stinks that I don’t have any answers. Sure, I’m not spending the money on cigarettes a day, but the only way to HAVE that saving is to spend it daily and put it into a jar. Yet, somehow I don’t have that kind of money. Who has an extra $10 to $14 a day? Yes, I had it every day, come heck or high water to buy cigarettes. But when it comes to saving it, spending it to save makes little sense to my brain. If that’s my best thinking, small wonder others don’t bother skipping Tim’s or Starbucks…

When You’re In Charge of Your Own Retirement Finances

We talk about finances all the time, and one of the biggest financial decisions is probably your retirement savings. That’s more critical when you’re older but way easier to accomplish when you’re younger. Now, this is not a shot against the current government, but a comment about government programs overall.

There are a few things the government does really well. Included in that list is the military, foreign affairs and the passport office which is just incredibly efficient and well-run. But generally, any government programs are not very effective, and you will always be able to do better, and do more on your own, without waiting or hoping the government will come to your rescue. They won’t – and by the time you’re done waiting for a bailout package, or meaningful help from the government – you’ll be dead, honestly.

There is no place where that is clearer than with our Canada Pension Plan: The CPP pays a maximum of $884 to you in retirement. Let’s use this $884 maximum, even though the average pension benefit recipient gets $481.

Let’s take the lowest working person in the country. We’ll take someone who works from age 18 to age 65 and makes $2,000 a month. So this is a person who never gets a promotion, never gets a raise, and never improves on that income – someone who literally makes a small $2,000 a month throughout their entire working life.

Until retirement, every month, this person has $42.28 deducted from their pay towards CPP. The employer portion is the same, because employers match the deduction. So, for this person, every pay period, $84.56 goes towards their CPP in order to get a maximum of $884 each month after retirement. Simple math so far?

Now, if this person took that same $84 a month and invested it, at a 10% return over their lifetime, they would have $1,084,000! That translates to a monthly pension of $9,033! Let me say that again: Taking the same CPP deduction of someone who makes $2,000 a month for life, and investing it on their own, would have a pension of over $9,000 a month, AND he or she would leave an inheritance of over $1 million to their family.

THAT is why I want you to pay yourself first every month, and have some savings deducted right off your pay where you won’t miss it. What would you rather have? The $884 CPP, or your own $9,000 each month?

A Family With 13 Kids AND Saving 35%

Rob and Sam Fatzinger have 13 kids, one income, and a free and clear home just outside of Washington, DC. If you want their full story, just go to the Washington Post and type in their name.

Here’s their story in short: Rob made $40,000 a year just a decade ago, but now earns $100,000, plus, and mows lawns in the neighbourhood for a few extra bucks a month. His stay-at-home wife home schools their 13 children with assistance from a tutor. In 2000, they bought a fixer-upper foreclosure with $50,000 down and paid off their 15-year mortgage early, and Rob will retire early at age 62.

They had a lot of help from the community in renovating and expanding the home. The Fatzinger’s also receive a lot of support, where friends and neighbours have helped with gift cards for food, and even used vehicles over the years. Their biggest cost is their food budget that was running $1,600 a month. Today, their savings rate is 35%.

All kids have long ago been educated to know they will not receive help with college costs. Yet, several of them have already graduated from college with part time jobs, scholarships, and ZERO student loans!

But that’s not the story. If you’re really quiet, you can hear what most listeners are thinking right now: That none of that could ever happen in their life:

Judgment and strike 1: I couldn’t buy a place for $150,000

Strike 2: I could never take on a part time job

Strike 3: I wouldn’t accept donations from people or ask for help

Strike 4: I could never do a 15-year mortgage or pay extra on it

Strike 5: I can’t save 5% of my pay, never mind 35%

Strike 6: He makes $100,000 –I don’t…

Strike 7: I couldn’t tell my kids I won’t contribute to their university costs

Strike 8: I’d never be able to retire early

Your attitude determines your altitude. Instead of the judgments and saying “I couldn’t do that” change the wording to: I’m not prepared to do that. Then at least you’re being honest with yourself. Because, people who say it can’t be done should stay out of the way of those who are doing it!

Paying Less This Year & Saving $1,400 the Easy Way

Some Things That Will Cost Less This New Year

4K Televisions: If you haven’t seen one, you should. The resolution is two or three times better than a high definition TV. But these 4K TVs were in the thousands of dollars just a year or so ago. They’re dropping quickly – as everything in electronics does! Walmart in the U.S. now has the Avera 49″ for $249. That won’t be the Canada price, but you can use it as a guide.

Small cars and sedans: California sells in a month what Canada sells in a year. So the U.S. sets price trends and U.S. customers are still buying SUVs and big vehicles like crazy. That makes you crazy smart if you buy a small car or sedan that isn’t selling. They’ll see price reductions and rebates the entire years. And you’ll be even smarter if you buy a two or three year old!

Some groceries: Beef, veal, fruit, and eggs should see a decrease this year, according to the department of agriculture. That’s assuming normal weather and, in the case of most fruit, a stable exchange rate.

Certain Apple products: If you’re an Apple fan, the second half of the year should bring a bunch of price drops on Apple computers, iPads and phones. And what nobody seems to know is that the Apple website has a hidden section where you can get refurbished products right from the manufacturer at great prices!

Airline tickets: According to Expedia,  2017 will give you lower prices and more selection. Supposedly prices should be those of 2012, which would be great! Anecdotally I’m seeing that already with three flights I booked in the last week.

Cell plans: Rough rule of thumb is that you need to re-shop your cell plan every 18 months or you’re probably overpaying! The competition is heating up again, in the U.S. any contracts are gone, and Wind is trying to increase their business a lot since Shaw bought the company!

52 Week Saving Challenge

Can you save three dollars this (third) week of January? OK, can you save four bucks next week?

The 52 week saving challenge was put out by the budgetnista blog. The challenge is to save a dollar in the first week, and add a dollar for each week after that. You’ll have almost $1,400 saved at the end of the year – one dollar at a time. I don’t know about you, but that’s a lot of money, and it starts with a buck.

Yes, it’ll be harder in week 40, because you’ll be saving around $200 or so come October. But is having a $1,400 savings account worth it? Only you can decide.

Graduating to Financial Adulthood

In most places, when you’re 18 you’re an adult. In BC, the age of majority is 19 and by 21 you can do anything anywhere. You’re done with high school and can drive, drink, vote, borrow or invest, and live on your own. However, for the majority of the population, that doesn’t make them a financial adult. That can happen soon after, or it might not happen until your 30s or 40s – if ever…

This week and next, I want to go through a list of what I believe makes you a financial adult. It doesn’t mean you have to be debt free or take a university course. The essence of it is that you need to be in control of your finances and money, instead of it being in control of you. You’re pro-active versus reactive and out of control. If you do these, or know how to do these, congratulations! You’ve graduated! Some are easier than others, but all are really important.

1..You have at least one-week of income as basic emergency fund and are working towards a full three to six months of all your expenses.

2..You have two credit cards and a debit card. Your credit card balances are less than 30% of your limit (or are lowering your balances every month in order to get there) and you do not have or use an overdraft on your chequing account.

3.. In the last two years you have checked your credit report and credit score at least once and your credit report is accurate. In other words: You’ve disputed and had them fix any errors. (Go to Equifax.ca and purchase ‘score power’ which is your credit report and score.

4..You have opened an RRSP account and/or Tax Free Savings Account and make a regular monthly contribution. No matter how small – at least you’ve started and have traction.

5..You have basic insurance. Car and home coverage is obvious. But if you’re a renter, you have a tenant fire insurance policy and if you have a child, or a partner, you have a term life insurance policy.

6..Whether you’re single or married, rich or broke, you have a properly completed will. It can be a $20 do it yourself kit if you’re single, or a lawyer-prepared one if it’s more complex and you have kids. But you (or you and your partner) do have a will.

7..You know the actual amount of your net take-home pay every month. You can’t control your money if you don’t even know the exact amount you net and keep talking about your gross pay as if that were what you could spend each month.

8..You have done at least a one-time budget, or have a system of tracking your spending.

9..Your monthly spending is less than your monthly take-home pay. You may have ten cents left or $1,000 – but you’re not spending more than you earn. Financial adults figure out how to pay for something and then buy it. Others buy it and then figure out how to pay for it later.

10..You know your net worth. At least once a year you figure out what your total assets are (what you own) less your total debts (what you owe) and whether you’re growing it by savings, or whether it’s shrinking by going into debt.

11..You have a system for paying your bills every month. Waiting for the mail is not a system! Whether it’s an app on your phone, setting up automatic payments, a calendar, an on-line program or a simple check list you look at every month – it needs to be a specific system.

Waiting for the bill in the mail isn’t a plan. If the statement doesn’t come and you forget, your credit rating plummets. Blaming the post office won’t work. It’s your fault that you don’t have a system for staying ahead of the game and on top of your bills.

12..You have a proper filing system for your financial stuff. It can be six large envelopes for each of the last six years, or a ton of file folders, if you’re an organizational nerd. Kids get to say ‘I lost it.’ Financial adults don’t have that option. The graduating test will be whether you can find your tax return from 2011, or a bank statement from February within 10 minutes.

13..You are taking specific steps every month to pay off your existing debt, excluding your mortgage. You are paying more than minimum payments and your total debt is shrinking each month. You have a specific month and year that you’re working towards when you will be debt free except your home.

14..In the past year you have made at least one call to dispute a charge, ask for a lower rate, or comparison shop. If you don’t know how to stand up for your money – others will gladly keep taking it from you.

15..If you’re in a committed relationship, you and your partner spend at least an hour each month without the TV or kids discussing your money, savings, bills, purchases and budget. Kids spend – financial adults have a plan and communicate.

16..You have at least two specific and measurable financial goals. Saving more in my RRSPs, or paying off my credit card isn’t a financial goal – it’s a dream. It needs to be specific: Saving $150 a month in RRSPs is specific and measurable. Reducing my credit card balance by $200 or more every month until it’s paid off is a measurable and specific goal.

17..At least once each month you have the self-confidence to say no to an expense. It may be at work, to your kid, or to yourself. If you don’t know (or don’t want to) say no or say that you can’t afford it, or don’t need it you’re doomed to have your money continue to control your life, instead of the other way around. Setting boundaries is what financial adults do.

18..On anything expensive you shop around before committing to a debt or a bill. That includes interest rate shopping, your insurance, cell phone contract, and your credit card interest rate if you always carry a balance. Kids impulse buy until they’re out of money – financial adults don’t spend until they’re broke. If you do – you can skip the other items and save a bunch of time and effort – you’re doomed to be broke for years to come.

Seven Things the Middle Class Can’t Afford Anymore

This was an article originally published in USA Today last week. Two are medical and dental that don’t apply very much here in Canada, but how many of these are accurate, or apply to you and me in the middle class?

Vacations: Most middle-class families just can’t afford an expensive vacation without sacrificing something else. A Statista survey found that 54% of people had to sacrifice another big purchase to be able to afford a vacation. We’re not talking about a camping trip here, but anything that involves an airline flight is expensive. Add meals and hotels and you’re over $3,000 to $4,000 pretty quickly.

A new vehicle: With an average price over $32,000 it’s just not something most people can afford – either because there’s no chance they have that kind of money saved, or because they couldn’t afford the payments no matter how long the term is stretched.

To pay off debts: Debt loads are rising way faster than incomes. So every  month, finances get worse and not better. Living pretty close to spending every dime of income on bills, necessities, and minimum payments makes it really difficult to make a dent in their debts. That makes it more critical not to get into debt in the first place. Because,  once you’re in, you’re trapped for decades. How do families get into debt in the first place? Vehicles they can’t afford, houses with little down payment and high monthly payments and that subconscious refusal to acknowledge they can’t afford something.

Emergency savings: We’ve talked about this before. Basic emergency savings are one week of net pay. Then pay off your debts smallest to largest and step three is to have a three-month emergency fund in place. But almost 50% of people couldn’t miss one week of pay. Why? See number one two and three.

Retirement savings: When you’re barely able to keep your head above water today, it leaves nothing to save for tomorrow. That’s just the reality of what’s coming in versus going out. That’s why you need to pay yourself first. If it comes off your pay or out of your chequing account every month you can’t spend what you don’t have. It’s pretty much the only way to save for retirement. In a recent study, 17% of Canadians plan to use the proceeds of their house sale to fund retirement….but don’t they need to live somewhere? After all, you can’t eat your house! That’s a terrible strategy, right up there with winning the lottery to fund retirement.