Graduating to financial adulthood is not about taking a university course or living entirely debt free. It also isn’t about your age. The essence of being a financial adult is that you set your priorities and you are in control of your finances and money, instead of your money controlling your life (or lack of a life). You’re proactive versus reactive and out of control. If you do these well, or even know how to do some of these, congratulations! You’ve graduated!
You have at least one week of income as a basic preliminary emergency fund.
For anything expensive, you shop around before taking on any new debt. This includes shopping for the best interest rate, examining your insurance, scrutinizing your cell phone contract, and monitoring your credit card interest rate if you usually carry a balance. Kids impulse-buy until they’re out of money; financial adults don’t tend to spend until they’re broke.
You have an RRSP and/or Tax Free Savings Account and make a regular monthly contribution. It doesn’t matter how small it is – at least you’ve started and have traction.
Whether you’re single or married, rich or broke, you have a properly completed will. It may 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.
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. Don’t keep talking about your gross pay as if you had that to spend.
You spend less than your monthly take-home pay. You may (at the start) have 10 cents left, or $1,000 – but you’re spending less than you earn. Financial adults figure out how to pay for something, and then buy it, not the other way around.
You have a proper filing system for your financial records. It may only be six large envelopes for each of the last six years, or a ton of file folders (if you’re super organized by choice). Kids get to say “I lost it.” Financial adults don’t have that option.
You have at least two specific and measurable financial goals. Saving more in your RRSPs, or paying off your credit card are not financial goals – that’s a hope and a dream. It needs to be specific: Save $150 a month in RRSPs is specific and measurable. Reduce your credit card balance by $200 or more every month until it’s paid off is a measurable and specific goal that significantly boosts your odds that it will happen.
You do not lock yourself into longer-term fixed expenses by signing contracts for cell phone plans, gym memberships, alarm systems, electricity contracts, etc.
You define “I can afford it” as the ability to pay cash for something, and not by the amount of the monthly payment.
Happy middle of January! By last week, 25% of all new year’s resolutions went out the window. I’ve checked with a lawyer, and it’s still the new year – so resolutions still count! And by now, we’re over the sugar high, over-eating, over-spending, and most of the guilt phase that just doesn’t make it conducive to making good decisions for more than a day or so.
So now it’s OK to talk about some financial goals that take less than half an hour. Remember that good intentions are not goals that are likely to ever happen. But something that takes a half hour or less has a chance of getting some traction.
Here are some suggestions, all of which will make a huge impact on your financial situation, and all of which are pretty easy to implement and keep:
-No RRSP loan this year. If you keep getting RRSP loans for the past year, you’re doomed to permanent payments for the prior year. Most of your investment returns are also wiped out in the first year or two, as you’re paying interest on the loan. Instead, have your bank take that same amount of money out of your bank account each month towards a 2015 RRSP. Yes, you’ll miss the tax deduction right now, but it’s a one-time thing to turn a loan for the past into an actual investment with real, and not borrowed, money.
-Sit down and do a written budget. You’ll be amazed where all of your money leaks out each month. Yes, it has to be in writing so you can actually see it in black and white.
-Take a felt marker, or lipstick, and write on your en-suite mirror: I can’t afford it – or the words: debt free. At least two or three times a day you’ll be reminded that you can set limits on what you buy, and have the ultimate goal of no payments right in front of you.
Why? Because the one person who is standing in the way of being financially successful is in the mirror.
-Open a Tax Free Savings Account and put $50 in it. That’s it. Five minutes to get it opened and a start of savings that will all grow tax free, and are also withdrawn tax free.
If you haven’t made many or any New Year’s resolutions – congratulations. There’s a good chance that those who have, are half way done breaking them in the first week anyway. It’s a bad time to make them based on societal pressure. But you do need some goals, at least for your financial life.
Write down some financial goals for this year. Whether you start them this week or next month is up to you. They’re goals and a game plan and not throw-away New Year’s resolutions. However, your goals have to be in writing. To paraphrase a quote from Larry Wiget: Nobody ever wrote down a plan to be broke, overweight, or lazy. Those things are what happens when you do not have a plan.
This year, write at least five benefits with each -that’s the part which will motivate you to stay on track. For instance, if your goal is to be credit card debt free, it’ll be pretty easy to come up with five huge benefits that’ll come as a result: No more monthly payments, it’ll be like getting a $300 raise in not making those payments. It’ll save you x amount of interest a month. It’ll boost your credit rating that’ll get you lower interest rates on other borrowing, frees up all that money to now go into savings or towards another debt that’ll get cleared off a lot faster now. That’s six easy blessings right there.
Things only change when you change, and not when the year and the calendar changes.
A huge 2014 gift to give to yourself is to set up a savings account for your annual bills: Add up your property tax, insurance, what you spend on Christmas, your vacation and whatever bills you only have once a year. Have your credit union take one-twelfth of it out of your chequing account automatically and transfer it to this new savings account. You can’t imagine how much financial and debt stress that’ll relieve when you’ve always got the money for these.
The gift of not being stupid and thinking before buying or signing: That so-called free cell phone is over $1,000 when you’re forced into a two-year contract. Get a free TV if you just sign this three year contract. Stop and think that the ad should say: Get a $290 TV when you spend over $3,000.
A gift that will keep on giving for more than 60 years: Teaching your kids about money and savings. But it’s about what you do, not what you say. Start today away and give them three jars or piggybanks: Whatever money the receive goes equally into the three jars: One for saving, one for giving, and one for spending. As they get older you can change the distribution, but start somewhere and sometime soon!
You’ll only achieve your goals if you have a written and specific plan, and if your drive to achieve these goals is stronger than your excuses or thoughts of failure.
What I wish you for 2014 is that you choose to opt out of the North American way of life: Spending money you don’t have, buying stuff you can’t afford, to impress people you don’t really like.
For the past two weeks, we talked about a number of financial steps that can be done inside of half an hour that will have a significant impact on your financial life.
Do a budget just once
Set up a separate savings account
See your payroll department: Fill out the payroll form to have some money deducted right off your cheque
Apply for a charge card that has no monthly payments and makes you pay the balance in full each month
Set up a TFSA (Tax Free Savings Account)
Get your kids or grandkids on track with one-third of their money into savings, one-third to giving, and one-third for spending.
Here are the final three steps. We’ve saved the best, or most important, for last:
-Get your free credit report: Once a year you’re entitled to see your credit report. It’s the snapshot of what all lenders report about you. Go to Equifax.ca for the form. It’s free by mail with some ID, or spend the few bucks and get it online. You have to know what’s in your credit file. About one-third of credit files have errors big enough to prevent you from getting preferred interest rates or getting approved at all. You can’t change what you don’t know.
-Make a financial date night with your partner: In relationships, most people do not want to talk about money, debts, or budgeting. Small wonder money and money arguments are the top reasons for divorce. Take half an hour, longer if you can, and just talk about the state of your finances, bills, budget, and what your goals and dreams are. It’s your partner in more than title. It isn’t HER money or HIS money – it’s our money.
If only one of you handles all that, you’re in trouble. The partner in control isn’t your Mommy or Daddy, and the other partner often starts to rebel by dialing out, making an argument, getting entrenched about THEIR money, or lashing out through stupid spending or hiding debts. You need to do this together.
-Cash out your points: Take half an hour and look at the various points or rewards you’re chasing. Unless you’re honestly on track for something big, cash them out. Many expire and even more never get used. Don’t do it – get them redeemed. Rough rule of thumb is the best bang for your buck – or points – is to redeem them for gasoline gift cards. That way they turn to real cash, and you’re guaranteed to use them up. Plan B is to buy that toaster with points, instead of going to a retailer and buying it for half the money…
Today you haven’t reached your financial dreams or goals yet. But you’re one day close than you were yesterday. That’s assuming you have dreams or goals. After all, you can’t reach what you don’t work towards.
Last week we talked about the fact that resolutions or goals have to be measurable and achievable. OK, having said that, how about we break it down a little more? How about finding some financial steps that will take about half an hour? There are a bunch of them to talk about this week and next.
None of these in and by themselves will get you to be debt free, financially non-stupid, or rich, but any of them – all of them – are the first step to getting you on the right track. Remember that the longest journey always, always, begins with the first step. Once you’ve taken that step, the rest get easier because you’ve laid the groundwork.
-You have to know where you’re at: Get a big piece of paper and write out your debts. How much you owe, who you owe it to, the minimum payment, how long is left, if it’s a straight loan, and what the interest rate is.
-Do a budget just once: Without the TV on or playing with the kids, put your net income at the top, then write down all the bills each month, from groceries to utilities, lunch at work to haircuts – I mean everything. Subtract them from your income and you’ll have at least a one-time snapshot of your financial life in writing and in front of you.
-Set up a separate savings account: Go to the credit union and open up a savings account that’s not hooked to your debit card with $10 in it. It’s not much but you now have the account. Step two, should you choose to, is to make this either your two week net pay emergency account that never gets touched, and/or make it the place you deposit some money each and every month for your annual bills such as house insurance, money for next Christmas, your vacation, or whatever.
…we’ll do part II next week!
For the past few years we’ve been inundated with many get rich seminars, DVDs, free workshops, and infomercials. I’ve talked about them in the past, without mentioning names, but now it’s great to be specifically talk about these scams. Because that’s what they were, and are:
The Consumer Protection Bureau (of the FTC) has now charged some of these infomercial people with defrauding “thousands of people of over $300 million,” in their words. These include John Beck’s Amazing Profits from Real Estate, John Alexander’s Real Estate Riches in 14 days, and Jeff Paul, who has been marketing infomercials for over three years, scamming people on how to make millions on the internet.
The FTC says they’re fraud, and these people are also being charged criminally. “Thousands of people have been swindled out of millions of dollars by scammers who are exploiting the economic downturn,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection. “Their scams may promise job placement, access to free government grant money, or the chance to work at home. In fact, the scams have one thing in common—they raise people’s hopes and then drive them deeper into a hole.”
Like most investments or credit rip-offs, if it sounds too good to be true, it’s too good to be true! No money down, invest in property with no down payments, or make $50,000 a month on the internet? No way, no how – never, ever!
In the 1920s the stock market collapsed when everybody needed only 10% down to buy stocks. What was the result? The great depression.
In the past few years, it was buying real estate with no money down. As a result, tons of people bought numerous investment properties. I know of a doctor in California that had eight investment properties. For the first two he used the equity in his own home, the other six are financed with no money down. Today, he’s lost his own home, and all eight so-called investment properties have been foreclosed, and he’s now bankrupt. How do you think everyone else is doing today?
In the past five years, investment firms like Lehman Brothers were allowed to leverage themselves at 33 to 1. That’s one dollar of investments used to borrow 33 times that amount. Where are those investment firms today? Every one of them is out of business, bankrupt, or was forced into a sale or merger.
These days, it’s seminars on how to get rich through real estate foreclosures, and that everybody should be dumping stocks and buying gold.
Gold over the long term barely beats inflation in return percentages. It reached $850 in 1980 before tanking. For someone who purchased gold in 1980, it would have to be at $2,300 today, adjusted for inflation just for them to break even. So today, we’re barely half-way to recovery from the ‘80’s. Yet there are ads and commercials everywhere wanting us to get rich and dump all of our money into gold.
If we’re starting to think about some of our financial goals for 2010, sorry, there are no shortcuts to getting rich. It’s slow and steady, paying off our debts, living on less than we earn, and saving some money each month. Most of the rest of these programs or scams will likely leave you in debt, and not on easy street. You can take my word for it, or do a little research before jumping into anything, or find out the hard way.
Happy New Year, but it’s pretty depressing that us Canadians just hit the trillion dollar mark in consumer debt and it keeps growing.
New Years resolutions don’t work most of the time which is why fitness clubs are a ghost town in February while everyone is still stuck with an annual membership fee. Most of us just don’t have a “hallelujah moment” the first few days of New Years which has much of a lifespan.
The good news: It’s a new year! It’s a chance to start over, to resolve to do better, to do more, or in the case of your payments and all that interest – to do a lot less.
The bad news? You’re already broke! How’d that happen? Well, we spend more than 120% of our disposable income, half of us have no savings and almost 70% of us don’t even make RRSP contributions. Why? Because every dollar we earn goes to make a long list of lenders really really rich and there’s simply nothing left at the end of the month. Never mind that the average person figures it’ll take two months to pay off their Christmas debts when surveys keep showing it’s actually more like six months.
How do we make it through January with the Christmas and other bills heading our way?
When you’re in a hole – stop digging. In other words, spend less or earn more. Both will have a huge impact in changing your financial situation really quickly.
Annual bills kill your budget, but they’re not a surprise. We know they’re coming – but we haven’t got the money to pay them. Open a savings account that’s not hooked on your ATM card. Then add up what you’ll need for next years’ Christmas bills, your property tax and car or home insurance. Divide it by 12 and put that monthly amount away.
Set yourself a credit limit. Pick a dollar figure below which you’ll pay by debit card or cash. Maybe $20 or $30 bucks – that’s it. Anything below that, you’ll pay with real money instead of running up debts. It’ll become a great habit and will cut down your credit card balance in huge ways.
Pay off one bill. Minimum payments buy you another month – nothing more. It’s treading water. Credit cards and debt are not your friend. They’re financial dream killers and suck money out of your pocket and add a ton of stress to your life and your relationship. Take your smallest bill and put every dollar you can towards it while paying minimum payments on everything else. When it’s gone, take the next smallest and focus only on it. This step-up plan will get you debt free in less than half the time. It’s an entire section of the It’s Your Money book and will become a huge tools for you.
Close your overdraft. I know – it’s like being hooked on drugs. It’s so convenient and always there and you can’t live without it any more. Well, that’s what the banks were counting on. Just a $1,000 overdraft will cost you between $200 and $300 in interest and fees. It’s a one-time pain to cancel the overdraft, but it’s worth it.