Tag Archives: net worth

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.

Some pre-Christmas Good News Stories

It only seems appropriate at this time of the year to focus on some good news in the world of finances and credit. So, in no particular order, here are eleven positives that are worth sharing or repeating:

Credit & debit cards: This was the year that our volume on debit cards exceeded that of credit cards. And according to a study just released, our raw charge volume on credit cards is also down 12% to the end of September. It’s always great news when we spend money we have, instead of borrowing it!

Mortgage rates: If you refinanced, you already know that you got some of the lowest rates in a generation – even more if you negotiated properly. And it looks like those low rates may stay for another three or six months. We’ll talk about that in January with some critical things you need to know and get ready for.

Just released is a Harris poll: In the current slowdown, or tail-end of the recession, two-thirds of us still intend to decrease our already reduced restaurant and entertainment spending. Put that together with this morning’s Bank of Canada release that our savings rate is 4.7%, and I’m very happy that we’re saving more and spending less.

In that same vein, using the slogan of one of the big no-service banks, you’re richer than you think, our net worth increased by $141 billion in the second quarter of the year. It is also expected to be the same or more for the third quarter, as our retirement savings and investments bounced back big-time, and home values started to creep up again. Don’t make that out to be permission to spend stupid again, but it’s great news when our savings, homes, and investments grow.

Let’s face it, gas prices are a big dent in our wallets each month. Last week, the government owned Mexican oil monopoly paid $1 billion to hedge prices for 2010 at a $57 a barrel level. They didn’t buy oil, they bough insurance contracts that they’d get at least $57 a barrel. Since it’s in the $70 range right now, it looks like some very smart producers think there’s about a 20% drop coming next year.

Some potential good news is that the federal government is looking into the huge fees that merchants, and ultimately you and me, pay on credit and debit card transactions. IF they have the guts to act, it’ll help us all, as merchants will more than likely pass on the fee savings in a prteey competitive climate.

If you remember, in October we talked about almost two-thirds of us living paycheque to paycheque, and that being broke is a choice. At that time I offered to work with anyone who is sick and tired of being broke. So right now, there are three families in Kelowna who are on the way to becoming debt free and a special shout-out to them.

The recession appears to be over, at least on paper, in the U.S. and here in Canada. The great news is that we dodged a big bullet and didn’t have nearly the collapse the U.S. had, and continues to have. Even better news is if, and that’s a big if, we learned the painful lessons of millions of Americans, and a ton of business that went under: Debt doesn’t pay, you cannot borrow your way to wealth, and too many payments will collapse your finances sooner or later.

One financial obligation most of us have is our cell phone. The great news is that three new second-tier cell phone companies are starting up in the New Year. Guaranteed, that’ll result in a big drop in our cell contracts. If your contract is up, or about to expire, do NOT sign another three year contract and get trapped. Leave it month by month until these three are in the market. In Canada, we are way overcharged on our cell bills. In the U.S. right now, it’s $40 a month for unlimited long distance, unlimited calling minutes, and texting! Compare that to your bill. Now, if you have an I-phone, I can’t help you – you can afford a phone that’s ten times more than my monthly bill, and you’re not going to get a break.

Can it be good news that some people are going to jail? You bet. There were a number of late-night infomercial people that finally got charged. They’re off the air and no longer conning people. I’ll share some of the details with you in January.

Cash-back from your banking: Last week, millions of us received our profit sharing from the credit unions we deal with. Great news all around: Great service, you’re a member/owner, better rates, AND profit sharing. Mine was just under $400 out of $42 million from Servus Credit Union. In the Okanagan, Interior Credit union shared $4 million with 30,000 members.

I wish you a very merry Christmas, focused on the real spirit and meaning of Christmas!

George Boelcke, CCP