The Appetite of Success

   We’ve all heard the idiom before:

Don’t bite off more than you can chew.

   And how wise those words are. The issue with biting off more than you can chew is the struggle to swallow. Many times, tackling an obstacle that far exceeds our skill level is too daunting, and when that happens we give up. We step back from the challenge, and take smaller bites. This is especially true when setting goals, as too lofty a goal will leave us standing slack, overwhelmed by the enormity of the task. And in that paralyzed state of overwhelm, nothing gets accomplished.

   But the reverse is also true. Goals, real goals, goals that mean something to ourselves. Those goals need to be challenging enough to keep us striving to be better. Taking too small a bite leaves us malnourished. This malnourishment shows up in the form of boredom. Overcoming obstacles that are so far beneath us that we glean no sense of satisfaction from their accomplishment. Without the sense of satisfaction, we become complacent, and our skills deteriorate.

   So there we have it, don’t bite off more than you can chew, and eat enough to keep from starving. There exists in the middle a space of not just surviving, but thriving.

   To help visualize the line that we all need to strive for in our own lives, the below graph shows the quadrants we are looking at:

Motivated Equilibrium

   Arguably, at birth we start with no skills, and no real challenges. From there, we start to take on more challenges, and gaining more skills. This is the same in any new endeavor, regardless of age. From the first thought, to progressive realization of a new skill. If we follow the Motivated Equilibrium line carefully, we progress from being new to the challenge, through to being a real achiever. Where we get off the line, or come to a plateau is completely up to us.

   How does this shape up? Forgive my musical ignorance, but we will use guitar playing in our example.

   We begin with the idea of playing a guitar. Never picked one up, never strummed a chord, we’re a newbie (new to this). From the first moment we decide to learn this skill, we enter the lower left quadrant. At this moment, biting off more than you can chew, trying to play Through the Fire and the Flames by DragonForce. This song would be so completely overwhelming, for virtually everyone, this would be the point where they stopped trying to play the guitar.

   On the flip side, let’s fast forward a few (or a lot of) hours of practice. So now we can hit every chord with our eyes closed. Our fingers know the struts and the strings, the sound is as familiar as our own voice. If all you played from this point forward was Mary had a Little Lamb, it wouldn’t take long for boredom to set in. All those skills you had developed over hours and potentially even years of practice, those skills would eventually falter. You would become rusty, and your skills would deteriorate.

   We see this deterioration every day, the lessons taught in past schooling that no longer seem relevant. I couldn’t tell you the first thing about Canadian French, or the nuances of biology, or even guitar playing. My once acquired knowledge and skills faded into boredom with misuse, and eventually deteriorated.

   So where does achievement lie? And how can we retain and grow our skills? We need consistently evolving goals and challenges, only within reach. These cause us to strive for greater skills, which in turn help us push our goals further out as we take on bigger and bigger challenges. This walk along the path of Motivated Equilibrium leads us to excellence. But that walk is a tightrope. Too much or too little, and we’ll stall, or fall. If we stick with biting off exactly what we need to become better versions of ourselves, throughout the passage of time and effort, we will not only survive, we will thrive.

Milestones and Mile Markers

   Have you ever had the chance to watch an amateur marathon? The most interesting place to watch is, of course, the finish line. To see the runners striding in, achieving their victory as they excitedly cross the finish line. The marathon is, for many endurance runners, a crowning achievement. That inflatable banner with the word “FINISH” inked across it, the realization of a goal accomplished. And it is beneath that finish line that we can see the true measure of one’s goals.

She wasn’t running for the finish line, she was running through the finish line.

   I had the opportunity recently to view such a finish, and the insights that parallel so perfectly into our own lives with our own goals, our own unique challenges. To highlight these insights, we need to look no further than two exhausted runners entering the home straight. Feet striking the pavement, blood deafening as it pumps through their ears, the cheers of excited fans boosting adrenaline. As these two runners stormed down the final straight, an interesting thing happened. The lead runner looked at the finish line. This was his destination, this was where he needed to get to, his final mile marker. As he approached the last milestone that would signal the completion of the marathon, he eased off just a touch, letting his motion and exhausted legs coast across the finish line. The runner who was lagging as she entered the home stretch however, she wasn’t looking at the finish line. She wasn’t looking at the other runner. She was looking beyond the finish line. I could tell by the distant look in her eyes that she wasn’t running for the finish line, she was running through the finish line.

   And sure enough, 20 meters left, 10 meters left, the gentleman let off his pace and she flew past him. Beating him by almost a full second.

   Now this wasn’t a race between the two. By their high fives and congratulations at the end, it was clear they didn’t know each other. So why then did the lady, who was losing coming into the final straight, win? It might have been competitive drive. But likely it was something more than that. She won for the same reason some people hit their goals and some people exceed their goals. She won because she wasn’t focused on the finish line, the mile marker, the milestone. She was focused on exceeding her stated goal. She was focused on excellence.

   Therein lies the important lesson. If you want to succeed, I mean truly succeed in any endeavor, you need to look past the next milestone. You need to see the horizon beyond the next mile marker.

   It is important to appreciate the milestones that keep us on track. That is why we set goals, and break them down into bite-sized, actionable steps. These milestones that line the path to our vision of an ideal life keep us on track, and not overwhelmed. But once we have momentum going, it is important to keep striving for excellence, to keep pushing past the next finish line and into the life of our dreams beyond.

How to Save for your Future

   When we look at how much we should be saving, the best conservative estimates for young professionals entering the workforce is 10% of their income. As you get older and fall further behind the investment benchmark, that amount increases dramatically. For many, even the prospect of saving 10% seems daunting. But if we set that as a level to reach, what is the best way to get there?

   There are numerous strategies on how to reach those savings targets. One of those strategies is spending future earnings on our future. What does this mean? Each year, many of us receive a cost of living adjustment as part of our employment. Recently, this has been close to inflation of 2%. If you take half of this increase every year and add it to your investments, you will be increasing the amount of savings by 1% per year. Adding that on top of the amount you already save, you will be hitting the 10% benchmark in just a couple of years. And continuing this good habit? Well, that could lead you to financial freedom.

   Automating your finances is the best way to achieve a positive Return on Investment, eventually reaching financial freedom through your disciplined savings. By spending the Cost of Living Adjustment (COLA) before you receive it, you trick your mind into saving. This is because when you spend money before you look at it in your bank account, you don’t feel the acute loss of those funds.

   To highlight this point, try answer exactly how much you pay on income taxes each pay? Or employment expenses such as Employment Insurance (EI). Can you do it? The majority of us don’t know exactly how much the government takes per pay. We survive by spending what’s left.

   By allocating your COLA in this way, you’ll never feel the loss of the funds, but you’ll certainly reap the benefits of investing now, in the future.

Why you need a Success Coach

What is a Success Coach? & Why do you need one?

   When we look at the success framework, it is clear that success is achieved by taking strides towards your ideal future. This ideal future is why success means such vastly different things to different people, but the similarity is that each of us is striving for a future where we want to live. We set our sights on a future target, we create SMART goals, and we begin taking action. Now that we’ve set goals and are working towards them, we’re in the success game. And as with all truly great performers, regardless of their craft, they all need a coach to help.

   The greatest singers have vocal coaches, someone that helps them refine their craft so they continue to be at the top of their game. Athletes that excel, they have coaches, many coaches. Each there to help the individual player excel, whether that be fitness, skills, mentality, or other discipline. The prevalence of coaches among top performers is without fail, which highlights an important element to success. Nobody achieves success alone.

What does a Success Coach do?

   As defined by Oxford dictionaries, a coach is “an instructor or trainer; to give (someone) professional advice on how to attain their goals.” Simply put, a coach ensures that the efforts are accurately directed towards the eventual goal, and keeps the performer, you, accountable. And that is where a success coach comes in.

   Success Coaching is focused on helping identify the most impactful behaviours and actions to achieve your goals. This means working closely to map out SMART goals, and breaking those goals down further into more manageable actions that you can held accountable for daily or weekly. Tracking your progress is an important element of any coaching program, to ensure that you are actually making progress, and not simply movement.

   What does this look like in practice? For illustrative purposes, we’ll use a career goal of: Develop the skill-set of a manager/leader within 12 months. The success coach would work with you to identify the skill-set required; communication skills, delegation skills, time management skills, and so forth. Focusing on one skill at a time, the behaviors you would be held accountable to by your coach might be communication, with weekly presentations, reading requirements, and effective email writing practice. Breaking the learning down into manageable pieces, your coach forces you to become more than you are right now, so that you can be more successful than you are right now. And to top it off, the best coaches help you reach your goals without sacrificing the important areas of your life. This isn’t a “survive on 4-hours of sleep” regimen, nor a “sacrifice years of fun and enjoyment for the hustle.” Success is hard work, but it doesn’t need to come at the cost of your life.

Where do you find a Success Coach?

   A success coach can be anyone who is able to help you sharpen your focus on your goals, and holds you accountable for their achievement. Some of us have friends or partners that are able to help us reach for higher levels of achievement. If that isn’t an option, success coaches and accountability partners can be found online, or through professional organizations.

   Just as not all fitness coaches are right for everyone, not all success coaches are the right fit. Be sure to ask how your coach plans to help you achieve your goals. It is essential to find a coach that supports your goals and vision, and can give you tangible, actionable insights as to how to achieve success. And perhaps most importantly, you need to be willing to hear constructive criticism from your coach. Which means the criticism must be offered by your coach, and listened to by you.

*Consider this a cautionary note, before you put undue stress on relationships or friendships. You can always part ways with a coach you’ve contracted, but it’s much harder to part ways with a friend.

   If you’re interested in seeing how our success coaching programs at Business Minded work, check out the page here.

   As you embark on your journey to reach new heights, just remember, that vision of the future you’re working towards? It’s worth it. And when the road seems too steep to push on further? You aren’t alone, you’ve got a success coach ready to help you push for new successes.

What is a Tax Free Savings Account? (TFSA)

A tax free savings account (TFSA) is one of the best tax-advantaged accounts that you can take advantage of. Introduced in 2009, this account offers tax-free earnings on any monies invested through it.

What is a TFSA?

   A TFSA, or Tax Free Savings Account, is an investment account open to Canadian residents. Despite the misleading name of the TFSA investment account, there are many types of financial activities that can be conducted within the tax-sheltered confines of your TFSA. These “qualifying investments” include:

  • Cash (Savings Account)
  • Bonds
  • Mutual funds
  • Publically available stocks from a listed stock exchange
  • Investment certificates
  • Small business corporation shares**

** There are limits on the small business corporation shares that can be sheltered in a TFSA. A tax professional should be consulted before investing these shares in a TFSA.

   As you can see, there are a wide variety of options with which to choose from when investing in your TFSA. Indeed, this account is so much more than a simple savings account.

Who Can Invest?

Use of the account depends on two factors:

  1. Being a Canadian resident
  2. Age minimum of 18

How Does it Work?

   Each year you can invest money up to a certain lifetime maximum into your TFSA. All of your contributions will be made on an after-tax basis, meaning you’ve already paid the taxes on every dollar you invest. Now this is where the magic happens. All investment growth on the monies that you invest can be withdrawn in the future tax free.

   You can make contributions up to a lifetime maximum, determined by the factors listed above. Here’s where it gets complicated though, the lifetime maximum is affected by any withdrawals you make in the year. Any withdrawals made in this year are then added to the amount you can contribute back into the TFSA the following year. When making withdrawals, it is possible to crystalize any investment losses incurred in the account, which would decrease the amount eligible to contribute in the future. Let’s look at the formula, then run through a couple examples to show how this works.

Formula for Lifetime Contributions:

Unused Lifetime Contribution room + Withdrawals made during the year + Next Year’s contribution room = Total Contribution room at the beginning of next year.

Scenario 1: Frank turns 18 in 2008, and invests $ 5,000.00 on Jan 1, 2009.

By the end of the year, the money invested has fallen in value to $ 2,500.00.

Frank withdraws all his money before December 31st, 2009.

How much can Frank contribute in 2010?

 

Answer to Scenario 1:

Using the above formula, Frank can contribute:

Unused Contribution ($ 0.00) + Withdrawals ($ 2,500.00) + Contribution

Room for following year (year 2010) ($ 5,000.00) = $ 7,500.00

   As you can see, the losses incurred by Frank have been crystallized, meaning when withdrawing money from the TFSA that had decreased in value, that investment contribution room is considered used already, and thereby lost. Let’s look at another scenario with similar timelines:

Scenario 2: Annie also turns 18 in 2008, and invests $ 5,000.00 on Jan 1, 2009.

By the end of the year, the money invested has increased in value to $ 10,000.00.

Annie withdraws all her money before December 31st, 2009.

How much can Annie contribute in 2010?

 

Answer to Scenario 2:

Using the above formula, Annie can contribute:

Unused Contribution ($ 0.00) + Withdrawals ($ 10,000.00) + Contribution

Room for following year (year 2010) ($ 5,000.00) = $ 15,000.00

   This scenario showcases the true magic of the TFSA account. Annie has invested and done quite well in her account, and the $ 5,000 ( $10,000 account value, less $ 5,000.00 contributed) she earned in 2009 was tax free! And, these earnings do not go against future contributions. Annie can now earn more money, tax free through the TFSA, on the $ 15,000.00, which through gains in the account is higher than the lifetime contribution amount.

Okay, I’m with you so far. Now, How Much Can I Contribute?

   There is a lifetime maximum amount that can be contributed to the TFSA, an amount that increases each year. Since the inception in 2009, the maximum contribution amount increased annually as follows:

Year

Amount

2009

$ 5,000.00

2010

5,000.00

2011

5,000.00

2012

5,000.00

2013

5,500.00

2014

5,500.00

2015

10,000.00

2016

5,500.00

2017

5,500.00

2018

5,500.00

2019

6,000.00

   In 2019, if you have been a Canadian resident and older than 18 since 2009, your contribution limit is $ 63,500.00. The additional amount added each year is indexed to inflation, and rounded up or down to the nearest $500.00.

This sounds Amazing! Where can I get one?

   Now you’re talking! A TFSA will be available at all major financial institutions, mutual fund, and investment companies.

Why use a TFSA?

   A TFSA is used to save taxes on investment growth. At the end of the day, saving money on taxes means more money in your pocket.

Using the right tools, at the right time, will make your journey to Financial Freedom much easier. And now, you're equipped with the knowledge to make better investment decisions, opening you up for the best Return on Investment possible!

When should I use a TFSA?

   In case you haven't read our comparison between RRSP and TFSA investment vehicles, you should do that here first.

How to Set Goals SMARTly

SMART Goal setting

   We’ve talked about goal setting as essential for success. Those 5-year goals, defining what success means to you. These are your plans for the future. These grand goals you set for yourself years from now can often be broken down further, into milestone goals, and ultimately behaviors. But before we can get granular with our goal setting endeavors, we need to ensure our goals are well formed. Without well formed goals, we run the risk of misalignment of our actions, and ending up off-course.

   So what does it take to set well-formed goals? The most popular framework that is used in goal setting is the SMART framework. By using the SMART framework outlined below, you can ensure that your goals, when executed upon, will lead you to your envisioned future.

Let’s look at the framework:

   Specific: Each goal needs to be as clearly defined as possible, so that you will know when you have achieved the desired result. You should be focusing on the What, Where, and When questions. For example: Running isn’t sufficient. Running the Boston marathon next year provides a specific element so that you will know when you have succeeded.

   Measurable: Determining the specifics of the goal should have provided a unit of measurement so that you will know when you have fulfilled your goal. In the above example, Boston marathon is the unit of measure that, once reached, will spell out success for your goal. For many of us, success is more than a finish line though, and having a measurable benchmark is more appropriate. These maintenance goals are just as important, and might involve staying a certain body size/weight, attending X social outings in Y time frame, or maintaining a base level of financial wealth.

   Attainable: Here is your action plan, as well as an honest look as to how realistic the goal is. It is important when setting personal goals to only include aspects that you can directly control. The other aspect of Attainable, is answering How you plan to reach your goal.

   Example: Your goal might be to learn valuable skills to pursue a career in Nursing in 2 years time. Your how in this case might be attending a local school to educate yourself in the various subjects and studies required by nurses. It is important to note that the goal is to set yourself up for a job, not obtain one, as you cannot exert full control over the hiring process.

   Relevant: now is the time to relate this back to your life mission. Will accomplishing this goal help you on your journey? There are so many competing demands for our time and energy, it is important that you do things that drive success in your life, however you have defined that.

   Time-bound: To hold yourself accountable, all goals need to have a deadline. It is much easier to work towards an end target. Having an end target in mind frames the efforts that will be required, such as our 5-year goal setting. Or, as in the case of the above examples, the marathon is set for next year, or pursuing a career in two years. These timelines help you work backwards to determine the steps needed now, and also provide a definitive target in mind so the initial steps are actually taken now.

   There it is, the SMART way to set goals. This is the What, Where, When, Why, and How of your goals. It is important to note that adding a Who component when planning your own success is risky, as any goal that isn’t completely in your control requires an extra level of accountability. Whenever possible, refine your goal to ensure that it is something you can accomplish without someone else’s direct influence.

   The Who element will definitely come into play when you are acting as a leader, and helping a team succeed. Whether the team is a family, business, or relationship.

   Once you have your 5-year goals, or whatever future time frame you are using to envision your ideal future, you can begin the process of breaking those goals down further into more short-term goals. These shorter term goals will act as mile markers on the way to your grander success. Mile markers that you can use to gauge and adjust progress along the journey.

   Success lies just down the road you’ve started on. You’ve drawn your road map. You know what needs to be done. Now go, take the first steps towards the future of your dreams.

How to Achieve Financial Freedom

  Success platitudes aside, we need to look into the practical methods of achieving success. As we live in a commercialized world, this involves setting our finances up to provide us the financial freedom required to pursue our life's goals. The key to financial freedom is to make one choice, once, and let the numbers do the rest.

  What does this mean? It means automating where your money goes, and ensuring part of that automation involves putting some aside for your future. These future funds should be invested in some capacity, as Jim Rohn puts it,

“The key is to engage in commerce, even if only on a part-time basis."

Jim Rohn

How to Achieve Financial Freedom Calculations

  By investing money, either in your own commercial activities, or by allowing others to use the funds to grow businesses (stocks, bonds, real estate, etc), your returns increase. Year over year, these funds can build into quite the foundation for financial freedom over the course of your life.

  Of course, the question often arises: how much should I save? Unfortunately, the correct answer to this is almost always “more”. And with that disheartening statement, often times people put off the investment decision until sometime in the future when their financial circumstances are better. But a dollar invested now is worth more than a dollar in the future.

  Let’s look at two friends aged 25, Francis and Jenny. Francis decides to put away $500 / month right now. He is afraid he can’t afford it, but as a Business Minded reader, also knows he cannot afford not to invest in his future. Jenny, on the other hand, says money is just too tight right now, and she’ll make up for it in the future. Starting when she is 35, she needs to invest $ 1,157.45 every month to have the same amount at age 60.

  By the time they plan to retire with their million dollars, Jenny will have had to invest $137,235 more than Francis. That is 165% more over the course of their lives. If the salaries of the two friends stayed the same throughout their lives, Francis would have had a far higher quality of life. Think of the extra vacations with his family, the extra date nights with his wife, the additional experiences he would have had with extra money to spend throughout his entire life to arrive at the same place financially at the age of 60.

   Financial Freedom is attainable for you, for everyone. And the cost is lowest when you start now, today.

  The trick to Financial Freedom is to start putting aside money. Think of the maximum amount you could afford to invest. Then increase that amount slightly. Invest that. You might feel the pinch that first month, but by the second month you will have adjusted slightly to accommodate to your new means of living.

  I gave this advice to one young mother recently. She assured me that there was no way that she could afford to put money aside for the future. I then presented her a situation, her child needed a couple hundred a month for a recurring doctors bill. How would she be able to afford that? She simply replied (rather indignantly), “easily, I just won’t go out for lunch as often. He’s my son, of course I’m going to provide for him.” Needless to say, we are all capable of living off just a little less, and saving just a little more for that future we dream of.

  So do this today, open a (low fee) investment account, and start putting a little aside every month. Your future self will be really glad you did. And that future self? That isn’t you at 60. That’s you every year until then, when you can spoil yourself a little knowing that your future is taken care of, by you. That is what it means to achieve financial freedom.

What is Success?

   Remember those tests at school? Not the sitting down in those cold hard plastic chairs, sharpened HB pencils, and writing examinations. No, those dreaded memories always were followed up with the joyous bragging or crestfallen sheepish jokes about the grades we all received. 50’s, 70’s 90’s, A’s, B’s, or even F’s. Allocations designed to grade us against our fellows. And therein lies the problem. Pass or fail were set criteria. But set by someone else.

   Achieving a passing grade was commonplace, even the “average” grade was a comparison against other people. People of different interests, different skills, different intellects. We spend the first 20 years of our life chasing after someone else’s definition of success.

   And then suddenly we are thrust out into the world. And if grade point averages meant next to nothing before, they mean even less now.

"I had failed, because I failed to define success."

   I can remember those hours of studying I never did. I remember buying the text books I never opened, the classes never attended. All because I defined “success” by someone else’s standard. Looking back now, all I did was fail. Sure, I took that passing grade, but that wasn’t enough. I had failed, because I failed to define success.

   Define success by what that means to you. If that is in an academic setting, perhaps that means success is achieving X% above, or below a pre-assigned “acceptable” level. What did that look like for me? I was disinterested in some of the mandatory language courses, so success for me was achieving a 70% or above. But math on the other hand, I could only consider myself successful if I achieved 83% or above. That was my definition of success.

   Financially that could mean making enough to support a family, own a property, take a vacation, dine at upscale restaurants. Physically this could be a certain weight or body fat percentage, a certain time on the track, the number of plates on the rack. In your career maybe it’s reaching a certain level, earning $ X amount, or having an impact in your field. No matter the category, this is your measure.

   So I implore you to sit down and reflect. Think about what is important to you. Set your own limits, decide what success and failure looks like to you. And then work like hell to make sure you achieve your successes.

How to Best Use a Company RRSP

How to best use a company RRSP

   If you are lucky enough to have a company RRSP and receive a year end bonus or commission payment, this question can pose quite the dilemma. When we are told about this option, it sounds like a no brainer. Invest in my retirement AND beat the tax man? Sign me up!

   But, as with most decisions in this financial world, things aren’t quite so simple. And what seems like the right decision now can actually cost you substantially in the long run.

   Let’s look into this scenario in a bit more detail:

   We’ll start with our hypothetical employees, John and Mary. Both make a solid salary of $ 65,000 /year, and both are receiving a $ 5,000 bonus for exceptional performance. John think’s he’ll beat the tax man this year, and he plans to put his entire bonus into his company sponsored RRSP. By contributing through payroll, he is able to avoid Income taxes that would otherwise be levied on his earnings.

(As a note: other statutory deductions are charged no matter the course of action. For the purpose of this example, we will ignore them since they are the same in both scenarios.)

   Mary, on the other hand, must be an avid BusinessMinded reader. She takes her bonus in cash, and therefore her employer deducts income tax (Federal and Provincial). This cash she invests in her own RRSP, and she dips a little into savings or takes a short-term loan to make sure she is also investing the same $5,000.

So far, the situation looks like this:

Tax Savings on RRSP

   John looks like he's ahead at this stage. They both invested the same $5,000, but Mary paid $1,500 in tax and therefore had to borrow $1,500 to make sure she invested the same amount. But, it's tax time. And that is where the playing field levels out.

   John has paid tax on his salary of $65,000, while Mary has paid tax on her salary and bonus, for a total Gross income of $70,000. John's RRSP contributions have already been considered in his tax payments, so when he files he reports income of 70,000, and RRSP contributions deducted from income of 5,000. This leaves his taxable net income of 65,000. Since John only paid income tax based on 65,000, his tax return is 0.

   Mary on the other hand, has paid tax on the full 70,000 that she earned. But she also invested 5,000 into her RRSP, giving her a taxable income of 65,000. She has therefore overpaid her income taxes, and can expect to receive a tax refund! At her marginal tax rate of 30%, Mary can expect to receive a tax refund of (70,000 - 65,000) * 30% = 1,500. This money she uses to replace her savings or pay off her loan. At this stage John and Mary seem to be on equal footing.

   But there's a catch. John has a typical company RRSP, maybe even a bit better than most, with only 2% management fees. Mary invested her RRSP in the same portfolio with a low cost provider, and only pays 0.75% management fees.

   At an annual return of 7%, Mary will outperform John by $389 in only 5 years, on this single investment. Take that timeline out to 25 years, and John will have only 75% of what Mary has saved. This could be the difference of retiring or still working.

   Important note! We did not take into consideration an employer RRSP match here. If one was available, the best option is to take full advantage of the matching contributions, and then put the rest in your lower cost (fees) RRSP portfolio.

   And now, armed with this new knowledge, you are prepared to make the best investments in your future!