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What are Index Funds

   Index funds and mutual funds have surged in popularity over the past decade, and for good reason. These types of investments can provide many benefits for investors. 

   One of the most important benefits, and the reason why I recommend these types of funds, is their simplicity. Simple to use, and simple to understand.

   Of course, when it comes to personal finance, the entire finance industry is built on taking something simple, and twisting it into something impossible to understand.

   The same treatment has been performed on our beloved ETF’s and mutual funds, all wrapped up beneath the mathematical concept of indexing.

What is an Index?

   In its simplest form, an index is a way to measure something.

   It’s actually a concept we’re all very familiar with.

   The average test score from your class in a certain subject is an index. The win % of your favorite team is an index. The gas mileage (mpg) on your car is an index.

   You are measuring something, taking a list of data, and using a mathematical formula to draw inferences from that data. How well you performed compared to class average, for example. But, you could look at a different index, and come up with a different result. How you compared to the class median, for example. Comparing your scores to the mean versus the median, may give you a very different outcome.

   And that’s just cutting the surface of indexes. A different index could look at test scores by birth month, weighting heavier those born in the summer months, and lighter those born in the spring.

   This of course, is just scratching the surface, because we’re still only looking at our class test scores. The machinations of finance can take those scores and chart them against neighboring schools, states and even nations.

Indexes in Finance

   As a way to measure something, that definition is incredibly vague. That leads to all sorts of different numbers, able to be used in different ways. 

   Take the S&P 500 for example. This index of 500 of the largest publicly traded companies looks at an average based on market capitalization. It’s actually fairly logical, that a company like Apple or Amazon, with enormous market capitalization (Share Price times Shares Outstanding) should be more heavily reflected than a much smaller company like Molson Coors.

   Compare this to another well known index, the Dow Jones Industrial Average (DJIA). DJIA is indexed based on a modified market price weighting. This places the weighting based on share price, and not on market capitalization as we saw with the S&P 500. 

   For example, picture Company A with a market cap of $100,000, made up of 10 shares worth $10,000 each. Compare that to Company B with a market cap of $1,000,000, or 10 times the size. But Company B has a share price of $5,000, and 200 shares outstanding. Using a price weighted index would more heavily weight the much smaller Company A, based solely on its exclusive and very expensive share price.

An Index for Everyone

   The increasing popularity of index funds for retail investors has led to an equal surge in institutions creating these funds. Just like a walk down the cereal aisle, you’ll find a fund for anything. 

   Regular flavors aren’t enough? Try frosted flakes. Or fruity puffs. Or chocolate crunch. Or anything in between.

   There are index funds for the environmentalists. For manufacturing, farming, heck, even vegan ETFs can be bought. Whatever flavour you’re looking for, you’ll be sure to find it. And if not? Someone will make it for you, for a price.

   With under 4,000 publicly traded companies in the US (3,671 in 2020), there are almost 8,000 mutual funds that package and split those stocks in every imaginable combination. 

   If that sounds like a lot of funds, you’re right! Now imagine the cost of maintaining so many complex, confusing indexes (groupings of stocks). The added complexity is staggering, and the costs are ultimately borne by you, the buyer. 

Which one(s) to Buy?

   I cannot tell you which fund will outperform the market this year. Nobody knows that. And anyone who claims they do, is trying to pull a fast one on you. But, there are a few criteria that you should follow when buying your investments.

Know the assets - if you can’t tell what the calculation is, and understand what you’re holding, you probably shouldn’t be investing in that fund. As with most things, investing is simple. It’s not easy, but it’s simple. 

Ignore past performance - this might sound counter-intuitive, afterall, you want to back the winning horse. But there’s a very good reason every marketing pamphlet carries the same disclaimer, “Past performance doesn’t guarantee future results.” That line is completely true. What was best last year isn’t guaranteed to be best again.

Control your costs - if you take only one thing away, it’s this: minimize your expense ratio. Expense ratio refers to the costs charged to create and maintain the fund. The more complex the fund (or the greedier the fund manager), the higher the expenses. Those expenses mean you not only need to pick a winner, you need to beat the average by whatever rates they charge. Consistently picking the fastest horse is almost impossible. Picking the horse, who then starts half lap behind the competition is insanity. Don’t stack the deck against yourself.

   Index funds, when done right, can pave the path to financial freedom for you. But there will always be those trying to take advantage of such opportunities. 

   If you want to find investing success, stay vigilant. Don’t put your money into something you don’t understand. And avoid handicapping yourself as much as possible. Investing doesn’t need to be complicated. Buy into a cheap fund, with good total market coverage, that you understand. And keep buying, month after month, no matter what the price is doing. Do this, and one day you’ll wake up rich.

Frames of Reference

   Have you ever seen a herd of gazelle running? (Thanks BBC's Blue Planet)

   All it takes is one gazelle to start galloping, and the rest immediately join in. This of course helps keep the gazelle safe. If one sees a lion waiting to pounce, not every gazelle needs to see the lion, they simply trust that there is danger, and that running is the safest course of action.

   Humans aren’t a whole lot different. 

   Our expectations about life are often framed by those surrounding us. The cars that our friends drive, the houses they live in, the lifestyle they lead.

   Sure, we all know that we shouldn’t compare our lot to the neighbours. But we’re only human, and we do compare.

   As we see repeatedly the types of life and lifestyle that others showcase, we quite naturally start to think of those lifestyle attributes more positively. A new car, a bigger house, a faster boat, shinier phone. These types of desires are so prevalent that we even have term coined for it, Keeping up with the Joneses.

   With the ever expanding reach of social media though, our neighbours aren’t just the house across the street. People are inundating themselves with the highlights of everyone, from Hollywood elite to instagram influencers to that gal from highschool. With those expanding social influences, people are more and more trying to live outside their means, all for the almighty ‘gram.

   This lifestyle inflation has disastrous consequences, as Canadians and Americans are borrowing more now than ever before. The average Canadian now has over $20,000 in debt excluding their mortgage.

Expanding Your Frames of Reference

   Alright, borrowing excessively is bad. Especially when it puts a strain on your financial system. But what can you do about it?

   Going cold turkey on social media is pretty unlikely. And since we’re already on the IG, it’s always a good social talking point to check out Hollywood’s who’s who.

   But rather than focusing only on the highlight reels of the rich and famous, maybe it’s time to expand your frame of reference. With billions of people living in impoverished nations, perhaps it's time for a heavy dose of reality. 

   Millions of people don’t have access to reliable electricity, are you sure you need an even bigger TV on the wall? Millions more still don’t have access to clean drinking water. Is it really an inconvenience that your fridge only makes wedge shaped ice?

   Before making that next impulse purchase to show off in your own 3-second highlight reel, take a moment to consider what you have in your very rich life. A little gratitude goes a long way. That genuine appreciation might not be captured in 140 characters or less, but it will certainly make you a whole lot richer.

Indexing for Financial Independence

   How do you plan on improving your financial life?

   No matter your financial goals, increasing your wealth is certainly on the top of that list. But striking it rich by stuffing cash under the mattress isn’t going to work.

   Where then should you be putting those hard earned dollars, to make them work just as hard for you?

   There are a myriad of ways to invest, from real estate to blockchains, commodities to collectibles. But, among the possible investments, there is one type of investment that I recommend more than anything else. Stocks. In specific, index funds.

What is an Index Fund?

   An index fund is a collection of financial instruments, stocks and bonds, that is designed to mimic a financial market. Simply put, an index fund is just a tiny piece of an entire market.

   These index funds come in the form of either mutual funds, or exchange traded funds.

   One of the most popular index funds to be mentioned is the SPY ETF. This fund is composed of all the stocks held in the S&P 500. The S&P 500, as a refresher, is an index of 500 of the largest US companies (by market capitalization). This has several implications for investing, which help with your long-term wealth accumulation. 

Diversification

   One of the keys of investing for most people is to ensure they are diversified. While there may be some rare exceptions who have picked winning companies time and again, they are precisely that, the rare exceptions. When discussing your financial health, your dreams, your future, we don’t leave that to a lucky roll of the dice. 

   Index funds solve this dilemma, by allowing you to purchase a broader section of the market. Depending on the index fund chosen, you own a small piece of all the assets. In the above example with an S&P 500 index, you would own a piece of each of the 500 companies on the index. That means you own Tesla, Apple, Microsoft, Amazon, Johnson & Johnson, etc. This one investment lets you buy into technology, consumer goods, mining, oil and gas, and many other industries. 

   Diversification of this nature helps you stay away from any one industry. If a major event hits the oil and gas industry, much of your investment is stored elsewhere.

Picking a Winning Stock

   A common rejection of the indexing idea is that picking the right stock, at the right time, and you will achieve far superior results. From a math standpoint, those people are absolutely correct. If you bought Amazon before it became the company it is today, your wealth would have grown exponentially. The same with Apple, or Netflix. 

  But, for every winner, there are a dozen other equally as spectacular failures.

   How would you know that Netflix would become what it is today, when Blockbuster was the household name 20 years ago? Blockbuster certainly had the industry connections, they had the brand recognition, and they had the financial resources to pull off a streaming service. Would you have made the bet that a mail-order DVD rental company would become one of the most prominent media companies in 2021?

   Index funds, on the other hand, hold a small piece of many assets. That means you would have been an investor in those early days. Along with holding assets in many other companies. Those wins would have been your wins. Those returns would be driving the returns in your portfolio. 

Barriers to Entry

   Index funds, particularly mutual funds, have one of the lowest barriers to entry. If you wanted to buy shares in the same 500 companies as in the S&P 500, you would need tens of thousands of dollars to invest. 

   This financial barrier has been somewhat reduced with some brokerages now offering fractional share ownership. But, the complexity of buying and managing the market weighting of 500 companies would be just as intimidating. 

   The complexity and the financial barriers are both solved by index funds. Now, anybody with a couple of dollars can invest in the entire market.

The Easiest Winner - Index Funds

   Perhaps the most important reason why I recommend index funds for every investor is their simplicity. Sure, you gain some diversification advantages. And, you own a small piece of the winners. But those aren’t the main reason people don’t get investing right. 

   The main reason people make financial mistakes is the confusion. Too little, or too much information, and people become stuck. Paralyzed by the indecision, they often make the most costly decision of all, the cost of inaction. In these situations, you need less to do more with. Less complexity in your financial plans, and more investments driving your financial goals.

   No Safety Deposit Box for your gold bricks. No warehouse for your barrels of oil. No trouble with the renting tenant. And no listing that precious painting for auction. Index funds are so easy, anyone can use them.

   Buying into an index fund is easy. It’s simple. Implementing the right system automates all of this so you invest and keep investing without even thinking about it. You too, can use index funds to automate your path to financial independence.

What’s Your Number?

   When you think about Financial Independence, does it feel like you are standing at the bottom of a seemingly insurmountable mountain? 

   Looking at financial independence as the ability to live off your own financial resources for the rest of your life sets the bar quite high. Essentially, you’re trying to come up with your “never work again” number.

   But, we need to work.

   Abraham Maslow published his thoughts in a widely taught and cited paper “A theory of Human Motivation”. Since the time of publishing, Maslow’s Hierarchy of Needs has only grown in popularity, not for scientific reasons, but as a representation of what people see in themselves.

   Maslow’s Hierarchy of Needs:

Image Credit: Wikipedia

   Work is an essential part of our identity. It provides us a way to meet our needs - belongingness, accomplishment, and fulfilling our potential. Without work, we’d be lost. 

   But work doesn’t need to be a traditional 9-5 shiftwork. Work is ultimately a purpose, a reason for acting, a reason for living.

   Of course, for many people, this view of work is an esoteric, almost mythical story. The idea of work has been corrupted by a sense of duty. You must work, because that is the only way to earn enough to fulfill the first two levels of the hierarchy; food, shelter, safety. 

   To grow beyond those first two levels, you need to know those are taken care of. To do that, you need another financial goal. A base camp partway up the mountain of financial independence.

   You need a mid-term financial goal, a number that covers your food, shelter, and safety, so that you can focus on growing into your full potential.

   Look at your monthly spending. How much do you spend each month on: 

  • Housing (rent or mortgage including property taxes)
  • Food
  • Utilities (Gas, Water, Electricity, Internet, Phone)
  • Healthcare (Medical bills, Insurance)
  • Transportation

   These are your basic financial needs. Having these covered will allow you to focus on other of life's priorities.

   This number is extremely important for two calculations, your emergency fund, and that base camp of Financial Security.

Emergency Fund

   An emergency fund is important for everyone’s financial security. To be able to cover the unexpected, so you don’t get side-tracked from your true financial goals.

   Take the cost of your basic needs, and multiply by a reasonable period of time. 6 to 12 months should be sufficient, in case of job loss or another type of emergency.

Financial Security

   Your basic needs are significantly less than the cost of your total lifestyle. Understanding what those needs are will help you plant your flag at base camp on your financial journey. With those list of costs, multiply by 12 to find your annual expenditure, and divide by 6%. This gives you a target for Financial Security. 

   Take Sally’s example. She needs $3,000 / month for her basic needs. Her calculation would be:

$3,000 * 12 / 6% = $36,000 / 0.06 = $ 600,000.

   A fund of $600,000 invested in a low cost index fund would provide Sally the financial security she needs to never worry about food, shelter, or safety ever again.

Why 6%?

   6% estimates the total market return of a low cost index fund. Financial Independence looks at lower numbers, like 4%, to determine the appropriate levels of withdrawal to ensure you won’t run out. But Financial Security comes first. The Financial Security fund still expects you to work, to earn more, to be productive as you grow towards your potential. 

   By now you should have a few financial goals in place. How much you need in an emergency fund. How much you need to experience some financial freedom. How much you need to achieve financial security. And ultimately, financial independence, how much you need to live life the way you want to, without ever needing to work again, if you so choose.

   What are your numbers? Imagine what your life will look like as you start to build these financial foundations. Imagine all you can experience, all you can do, all you can become. That is a life worth living.

Financial Freedom: How much is enough?

   How much money do you need to have financial freedom? 

   Your answer to that question will spell out the route markers on your financial journey. But so few people actually take the time to think about how much they need.

   Is it a million dollars? What about 10 million dollars? Or a hundred million?

   Depending on the lifestyle you hope to achieve, the person you hope to become, your answer might vary wildly as compared to your friends and peers. You also need to consider what financial freedom really means to you.

   Is it the freedom to quit your job? The freedom to take a well-deserved vacation? The freedom to retire?

   Freedom means different things to different people. And even throughout your life’s journey, that meaning will change drastically.

   Fortunately, financial freedom is often achieved long before financial independence. Unfortunately, for millions of people out there, financial freedom is just as much a pipe dream as financial independence.

What is Financial Freedom?

   Financial freedom can broadly be considered; the ability to make choices in spite of the economic impacts, rather than because of the economic impacts. This means you are free to choose. To take time off. To work somewhere else. To live out of the shadows of looming financial catastrophes.

   Financial freedom is being able to take command of your own life choices, and not fear the next mail delivery. 

James Clear describes this “wealth” as: 

“Real wealth is not about money. Real wealth is: not having to go to meetings, not having to spend time with jerks, not being locked into status games, not feeling like you have to say ‘yes,’ not worrying about others claiming your time and energy. Real wealth is about freedom.” - James Clear

   Financial freedom is therefore achieved when you have a financial safety net. Enough resources stockpiled that you can look out for yourself. This might be a 6-month emergency fund. Or enough to go backpacking in South America for a month. Whatever the amount is to set you free.

Financial Independence: What is it? And Why?

   If financial freedom is the ability to make a choice over your life in spite of the economics, financial independence takes that idea further. 

   Financial independence can be considered the ability to live, and continue living on the income from your investments for the rest of your life. To find out what this number is for you, you first need to understand what your annual expenses are. 

   Map out your expenses. How much do you need each year to live? Consider the lifestyle you want to live. Don’t skimp out here. Understanding the life you want to be living is essential. An underestimation might just leave you eating boiled potatoes and cat food.

   Once you know what your lifestyle costs, you’re up to the Financial Independence calculation. Unfortunately, there isn’t one clear formula for this calculation. Factors such as inflation, deflation, investment returns, etc. all play a crucial role. There are two such calculations that are usually used; the 4% rule, and 30 times.

The 4% Rule and FIRE

   The 4% rule essentially says you can withdraw 4% of your investments each year, and that fund will continue to exist for the rest of your life. A common calculation used for establishing an effective withdrawal rate for your retirement savings, this calculation also serves well for determining the size of the pot you need to achieve financial independence.

   An increasingly popular movement, the Financial Independence, Retire Early (FIRE) tells us that to safely live off the earnings from your investments, you need 30 times your annual expenses.

   The difference is essentially 3.33%, compared to 4%. 

   Depending on the measuring period, either of these values work. 90% of the time a 4% withdrawal rate has proven to be effective. But, you certainly don’t want to be in that 10% group! That’s why FIRE is slightly more conservative, to further reduce the risk of running out of funds. 

   When deciding which multiplier to use, it’s important to think about the lifestyle flexibility you’ve built in. Can you cut back a bit during economic downturns? Living on less than the 4% you planned? Or is that annual expenses number a must have? If so, airing on the side of caution is a better idea for you.

   Take a few moments and jot down what your annual expenses number is. Now set up your range. Divide that annual number by 4%, and multiply the annual number by 30. That should set your aim on a more tangible goal.

   That is what it will take for you to reach financial independence. Now all that’s left is to keep laying the bricks of your financial fortress. One brick at a time.

   How much do you need to be free? To make the choices you want to make? To break the shackles of “can’t wait until payday”, and start living life on your terms?

   And how much do you need to enjoy that level of financial independence for the rest of your life?

Lessons from Lent

Why is religion often cited as a cornerstone for some people’s success?

 

Many Christians recently embarked on their own annual pilgrimage this year, with the celebration of Lent kicking off on Ash Wednesday. While there can be many things learned from every religion, this 40-day long pilgrimage of the Christian faith holds a few keys to the vault of success. 

 

Those keys, the ones we’re all searching for, are Reflection, and Sacrifice.

Reflection

One of the powers of religion is the consistent self-evaluation. A part of the Lenten process is reflecting on your life. Putting careful consideration into how you are living helps you make the necessary adjustments to keep you on the right path.

 

Of course, this habit of reflection is more frequent than once a year. Religions are remarkably effective for reinforcing such positive behaviors. Whether that’s Sunday Communion, observing the Sabbath, or Al-Jumah, all religions have days dedicated to rest and reflection.

 

Irrespective of your attitudes towards religion, this self-evaluation process is an important one. Each week and month, make sure you check in with Number One, you, and make sure you’re on the right path.

Sacrifice

While reflection helps you re-calibrate your compass, the next essential key to success that religion can give us is through sacrifice. Certainly, in observance of lent, sacrifice is an essential element. For 40 days, Christian practitioners commonly either give up something, or make an effort to change in some positive way.

 

This is the single most important key to success. If you want to be successful, you must make sacrifices.

 

Sacrifice who you are for who you can be.

 

Success takes commitment, and endless hours of effort. It’s picking up a book rather than the TV remote. Jumping into some joggers rather than hit snooze. Investing some cash rather than spending it all.

 

Take a few moments and evaluate your day, your week, your month. What change can you make for the next 40 days that would put you back on track? What are you willing to give up to achieve more with your life?

Love or Hate? Dollar Cost Averaging

Expecting your year end bonus soon? Do you invest it all at once? Or try to capture the benefits of dollar cost averaging?

What is Dollar Cost Averaging?

Dollar cost averaging (DCA) refers to buying a piece of the investment consistently, over time. In this way, the same investment dollars, say $100 / month, will buy you the investment at the average price of that investment. When the price is higher, your $100 doesn’t buy as much, whereas when the price is lower, your $100 buys more. This averages the cost of ownership out, and mitigates the chances of you buying at the market peak.

This sounds good in theory, and I must admit, I am a big advocate of this idea. 

 

If you buy into the idea that dollar cost averaging works, then you will consistently buy into the market without worrying about what the price is at that current moment. That’s because, in the long run, you’ll average your cost of ownership out.

 

I recommend automating your investments, so that on a preset schedule, those investments are purchased into your portfolio. This automation removes your emotions from the equation, and eliminates the gambling aspect of investing where you try to time the market. You no longer need to concern yourself with whether tomorrow's prices will be higher or lower than today's.

 

If this philosophy works so well, why then would I argue against Dollar Cost Averaging when you come into a large windfall, like a bonus, commission cheque, or inheritance?

“Stonks always go up.” - /r/WSB Reddit User

A phrase coined by the popular investing subreddit sums up precisely why Dollar Cost Averaging doesn’t work in the long run. Stocks always go up.

 

This of course is not true in the short term. But the objective of long-term investing isn’t to gamble on the short term outcomes, but to make a sure bet on the progressive growth of companies over the long term. 

 

We’ve seen the truth in this statement time and time again. At the time of writing in February 2021, the NYSE and Nasdaq are sitting at all time highs. Not even 12 months after the coronavirus plunge on March 23rd, 2020. Those highs seen today are far above the 2008 highs just before the market-altering financial crisis and subsequent stock market crash.

Is today the day before the next crash?

Depending on which television station or professional economist you tune into, you’ll hear all sorts of claims. Tomorrow could be the end of the world, or it could be the day that financial markets soar ever higher. The truth is, nobody knows. Anyone who says they do know is simply making a prediction, a guess no different than who will win the next sporting event or reality tv show. The bolder the prediction? The higher the TV ratings. Those so-called experts are just clamoring for attention over all the other noise in our lives.

 

Listening to any of these programs is sure to play on your emotions. What if they know something I don’t? They are the experts afterall. Am I being played for a sucker? Why does the other expert say something different? Who is right? Can I still win this game?

 

The cost of these emotions is all too often inaction.

 

That is why, when you come into a large extra payment, it’s best to jump in with both feet. You can’t predict the future in the short term any better than these television “experts”. And you know, in the long run, stocks always go up.

 

Let’s look at this in a real example. Assume in 2008 you came into $10,000 to invest. Also assume you’re the unluckiest person around with investing. In 2008, the S&P 500 hit it’s high for the year in August, hovering around $ 1,300. The following 6 months saw a progressive decline all the way to $676 in March 2009. 

 

If you had invested all $ 10,000 in the markets in during the August 2008 highs, and left those investments alone throughout the following market meltdown and subsequent revival, today you would have tripled your investment, owning $ 30,267.92 (calculated at market close, Feb 12th, 2021). That’s a 300% return in 12 years! Not too shabby for the unluckiest investor alive.

 

To make that grow even further, you could have averaged down through dollar cost averaging throughout the following 6+ months of market decline and market recovery. Turning that 300% ROI into something even higher.

 

If on the other hand you had tried to time the market, when would you have invested those dollars? March 9th, 2009? Unlikely. That’s the absolute bottom, and investors had just had their confidence shaken. 40% losses in 6 months, a staggering number. What about the end of April 2009? Well by that time the market had already recovered 29.13%. Waiting any longer than that and your returns were even less.

 

You see, there’s no better time to invest for the long term than today. We don’t know what tomorrow will bring, and barring a world-ending event, it’s quite possible that today’s prices are the lowest we’ll ever see again.

 

Stonks always go up.

The Market Vs Stocks

One caveat is that we are looking at the market performance. Taking a gamble on any one company is exactly that, a gamble. The market, on the other hand, is a collection of all companies. Sure, some companies fail. But those companies that fail are replaced by other companies. Some do exceptionally well. Some don’t. 

 

The fact is, the best players in this game are constantly changing. 

 

General Motors dominated the market for years, before needing a government bail out. Meanwhile Tesla came in out of nowhere and captured large swaths of the market.

 

But one thing is for sure. This game will always be played.

When you come into extra money, make the guaranteed bet, that the market will continue to increase in value. With this knowledge, you will be sure to buy at today’s prices. 3 to 5 years from now, you’ll only wish you could get those investments at the prices you did just a few short years ago.

 

If those same investments ever do go on sale in the future, load up on some more. This will average down your cost of ownership, and make your returns just that much higher.

Will You Be A Winner?

   Tonight’s the night, the big game. Super Bowl LV (55). Where football fans, and non-football fans alike all crowd around watching two teams smash into each other. Fortunes are made and lost with each touchdown and fumble.

   Kansas City Chiefs star quarterback, Patrick Mahomes has a 450 million dollar, 10-year contract. While Tom Brady has a 25 million dollar payday (plus bonuses) from his Buccaneers contract.

   But these aren’t the first star athletes to be paid such incredible sums. Time and time again, the rich and famous have demonstrated that even the mighty can fall, filing for bankruptcy after they lose it all.

   What mistakes are being made that cause societies top earners cheques to bounce?

   As with most things, education plays a pivotal role in the eventual success or failure. That is why it is so perplexing that basic financial education is lackluster in its delivery, if provided at all. A few simple rules could have averted all of those financial meltdowns.

Up and Down

   Jim Rohn perhaps put it most eloquently when he said: if your outflows exceed your incomes, your upkeep becomes your downfall.

   Or more simply, if you spend more than you make, you’ll soon go broke.

   This is perhaps the cornerstone rule of achieving financial freedom - don’t spend more than you make.

   Of course, that isn’t usually the problem when we’re in our prime. Sports superstars like Mike Tyson can attest to that. Each fight was worth millions to his bottom line, and in his prime those fights were coming fast and furious.

   But all good things eventually come to an end, and when Mike Tyson retired, that income was significantly reduced. As we all witnessed though, Mike’s lifestyle didn’t scale back a few notches. His upkeep became his downfall.

   That is the single biggest reason that most people fail to achieve financial freedom.

   As you become more established in your career, you’ll start earning more. But at the same time, life is likely growing with you. That promotion at work coincides with the birth of another child, and all of a sudden you need a bigger house. And a bigger car. But not just any bigger car, you need something worthy of your new title. Something shiny, with heated leather seats and a brand name that turns heads.

   This cycle continues your entire life. Constantly up-scaling your life every time you move to a higher paying job or position. It’s normal, and it’s natural. But if your lifestyle creep keeps pace with your earnings growth, you’ll soon begin to realize something. Freedom isn’t achievable like this.

   When your outflows grow at the same rate as your income, you can’t ever scale back on your income. That means you won’t ever find the freedom that was promised. You’ll find yourself stuck in the same situation that millions of people in the richest countries in the world are in. You simply cannot afford to retire.

   The solution is to find the elusive state called balance. Balance between the needs of now, and the needs of the future

Balance the Sacrifices

   To find that elusive balance, you need to decide what sacrifices you are willing to pay. Do you sacrifice today’s comfort for freedom tomorrow? Deciding to what extent you are willing to pay that sacrifice will determine how much freedom you have in the future. 

   What percentage of today’s earnings will you put aside for tomorrow? Depending on your own unique situation, those numbers might look very different. But one thing is certain, the more you sacrifice early, the more freedom you will have years from now.

   You want to be a winner. But, what are you willing to sacrifice for that victory?

The GameStop (GME) Game

   What in the world is going on with GameStop (GME) stock prices this week? Meteoric stock price appreciation, amidst a brewing war between retail investors and billion dollar hedge funds.

   This situation has the potential to change Wall Street permanently. But that begs the question, what exactly is going on?

Investing, The Traditional Approach

   One primary way that we reach financial freedom is through investing. Putting your money to work, so that you don’t have to.

   To do this, you find someone who needs your money, loan it to them, and they pay you back over time. This could be buying real estate you plan to rent out, where someone needs your money to own the property, and they pay you for that privilege through rent. Alternatively, you could find a company, give them your money in return for an ownership stake, and you are entitled to a piece of the profits of that company. That is, in its simplest form, what investing in the stock market is.

   Over time, people have found more creative ways to make money though. Some people decide to take a different approach. Instead of investing in future profits from a company, they decide that a company is less profitable than other people think. These people sell the current interest in that company, with the plans to buy back those shares when the company under-performs.

Short Selling, The Long and Short of It

   Making a bet against a company is more like gambling than investing. But, it can be very lucrative, if your bet pays off. 

   Short selling is essentially making this bet, except with other peoples’ money. Instead of owning what they sell, they borrow the shares from someone who does own them, and sells those shares to the open market. The promise here is to buy back the shares that were sold, and return them to the original lender.

Introducing GameStop (GME) To The Game

   One such occurrence happened recently with GameStop. A large institutional investor, Melvin Capital, made an aggressively large bet against a company called GameStop (ticker code GME). They did this by short selling, or selling shares of GME that they didn’t own, with the promise to buy those shares back at a later date.

   Getting word of such a large bet against GameStop, some regular folks (retail investors) decided they’d take up Melvin Capital in the wager. Traditional investing logic was thrown out the window, as retail investors looked at the game from an economic standpoint. No longer was purchasing GME stock about price-earnings ratios. The value of the company's shares has become completely disconnected from its earnings multiple.

   Knowing that Melvin Capital needs to buy those shares back, because those shares that Melvin Capital originally sold were borrowed, retail investors correctly understood that the game was now about Supply and Demand. It doesn’t matter how well GameStop does (or doesn’t) do. There is a guaranteed demand, so the only thing left to do was to constrain the supply. With limited supply, and high demand, the sellers pushed the price equilibrium (in this case the share price) much higher.

   Changing the rules of investing, particularly on this GME stock, led to a rapid appreciation in share price. Meaning that while Melvin Capital sold shares at prices in the low teens, they now had to buy those same shares back at prices in the hundreds. Essentially, Melvin Capital stood to lose billions.

Changing The Rules of The Game

   With billions of dollars at stake, some people will do just about anything to not lose. Those people are willing to lie, cheat, and steal.

   And that’s exactly what they did.

   By Wednesday, January 27th, 2021, this GME situation was out of hand. The share price was rising exponentially, and millions were getting involved. Robinhood, a trading app, was the most downloaded app in the app store, as both news and social media stirred up a feeding frenzy. A whale (Melvin Capital) was dying, and everyone wanted their pound of flesh.

   Shortly after market open on Thursday, January 28th, 2021, there was a violent change to the game. The institutional investors flexed their muscles, and many brokerages including Robinhood and Interactive Brokers, placed buying restrictions on retail investors. These actions prevented normal people like you and I from participating in the investment markets. 

   That single act, of greed and desperation, threatens to disrupt the entire financial system as we know it.

What’s Next?

   You may be wondering, “I don’t own GME, so why would this be important to me?”

   By assaulting the retails investors ability to openly and fairly trade in specific investments, both moral and legal codes were violated. The class action lawsuits already opened against such trading platforms, coupled with SEC investigations, and the millions of eyeballs trained on this developing situation could certainly impact how brokers and institutional funds operate.

   For anyone who has investments, whether it is just your retirement accounts, or you actively trade, legal changes in the securities industry look to be just on the horizon. Being aware, and staying in the know, will help you set yourself up for success as the world continues to change and evolve.

How to Reduce Your Taxes

   You want to pay less taxes.

   While taxes might be your contribution towards the society you live in, everyone wants to pay less than they do. Fortunately, there are some excellent ways that you can legally reduce the amount of taxes that you owe.

Save for Retirement

   Whatever your country's retirement savings plans are called; RRSP (Canada), 401K (USA & Japan), Superannuation (Australia), etc. There are some serious tax breaks for contributing to your retirement.

   For Canadians, contributing to your RRSP accounts grants you a tax credit, effectively lowering your taxable income for the year. While your income is lower for tax purposes, you also have the advantage of increased investments to your name. The growth on those investments is only taxed when you withdraw the money, usually on retirement which could be many years from now. This tax-deferral is beneficial to you now, and can be important for tax planning later in life.

   The reason that saving for retirement comes with tax advantages stems from the purpose of taxes: to pay for the society that you benefit from. 

   As you increase your own financial resources, especially in funds such as the RRSP or 401K, you are reducing your reliance on government systems designed to protect you when you retire. A lower reliance on those systems means you bring about a lower societal burden, and your share of contributions can be decreased.

Claim Business Expenses

   If you are making money on a side hustle, you may be able to claim some tax credits based on your expenses. 

   While your side-gig means you earn more, and therefore pay more taxes thanks to the marginal tax rate system, there are some benefits for deducting expenses that you incur. These could include expensing part of your home if you are dedicating a certain area to these side-gig activities. 

   For example, someone making money on the side selling hand-sewn clothes and other products. They would be able to expense materials and sewing equipment, the sewing room in your home, and other costs incurred from those business activities. It’s very important if considering these types of deductions that you’ve kept the receipts and proof of expenses.

Deduct Capital Losses

   Maybe you’re more the investor type, and you make additional money in the investment markets. As with all forms of investing, there is always risk, and sometimes you end up losing some money. Those losses are also eligible to reduce your taxes.

   For the more sophisticated investors, this type of deduction is an important consideration. Sometimes it’s better to incur a loss on one investment, and use that to offset a gain somewhere else. This type of tax planning is best performed by experienced investors, or under the guidance of a certified tax or financial planner.

Claim Education Expenses

   Another way that we grow our incomes is by growing ourselves. While the tax code is behind the times in terms of what qualifies, if you are receiving education from an accredited institution your tuition costs might qualify for tax credits.

   Mostly these accredited institutions are universities and colleges delivering professional, post secondary education.

   If you are continuing your training and development by taking courses at this level, those tuition costs should be considered when preparing your taxes. 

Deduct Charitable Contributions

   One final way to reduce your taxes is to contribute to a charitable organization. If taxes are your contribution to society as a whole, charities give you the freedom to put your dollars to work on a cause that is important to you. 

   Those charitable contributions that you make help society improve, and better take care of various people and/or ideas. That has a tangible, meaningful value, and you are rewarded with tax credits for doing so.

   For example, if you contribute to the Heart and Stroke Foundation, you are promoting research and development into cardiovascular issues and remedies. The more discoveries that the foundation makes, the healthier the population can become. As people become healthier, there is less drain on the healthcare system due to cardiovascular ailments, and society as a whole experiences a lower financial burden.

   In that way, your donations not only help a cause that you believe in, but also benefits society through their advances.

   If you want to pay less taxes, look for ways to improve both yourself and the society you live in. Whether it’s a stronger financial foundation, or adding value through business and education, your growth journey benefits more than just you. And to reward you for your efforts, there are numerous tax advantages that you can reap along the road. The only question left is; how do you plan to grow?

Tax Refunds: The Biggest Loser

   Every year, friends and family members compare the amount of money they get back from the government when filing their taxes. 

   While it’s treated as a badge of honour to get the biggest refund check, this screams about a fundamental misunderstanding of how taxes work.

   Why do you not want the biggest refund check?

   To answer that question, we need to look at what taxes are, and how they work.

What Are Taxes?

   A quick google search will turn up the following definition:

A compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions.

   Or more simply put, money that you pay to the government for the privilege to benefit from society.

   Most people fail to consider the second element when they discuss taxes. They get too hung up on the what aspect, or paying the government, and fail to consider the why element.

Why are Taxes Important? 

   Many of the experiences we have in our everyday lives are taken for granted. The roads that you drive on, the parks that you walk through. Schooling, healthcare, and much much more. All of these elements are paid for by the taxes that a government collects.

   If you enjoy the benefits of such services, it is your civic duty to pay for those through taxes. 

   And everyone benefits. For everything that’s occurred in your life, you need to give credit to the country that you are living in. Your country has provided the means to which you have accumulated all you have, in both possessions and experiences.

   This is an important distinction that is often missed. The more you have, the more you owe to the country that provided such opportunities. This is why it is often with misguided anguish that people rebel against the idea of the rich paying more taxes. The wealthier someone is, the more they have benefited from society, and thus the more they owe to that same society.

   I did not always live with such philosophies. Long before my journey with Business Minded started, I used to rage and rail at paying my taxes. Paying for roads I don’t drive? Healthcare I don’t use? Education that left me with only more questions? 

   In my self-absorbed way, I had forgotten about the friends and loved ones who also benefited from those same services. I had taken for granted the people whose lives had been saved by that healthcare system. I’d taken for granted the options at the supermarket, brought about by the infrastructure paid and paved by taxes. 

   And in my shortsightedness, I had overlooked the benefits that others enjoy. I had taken for granted the safety net held beneath me should I fall. I hadn’t considered what life would be like without those loved ones living healthy lives. Even if I wasn’t sick at that very moment, I owe it to my loved ones and to my future self to pay for the services that every day improve my life, and one day could even save my life.

How Do Taxes Work?

   Canada, US, UK, Australia, and many other developed nations use a marginal tax rate system. Essentially this means, the more you earn, the higher percentage in taxes you pay on every additional dollar earned. 

   If you earn $100,000 annually, you will pay the same amount in tax on the first $50,000 as someone who only makes $50,000 annually. For every dollar over $50,000, you will pay slightly more in taxes on those additional earnings.

   At no point does earning more money become a bad thing though. If you enter a new tax bracket on that last dollar earned, you only pay additional taxes on that dollar.

Why You Don’t Want a Big Refund Check

   If taxes are your contribution to society, and you only pay taxes on the dollars you actually earn, why don’t you want a big refund check? A big refund check at tax time means that you have paid more than you should have throughout the year. That isn’t a bonus to you, rather it means you gave away too much throughout the year.

   If you walk into a corner store to buy a candy bar that costs $2. The candy bar doesn’t change in value depending on how you pay. If you pay with a crisp $20 bill, your change will be $18. The change in this example is effectively your big tax refund. 

   Alternatively, you could have just paid with a toonie ($2), and not received any change. In either case, the candy bar is still the same, and still costs $2.

   The difference in this example is how much you paid in the first place. But unlike buying a candy bar, your tax refund takes a year to be returned to you. Instead, you would have paid the store owner $20 for a $2 candy bar, and come back a year later to receive your same $18 in change. You had, essentially, given the store owner an interest free loan for an entire year.

   Irrespective of how you pay, the benefit to you is the same. Whether you’re paying $20 for a $2 benefit, or $2 for a $2 benefit, at the end of the day what you’re left with doesn’t change.

   Getting a bigger refund is not the ideal situation. Next time someone brags that they have the biggest tax refund, that simply means they were the biggest loser during the year. They lost out on having that money for an entire year, and any associated freedoms and gains that money could have earned.

   This year, think not about how much you can get back, but rather think about how much you actually pay in taxes. There are a myriad of ways through which to reduce your tax liability in a beneficial way to you. Paying too much up front and asking for change back is not one of those ways!

Home Office Allowance for COVID

   2020 was an eventful year. Now that it’s over, and the dust is settling over a massively disrupted workforce, it’s time to look to the future.

   And part of that future in the very near term means filing our personal income taxes.

   When COVID kicked off, many people had questions over what this new “work from home” scenario meant for them. The method for claiming home office expenses was to have your employer fill out a T2200 form, which you could then use to claim tax deductions.

   But therein lies a very big issue. 

   Many employers simply refused to fill out these forms, effectively stranding their entire workforce with potentially eligible tax deductions that they weren’t able to claim.

   Fortunately, late 2020 the CRA recognized the enormous burden of filing out T2200 forms for an entire workforce, and has since offered a simplified approach - one that makes your life easier come tax-time.

Do You Qualify?

   The CRA has loosened the restrictions surrounding who qualifies for the home office deductions. Now, the bar to qualify simply states:

You worked from home more than 50% of the time for at least 4 consecutive weeks (one month).

What Can You Claim?

   In the simplified approach, the CRA has created 2 new forms, a simplified T2200, which goes under T2200s (form located here). This simplified form must still be completed by the employer, although the complexity of the form is greatly reduced.

   The T2200s form indicates whether you, as the employee, were required to work from home for part of your working year.  Filing a T2200, or T2200s, is required if you are planning on expensing specific items, such as office supplies or utilities. These specific expenses must be identifiable with receipts, and are claimed using option 2 of the new T777s form (located here).

   The other option for claiming the a tax deduction also avoids the use of the T2200s form, and doesn’t require input from your employer. Still using form T777s, you can elect option 1, whereby you are able to claim a flat rate of $2 / day, for every day worked from home during 2020. The maximum claim under this calculation is $400, or 200 working days.

   Note: this is still subject to qualifying for the deduction, meaning you worked from home for more than 50% of the time for 4 consecutive weeks.

Example:

   For illustrative purposes, assume the following is accurate: I worked from home on the kitchen counter for the entire month of May 2020 (4 weeks).

   The kitchen where I worked accounts for 100 sq ft of the 700 sq ft apartment. My share of the rent was $1,000 for the month, and internet was another $100/month. And, I worked 40 hours a week, out of a total of 168 hours (7 days * 24 hours each day).

   For the month of May, I would be eligible to claim:

(100 sq ft / 700 sq ft)*(40 hours / 168 hours) * $1,100 = $37.41 total deductions

   This manner of calculating involves some measurements of the space, as well as some reasonable assumptions. Living in a one bedroom apartment, the kitchen takes up over 50% of the total unit size. But, it’s not a reasonable assumption to include that entire area for my “home office” space.

   But that’s not the end of this story. 

   Upon asking, my employer refused to complete a T2200 form for me. As such, I instead must use the simplified method on T777s. This calculation allows me $2 / day, for every day in the same period. Those same 4 weeks have 20 working days. 

   Under the simplified method, my eligible tax deduction would be 20 days * $2 = $40 total deductions. Not only that, but I also don’t need to save receipts and employer signed forms to support a claim this way.

Additional Resources

   Not sure which type of forms to use? The CRA has a handy calculator here that will help you make that determination.

   Be sure to check out the forms and calculator early. If you need to have T2200 or T2200s forms completed by your employer, allowing yourself and your employer extra time to process is beneficial.

   Just to prove there’s a silver-lining in every challenge, the CRA has made it easier to qualify and claim tax credits for the 2020 calendar year. The right information, and some early planning might leave you just a little bit better off come tax time.

The Path to Success

   How will you achieve this year’s goals? How will you make this year your best year yet?

   Setting goals is a process of laying the plans that carry you outside of your comfort zone, to a new level for you. That’s the point of goals. To take you where you’ve never been before, to show you what you’ve never seen before, to make you better than you were before.

   But if you’ve never been there, how will you get there?

Follow A Path

   No matter what you desire in this world, someone has had it all before you. 

   Anakin had Obi Wan Kenobi. Luke had Yoda. Katniss had Haymitch.

   No matter where you are in your journey, there is always someone who has walked those roads first. With the abundance of information out there, it has never been easier to find those who have walked the roads ahead of you.

   How do you achieve something you haven’t had before? Find someone who has it. And learn from their ways.

   A quick search on the internet will reveal an enormous list of resources, some credible, most just noise. That quick search will have revealed a maze with countless starting points, just as many dead ends, but just as importantly, countless paths through to the other side as well.

   And that brings us to the second critical element to achieving more. Sticking with the path you choose.

But, Only One Path

   As you search for those who have walked the streets ahead of you, you’ll be confronted with many “guides” that can promise to take you to the promised land. All of these guides have a selfish interest in helping you succeed.

   Once you find a guide that resonates with you. One who’s path leads you to where you want to go. Stick with that guide. Through the trials by fire. The struggles, the heartaches, the close calls and near misses that meet you along the way. 

   It’s during those hard times that the sirens call from a new guru or guide becomes especially dangerous. The lure of an easier path is seductive, especially to one going through pain and suffering. Young Anakin left his path during one such challenging period. And the result of following too many different paths led him straight to the dark side.

   Once you have your path, stick with it. Through thick and thin. Lest you find yourself lost, following too many guides leading you in different directions. Wandering tired, alone, nowhere that you want to be.

The First Step

   Here is where reality sets in. 

   Obi Wan Kenobi isn’t flying to your doorstep to take you on a grand adventure. The Capitol isn’t summoning you to fight for honor and glory.

   Unlike the stories told around campfires, there is nobody about to drag you out of your comfort zone and towards the person you were born to be. 

   If you aspire to greatness. If you want more than you have. If you were born to be more than you are now, you must declare it. 

   Someone will reach the goals you set. Someone will become the person you aspire to be.

   Why not declare that someone should be you? Volunteer to pay the price of success. And with both feet, take the plunge into the world that awaits your greatness.

 

How To Apply This To Your Story

   Many people at the start of the year have improved fitness goals, so we’ll use that example. But, keep in mind, the steps can work for any goal you set.

   Find a gym, a coach, a routine that works for you. There isn’t a one-size fits all approach. For our example we’ll use a “train at home” style workout, P90X.

   Follow the P90X path. Sometimes it will burn. Sometimes you’ll want to quit. But stick with it. Don’t swap it out on week 2 for a different 5x7 app. Or a new gym membership. Once you find something that works, stay the course. 

   Getting mixed up in 4 different workout regimes, with the same number crash diets is a sure way to overwhelm yourself. And following multiple different paths to the same health goal will ultimately lead you stumbling into your future self 6 months from now in the exact same body you have now.

   Once you know the path that will work for you and your lifestyle, begin. Success starts with action. If you want to hit that health goal, start where you are, doing what you can, now. If you do that, and stay the course for at least the next 90 days, then I guarantee in 3 months you’ll look and feel like a whole new you. 

   It’s the path to success. Will you walk it?

A New Year’s KISS

   New Years Eve is almost upon us. While 2020 has been one for the record books, there’s something refreshing about a new year. 

   Put all of last year’s distractions and deviations aside, and lay out some fresh new plans for the next 365.

   A New Year’s Resolution - it’s almost mythic in it’s universal applicability. Yet while millions of people make bold proclamations, why does it then follow that a month later those plans and schemes sound more like pipe dreams?

   Why are resolutions so difficult? And how can you set resolutions that actually stick?

   The first reason so many resolutions fail by the end of the 3rd week, is the toughest hurdle to overcome. 

What do you want?

   Seriously, what do you want? Put aside the instagram / twitter / snapchat goals. The 15 milliseconds of fame that you’ll garner putting up pictures of your life’s highlight reel doesn’t show your true wants.

   Rather than taking an inventory of the instagram pictures you want to capture, take an inventory of the things that are important in your life. Focus on what you truly value. And then set a resolution, a goal, that helps that area of your life.

   For me, I give myself a few types of goals focused on these areas:

Career, Financial, Romance, Physical Health, Mental Health, and Relationships with Family & Friends.

   Each of these areas are important to my greater success. Shoring up and doing better on that scorecard will lead me to a more fulfilling life.

Kiss the scorecard.

   Once you know the areas of your life that you want to focus on improving, there’s only one thing left to do. 

KISS.

Keep It Simple, Stupid.

   Aside from chasing someone else’s dream, we so often go wrong making grandiose plans. Set a goal that’s realistic. A goal that you can clearly see the action plan to.

   If you can’t figure out how to get there by taking one action a day, your resolution is too complex to stick with.

   Resolutions aren’t an episode of intervention. You aren’t reinventing yourself in 60 minutes, less commercial breaks. Resolutions are identifying those one or two behaviours that you can do repeatedly. Day after day, week after week, month after month. Once you know what to do, the real battle begins. Tenacity and perseverance aren’t just buzz-words on a resume, they are the way. 

   If you want to be successful, no matter the resolution that you set, you need to follow through. Day after day, week after week, month after month. Grit. Stubborn determination. The secret of success.

   As you fire off the cork on the bubbly this New Years, remember your New Year’s KISS. Someone is going to start talking about their resolutions. No matter how cool someone else’s dreams sound, stick in your own lane. What is important to you? How can you improve those areas of your life?

   And keep it simple. No 14 step plans. Your resolution shouldn’t need a flow-chart. Just one step. And another. And then another. And a year from now, you’ll be raising a glass to your successes, and getting ready for another new year’s kiss.

Buying a Dream

   Would you buy something sight unseen?

   Anyone plugged into automotive news will have undoubtedly heard of some exciting new developments recently. A new Tesla truck, the Rivian vehicles, the return of the Ford Bronco.

   Each of these vehicles is quickly selling out, despite the buyers never having seen the end product.

   But what then is happening? Why are so many people spending their hard earned dollars on products that don't even exist yet?

   The answer of course isn’t some voodoo-like phenomenon. Nor is it as mythical as the law of attraction. 

   No, you can’t wish these things into existence. No Santa Claus, Tooth Fairy, or Easter Bunny will leave hidden gems under the tree/pillow.

   Instead, people are doing no less than setting a goal. A goal to own something in the future. Once the commitment is made, it is simply a matter answering the how question. 

   The difference between a dream and a goal, is the action plan to get there. No longer is it something you wish for when you close your eyes. That thing that you desire? It can be yours, with the right plan.

You can have more than you have now, because you can become more than you are now. - Jim Rohn

   Setting a goal, even one that stretches you beyond where you currently are, is a good way to motivate yourself to grow into the person you want to become.

How to Buy a Dream

Decide

   As with many things, making the first decision is easy. Decide what you want to have / who you want to become.

   Decide. And commit to that decision.

Plan, and Execute

   Like so many new car owners, that initial decision is easy. For a nominal deposit, that new vehicle is on the way.

   Next, is to determine what is necessary to keep that dream alive. 

   This planning is something we all do all the time. We decide what we need to have, and work out a way to get that. 

   Let’s say you put down your name for a new Tesla truck. For $800/month, you are a Tesla owner. For as long as you believe that’s who you are, you will find a way to get that $800/month. Maybe that’s a couple less nights out each month. Or picking up a side-gig. Or working for that promotion. 

   Whatever it takes - this is who you are, and you will find a way.

Execution

   Execution is where success is born. Taking action turns that dream into a goal, and that goal into reality.

   Committing to your initial decision means sacrifice. Continuous sacrifice, day after day, week after week, all in the pursuit of that initial ideal. It is this third step that separates the perpetual dreamers from those who will truly make it. Because dreaming is easy. Action is hard work.

   What dreams do you hold close?

   Don’t look for those shiny baubles ‘neath the tree this week. Or under the pillow. Or wrapped in a sugar-laden egg.

   Some dreams can only be bought. Paid for with cold hard cash, and the never-ceasing toils of one who believes in who they are becoming.

Raise The Roof On Your Economic Potential

   Are you being paid for the value you bring?

   Every year, companies evaluate their staff, and look at the pay scales that employees are graded on. Most jobs, and companies, will be paying based on a pay band. 

   These pay bands are reflective of the market rates for a certain set of results. 

   The more results that you can generate, the more value you have to the marketplace, and the more money you can demand. This principle helps govern your earnings, whether you’re looking for a cost of living raise, or something more substantial. 

How do Raises work?

   All corporations plan out their payroll costs in advance. While this helps the finance team prepare for the future, it also led to a side-effect that too many people have heard. 

   This side-effect can be explained simply as: “It’s not in the budget”. 

   How many times have you heard that in your own careers? Whether it’s a new project, or a raise, this line is used as an excuse, a justification, and an explanation all in one go.

   There’s only one problem with that sentence. It’s a lie.

   You see, all companies have the ability to deviate from the budget, especially for the right reasons. You could ask any company if they would be willing to spend one hundred thousand dollars to make a million dollars. The answer would be a resounding yes.

   Not once would someone say, “Hold on, let me check the budget.”

   It’s not a question about what the budget has in it, or what the pay band is. If the value is there, every company would be happy to pay for that value.

   The secret then is how do you increase your value? And how can you demonstrate that to the marketplace?

How Do You Increase Your Value?

   There are three key areas that help you increase your value. Each of these three areas will help you produce more value, and thus become more valuable to the marketplace.

Attitude

“Attitude is everything, so pick a good one.” ~ Wayne Dyer

   How you approach a situation, the attitude you adopt, will play an unprecedented role in generating results. A person with a positive attitude not only is more pleasant to work with, but that positivity will even help you overcome obstacles more easily. 

   The best part about attitude is that improving it is free, and instantaneous. 

   Take a look at your attitudes surrounding work, life, family, and money. Where can you turn your thoughts into something positive, and increase your successes?

Knowledge

   Knowledge is power. It’s also extremely valuable. There is a reason that doctors and lawyers get paid so much. It’s because the knowledge they hold is valuable.

   In every profession, learning how things work will make you more valuable. Whether that’s new systems, new processes, or new ideas. Learning about your field will help you command a higher price tag to the marketplace.

   Education is an on-going process. If you want to be more valuable, and thus paid more next year, you need to increase your knowledge this year. Every month, every week, every day, you need to strive to be better than you were yesterday. That is how you will continue to increase your value and raise your earning potential.

Skills

   While knowledge might be learnings, skills are a subset of practical wisdom that you can apply for better results. The primary skill that everyone should focus on is communication. The ability to communicate effectively is alone with the price of admission. 

   Developing skills like communication, time management, and prioritization will help you produce exponentially better results. Those results will in turn drive up your value to the marketplace.

How Do You  Demonstrate Increased Value?

   Becoming more valuable is only half the battle. You also need to be able to demonstrate that value to the marketplace. 

   Showcasing your skills, attitudes, and knowledge can be tough though. While some knowledge, like a law degree, can be verified from an academic institution, the vast majority of your education will come from other places.

   The books in your library. The seminars, conferences, and courses you’ve taken. The experiences you’ve had.

   Demonstrating a positive attitude is again something that is harder to show-off. For this one, you need only to approach life with a positive can-do attitude, and your reputation will take care of the rest. People are quick to vouch for someone brimming with that can-do-ness.

   But for your employer, most of the time those nuances are taken for granted. Demonstrating those qualities aren’t always enough. In those cases, you need to determine what value-add activities you perform, and showing how you produce a positive return for the company.

   Take a look at your work. Are you generating revenue for the company? If so, look at your billable utilization. The more hours you bill, the more money the company makes. If you can deliver more value, you can be billed out at a higher rate. As you grow in your career, how much more can you make for the company?

   Answering that question will help you tremendously in any compensation discussions, as you can show how your growth and development actually makes the company more money.

   If you’re in a non revenue generating role, look at the projects you are undertaking. What is the impact of your efforts? A project that reduces the costs for a company is just as valuable as generating revenue. Reducing expenses helps grow the bottom line.

   Learn what value you bring to the company. Understand how the work you do each day helps drive success for the company. Once you know this, you can shine a spotlight on the areas that you are valuable. 

   How do you raise the roof on your economic earning potential? 

   Become more valuable, whether it’s through a better attitude, additional knowledge, refined skills, or a combination of all three. And then learn how your efforts are creating value. Once you can explain that, you can command a higher economic premium for your efforts. 

   Success is a journey. One you don’t just go through, one you grow through.

Re-calibrating Your Autopilot Function

   Do you remember a time before this covid crisis hit us? Those hours spent commuting? How many of those drives /walks /train rides do you actually remember? And how many of those days were you simply moving through life on autopilot?

   This weekend, while out picking up some appliances for the house we’re renovating, I found myself hopping back on the highways after a long day of work. As my foot sank lower into the gas pedal, my mind slipped back to the seemingly endless lists of next-steps that we’re working through. And just like that, without even thinking, I was cruising back home. 

   Only I wasn’t heading home.

   My autopilot hadn’t re-calibrated to reflect my new postal code, and as a result I was speeding towards an unplanned destination.

   Fortunately, my life’s co-pilot had her eyes on the street signs as we roared on by at over one hundred kilometers an hour. She quickly interrupted the autopilot sequence, and brought us back on course.

What’s your destination?

   Where are you heading? Not just after a long day, but every day. What are your goals? What future do you want to live in?

   Set your destination. The things you want to do, the places you want to see. The person you want to become.

   Make sure you are calibrating your navigation system to guide you to the right destination.

Recalibrating Your Autopilot Function

   Once you know where you are going, it’s time to evaluate your systems.

   Conduct your pre-flight checklist.

   What are you doing automatically, every day? We all have routines. Routines that serve you, like brushing your teeth for good oral care. 

   But sometimes your routines aren’t helping you. Maybe it’s hitting snooze every morning. Or washing the week down with a crisp, cold, adult beverage. 

   Map out your routines, and project into the future. Where will you be in 5 years? 10 years? 20 years if you keep doing the same things you’re doing now?

   An almost imperceptible shift in direction could land you at your destination, or send you hurtling into the abyss.

   Just like an airline taking off in New York, heading for the sandy shores of San Diego. Half a degree off, to the north or south, will send that flight into the middle of nowhere, Mexico, or swimming with the fishes in the Pacific Ocean.

Calling On Your Co-Pilots

   Sometimes we can’t see that imperceptible change in direction. Sometimes we’re too close to the situation to realize that our routines are taking us to places we don’t want to go. Sometimes, you need a co-pilot to correct your course of action.

   Just as my co-pilot steered me back in the right direction, there will be times you need that nudge. 

   Who knows you best? Who can give you honest feedback about your routines? Those are your co-pilots. The friends, family, and loved ones who can steer you back on track.

   Much of your success depends on moving in the right direction, consistently, day after day, year after year. 

   Make sure your systems are calibrated correctly, so when you do flip on autopilot, you end up heading exactly where you want to go.

A Fresh Perspective

   How do you see the world right now?

   Fear about coronavirus? Concern over global warming? Angry about politics? Concerned about financial matters?

   Every situation, every trial and tribulation that we face in this world has the power to destroy you, or define you. How we view the world, the lens we apply, will largely shape the options we see and choices that we make.

   While there can be no mistaking that coronavirus has presented its own unique challenges and obstacles, how we react to this situation is entirely within our control. Despite what popular news media outlets propagate, coronavirus doesn’t spell the end for small business owners. 

   On Saturday November 28th, 2020, a couple friends of mine tied the knot. (Congrats!) And a wedding during a global health crisis poses its own unique challenges. But rather than let the complications paralyze them, the wonderful couple looked for opportunities to enjoy and share the day with their loved ones. Turning to technology, they were able to live-stream the event around the world, enabling loved ones on a different continent to share in the joyous occasion.

   Closer to home, my girlfriend looking for a unique gift turned to Etsy to find something perfect for this wedding. The result, a “coronavirus wedding” cookie.

   A talented local woman decided to turn her love of baking, and her new-found free time in quarantine life, into a side-hustle that capitalizes on an obstacle we all face.

   Here we have the same situation: coronavirus getting in the way of weddings. One couple doesn’t see this as a roadblock, but instead leverages technology to forge ahead with their love, while still bringing the experience to their loved ones.

   And a completely unrelated individual, seeing the massive disruption to weddings in 2020 as an opportunity to supplement and grow her income. All this, while thousands of others are cancelling weddings, and hundreds of thousands are filing new unemployment claims.

   The same situation, the same challenges, yielding vastly disparate results.

   Flipping the mindset which you approach any situation will open your eyes to new doors, new opportunities. These opportunities aren’t new, but they only reveal themselves when you change the way you view a problem.

   These examples are all around us. For decades, the mentality for gas-guzzling automobiles was to make more efficient engines. Europe is flooded with small-engine cars, all striving to hit emissions standards set by regulatory bodies. Sticking with the widely accepted way of thinking about the problem didn’t reveal a brand new solution - electric vehicles. Now one of the wealthiest people in the world, Elon Musk proved that thinking about the same problem in a different way is a viable way to succeed. No longer are we surprised to see a Tesla on the road next to us.

   What challenges are you facing right now? How can you think about those problems differently? Thinking about the same problem from a different angle will reveal to you different opportunities and options. 

   Who knows? Behind those newly revealed doors may lie the opportunity you’ve been waiting all your life for.

How to Combine Finances With Your Partner

   Who picks up the dinner check in your relationship?

   There are many different considerations when bringing each others’ finances into the relationship.

Step One: Know Thyself

   Who makes more income? Are the income streams steady? What are your spending habits? What are theirs?

   All these questions should be answered before you start merging accounts together. Your relationship with money will have a huge impact on the success of combining your finances. Understanding how you operate with money will help you avoid some of the more common relationship landmines that explode some couples’ futures. 

   And that’s no understatement. David Ramsey’s team turned up in studies that money issues are the second leading cause for divorce, only just barely beat out by infidelity.

   Assuming you’ve got a solid grasp on your own psychology of money, you can move to step 2.

Step Two: Communicate, And Trust

   After you know yourself; how you feel about money, how you envision this major step playing out, now it’s time to speak to your partner.

   The first of many such conversations.

   The key to most things in a successful relationship is communication. Finances are no different, and are perhaps even more important. Especially with the emotions often tied to the almighty dollar.

   Have regular, honest and open talks about money. How much do each of you have saved? What are your financial goals? What are your life goals, and how does money impact them?

   Getting on the same page will help you work through any difficult times that come up.

Step Three: Pick a Playbook

   Now that you’re on the same page, you need to decide together how the next chapters are going to play out. And to do that, we fall back to how we started.

Who picks up the dinner check?

   As there is no “one-size-fits-all” in relationships, there are a few commonly utilized “playbooks” for how couples approach this topic. 

Half-the-Pie

   One approach takes the view that both parties are equal. A joint account is established that each person contributes the same amount into. Any shared expenses are paid from by this account, meaning each person is contributing the same financial resources to the relationship.

Why does this Work? For couples who earn the same amount of money, this approach avoids any disputes about who is picking up the dinner check. Or the cable subscription. Or any one of the numerous other expenses incurred. Each person is paying 50/50 for their usage.

When might this fail: The flip-side, if couples aren’t on equal income levels. This approach can lead to one person contributing far more, as a percentage of their earnings, to the shared expenses. Ultimately, this means the lower income earner has less money for themselves, and resentment can start to form at lavish spending from their partner.

Equal Slices

   Similar to the “Half-the-Pie” approach, the equal slices approach involves setting up a joint account. But instead of each contributing the same dollar amount, each partner contributes the same percentage of their income.

Why does this Work? Especially useful when there is an income difference, this approach has each person contribute based on their earned income level. This is especially helpful in relationships where one person’s income is variable, either from work fluctuations, or as they start a new business/career. By splitting costs by the percentage, rather than raw dollars, one person isn’t unduly penalized for those income fluctuations.

When might this fail: While each partner is contributing the same percentage of earnings, that doesn’t always equal the same number of dollars. Any spending from the lower-earner can cause the high-income partner to question those expenses. The concern here is that someone is “free-loading”, again causing resentment.

Tit-for-Tat

   Often seen when a couple first starts dating, this approach alternates picking up the tab for things. Your partner pays one dinner bill, you pick up the next one. 

Why does this Work? Best used at the early-relationship phases, this approach doesn’t place too much weight on any one transaction.

When might this fail: This unstructured approach works well in the dating stage, but starts to fall apart when you start to intertwine your lives more completely. Some bills, like hydro, internet, rent, etc. aren’t well suited to a tit-for-tat style of treatment. On top of that, sometimes the bills aren’t seen as equivalent. A quick pizza order might not be seen as the same as that nice steakhouse meal last time. 

What’s Yours is Mine, Baby

   This approach joins everything. All accounts, all debts, everything.

Why does this Work? This approach takes the individual out of the equation. Everything becomes about the couple, and all incomes and expenses are shared.

When might this fail: The loss of some financial autonomy can be difficult. In this playbook everything is shared, meaning hobbies and individual purchases are made from a joint account. Her love for baking might not be on the same scale as his love for motorcycles. And no amount of brownies can bridge the gap between a bag of flour and 800 pounds of chrome and gasoline.

Scenario-Setting 

   This approach sets a scenario to live out before it becomes a reality. The most commonly seen scenario comes with the decision to raise children. Many times, this is a long-term reduction, and sometimes elimination of income from one partner. Learning to live on one income is a large adjustment for some people.

   Your scenario is yours to imagine, as you test out your ability to do it. Maybe it’s starting a business. Raising children. Retiring at 30. Or taking a year to travel the world. Testing your scenario first gives the confidence to pursue your dreams.

Why does this Work? Whatever your reasons, whether it’s parenthood, starting a business, or just the financial freedom, this exercise can show some incredible benefits. Living on one income, for example, can help jump start your financial foundations with extra investments and the development of a solid emergency fund.

When might this fail: This might fail if your lifestyle doesn’t adjust to allow for your scenario. Often we allow our lives to scale as our income grows, and living out any hypothetical scenario usually involves an income reduction, temporary or permanent. If your scenario is ambitious, it might take a few tries to get this right.

Step Four: Establish the Ground-Rules

   Once you’ve selected your playbook for combining your finances, it’s time to lay down some ground-rules. Here are a few important ones:

Maximum Dollar Spend / Personal Discretionary Funds

   No matter how you decide to combine and split your finances, each of you will inevitably want to make a purchase the other might not appreciate the same way. Having the autonomy to make those purchases without fear of judgement is important. For those purchases, you need an “allowance” over which you have free reign. 

   Want those new shoes? That’s what your allowance is there for. 

Guilt-free spending.

   Whatever the dollar value, each person needs to have a spend limit where they are authorized to buy without consulting the other. Over a certain dollar value though, either you need to save your allowance, or you need to consult your partner. The limits are yours to set.

Retirement Savings

   Saving for the future is important. There are tax advantages of having each partner possess a healthy retirement savings account, despite lifetime income limits.

   Setting these expectations in the ground-rules is important. How much risk to take in the investments? How much should be funded every year/month?

   Adequate preparation in this area will put you well ahead on the road of life. Have your partner keep you accountable.

Accepting Debt

   The final ground-rule to lay before combining finances with your partner is when and how to accept debt. Whether it’s a new credit card, or even student loans, these decisions have major implications on your financial health. 

   These decisions are too important to not be talked about.

   Combining finances with your partner is a big commitment, but one that affects all of us as we invite others into our life's journey. Knowing who you are is an essential first step, checking the ship for seaworthiness before inviting someone else aboard. 

   Communication and trust cannot be overstated, as any playbook falls apart without those two elements. 

   Combining finances with your partner doesn’t need to be complicated. The right ground-rules to keep you out of trouble, and you and your partner will be in a better place. 

   Stay together. Stay happy, stay healthy, stay wealthy.

Share the Load: 5 Risks of Co-Signing Loans

   Do you own your own home? Do you want to? Did you buy it with your partner?

   For the past few decades, the appreciation of real estate in several high-demand markets has significantly outpaced income growth in the same locations.

   If you want to live in Sydney, London, New York, Toronto, Vancouver, or Los Angeles, the prices of real estate have skyrocketed. As personal incomes fall further and further behind, the financial ability of tens of millions of millennials and Gen Y-er’s falls short of the bar. 

   If you want to “get into the market”, you might be forced to consider other alternatives. For the extremely fortunate, there are family members able to provide financial assistance to get over that down-payment hurdle. But the vast majority of people simply don’t have that luxury. 

   Another alternative that is more frequently coming up is having someone co-sign the loan.

   But co-signing a loan comes with its own risks, more heavily weighing on the co-signer.

Borrowing Against Your Future Options

   Debt is a financial tool, one that comes with its own rules. While any tool can be used to your advantage, you need to understand the rules before you play the game. The important element for a co-signer to understand is that the debt is effectively considered theirs. 

   If you co-sign a loan for someone else, that debt goes on your credit report. This extra use of credit could be a benefit, by diversifying your lists of financial instruments. But, that additional debt also increases your debt utilization. 

   Having too much debt can create difficulties in obtaining more. And when you’re a co-signer and not receiving a direct reward, losing those debt options can put you in a bad spot financially.

High Risk, Low Reward

   When you co-sign a loan, you are taking legal and financial responsibility for those debts. While it might feel good to help a family member or friend out, those financial obligations don’t provide a return outside of that good-will feeling.

   While generosity might be a key to finding lasting happiness, taking on too much risk for a low reward doesn’t balance the equation.

   Keep in mind, that you are needed to co-sign a loan because the other party isn’t financially established enough on their own. While that may be of no fault of their own, that doesn’t change the implications. The primary borrower is too risky to loan to without collateral. And you are becoming that collateral.

Additional Work for You

   Similar to the low-reward, co-signing a loan takes on an additional administrative burden. 

    While you might not ever need to pay any of the installments, you certainly need to know when and how much is being paid. Understanding the terms and obligations of the loan is essential, since the loan is effectively yours. 

   There is also the on-going burden of checking in, making sure those payments are being made on time, every time. This type of routine cadence puts an extra check-in in your calendar. Not to mention, you’ll need to become very comfortable talking about financial topics with the primary borrower.

The Downside of Your Legal and Financial Responsibility

   If all the rest sounds like work to you, you’re right. Co-signing isn’t a simple “good deed”. You are financially responsible.

   Ultimately that means if the debt isn’t being paid, you are on the hook. You could get sued over the loan, and you would have to pay the entire balance. 

   Often that legal measure falls on your lap as the co-signer first. The lender is looking at how best to recover their loan, and as we already mentioned, you as a co-signer are likely in the stronger financial position. For a lender, that simply means you are more likely to pay-up than the primary borrower who is defaulting.

The Hidden Cost of Settling

   Of course, not all co-signed loan cases end up being paid out in full. If it comes to that, often the lender will be willing to take a settlement. Those settlements could result in you paying only a fraction of what was originally borrowed.

   But a settlement isn’t as good news as it might sound at first.

   Under both US and Canadian tax laws, any amount less than the original principal that is settled on must be considered as income. Let’s say you owe $ 500,000 on a co-signed loan where the primary borrower has defaulted. The mortgage company might accept payment of $ 400,000 to discharge the loan. 

   That settlement results in a $ 500,000 (principal) less $ 400,000 (settlement), or $ 100,000 gain to income for the co-signer. This perceived gain (income) increases the income taxes that must be paid.

Important Note: If you are in this situation, go straight to a licensed tax accountant. The additional complexities require professional guidance to have the best tax results.

   Co-signing a loan, for whatever purpose, carries significant financial considerations. Whether you’re helping a family member break into the real-estate market. Or you’re simply consolidating financial resources with your significant other, knowing the implications of co-signing a loan is important.

   Debt is an important tool in your financial toolbox. Understanding how to use it, especially with and for others, can open doors that might otherwise be shut. But, don’t open those doors without knowing first what you’re letting loose.

Racing up The Ladder: Becoming More Valuable at Work

Ready to climb the corporate ladder?

   Are you worth your paycheck?

   Every person is paid for the economic value that they bring. While nothing is more visual than a salesperson earning commissions for bringing in a new deal, the same principle applies to every worker. That salesperson can’t close the deal without the right products and services on offer, the right tech setup to enable the deal, the right finances, the right team. 

   Everyone is part of a larger mechanism, one that thrives when everyone excels at their chosen specialty. 

   But how do you excel at what you do, and get paid for it?

Do More of What Matters

   Every day you do something valuable. But, you most likely also do some low-value activities too. Attending meetings that you shouldn’t be at. Answering unimportant emails. Taking long-winded phone calls.

   Those low-value activities detract from the value that you bring to the organization, and thus detract from your value to the organization.

   Do you want to be more valuable, to demonstrate that you are worth more than your current paycheck?

   The answer is simple - find the activities that are high-value, and do more of them. Increasing the amount of time spent on high-value activities will increase your value. 

What Activities Matter?

   The big question that comes up in my team when I recommend to focus on high-value activities is always; what activities are high-value?

   The answer is of course different for everyone. For a salesperson, high-value is spending time talking with prospects. While low-value is actually dialing the prospects. The difference? A thousand dead-end calls won’t stack up to one good conversation. 

   Or a consultant - delivering a proposal to a client is high-value. Recording time-sheets or answering emails, those are low-value activities. Too much time spent on those will erase the gains made by billable time on a project. 

   While every organization has a mission and vision, every department has KPI’s (Key Performance Indicators) that drive that goal. Understanding what your department's KPI’s are is essential to actually delivering that value. 

   Is your work directly related to a KPI for your department and/or company? If yes, it’s probably high-value and you should double down on that. If not, it is likely busy-work, and ultimately detracting from the value you could be bringing.

But, My Priorities Aren’t My Own

   The biggest hurdle that needs to be overcome, especially by those early in their careers is that they often don’t have a say in what they do. Those roles where you have to “put in the time”. 

   We all have bosses, and sometimes our bosses tell us to do things that aren’t driving value. Nobody is perfect, right?

   What should you do in those situations?

   Sometimes, you just need to suck it up and get it done. But do it quickly, so you can get back to the real value-add activities.

What Are You Worth?

   Decide what you want to be paid. Maybe it’s $100,000 / year. If that’s the case, you need to generate $50.00 per hour in value for the 2,000 standard working hours each year. 

   If you can do that, you’re already worth 6-figures!

   Now look at where you’re actually spending time. Did you go for an extended coffee break? Minus the cost of those minutes. Checked Facebook/Instagram? Give some of that 6-figure salary back. Attended a pointless meeting? Sign the check back to the company.

   And those tasks over which you have no control? They cost you as well. To make up for that, you need to have a few hours where your value is far greater than your desired rate.

   You are paid for the value that you bring to your company. Want to race up that ladder, and become more valuable at work? Spend more time on the most valuable activities, the ones that drive success for the business or department KPI’s.

   Just remember, for every minute that you spend not delivering the value you want to be paid for, you need to make up. Either in higher value activities, or by working more hours. And if you want a life outside of work, I’d focus on those higher value activities.

   If you want to be more successful in your career, make sure you spend the most time possible doing the things that prove you’re worth more. The more value you add, the higher rates you can charge. And that’s something you can take to the bank.

Voting for Better Returns?

   In case you missed it, one of the most powerful economic nations in the world is having an election. Stack that on top of an existing global health crisis, mounting racial tensions, environmental concerns, and you have a potent mix of fear and uncertainty.

   For our American friends, what does your vote mean for the long term future of the economy? And for those of us who aren’t casting a vote in the 2020 US Presidential election, what does the outcome mean?

   Certainly looking at the stock market the past week has shown one thing for certain: people don’t know what to expect. And that fear and uncertainty shows in stock prices spiking and plummeting all within the space of a few hours.

What Happens if the “Other Guy” Wins?

   No matter which political side you’re on, there is always “the other guy (or gal)”. And the blessing of democracy enables us to choose our leaders - which also means that the one you’ve pushed your chips in on might not always come out on top. 

   And when that happens, and the other guy wins, what happens then?

   The answer might not be that Hail Mary you were hoping for.

   The truth is, no matter who wins, the president of the United States, arguably one of the most powerful people in the world, has very little long-term influence on the stock market.

What CAN the President do?

   In times of crisis, the president exercises some very moderate influence in the form of economic relief packages. We saw this in 2008 with the big bank bailout. And we’re seeing the same thing now with COVID relief being dispensed to businesses and individuals alike. That extra cash is propping up the economy, but not in as substantial a way as many people would like to think.

   Outside of some short term relief, there really isn’t that much that the president can affect. Which means all the chest beating about how “great” someone is for the economy as a whole is just a marketing gimmick.

Who Does Control the Economy?

   If it isn’t the president, who is it that controls a nation’s economy?

   The short answer is nobody, and everybody.

   The economy is a complex system, made up of the economic productivity of all the parts. While some parts, like small businesses, may be suffering, other parts, like big tech, are thriving. One person in specific doesn’t actually exert that much influence, but rather the economy is the sum of the whole.

What Can You Do to Prosper Financially In These Times?

   Your vote doesn’t directly mean your finances will take care of themselves. That doesn’t mean your vote doesn’t matter - so for our American neighbors, go and vote. Your nation is more than just the stock market.

   But for everyone, don’t rely on the government, any government, for your financial well-being. Financial freedom is a worthy pursuit, but a journey where you are in the drivers’ seat.

   What to do, you ask?

   Keep sticking to your financial plan. Ignore the noise. For the long-range focused, invest in a diversified portfolio, and keep investing through all the ups and downs. The dollar cost averaging will take care of your returns, buying more when prices are down, and less when they are up. The diversified aspect takes care of your risk.

   For those with a more immediate investment focus? No fee savings accounts and government bonds. Those investments, while providing near 0% returns, are as safe as you can get.

   Do not try to gamble with who will win an election, and speculate about what that will mean for the economy and stock markets. That’s gambling, pure and simple.

   Success is yours, if you only make a well-thought out plan, and stick to it. Don’t get side-tracked by the clowns on the sidelines. This is your financial future, go after it with all the zeal that a commitment of that magnitude requires.

3 Steps to Recover from Identity Theft

   Identity theft is a growing concern, especially as we all expand our digital identities. 

   In light of cyber-security awareness month every October, it is important to know exactly what to do if you suspect you are a victim of identity theft. In the event of a compromised identity, there are three critical actions that you need to take.

   During 2019, I received a particularly disconcerting surprise. After an odd alert on my phone, I signed into my online banking. To my horror, my credit card bill was several thousand dollars higher than it should have been, all within the last 24 hours.

  1. Call Your Financial Institutions

   The first thing you need to do as soon as possible is to call your banks and credit card issuers, putting a stop payment on all your cards. 

   Most identity theft has one purpose, to steal your financial resources. By racking up bills and charges, you can quickly find yourself swimming in debt for purchases you never made.

   Fortunately, by reporting quickly, you can have those charges stopped, and even reversed so that you don’t owe anything.

   In 2019 after my credit card details were compromised, I immediately called Visa to explain those charges weren’t legitimate. Within 5 minutes, I had laid out that these charges were indeed not mine, and shouldn’t be charged to me.

   That simple phone call, made quickly, had all my cards locked, the charges reversed, and new cards reissued and in the mail.

   Of course, the most important things here are transparency, honesty, and speed.

   When I called Visa, they had actually already flagged those transactions on my account as suspicious. My honesty through the process meant that the whole situation was resolved quickly. But calling the bank isn’t always enough.

  1. Report the Fraudulent Activity 

   While a compromised card might not be full-fledged identity theft, if there are concerns that the fraud goes deeper, you need to report that theft to the authorities.

   Notifying the police is a good first step, especially if the identity theft includes the loss of personal identifying documents like your driver's license.

   The next group to identify are fraud protection agencies. In Canada, you should be contacting the Canadian Anti-Fraud Centre. In the US, you should be contacting the FTC. Each of these consumer protection groups provides additional resources to you, the victim, and also take steps to protect others from similar incidents.

  1. Update All Passwords and Accounts

   We’ve all experienced the frustration of our employer’s IT department forcing a password change every 90 days. You can’t reuse old passwords, they can’t be too easy to guess, and you’ve still got to change them every 90 days? 

   But if your identity does get compromised, the third item on your action list should be to update all your passwords immediately. A password generator like lastpass can help generate strong passwords. 

   Identity theft is a serious problem, and getting more and more prevalent in our society. While changing your passwords frequently and protecting your personal identifying information are both important, we can’t always protect ourselves from the unseen. 

   If someone does get a hold of your personal or financial details, it is important to act quickly and decisively. Set aside panic and hold off on your anger. Following these three steps will help you protect your resources, and recover from identity theft quickly.

5 Types of Insurance You Need

   Insurance can provide a life-line in a dire situation, but only if you have the right coverage. With so many options for insurance, what types of insurance do you need to keep your family protected?

   The 5 types of insurance here are all ones that you should definitely consider for your insurance portfolio.

Life Insurance

   Everybody dies at some point. And even death isn’t cheap. The costs associated with a funeral can add up quickly, and leave your loved ones holding a hefty bill. One way to protect your loved ones from the high costs of dying is through life insurance.

   Life Insurance pays out your policy in the event of your death. This can help cover funeral costs, and provide a financial safety net to help your loved ones weather a difficult storm. These policies can be broken into Whole Life Insurance, and Term Life Insurance. The type of policy that is best for almost everybody is Term Life Insurance.

   Life insurance isn’t required for everybody all the time, but in certain life situations that insurance is the smartest choice you can make. If you have significant financial obligations, whether that’s from buying property, owning pets, or raising children, life insurance is essential. The same goes for the primary bread-winner in a family. Life insurance protects your loved ones if you aren’t around to support them anymore.

   It is often recommended that your Term Life Insurance policy is 10 times your annual salary. That provides enough of a financial safety net to help your loved ones carry on this wonderful, albeit sometimes difficult, journey without you.

Medical Insurance

   Medical insurance is a must-have for everyone. A single medical issue has the power to bankrupt even the wealthiest among us. Because the costs or medical care are so high, you need to have health insurance.

   Fortunately for the Canadian readers out there, that health insurance is paid for by the government. But if you aren’t so fortunate to have government help with those medical bills, you need to buy your own health insurance.

Home or Renters Insurance

   Ask anyone who has just moved about how much stuff they have. As they unpack boxes upon boxes of things they’ve collected, the value of all those accumulated possessions adds up.

   One thing you can be sure of, it’s that life throws curve balls every once in a while. And some of those curve balls show up in the form of theft, floods, fires, earthquakes, and more. 

   To protect your assets, you should have homeowners or renters insurance. These insurance policies protect your home and everything that’s in it. And that can mean a lot of things. 

   If something were to happen and you lose your worldly possessions, home/renters insurance will even pick up the tab to help you settle somewhere else. Whether that’s paying your rent somewhere else, or setting you up in a hotel. Tragedies don’t have to wipe you out financially, as long as you have the right homeowner or renters insurance. 

Auto Insurance

   Automotive insurance is another must-have if you own a vehicle. Thousands of pounds of steel hurtling down a roadway might be a convenient way to move around this big ol’ world. But, it’s also a good way to really cause some damage. 

   Having auto insurance helps cover you from both the property damage that arises from a car accident, but more importantly, that insurance covers any necessary medical costs. Those costs can quickly lead to financial ruin for an individual. 

   Not only is auto insurance a good idea, it’s legally required before operating a motor vehicle. Don’t gamble with your financial life. Make sure you’re covered by auto insurance before you drive.  

Long-Term Disability Insurance

   Have you ever considered not being able to work? Most people don’t give that any thought. But as you are the source of your future wealth creation, you need to protect yourself and your ability to create that wealth. 

   Disability insurance provides income replacement in the event that you are no longer able to work. While other insurance can help with things like medical bills, other costs don’t simply go-away because you can’t work. For those costs, having a guaranteed income replacement is essential.

   When shopping for disability insurance, the best rates are often through your employer. In fact, many employers provide this insurance as a mandatory benefit. But, not everyone has an employer. For those readers who work for themselves, having a disability insurance policy is essential. This will provide the financial safety net you need in case you are unable to work for an extended period of time.

   Life insurance, health insurance, homeowner / renters insurance, automotive insurance, and disability insurance. These policies should make up the majority of your insurance portfolio. Each policy is designed to protect you and your loved ones from an otherwise devastating situation.

   The right insurance ensures that you are taken care of, no matter what life throws at you.

How Does Insurance Work?

   Insurance offers you the ability to protect against the downside risk of many things in life (even death itself). But, is insurance really worth it?

   Of course, the answer is, as always: it depends.

   But before we can understand when insurance is a good idea, and when it’s best to say no, we need to look at what insurance is.

What is Insurance? And how does it work?

   Insurance is a promise to pay you if a certain event takes place. 

   The event in many insurance policies is the replacement of a product in case it breaks (device insurance). But it could be covering damages caused, for instance, by a driving incident (car insurance). Or even paying your estate funds in the event of your death (life insurance).

   Selling these “guarantees” is a business. A very lucrative business.

   And the skyrocketing corporate profits means one thing: you, the consumer, loses out far more often than you win.

   Most of the time that’s a good thing. It’s far better to pay for life insurance and not die. Or car insurance and not crash. But, with insurance offered on a wide range of products that we use in our daily life, buying too much insurance can be a poor financial decision. Spending money on things you don’t need is a poor purchase, no matter how you look at it.

When Should You Buy Insurance?

   Insurance is often made more complicated than it needs to be. Deciding when to buy, and when to pass on insurance, needs to follow a simple formula.

“What you are insuring needs to be of sufficient value to put you in a bad financial position without the insurance.”

   What this means is, if what you are insuring would be difficult to replace with your current financial resources, the insurance is probably a good idea. Or put even more simply:

Emergency fund < Value of Item = Buy Insurance

   If your emergency fund is sufficient to cover the loss, you shouldn’t buy the insurance. Instead, keep increasing your emergency fund as well as your other investments.

   If on the other hand the value of what you are buying is more than your emergency fund, then insurance is a good idea.

   Insurance is often offered on a variety of purchases. I’ve had offers for insurance from anything as small as a video game, to cell phones, all the way up to my automobile and home.

   Most recently, when shopping for new appliances, I faced the sales pressure from the appliance salesperson. I was being regaled with tales of broken appliances that weren’t covered by warranty, and frightened by the estimated cost of repair visits. But quickly looking at the numbers, I could tell I wasn’t going to come out a winner. Insurance on the kitchen appliances was coming out to more than 10% of the total cost of all the appliances. Do I buy? Do I pick and choose? If so, which appliance is most likely to break?

   Ultimately, I fell back on the formula: my emergency fund could cover the replacement cost of any single appliance. And the likelihood of all appliances breaking at the same time must be extremely rare. Rather than buy the insurance, I’ll be better off passing on the insurance, and setting a little extra away into my emergency fund.

Further Use of the Insurance Formula

   Of course, sometimes insurance is more than a simple yes/no question. In the case of home and auto insurance especially, there are different policies. One of the key factors in determining the cost of the policy is the deductible, or the amount you need to pay first before insurance pays out. As you can imagine, the higher the deductible (the more you need to pay first), the lower the insurance rates.

   The formula we looked at above can be modified slightly. 

Emergency fund > Difference in Deductible = Buy High Deductible Insurance

   In this case, if you can cover the difference in deductible without jeopardizing your financial position, you should buy the higher deductible insurance. This will mean you pay more in the event of a claim, but if you don’t need to make a claim, your insurance rates are lower.

   Common auto insurance deductibles are $0, $500, and $1,000. If you can cover the $1,000 deductible, the difference in insurance rates from a $0-deductible insurance policy could be thousands of dollars over the course of your life.

   Never fall prey to sleazy sales tactics again, you have the numbers to support you in making the right choices. That simple formula telling you what you can afford in an emergency, and what you should seek external protection on, will help cut a lot of confusion out of the insurance question.

   Making sure you are adequately covered is a function of what financial risk you can comfortably absorb personally. When you can look out for your own financial interests, you need to rely less on insurance to cover the difference. And spending less on unnecessary insurance helps you get even further ahead. 

   The freedom to pick and choose what is right for you without worrying about repercussions is liberating. That is one piece of financial freedom.