Articles

Do You Need A Budget?

   Almost every personal finance book you’ll ever pick up starts with the importance of budgets. This advice seems pretty universal among all financial professionals. So why is it that so few of us actually maintain a budget?

   For many of us, we seem to get by without a budget, and while few people are happy to admit they are right where they want to be financially, there isn’t enough pressure to change. Despite this lack of urgency, the best personal finance practices that I can recommend is this: create a budget, and stick to it. But we know that, and many of us still don’t have a budget. So what else can we do?

   To answer that question, we need to look at why budgets are so powerful.

   The act of budgeting involves planning, and keeping track of our progress towards the plan. Much like the way we pursue achievement in other areas of our lives. If we want to become healthier, we adopt a nutrition and fitness plan, and keep checking in on our progress. How much more can we lift? What is our weight? Our body fat %? These are measurable figures that help us know if we’re on the right track. Budgets work the same way. How much did we spend on dining out? Are our shopping impulses in check?

   These metrics are our analysis of performance. But the metrics didn’t just materialize out of thin air. The most powerful aspect of budgeting is not creating the plan, but instead of knowing where you are starting from. And there lies the glimmer of hope for all of us as we tackle our own financial futures. We can all take a look at where we currently stand.

   We are all creatures of habit, and because we are creatures of habit, our spending is fairly consistent. As a result, if we follow what we do for a couple of weeks, or even a month, we have a pretty good estimate as to how the next few months will play out. Tracking our spending, even just for a short period, will help us make more educated decisions about the financial resources we will need in the short term. Any surplus can be invested, and any deficiencies will cause us to pause before we become saddled with consumer debts.

   This tracking aspect helps shine a light on our spending habits, and that alone will help shape our future actions. If you realize that you are spending more than you want on restaurants, perhaps you’ll be more inclined to make your lunches several days a week. And while you won’t have the measurable insights brought about by a budget, simply knowing where you spend your money will help you make better decisions.

   To answer the question, “Do you need a budget?” we can summarize by saying No, you do not need a budget. Budgets are valuable in their own right, but you can start making better financial decisions simply by looking at where you spend your money right now. And those better decisions add up, bringing you closer to the financial freedom we all desire.

 

What about you? Do you have a budget? If so, how is it working for you? 

If you don’t have a budget, look at your spending from last week. What insights can you see? Does it surprise you where and how you are spending your money? Are there better choices you can make in the future?

Batching Your Success

   How are you batching tasks in your life? And how can you take that practice further, to take your success further?

   We all know about batch cooking, preparing the weeks meals ahead of time so that we save time during the week. This let's us focus on cooking when we're cooking, and the rest of our lives when we aren't. This practice saves us time when implemented well. And that valuable resource, time, can be reallocated towards our other goals. 

   So why don't many of us batch other tasks? 

   This is a practice I have been doing for years, and it works wonders for improving my outcomes professionally. I decide the night before exactly what related tasks I will be working on the next day. This helps me be more efficient, effectively getting more done. And because I am focused on one area at a time, the quality of my results improves as I don't need to switch cognitively between different unrelated action items throughout the day. 

   I do this by spending a couple of minutes preparing at the end of each day. Rather than grinding right until quitting time, I will take 15-20 minutes at the end of the day to get ready for the following day. This process provides some huge benefits in two main areas. 

   The first benefit, my efficiency. In those last 15 minutes, I can source the data and reports that I will need first thing the next morning. Having those files open on my desktop enables me to jump right into those important tasks without extra mental efforts the next morning. I don’t need to think about the long list of to-do items first thing in the morning, I already know what I’ve selected to do. And that simple process saves some of those important decision-making “juices” for later in the day. Prioritizing this way also helps me group my to-do list into general areas. As an accountant, I will batch tasks such as vendor expense reconciliations and payments, since these are both related to corporate expenses. Another day I will deal with invoicing, analyzing outstanding receivables, and forecasting future revenues. Again, these tasks all have a similarity. Once I know what the day will be spent on, I can forget about the other aspects of the business, knowing that the time for analysis and reporting is scheduled for another day.

   Many of the ultra-successful have practices like this. Joel Osteen, the iconic pastor and world-class orator, batches his tasks. Certain days are dedicated exclusively to reading, generating ideas. Other days are spent entirely on writing his weekly speech. And yet other days are dedicated to practicing that speech. By batching his tasks, he is able to produce a brand new key-note speech each and every week. That is the power of batching. That is how you can batch your success.

   The second benefit is more subtle, but exceptionally powerful. By spending the last few minutes every day closing down that day’s tasks, and planning for the morrow, I am effectively closing down my work day. This helps me leave work at work.

   We’ve all had days where we don’t get what we wanted done. We show up and it seems the whole business went up in flames since we last looked. All our carefully laid plans are thrown out the window. Spending the last few minutes of the day setting plans of attack for the following day helps us stay in control. And knowing you have a plan before you head home helps you leave some of that chaotic stress from the office at the office, and not bringing that frenzy of stress and negative energy into the home.

   Batching tasks helps us operate more efficiently, which allows us more time for everything else. Our productivity increases, and our results become of higher quality. This is an exceptionally powerful strategy for achieving career success, as getting more work done, of higher quality is certainly a way to increase our professional value. And once the day is done, we can plan our batched tasks for tomorrow. This helps us leave work at work, and promotes a healthier home-life. Success is sustainable only when we lead a healthy, balanced life. Batching for success can help us achieve that.

Fee’s, The Investment Killers

What is the greatest threat to your investments that you can do something about?

 

Nighttime news sensationalizes claims of impending economic recessions, trade-wars between economic powerhouses like the US, China, EU. Or failing crop yields this year, or oil pipeline issues, climate change. The impact of all of these sounds terrifying, and will certainly have economic consequences that ripple around the world. If these news anchors are to be believed, the days of doom and gloom are ahead. Religious fanatics also scream of the end of days, with judgement day fast approaching. But before we work ourselves into a panic, let’s look at what we can control in our personal economic lives.

 

I can’t tell you how to deal with any of the aforementioned scenarios. These issues, although very real, also have very uncertain economic consequences. Speculating about those impacts is a dangerous game, and ill-advised in any financial portfolio. And as such, personal finance advice remains the same, invest in a diversified portfolio, and avoid as many fees as possible. It is these fees that you can avoid; these fees that kill your investment returns.

 

What is the effect of fees on your investments? Let’s take a look.

 

For the purpose of these examples, let’s use “typical” investment fees to represent the offerings of most large financial institutions. These would be the big banks, pension companies, etc. Their fees, depending on the investment option you pick, are usually around the 2% mark, but can go much higher. Let’s see what those fees do to your investments. In the following vastly simplified example, we’ll start with a $ 100,000 investment and no further additions. This money will be held for 25 years, a good long-term investing strategy.

 

Typical Investment Fees

Investment

100,000

Rate of Return

6.50%

Annual Fee %

2.20%

25 Year Return

$286,488.84

 

This simple example shows the growth a long-term investing strategy can have, more than doubling our money over that 25 year period. But there’s more to it than that. A low cost investing option, like those now offered by many e-banks, will knock those annual fees lower, and the impact is dramatic. Let’s take a look:

 

Low Cost Investment Fees

Investment

100,000

Rate of Return

6.50%

Annual Fee %

0.50%

25 Year Return

$429,187.07

Here we can see the same investment, the same rate of return on the portfolio, and yet the annual management fee is 1.7% lower. The results? A whopping $142,187.07 over the course of 25-years. That means those fees that are charged by typical investments are stealing 33.25% of our overall returns!

 

This example, although overly simplified, shows the impact that fees can have on your investment portfolio. And that impact is huge. So large that you would be able to retire earlier on more money if you simply moved your portfolio to one of many low-cost investment funds.

 

So what’s the take-away here?

 

Fees are often displayed in complex ways on your statements, which makes it hard to determine how much you are actually being charged. But those fees do add up, so it is essential for reaching financial freedom that you look into all the fees that are out there, and minimize the cost of those fees. By doing this one easy step, you could end up with an extra 30% (or more) in your investments!

 

Action Item

Look into your investments, including (and especially) any work-provided retirement plan. What are the fees? If you aren’t paying less than 1%, you should look at similar portfolios in terms of risk tolerance from other institutions, as the fees alone could save you thousands.

Note: if you do have an employer created retirement account, often these funds are locked in while you are an employee. If the time comes where you are advancing your career elsewhere though, you should definitely look into transferring those investments into a low-cost provider to see significant savings on fees!

Is the Sacrifice too Great?

   Success comes as a result of sacrifices. Giving certain things up to grow allows us to achieve more in our lives. But sometimes the sacrifices that are required are too great a price to pay.

   As we decide what parts of our lives we want to change to experience more; more health, more love, more wealth, more peace, we also need to put boundaries on what we will sacrifice to achieve that. One of our Success Coaching clients recognized his boundaries and enjoys the extra accountability keeping him focused on his priorities. We joined his story as he steps into a new Director level role for a rapidly growing company, providing the promise of substantial career growth, and compensation to go with it. The allure of riches distracts many from the other pillars of their lives. 

   And this focus on career success and the pursuit of financial riches has cost many a man and woman their relationships; both family and friendships. But the cost is often higher than that. Many times we can witness those excelling to the top of their field with shaky foundations; poor exercise regimes, unhealthy eating habits, controlling stress with alcohol or tobacco. As we define success for ourselves, these crumbling pillars of success are hardly the inspiring vision we have. So where do we go wrong? Simply put, we sacrifice too much.

   Understanding what is important to you, and making those areas non-negotiable means you won’t risk building your success on shaky foundations. What does that look like? As we rejoin our coaching client, his success looks like; devoted time to his family each week, a non-negotiable dedication to his fitness, and healthy stress-management practices. These areas of his life are most important to him, and anything that would require him to sacrifice them is asking too high a price, regardless of the promised reward.

   This is why our Success Coaching program was designed to keep you accountable not only to your goals, but also to your boundaries. Knowing what you are sacrificing to enable growth will help you determine if the trade is worth making. We all need balance and boundaries; what is worth sacrificing to achieve more, and what is not. You can't walk the path of success if your health and relationships are crumbling all around you. That is why it is essential to keep track of all that you are doing, and all that you need to do to keep the boat the right way up. That chest of gold does no good in a shipwreck at the bottom of the ocean!

   As we strive for greater success, we need to make sacrifices, trade-offs that help us become more than we currently are. But before we get caught up in the pursuit of success, we also need to establish our boundaries. What are you willing to trade in, to sacrifice for more success? And what aren’t you?

 

Action Item:

Take some time this week to decide what your boundaries are. What are your non-negotiables? What are you not willing to give up, no matter what the promised reward is? Write these down. Commit to them, and as you achieve success, you’ll find yourself living that vision of your ideal future.

Paralysis of Information

You miss 100% of the shots you don’t take.

How do you make financial investment decisions? For many of us, the process of making a financial decision involves researching the available options. But can we fall into the trap of having too much information? We can. And this is the paralysis of information.

When you are starting out anything new, you always want to do research to find out a bit about your new endeavor. Investing is no different. But with investing, the options are nearly endless, and in that ever expanding universe of stocks, bonds, mutual funds, ETFs, derivatives, options, dividends, interest rates, etc we can find ourselves quickly overwhelmed. In this state, rather than follow through with our original good intentions, we hesitate, we become paralyzed by information.

To illustrate this point, we can look at the steps we need to take to learn a new skill. As we learn something, such as driving, the list of steps and elements we need to remember is overwhelming. Turn the ignition, put the car in reverse, release the parking brake, ease off the pedal brake, slowly apply gas, turn the wheel, brakes, change gear, check mirrors, signal, check mirrors again, ease off the brakes again, apply pressure to the gas pedal, turn off indicators, check mirrors again.

When we look at a list of what we need to do, the process seems alarmingly complicated. And that’s if we already have an automatic-transmission car. But for many of us, driving is second nature now, so much so we have the confidence to talk and eat while driving too. How did we get to that stage of knowledge and familiarity that we can approach any vehicle? By actually driving. We overcame the paralysis of information by taking action. And our decisions and choices got better over time.

The same applies for financial decisions, especially investing. As we begin our research, we will undoubtedly come across talks of management fees, market swings, dividend yield, historic growth, and many other elements that help us evaluate different investment options. These are all incredibly important to know when making a decision. Charting these elements for the available options is an effective way at determining what investment will be right for you. But the most important part is taking action. As you make more investment decisions, you become more familiar with the elements that are important to you. And as a result, you make better decisions.

 

Application Steps:

How do we overcome this paralysis of information?

  1. Set a deadline for when you will have research conducted by.

  2. Perform research up to that deadline.

  3. Make the best decision you can with the information gathered in your research. You won’t have all the information right now, and you never will. The most important aspect is that you make a decision.

  4. Take action! Now, today, right this minute!

 

What decisions have you been putting off because you don’t have all the information? Set up a deadline for how long you’ll allow yourself to research. Then research until that deadline. Finally, on that deadline, a decision must be made based on the currently available information.

Remember, not making a decision is still a decision. And that inaction costs far more than any investment fee or poor market timing.

Giving Up to Grow Up

We can achieve more than what we have because we can become more than what we are.” Jim Rohn

   Have you ever thought about what you would give up to achieve more success? What you would be willing to not have in your life to be able to live out your dreams?

   It is often said that success comes as a result of sacrifice. That when we give up certain elements of our current life, we are able to fill those gaps with things that mean more to us. These sacrifices are present in all areas of our life. We give up on being single in order to pursue a relationship with people we love. We give up on watching TV in order to read books and learn new skills. Or the sacrifice of late nights socializing so we can get some much needed sleep and exercise. The sacrifices we are willing to make help determine how far we will be able to go.

   My girlfriend Marianne recently made a sacrifice with the vision of a better career. In her sacrifice, there are lessons we can all learn from. You see, Marianne had grown over many years to become an exemplary performer in her job. Ultimately she found herself in a place where she had earned the respect and friendship of those around her professionally. Many of us will find ourselves in similar positions in our careers, where the right now is comfortable and profitable. But right now is just that, a good place to be right now. If we want to reach our potential, we need to continually look for the next opportunity. 

   One such opportunity presented itself to Marianne, in the form of a career change into management consulting. Embracing this opportunity would mean giving up on her current successes, in order to achieve more in the future. Giving up the close working relationships she had with colleagues (who she could also consider friends), giving up the comfort of familiar where she knew she excelled. This “give-up” list was extensive, and that is frightening. To replace all that she would be giving up was an equally extensive list of new challenges, knowledge she didn’t possess yet, new professional relationships to be cultivated. 

   So how do you move forward when what you have to give up, or sacrifice, seems so daunting? Turn that fear into excitement.

   By re-framing the opportunities, not by what you are losing, but by what you are gaining helps put into perspective the sacrifices that are required. You are not giving up that TV show, but you are gaining strength and vitality from the combined time in the gym. You aren’t giving up freedom as you gain the close companionship of a relationship. And for Marianne, the sacrifice was re-framed into excitement. Excitement for the chance to learn and grow, excitement for future opportunities, excitement to achieve more for her career and herself.

   We all have to make trade-offs in our lives to become better, what do you need to give up to become better? What's holding you back? Sometimes growth is held back by our comfort and familiarity with our current situation. Turn fear of failure into excitement to achieve more and you'll see the benefits of making these trade-offs. That excitement will help you through the often difficult immediate transition, and keep you focused on your path to success.

Understanding Income Taxes

   You know, taxes are unavoidable. And if you have to encounter those taxes (free tip: you can't escape taxes), you might as well understand what the implications are for your financial well-being.

   Income taxes are one of the most common taxes we all encounter. And unfortunately, there are some serious misconceptions about how taxes are levied against us. This is brought about by the marginal tax rate system, as well as some payroll practices that feed our misconceptions. Let's take them in turn.

Marginal Tax Rates

   Much of the world uses marginal tax rates, and while the percentages may vary from country to country, and even province to province (state to state), the system is the same. Governments provide us a tax break for a certain income amount, and slowly increase rates the more we make. The increases in tax rates fall into "tax brackets". The marginal element means that the tax rates only affect income in that tax bracket. To understand how this works, let's look at the 2019 Canadian Federal tax rates. (Note: if you are reading this from another country, the process is the same but the percentages are likely different.)

2019 Marginal Tax Rates

   Taking a look at the Federal Marginal Income Tax rates we can see that if we make more than $ 47,631 in income in the 2019 calendar year, we only pay 20.5% on any earnings above the $ 47,631 mark. For the first $ 47,631 in income, we are only paying 15%. This scales as we earn more and more. Let's look at how this tax system works for someone making $ 100,000.

Marginal Taxes on 100K

   In this example, we work through the tiers and end up with a total amount of tax paid to the Federal government of $ 18,140.90. There is a common misconception that earning more money means the government takes a higher percentage of every dollar. In the above example, the misconception is that making $ 100,000 the combined tax rate is 26%, meaning $ 26,000 in tax paid. The difference from this misconception is an extra $ 7,859.10!

Taxation Myth: The more I make, the more taxes the government takes on all my money. 

   We can see that this taxation myth is dispelled! But we need to pass the word out. I have heard people working for hourly pay actually giving up shifts to not reach the next income bracket, thinking they are saving money in taxes! Let me simply sum up the math by saying, earning more money is never worse for you financially.

   But these myths did start somewhere, so let's look at why that is!

Income Taxes and Payroll

   Income Tax is usually automatically calculated each pay period by payroll software. The software makes an important assumption: that current earnings are the level of earnings you will earn all year long. Now let's say you receive a mid-year raise on July 1st, with your salary increasing from 70,000 to 85,000. Your income for the year will be $ 77,500. Unfortunately, the payroll system will be taxing the last half the year as if you are making $ 85,000 in annual income. This means for 6 months you will be paying too much in income tax. 

   This same situation can have an even more skewed result for certain types of compensation as well. This can be seen in bonuses, commissions, and overtime. These additional one-time compensation line items can inflate your earnings for the current pay period substantially, which puts you into a much higher marginal tax bracket for that pay. Explained another way, most payroll software calculates your one-time earnings as being received each pay. If you earned an extra 25% in overtime this pay, your income tax paid will be as if you make an extra 25% each pay (wouldn't that be nice?).

   The good news is, this will be refunded as soon as you file your taxes the following year. Unfortunately, the fluctuating tax payments and clear as mud explanations lead many people to jump to the wrong conclusion about how income tax works.

Key Take-Away

   Income Taxes are levied against all of us as we earn income. These taxes are based on a tiered system, called marginal tax rate system, where any income in that given tier is taxed at the same rate. If you go up an income tier, the tax rates levied against those additional dollars earned changes, but only against the extra dollars above the tier minimum! Pro tip: Knowing these tiers is vital for planning your investments!

   When calculating income taxes, most payroll software calculations annualize the earnings from the current period. That means if you make more money on one pay cheque, you will pay tax as if you make that amount each pay cheque. These extra taxes paid will be refunded to you when you file your taxes the following year. Earning more income will never be worse for you financially.

Note: Personal tax credits also have an impact on the amount of Income Taxes you owe. For simplicity, tax credits have been left out of this discussion, as not everyone is applicable for the same tax credits.

How to Create Career Success

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   Do you have a career plan in place? If so, what is on it? What should be on it?

   As we approach our professional lives, we need to understand the various elements that lead us to greater career success. To do this, we need to understand a few things, some unique to each of us, and some are shared.

Our Unique Talents and Abilities

   Our strengths and weaknesses will help define our areas of focus when it comes to our careers. Building off our strengths, we can leverage existing and inherent traits about ourselves. Leveraging our own unique strengths will enable us to out-perform others in similar roles and situations. We do this simply through accomplishing more, in a shorter period of time. The less effort required for us to produce the same results as someone else means we have more time and energy to devote to more projects or continued development. This is the beauty of leveraging our strengths, and also a reflection on how to treat weaknesses.

   Knowing our weaknesses usually highlights areas we should not be doing. If we can outperform by leveraging our strengths, then taking on tasks that are negatively influenced by our weaknesses means the same results will take us more time, and more energy. Since both time and energy are limited resources, we will fall behind as we try to compete against others that are leveraging their strengths. 

   What does this actually look like? I am a strong writer. When I sit down with a keyboard, I am able to produce written material quickly. In contrast, I do not have a strong sense for music. While I could learn, I will forever be slower than someone who is musically gifted. My strength lies in writing, and when I focus on that, I am leveraging that strength. If I have a need for music, rather than do it myself (which would take forever) I am better off outsourcing those tasks so I can continue to leverage my strengths.

   To highlight this point, we can look at a quote from actor Will Smith:

“The separation of talent and skill is one of the greatest misunderstood concepts for people who are trying to excel, who have dreams, who want to do things. Talent you have naturally. Skill is only developed by hours and hours and hours of beating on your craft."

Will Smith

   Focusing on your strengths, your talents, will help you out-perform and out-produce all those around you. Do you know what your greatest strengths are?

Action Item: Ask 3 friends to tell you what they think your greatest strengths are.

Necessary Skills for Our Path

   The second element to creating career success is in the pursuit of the skills that you do need. The development of these skills should be pursued with a focused, planned growth strategy. Many times we simply try to learn a skill after we are presented with a new problem. This slows us down, as we then begin learning from scratch right when we need the skills the most. A clear growth plan will help alleviate this bottleneck of skill vs. need. With a growth plan, you can start developing your understanding, and practicing the skills before you are put in a position to use them. In this way you can respond faster to problems, and be more comfortable taking on stretch projects that really advance your skills, both in your eyes and in others. 

   How do you know what skills you’ll need? Almost nobody is walking a path that hasn’t been walked before. Even on the cutting edge fringes of science, there are parallels between different career paths. It is these other examples that you need to seek out. Once you have sought a good example out (one that is doing what you want to do), analyze the skills that they utilize most to be successful. Do you have those skills? Are they something you should be working on?

   Knowing the skills that are used on your next step will help you frame a growth strategy that aids you in your career growth. Armed with this knowledge, you can start developing those skills now. As Will Smith said, “Skill is only developed by hours and hours and hours of beating on your craft."  Starting early, you will surpass everyone else simply as a result of your extra hours devoted to learning and growing. 

Action Item: Find either job postings or example persons to determine the skills you’ll need most at your next career level. 

How do you create career success? 

   Leverage your strengths, and don’t try too hard to improve your weaknesses. This will ensure everything you do, you’re the best at. And for the rest? Leave it to people who are better suited for those tasks. Your success will skyrocket as you out-perform everyone else! And as you leverage your strengths, be sure to keep an eye on the skills you’ll need in the future. Developing these through your own professional growth plan will help you get a leg up on the competition, as the hours you’ve spent preparing for future obstacles will give you an incredible head start over anyone else!

Asking for Wealth

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   Have you ever asked for a lower price? 

   A gentlemen I spoke with recently told me a story where he tried this for the first time. He was in a store with his daughters when a sweater caught their eyes. But after looking at the price tag, no matter how his daughters begged and pleaded, no matter the pouts and puppy dog eyes, there was no way he was spending that much on those sweaters. As he headed for the checkout, without the sweaters, he ran into the store manager. After the quick pleasantries, he simply asked, “Are those sweaters going on sale anytime soon? My daughters would love them, but I am not prepared to pay full price for them.” 

   Have you ever asked for a discount? In some cultures the process of bargaining and haggling over prices is part of every economic transaction. But in other cultures, like North American culture, that simply is not the norm. While this is not a commentary on the diverse cultures of the world, asking for preferential pricing is a strategy that could save you some serious dollars. 

   Even in cultures where asking for discounts isn’t common on everyday purchases, we’re still prepared to do it for certain items. We couldn’t even imagine buying a car without first talking the price down at the dealership. Or buying a home without making a few offers and counter-offers. But if we start applying that same mentality to our everyday purchasing, we might just be able to make our hard earned dollars stretch just a little bit further.

And for the really advanced readers, if you take those savings that you asked for and invest them, you’ll be on a greatly accelerated path to financial freedom.

   So what happened to our friend buying sweaters for his daughters? Well, his daughters have a couple of brand new sweaters with matching smiles to go with them! The savings were almost 50% of the price tag, which of course feels pretty good. And the store manager made a couple of sales that he otherwise wouldn’t have. I’d say the whole situation turned into a win-win.

   Stepping out of our comfort zone and asking for a discount is an important, and often overlooked strategy. Rather than waiting for things to go on sale, we can simply ask for preferred pricing. This helps us save money, which we can put to better use as we continue our pursuit of financial freedom.

Dressing for Success

How often do you go for a haircut?

   This question sparked a pivotal learning point for Jay Abraham as he divulged in an interview with Ramit Sethi. The learning from Jay resonated deeply with me in relation to a topic one of my coaching clients asked about. The topic of dressing for success. 

   How often do people get their haircut? The answer, gave the stylist: it varies greatly between people. Some people come in every month, every 3 months, every 6 months. With such a discrepancy in the frequency of visits, one must ask the question, why? It is usually very obvious when people come in from visiting a stylist, they look fresher, cleaner, more professional. Despite the cliche, "Don't judge a book by it's cover." We do judge. And when someone takes time to dress well, we notice, and it reflects well on them. There are a few elements at play here:

Confidence

   Think of a well dressed lady or man. Their stature improves. They stand taller, smile broader. When someone knows they look good, they exude an aura of confidence that lets the world know, "Yeah, I've got this". Confidence itself leads to a wealth of benefits, all of which can be externally triggered by the simple act of dressing for success. These benefits include; openness to tackling challenges, increased professional performance, happiness, and health. Not only are we more willing, and even more capable of taking on our obstacles, our performance also increases. Without self-doubt, we end up smashing through obstacles that otherwise we would have turned back from. You can see the impact of confidence in a common martial art demonstration, punching through a plank of wood. The key to success in this maneuver is to strike through the wood, embracing the confidence that you can break through the wood. On the flip side, if you don't believe you can break the wood, you'll hesitate slightly which will reduce force, and the obstacle won't be broken. This analogy perfectly illustrates the benefits that confidence can have when facing professional challenges. And through this, confidence brings us to the other benefit of dressing for success, competence.

Competence

   We need to dress the part for success, however that looks in your profession. You would be skeptical taking fitness advice from an overweight personal trainer, you may also discount any health advice received from a sick doctor. We expect people of their own craft to look and act the part. And that starts the moment we first see them. I would be concerned if my surgeon showed up to the operating room in sneakers and gym shorts, regardless of how talented she claimed to be. That same surgeon though, dressed in scrubs, would give me confidence that she knew her business, simply from how she dressed. 

   As the world becomes more progressive in their tolerances, some things will always hold their merit. And dressing well is one of those items. Regardless of the dress code for your profession, when you show up looking good, that speaks volumes.

   So if there is one take-away here, keeping up with your appearance grants you confidence and an air of competence that immediately sets you at the front of the pack. Dressing for success is an easy way to get a leg up on your competition, and look good doing it!

The Cost of Borrowing

   Last week we looked at interest rates and their impact on our financial accounts from the perspective of an investor. Even more common in our financial lives though, we use borrowings from the perspective of a borrower. Understanding how interest works before we are charged is imperative to avoiding the slippery slope of consumer debt that plagues many individuals. As a recap, interest is a charge on borrowed funds. 

   In its most simplified terms, borrowing with interest means paying back more than you borrowed. The difference is the interest paid. The lending/borrowing arrangements are incredibly diverse, but can be evaluated based on the Annual Percentage Rate of interest. UK and North American consumers are fortunate in that respect, as interest rates must be displayed in that form. This standardizes the cost of borrowing on most consumer loans by showing the annual cost of the loan. As the interest rates indicate the cost of the loan, the higher the APR, the worse the loan terms are.

   The most common source of short term borrowing we see are credit cards. The interest rates on these cards are astronomically high, often ranging from low double digits all the way to 20% or more! At interest rates like these, failing to pay off your balance before interest is charged dramatically increases the cost of your purchases. Other common sources of debt are; vehicle loans, mortgages, lines of credit, store financing, to name a few.

How to deal with Debt

   When paying off debt, your primary goal is to pay off anything with the highest interest rates first. This will reduce the cost of interest, and ultimately save you money in the long term. This is the mathematically best solution, and goes contrary to some other strategies. When available, you should also try to consolidate your debts into one single, lower interest rate loan. This can be especially hard to do if you already have poor credit, as banks and other lending institutions will charge you a higher interest rate to account for the extra perceived risk, or they simply may not lend anything at all.

Pro Tip: If you don’t have an emergency fund, you need a line of credit.

   Getting a line of credit when you don’t need one will result in more favourable interest rates. The line of credit costs you nothing if you don’t use it, but in the event of a financial emergency, being able to pay off credit cards using a lower borrowing cost option will save you potentially tens of thousands of dollars on interest in the long run. Note: this is a last resort backup plan, and shouldn’t be utilized to finance any purchases that are not absolutely essential to living.

When to use Debt

   Debt can be used for our financial benefit. We are well aware that home ownership for most of us is only attainable if we finance through a mortgage. This use of borrowed money allows us to enjoy assets that we otherwise wouldn’t be able to afford. There is one main reason to use debt, and that is leverage for an investment. Leverage simply means borrowing to purchase something. In the case of real estate, we often expect the value of our investments to increase over time, and if the gains surpass the interest costs, we come out ahead. 

When to pay off debt

   If you have debt, there are times when it is more advantageous to not pay off the debt. Incurring interest expenses intentionally may be the right financial move if you can make more money by investing than you would save by paying off the debt. If you can invest at a 10% return, and only pay 7% in interest, you are ahead 3%. Unfortunately the future is never certain, so you should also take a risk premium into consideration. If in the above example, the investment return under performs expectations and results in a 6% return, you would have paid more in interest than you earned. 

   As a result of future uncertainty, to make the equation equal you need to assign a risk premium. To display this in a formula, we would look at the decision like this:

Expected Return = Cost of Interest + Risk Premium

   In the above example, we can use the 7% interest and a 2% Risk Premium. If our expected return exceeds 9%, we are comfortable taking the risk for the extra returns. If the expected return is less than 9%, we should pay off the debt for the guaranteed cost savings of 7% in interest charges.

Take-Aways

   Borrowing money is an important part of our personal finance journey. Understanding when and how to use debt, and how to evaluate different options will ensure we make the right choices on our path to financial freedom. Some of the key take-aways from this article are:

  1. The higher the APR, or Annual Percentage Rate, the more interest you will be paying, and by consequence, the worse the debt is.
  2. Paying off the highest interest rate debt first will save you the most money.
  3. If you don’t have an emergency fund, get a line of credit before you need one. Your terms will be better, and in case of an emergency, those better terms can help keep you from financial ruin.
  4. Use borrowings to invest in assets that will increase in value. This is called leverage.
  5. Pay off debt first unless the investment return is more than the interest rate on debt plus a Risk Premium that suits your investor type.

Pick your Poison

Pick your Poison

   Marketers describe us as consumers, and we are. We are all creatures of consumption, from what we eat and drink, to the appointments we fill ourselves with, and the information we digest. And when it comes to the things we ingest, either physically, mentally, spiritually, we need to be vigilant about what enters our bodies. 

   Of course words of wisdom like this are easily passed over as too basic or trivial to even worry about. We all know that excessive alcohol consumption is bad for our health, or smoking carries serious long term risks. And these are all true! But the pitfalls of our pervasive over consumption goes far beyond the studies mentioned on the 6 o’clock news.

   Of the list of things that we consume, food and drink certainly picks up the lion’s share of the blame tab. Every week a new study is released discussing the negative elements of too much sugar, too many carbs, fats, acids, the list goes on. These studies can be summed up rather succinctly by saying: Too much of anything is bad for you. But aside from the food plate (formerly our well known food pyramid), what other areas of consumption should we be wary of? 

   The poisons we pick fall into two categories; time, and information.

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Time:

   The alarm clock buzzes, we reach over and hit the snooze button. Wait, this isn’t the early 2000’s anymore. Our snooze button is actually a finger slide on our touchscreen. A few minutes later, the electronic rooster is at it again. Grumbling, we roll over and open our eyes, picking up that phone and sliding the screen up. First thing, let’s check social media, and probably our inbox to see what happened in the overnight hours. Great, calendar invites for today.

   Within 15 minutes of waking up, we already see 4 meeting requests, that’s half our day gone in meetings that we probably shouldn’t even be in. One of the most venomous poisons that we willingly consume is these irrelevant demands on our time. And not that we aren’t important, but a 4 line email or a 5 minute phone call would likely straighten out our issues without the need for an hour long meeting. 

   The consumption of time is incredibly poisonous for two reasons. First, it kills our productivity. As we run from meeting to meeting, we hardly have time to sit down and focus on our important tasks of the day/week/year. And secondly, consuming our time by running around being busy feels good. We love the feeling that we are important, that someone needs us, and by stepping in to be their hero, we forget about our own quest. 

   Over-consumption of time is a devastating poison to swallow. And this problem is only going to get worse as we become increasingly connected. 

It’s Time We Took Back Our Time.

   So what can we do to take this time back? The best strategy is to plan out your day the night before. Put on your calendar non-negotiable time to work on your priorities, on the tasks that are most important to your goals. Taking back your time before someone else tries to will vastly improve your success as you strive for greater and more abundant achievements. 

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Information

   Perhaps the most pervasive of all poisons is actually information. Think back to that electronic rooster crowing. As we load up our calendars with irrelevant meetings, what else do we consume? Social media captions of celebrities, news feeds full of stories of the latest tragedies around the world, and all sorts of horrific incidents. The same is portrayed on breakfast TV and 6 pm news. Sensationalist headlines all striving to out-do one another by bringing us the most corrupt and terrifying stories. Once we start down that slide of human suffering and misery, it becomes almost impossible to then take on the day’s challenges with an open, positive mindset. 

“It doesn’t matter where you get the bad stuff, it will still do it’s damage.” ~ Jim Rohn

   As we strive for achievement, we need to be conscious that negative stories and news will fill us with negative energy. This energy is not optimal for producing creative solutions to problems. In information, as much if not more than anywhere else, do we need to pick our poison well. 

What Poison Should We Take?

   As we each pursue different interests, and have different life experiences, the level and content of information we need differs greatly. If you have small children, you’d be well off to know about unsafe roads in your neighbourhood. Or the happenings overseas where a family member is vacationing. Or the government regulations that might affect your business. But none of us needs to consume all of the information we currently do. If you aren’t an aspiring Hollywood actress, knowing the habits and routines of the Kardashians is probably not helpful for our growth.

The Antidote:

   We can’t steer clear of all negativity. There will certainly be days were we eat too much, or have one too many drinks. And for almost all of us, we can’t reasonably control our entire calendar. But we do need to exercise some careful planning in all of these areas. Pick your poison. Choose what you want to consume, and what you don’t. Making these choices before they are made for you will vastly improve your rate and level of success. 

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Action Exercise:

There are two things we can do this week to start picking our poison:

  1. Block off an hour each day to work exclusively on your priorities. This is a non-negotiable calendar slot where you focus entirely on your goals.
  2. Start unsubscribing from email threads that don’t serve you any more. Start small, with only a couple this week. Do you miss getting the emails? Do you even notice not getting them?

Understanding Real Interest Rates

Understanding Interest Rates
Why Stuffing Cash in Your Mattress is a Bad Idea

   Interest rates are one of the most commonly advertised terms in the financial world. High interest savings accounts, low interest credit cards, high interest rate bond yields, low interest rate mortgages, the list goes on and on. But what does that actually mean for us? And how do interest rates fit into our personal finances?

   Interest rates fit into our finances in two ways, the cost of borrowing, and a return when investing. We'll look at the two here.

The Cost of Borrowing

   Interest is charged on the principal, the amount borrowed, and is usually expressed as an annual percentage rate (APR). If the interest is compounded, the interest is added to the previous principal, and interest is charged on the cumulative balance. This is essentially charging interest on interest, and is how many people end up drowning in vicious consumer debt.

   We’ll take a deeper dive into the debt side of personal finance next week. For this week, let’s look at the other side of the equation, lending money for interest income.

Interest as an Investment

   There are essentially 2 ways to generate interest income, lending money, and storing money. Almost all bank accounts provide a small amount of interest income. To increase that interest income, we can lock our funds into a bond or loan of some form. With innovations in FinTech, there are increasingly diverse options for lending outside the traditional realm of corporate and government bonds.

   Bank accounts provide an excellent way to hold emergency funds, and funds used for day-to-day needs. I recommend at least 2 bank accounts, one should be a high interest e-savings account for your emergency fund, and the second should provide you no fee transactions for your daily needs. Both these options provide you liquidity, the ability to quickly retrieve your money, but the trade-off is a lower interest rate. 

   To receive a higher interest rate, we can invest in bonds and loans. The money here is set aside for a pre-defined period of time, and to compensate for your loss of liquidity, the interest rate paid to you as income is higher. For example, a 5-year bond might pay you 3% interest, while a 20-year bond may pay you 5% interest. The extra interest income is paid to you to compensate you for using your money for a longer period of time.

Learning point: Interest Rates (income) increase to pay you for the use of your money for a longer time-frame.

   There exists one more consideration when looking at these interest rates. That is the difference between the Nominal Interest Rate, and the Real Interest Rate. The real interest rate takes into consideration inflation, and is more important to an investor than the nominal interest rate. They are tied to each other by inflation.

   Real Interest Rate = Nominal Interest Rate - Inflation Rate

   When evaluating your bank accounts and debt investments (bonds and loans), often the Nominal Interest Rate is stated. Your purchasing power, or your economic result will be impacted by the Real Interest Rate. 

   To see this in practice, let’s look at a few examples:

Understanding Interest Rates Examples

   As you can see, the real interest rate means you only make money when the Nominal (or Stated) Interest Rate is higher than the rate of inflation. Or put another way, the purchasing power of your dollar decreases over time. 

Learning Point: If the Nominal Interest Rate is lower than the Inflation Rate, you’re effectively losing money.

   For this reason, storing the extra cash under the mattress is a bad idea. Not to mention, mattresses these days are quite comfortable without the extra padding. 

Key Personal Finance Strategy Take-Aways

   Carrying a large balance in your regular bank account does you few favors, as Example 1 above shows, inflation is slowly eating that money up (even if it doesn’t look like it!). To ensure your emergency fund is available, and able to stretch as far in the future as it does now, I recommend a high interest account to counter some effects of inflation. And finally, when investing in debt or loans, to ensure that you have a profitable investment the Nominal (Stated) Interest Rate isn’t the right interest rate to look at. Instead, you need to calculate the estimated Real Interest Rate. 

   Don’t worry, we’ve thrown enough math at you for now. If you want speculation on what inflation rates will look like in the future, a quick google search will provide you professional estimates. 

   Equipped with this knowledge, as you engage in debt investing (bonds and loans), you’re ready to make a calculated decision!

Formula Recap:

Real Interest Rate = Nominal Interest Rate - Inflation Rate

Repairing Vs. Preparing

Repairing Vs Preparing

   Are your efforts focused on achieving success? If we aren’t careful, we end up starting well behind the starting line. Success is a multifaceted approach, and as life gets busy we often focus on the most pressing concerns. This can lead us to neglecting certain areas of our lives. If we neglect some pillars of success in our lives for too long, instead of progressing towards our success goals, we end up behind the starting line and need to repair past mistakes and neglects.

What does this “neglect” look like?

   For example, you spend too long at work and your relationship with your wife/husband/partner is deteriorating. When you look at how you define success for your relationship, you need to repair the relationship before you can prepare and take action to achieve your desired goal. Or you skip the gym for too long, you'll need to regain muscle mass and heart health before you are able to push towards your fitness goals. Or you spend too much. Now you need to pay off your debts to bring yourself back to a place where you can continue working towards your financial goals. These are the neglects that need repairing if we fail to live a balanced life.

Got it - Live a balanced life. That doesn’t sound too hard. What’s the catch?

   The challenge often arises when we are making these trade-offs. We justify to ourselves that we are furthering our careers, or other aspirations. Focusing on certain areas where we see increased growth, especially in the short term. Such as working extra hard for a few months leads us to the visible promotion, while the strain that overtime puts on our relationships takes far longer to show stress fractures. 

   If success is the pursuit of our ideal life, those stress fractures set us back. Our careers might be taking off, or we’re in peak physical shape, or our finances are exceeding expectations. But those stress fractures in other important areas of our life eventually cause us to falter. And if not repaired, our foundations can even come crumbling down around us. 

What can we do about it?

   Living a balanced lifestyle is easier said than done. When we’re caught up in the moments of day to day living, we often aren’t taking the 20,000 foot view. That birds eye view of our lives, objectively evaluating each of our pillars of success; Financial, Physical, Career, Spiritual, Relationships, and Romance. Routinely looking at all areas of our life at once helps us notice any trends that are forming, for better or for worse. This self-review is hard, which is why we need good friends and/or success coaches who can give us the hard news, the straight truth, when we need it most. Having someone else in your corner provides perspective on the day-to-day challenges we all face, and helps make sure our foundations stay strong. 

   Success is a long game, and it’s far more rewarding when we’re preparing for future growth and opportunities, rather than repairing the neglects of the past.

The Coffee Cup Retirement

The Coffee Cup Retirement

   We've all heard about saving on the latte every day, and that will eventually fund our retirement. But this story has been sensationalized by media and spouted all over every personal finance blog ever written. Some in favor, some argue it's ineffectiveness. Neither are helpful at dissecting the story into actionable insights. To help us understand the reasons behind this overused example, a quote from leadership expert John Maxwell comes to mind.

"The secret to success is to do a little bit every day. Doing a little bit every day is a lot more important than doing a lot some day." Most people live in some day." ~ John Maxwell

   When looking at the coffee cup retirement example, the key is not that eliminating your morning coffee will make you rich when you retire. The numbers alone don’t support this assertion. Rather, the key is that if you make a seemingly small choice each and every day, over time that adds up to substantial wealth.

“You mentioned numbers, prove it.”

20-Years of Coffee
40-Years of Coffee

   As you can see, even after 40 years, saving $ 5.00 / day into a retirement account averaging 6% return each year won’t allow you to reach your retirement goals. Saving $ 5.00 each day is simply not sufficient to fund a comfortable and lengthy retirement, although it’s better than nothing. 

   As I’ve mentioned before, the minimum amount that should be set aside each year is 10%. The coffee cup retirement only works mathematically if your gross annual earnings are $ 18,250. If you earn more than that, the amount you need to save also increases.

“So the coffee cup retirement doesn’t work?”

   No, if you earn more than 18 thousand a year, the coffee cup retirement of saving $ 5 each day doesn’t work. But the principle of “small actions add up to big results over time” still stands. Using that as our take-away we can understand that cutting our morning mocha isn’t likely to lead us to financial freedom. But a small action, such as investing 10% of our annual salary each year, every year, will put us on a path to financial freedom. 

   Keep drinking that coffee, just as long as you save 10%. If you aren’t there yet, maybe $ 5 each day is a good place to start. Just remember, small positive choices every day will put you on a path to financial freedom.

The Painful Pursuit of Success

   The pursuit of success should be made through all reasonable efforts. I believe it would be an affront to our futures if we did not strive to become more than what we are now, at every stage of our lives. Every person who has tasted success, be it a professional athlete, a commendable home-maker, or a business professional, would all agree; success is a joy. Achieving greater successes is exciting, enjoyable, and exhilarating. But there is one thing we must all face to achieve these pleasures; and that is the painful pursuit of success.

   You see the milestones we talk about, those are the happy times, those are the signs that our efforts are paying off. But the efforts themselves, they are not fun. Those painful pursuits are the small, seemingly insignificant behaviours that most days we don’t feel like doing. Like showing up at the gym when we’re exhausted and the temptation to just hit snooze is almost overpowering. Or giving up on that much desired lazy night in to attend a networking event. Or taking the high-road because of the lessons others can learn from our restraint. These scenarios, and a hundred others like them every single day play out. And they hurt.

   Delaying instant gratification of simply doing what we want in the moment is the largest differentiating factor in achieving success. Successful people know this: what is undesirable or even painful in this moment, will be rewarded with the joys of success in the future. To borrow from our fitness fanatics:

No Pain, No Gain

   The truth in this statement cannot be overstated, not in the intentional pursuit of pain, but rather in the sacrifice needed to become great. Pushing ourselves at great lengths once or twice is not the path to success. Instead, it's the small, seemingly insignificant at the time, choices that lead us to success.

   The painful pursuit of success is thus: making the choices each day, each week, that aren’t the most enjoyable in the present moment, but pay us off with interest in the future.

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Action Item Take-Away: 

   What choices are you making unconsciously each day that could be changed to ensure a brighter future? What choices could you make today that improve your life tomorrow?

   Think on this, write down the choices that you will start making today to ensure tomorrow is brighter. And then, take action on those choices.

Controlling Lifestyle Creep

   How much money do you need to live each month? Finding the answer to this question is an essential element of any successful personal finance plan. Unfortunately, the answer isn’t always as easy to answer as we like to think it is. But as we start to organize our finances to set ourselves up for success, there is a process we can take.

Write down what you need to live your lifestyle

   Deciding how much money we need to live on starts with a list of all of our current spending. This list is important for two main reasons, the first of which, it helps us determine how much we can invest for our future. The second reason, is that list is an essential component for self-review down the road.

   If your current lifestyle demands more expenses than you make in income, this first step has highlighted a serious problem. Overspending will draw down on savings. Unless you are in retirement and planning the final chapters of your life,  this overspending could place you in serious financial hardship.

   As a general rule, our lifestyles must not cost more than we make in income each month. This means there will be left over resources to allocate to future wealth and plans. How much extra money we have left is up for some debate, but the lowest reasonable number suggested in The Richest Man in Babylon is 10%. Jim Rohn would argue that the number is higher, suggesting 30% of total income be put aside for charity and wealth.

Repeat your lifestyle cost list

   Periodically you should compare previous lists to current lists for your lifestyle expenses. This will provide a visual representation to how you have changed and grown over time. These lists are especially important when you experience an increase in income, to ensure that your lifestyle creep doesn’t surpass your income growth. 

Our spending habits change over time, so what?

   While our spending habits change over time, and as our income grows we become accustomed to a higher standard of living, we need to be conscious of all these elements. This is especially prevalent when looking at how much we save and invest for the future. Often times, when our earnings are lower, we tell ourselves we’ll save more for the future in the future when our income increases. This is especially common among young professionals just getting started in their careers and lives. As our lives and careers progress, we must be intentional about saving enough for future riches. The best way to do this; ensure we aren’t letting our lifestyle creep leave us poor in the future.

   What does your lifestyle cost? How much is left over for future riches? Are you living at least below the 90% of income rule? Answering these questions will help you determine if you’re on the right path to financial success.

Success like a Raptor

   As we come down off a week long celebration of the basketball prowess of our very own Toronto Raptors, we should take a moment to reflect on the lessons learned along the journey. Without overwhelming ourselves with basketball commentary, we can relate the NBA Championship back to the basic principles of success.

Where did this victory start?

   Asking ourselves how we got anywhere is an excellent start to dissecting our successes. And while some may argue that the championship started at the beginning of the season, or even when we traded for Kawhi Leonard, the steps leading to success began long before.

When was the first step?

   Each player on the Raptors started with the same first step, at some point in their basketball career. That first step is identifying the right staircase(s) to traverse. This is the identification of the skills that would be needed to take their basketball game from the scrimmages in local parks before the lights were turned off for the evening. The skills that would lead to the bright stadium spotlights that never cease to shine. For our local heroes, these skills can be identified as fitness, shooting ability, and game knowledge.

And the Next Steps:

   Identifying what we need to focus on to be successful puts us a long way ahead of our competitors, but it's still only the first step. The long road of success is filled with early mornings in the gym, late nights shooting free-throw after free-throw, and countless hours reviewing game footage. Those next steps, they’re a daily pursuit. Every day our Raptors earn their success in the gym, on the court, and in the screening room. Every day. Not just game days. Every. Single. Day.

   The sweet celebrations of hoisting that NBA Championship Trophy, that is the culmination of countless successes along the road. Those daily successes of lacing up and putting in the time practicing, even when exhaustion is setting in. Especially when exhaustion is setting in. That is how to earn Success like a Raptor.

What are the lessons?

   As we look at the championship trophy being hoisted high in the air amid the cheers of the crowds, we can take away some success lessons from these Championship ring-bearing professionals.

   Learn what critical elements drive success. The skills you devote yourself to will determine the direction of your success. With a clear goal, you can identify which skills help you on your journey.

   The second lesson’s importance cannot be overstated: action. Success is a daily discipline. To realize success like a Raptor, you need to devote yourself to mastery of your chosen skills every day.

   With the right direction, and consistent action, you will achieve Success like a Raptor. You will be a champion.

Money Mindset: A dollar saved…

A Dollar Saved

Is a dollar earned.

   How many times have we heard the sage advice; “A dollar saved is a dollar earned.” This cliche money tip is the cornerstone for frugal spenders, and as a popular belief, has its’ own space in the Money Mindset section. As a result of this phrases popularity, we would be remiss if we did not take this opportunity to dissect this ingrained philosophy.

What does A Dollar Saved is a Dollar Earned mean?

   The idea behind this philosophy is that income is fixed in the short term, and so to have more leftover, you need to cut back on where you spend. Holding the fixed income assumption constant, this is sound advice. The issue arises when taking this philosophy too far.

What are the benefits of this Money Mindset?

   The benefits of living frugally can be best seen in the judicious cuts in your expenses. Asking yourself whether the purchase is necessary can be a very good way to curb erroneous spending. The benefits are especially prevalent if you are carrying credit card debt, or on the borderline of living paycheck to paycheck. Regardless of income, spending all that you make causes difficulties, especially when the unexpected occurs. A healthy dose of spending skepticism provides the necessary focus to trim the fat on your purchasing habits.

   Another benefit of this Money Mindset, especially for those who are not independently wealthy (yet). Frugality is often seen as an accomplishment, and provides a sense of satisfaction. We’ve all heard those conversations, likely even allowed ourselves a humble brag when talking about a deal we just received at the outlet malls. Saving money is a good feeling, which allows us to conclude; a dollar saved is a dollar earned has some merit in the personal finance realm.

What are the risks of this Money Mindset?

   A dollar saved is a dollar earned. This focus on frugality, while at times has its own merits, can be taken too far. If money worries aren’t constricting you, it is probable that you need some discretionary spending to help you live life to its fullest. There should be an allowance in everyone’s spending patterns that allow you to safely spend on luxury purchases. The limits to the Money Mindset: A dollar saved is a dollar earned are hence put to the test. Luxury purchases are, applying this philosophy literally, causing feelings of guilt for the “loss” of money.

   The other risk of this Money Mindset is when we take the bargain chasing too far. Often times the sticker price is taken as the final cost, and we neglect to consider the extra time and energy that went into securing that bargain. Spending time browsing online shopping sites, flipping through paper flyers searching for a lower price, has an opportunity cost on that time, on those efforts.

Where do we draw the line between a good deal and a waste of time and energy?

   As we try, in Business Minded fashion to apply a formula to these topics of finance and success, we may consider the following equation to find the break even:

Break Even =

Satisfaction of Saving Money + Money Saved = Opportunity cost of (Time + Energy)

   As long as we receive more joy than the efforts that the bargain took, i.e. bargain hunting. The efforts we put out, and the cost associated with our time and energy, were worth it. Taking this philosophy too far might be seen when we spend an hour finding a deal that saves us 10 cents. Assuming our hour is worth more than 10 cents, we have lost if we spend those efforts.

The Verdict: A good tool in the toolkit.

   A dollar saved is a dollar earned. This philosophy, or money mindset, really holds its merit when money is in short supply. While not an enjoyable way to live, when short term sacrifices are required to make ends meet, this philosophy can help clarify spending needs. In the long term, income is variable as a direct result of increased value. Spending on improving our skills and abilities will help move income up.

   Once we have some financial control, this money mindset is useful for periodically evaluating our spending. As our value increases, the size of the discounts we get excited over also needs to increase to keep this money mindset favorable. As you achieve greater financial wealth, remember the equation for A dollar saved is a dollar earned:

Break Even =

Satisfaction of Saving Money + Money Saved = Opportunity cost of (Time + Energy)

With this tool in your tool chest, financial freedom is ever-more attainable. With your finances in check, continue your quest for success.

What Does Success Look Like?

20190613_193215

Do you know what success looks like?

   Scrolling through Instagram and other social media feeds, we soon become inundated with an endless barrage of fancy sports cars, pristine sandy beaches, yachts, high-rise patios, and the list goes on. Picture after picture, story after story, surely this is what success looks like.

But is it?

   Success is not achieved by having any of the aforementioned pictures alone. Those celebratory poses, when not faked, often come with a long back story that isn’t near as glamorous. And I’m not referring to trolling city streets looking for a parked Ferrari to take a selfie with. No, I’m talking about the owner of that Ferrari's story. Success looks like the countless years of grinding, on the phone with prospects, scribbling furious notes in online courses, constantly growing, constantly grinding. The long days and late nights, sticking it out when times’ are tough. And that is only one image of success.

   Success looks like the teacher who is laughing with her students, celebrating top grades across the class. Taking in the look of jubilation on those students faces, knowing that her years of study, late nights marking tests, staying after school and sacrificing lunches to help others learn. That is the image of success, because she chose to be a teacher. Because she worked hard to earn those cheers of her students.

   Success looks like the glitter falling from his hair, because he defined success as being his daughter’s father and best friend. The make-up shining his cheeks to a rosy red, pink lipstick smeared across his face. The endless clean-up, driving to early morning practices, late nights listening to her first heart-break. All the behind-the-scenes care and support. No flashy picture captures that. But the laughter and memories made, that is success. That is his success. That is the success he chose.

   These are the stories of success we don’t see as we scroll through the day’s social media posts. But these are the real successes. So let me ask you, what does success look like? What does success look like for you?

Seasonal Spending Woes

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   As the seasons start to change, we are suddenly presented with all sorts of temptations to spend more money. Billboards tower above our commutes, magazines and newspapers line the checkout shelving, all promising new fashions and recreation activities. Under the constant pressure for our attention, and our wallets, we need to be extra vigilant. The basics of financial management remain constant despite the changing seasons.

   Financial management is not a lesson in frugality, although that is often talked about as a popular Money Mindset. Financial management is actually making a conscious decision about where you spend your money. That means you making the decision to purchase or not, based on your own criteria.

If making an effective financial decision relies on your own set of criteria, how do you determine if a purchase is worthwhile?

   As we are each unique, we are each responsible for determining our own decision criteria. The key here is that we think about what we value first. The alternative is that we will make split second decisions that aren’t always our own, but as a result of sales pressure and marketing manipulations.

   How do we maintain our individuality while deciding our own criteria? The following set of four questions is an excellent starting point that I've found helpful:

  • Can I afford this?
  • What are my core values?
  • Does this purchase reflect the values that I stated above?
  • Will I still support my decision on this purchase a month from now?

Let's look at each question.

Can I afford this?

   A straight-forward question, if the answer is no, don’t purchase. Avoiding spending above our means keeps us financially stable.

What are my core values?

   Understanding what you find valuable is essential to making sound purchases. For example, I place a lot of value on my health and fitness. When considering purchases, I’m more likely to splurge on goods that improve my physical health.

Does this purchase reflect the values that I stated above?

   Be honest on this one. Especially when under social pressure, this question can help you refocus on what you actually value, and not what the other friends you’re hanging out with value. I am far more likely to pick up a pair of supportive running shoes than the latest boat shoes, regardless of how “cool” I would look for the next two months.

Will I still support my decision on this purchase a month from now?

   Asking what your future self will think is a powerful question regardless of the situation you find yourself in. This holds especially true when facing financial decisions. Many times our current self thinks we’ll make better choices in the future. How many times have we promised ourselves we’ll save more when that next raise comes in? We’ll donate to a worthy charity when the year end bonus comes through? Or we’ll take a self-development course that helps us grow just as soon as that tax refund check clears? It’s easy to think we’ll make better choices in the future.

   But what happens when we flip that script? We ask ourselves if the right now choice is what we hope our future self would do.

   Thinking about ourselves in the future, reflecting on the choices made before we make them provides us the right amount of clarity that just might save us from the next magic infomercial product collecting dust in the garage.

   With the latest gadgets and gimmicks “new this year” released every season, we need to keep a careful eye on our impulses. Asking yourself a few simple questions can help you steer clear of the next big dust-collecting widget.

   Can I afford this? Is this important to me? Will this be important to me a month from now?

   In this way, we can spend on what we value, and save on those other impulse purchases marketed to us. We can make the most of the changing seasons, without suffering from seasonal spending woes.

Checking the Rearview

Checking the Rearview

   At Business Minded we talk a lot about where we’re going - mapping out our direction and taking consistent action to reach our planned destination. Small consistent wins are the only way to achieve the highest Return on Your Investment possible. That forward focus is essential to drive to the right destination, as picked by you.

How do you know you're on the right track?

   To stay on track for our success, we also need to remember to check the rearview every once in a while. This is essential for several reasons. The main reason is to appreciate the distances we’ve come. Reflecting on our accomplishments is a good way to appreciate the efforts that we’ve put in to get to where we are, and to remind us that we can, we will, achieve our goals through consistent action.

   This action of reaffirming why we started, where we’re going, and where we came from helps us stay grounded in our pursuits. And while our past doesn’t need to define our future, we shouldn’t forget the trials and tribulations that made us who we are.

   Checking the rearview also assists us in our future goal setting and plans. As a quote from Matthew Kelly in his book The Long View:

“Most people overestimate what they can do in a day, and underestimate what they can do in a month. We overestimate what we can do in a year, and underestimate what we can accomplish in a decade.”

- Matthew Kelly, The Long View

   When checking the rearview, we can see the level of investment that has provided the current returns. If we want to accomplish more, we can gauge the increased investment required to hit those larger, more inspiring goals.

   So look up, glance at that rearview and remember why you started. Remember how far you’ve come. And remember what it took to get there.

   Now draw on the strength built in your accomplishments, and more accurately plan out your goals, knowing what it took to get here. Decide what level of investment you need to hit the next milestone in your life, and take action. That new lofty goal ahead of you, that will soon be a map-point in the rearview as well.

Money Mindset: Pay Yourself First

Money Mindset: Pay yourself first

   What is the most important money mindset that differentiates people with financial abundance from those without? Financially successful people know this principle: pay yourself first.

   Understanding this Money Mindset of personal finance and financial achievement provides us the building block for all future financial successes.

What does Pay yourself first mean?

   "Pay yourself first." Put simply, it means that every dollar you earn, you put some aside for your future before you pay anyone else. This philosophy of money ensures that you will always have the means to take care of yourself and what is important to you without relying solely on your paycheck. If you pay yourself enough first, you will even achieve financial abundance, the monetary means to pursue whatever passions you have.

Why does this Money Mindset matter?

   With all the demands on our wallets in our hectic lives, it is only too easy to fall into a reactive mindset, burdened with excuses for why you can’t save enough.

The tax man takes too much. Rent is too high. My mortgage costs too much. Have you seen the price of food? Don’t even get me started on the cost of gasoline!

   Internalizing these devastating excuses will leave you at the end of each month with hardly a scrap to put towards your future. And while there are other money mindsets that have developed in response to these excuses, you’ll always be trying to play catch up at the cost of your happiness. With millions of people in North America alone living paycheck to paycheck, trying to save for our future after we’ve spent our earnings seems futile. Not paying ourselves first leads to a vicious cycle of pinching pennies on our morning coffee, buying the cheaper ingredients, wearing our shoes down until we have holes in the soles, and holes in our souls.

How do we apply this Money Mindset?

   Changing how we view money is hard, but there is a silver lining. While this Money Mindset of paying ourselves first is the most important, it is also the easiest to implement. Many employers are able to split our paycheck and send funds into an investment account before we even receive our monies. Holding back a portion of our earnings, and investing them before they even touch our bank account is the embodiment of the principle; Pay yourself first. If the source of our pay isn’t as regular, or the option to divert your earnings into a separate account isn’t available, we can set up our own system to pay ourselves first. With the advent of electronic banking, it is relatively simple to set up multiple accounts, and have automatic transfers regularly scheduled. All this can be accomplished within 30 minutes, and possibly even as quickly as 5 minutes.

   What if you are a freelancer and don’t have regular paychecks? While more manual, you still need to pay yourself first. While you are putting aside money for taxes (I hope you’re at least doing that!), send some extra dollars into your investment accounts for the future. This way, whatever is left is what you have for living and spending.

How much should you save?

   As with all other savings, the more you put away now, the faster you’ll reach financial freedom. George S. Clason suggests in The Richest Man in Babylon that 10% is a good number. Although that depends greatly on age, current savings, planned uses of the money, etc. Economists trying to give a single number for everyone range from the 10% number to 20%, or even higher. But before you get overwhelmed by the magnitude of that ask, just put aside a dollar. Then another dollar. Then another.

   We don’t need to change our thinking right away, the right system takes care of our financial future for us. But before long, as you start to realize the financial goals you have are attainable, you’ll certainly appreciate, and maybe even advocate, this essential Money Mindset.   Adopting the Money Mindset of Paying yourself first will ensure that you are taking care of your future self as well as your today’s self. And that simple action starts your journey towards financial freedom.

Defining your Career

Designing your Career

   Unless you're the beneficiary of a reclusive billionaires' estate, you're likely going to have to work. Your career is therefore an essential part to your success plans for the future. Are you on track to reach those career goals?  

   Knowing if you are on track to reach your career goals starts first with designing the career, and the life, you want to live. So what is the process to design your career?

   The process of designing your career falls into 3 steps:

  1. Set your career Goals
  2. Modelling the success of others
  3. Investment in your skills

   The first step to leading a successful career, the first step to success, is to work out what your goal actually is. The importance of this first step cannot be stressed enough. Often times our careers are treated haphazardly, accepting work and jobs based on a select few criteria. Settling into a career because "that's what my parents wanted", or following in their footsteps. Or we chase career progression for the paycheck, and the prestige we think that buys us.

   How many times have we answered that "Where do you see yourself in 5 years?" question with where we think that job will lead? How many times have we looked into the future without asking if our path is heading where we actually want to go?

   Once we have taken some time to determine where we want to be professionally, we need to evaluate what it will take to get there. Fortunately, every next step that we want to take has already been taken by someone else. At one point in time or another, someone has walked a similar path to the one we're headed down. And this is excellent news. Now we have an example to follow, the skills, the knowledge, and the understanding that our dreams are possible.

   The second step to designing your career is best summed up by Les Brown, as he reflects on a lesson his mentor taught him,

"Success leaves clues. Always listen to, and follow people who are doing what you want to do, at the level you want to do it."

Les Brown

   Studying those who are standing where you want to stand will provide a clear picture as to what skills you will need to develop. That knowledge is invaluable. Write down those skills. And on the page before you will be a list of skills, a road map to the successful career that you hope to live.

   Finally the third step; investment in your skills.

   This is by far the most time consuming, expensive, and exhausting step. To learn the skills needed to be successful, we need to continually invest in ourselves. Investment in the audio programs, the mentors, the books, and the courses that develop our skills. These investments are essential to becoming more valuable, more capable of following the road map to our success.

   The first two steps have provided you the road map to the career you aspire to. But the blueprints to your career are only valuable if you put in the time and effort required to build the skills necessary. This third and never-ending step of investing in yourself and your abilities will result in you working, and living the life that you desire.

The Roller Coaster of Emotional Investing

The Emotional Roller Coaster of Investing

   What happens when the emotional roller coaster of investing runs out of control? Are you at risk of losing thousands?

   Illustrated in a 2018 Forbes article, The Cycle Of Market Emotions: Where Are We Now?, the emotional roller coaster was presented in emoji form. The dangers of falling to any emotional bias when investing is something everyone should be aware of. While we looked at an extreme example in our Three Parts to Growing Your Investments, falling victim to emotional investing can have catastrophic consequences.

The Cycle of Market Emotions

   The most prevalent form of emotional investing is relying too heavily on the market timing lever. As you can see in the above image, when the market is on the rise (a bull market), investor confidence is high. When this happens, most would logically assume that it is a good time to invest. After all, why not? The 6 o’clock news keeps telling us that the market is hitting new record highs every day. And with all that happiness and wealth being generated, it sure sounds like a good idea to jump on the ride!

   But record highs mean that prices are up. You are actually paying a premium to enter the market. While we drive the extra 10 minutes to a store further away to save 10% on shoes, we’re suddenly prepared to pay extra for our investments?

   On the other hand, when the markets are crashing (bear markets), our confidence is low. Prices are dropping and the Wall Street media yells and screams day after day that the end of times is near.

   Looking at the above rationally, the best time to get in is when stocks are on sale, or at the lowest price point. This of course goes contrary to our emotional preferences, since when the prices are lowest we’re stuck somewhere between the anger, frustration and sorrow of how much we’ve “lost”.

   Taking rides on the emotional roller coaster, trailing the ups and downs of the cycle of market emotions is exhausting. While the highs are euphoric, the feeling when the market, and our stomach drops out from beneath us is exhausting. Financial success is therefore not climbing on the emotional roller coaster. Instead, routine, automated investing will help average out the cost of our investments and capitalize on long-term economic growth. All while weathering, and prospering, through economic winters.

   Don’t lose your money and your mind. When the roller coaster of emotional investing sends others into a spiral, trust in your automated system to steer you to financial freedom by the end of the ride.