What is Asset Allocation?

   There are three fundamental principles to successful investing: asset allocation, market timing, and time in the market. To achieve optimal financial returns, while balancing an appropriate level of risk, we look at asset allocation.

What is Asset Allocation?

   Asset Allocation is an investment strategy that involves investing part of your portfolio in different investment classes; stocks, fixed income, and cash. These assets, or investments, make up a portion of each balanced portfolio. The amount of risk associated with the portfolio is determined by how much of each asset class is held. For example, a 100% stock portfolio is much more risky than a 50% stock, 50% fixed income portfolio.

   Okay, so Asset Allocation simply refers to how much of my investment portfolio is made up of stocks, bonds (fixed income), and cash. I’m with you so far, but why are you telling me this?

Why is Asset Allocation important?

   As one of the three levers that controls investing, Asset Allocation is the most easily adjusted. While we cannot invest earlier, and correctly timing the market is a statistical impossibility, asset allocation is our best bet to invest effectively.

   Asset allocation is widely considered the most important investment decision, with far greater impact than the specific stocks in your portfolio. The asset mix, between stocks, bonds, and cash determines the risk / return rating of each portfolio.

   In general, stocks are the riskiest, yet offer the highest returns. Fixed income is safer, but the returns are lower than stocks. And cash, or Certificate of Deposits (CDs), are the safest of all investments, yet yield the lowest returns. Asset allocation is important to understand, as it governs risk and expected returns. 

   Alright, Asset allocation is important. How do we use it best?

How to use Asset Allocation?

   Financial advisers will often recommend asset allocation based on your age, as a general approach to determine how much risk you are open to. The traditional formula is 100 minus Age = asset allocation weighting. For example, let’s say you are 30 years old. 100 - 30 = 70. This means that 70% of your portfolio should be invested in stocks, while fixed income (bonds) and cash make up the remaining 30%. 

   The traditional formula doesn’t take into consideration the increasing life expectancy, and I would advocate that for our younger readers, the asset allocation benchmark formula should be 115. For our 30 year old reader, that would look like 115 - 30 = 85. Therefore, 85% of a 30-year old's investment portfolio should be in stocks, with the remaining 15% invested in fixed income and cash. 

   This benchmark system makes a very important assumption, that the investments are made with a long-term focus. This long-term focus looks towards retirement, not shorter term financial goals like home-buying or weddings. If the monies will be needed within the next 5 years, a far more conservative asset allocation is recommended.

Key Learning Notes:

   Asset allocation is the single most important lever to control your financial investments. The term refers to how much you invest in a single area, between stocks, fixed income (bonds), and cash. The more heavily weighted in stocks, the riskier the portfolio, and the higher expected returns. As a general rule, a good benchmark for asset allocation can be established by using 115 (or 100) minus Age = allocation for stocks. This benchmark is effective if using a long term focus, for example saving for retirement.

Action Item: 

Perform the asset allocation benchmark calculation for your long term investment accounts. What is your benchmark score?

Now look at your investments. How much, as a percentage, do you have invested in stocks? Fixed income? Cash?

Is there any re-balancing required? Ideally, this exercise is conducted once or twice a year.

What’s something you wish you knew in your 20s?

   I was reading the forums this week, when this question popped up. Sure there are some generic answers: “you’re young, enjoy life”, “don’t worry so much”, etc. But there was a couple of answers that hit right at the heart of what we talk about at Business Minded.

“Spend less time worrying about investing small sums of money and focus on growing my career. Must have spent 100’s of hours reading forums, reading books, local real estate listings and figuring out which ETF was perfect for my small amount of savings.”

   This lady, or gentleman, is not your typical internet forum troll. The lesson that they are trying to impart here is both essential and ageless. No matter how old we are, if you are working in a career, you can increase your earning potential. We can increase what we are worth, by being able to bring more value to our customers, whether those customers are inside a company or external clients. By increasing our value, we are rewarded far in excess of the rate of return on the stock market.

   The earlier we begin to invest in ourselves, the more we will be able to earn in our lifetime. And that can have a dramatic effect over the course of several years. 

   There is no better example of this than a situation I advised one friend on. Andy (not his real name) found himself in a particularly wonderful situation early in his career. He had two opportunities on the table, his current job (Job A) at $ 70,000 annually, or an offer on the table (Job B) for more responsibility and a $ 85,000 annual salary. Seems like a no brainer right? But as always, there’s a complicating factor. Job A was offering an investment opportunity for equity in the company. The expected return was 400% after 5 years. With an astronomical return like that, the decision just became a lot more complicated. 

   From a numbers standpoint, the opportunities would be equal if Andy made 15,000 * 5 years = $ 75,000 on the investment deal. At a 400% return, that means an initial investment of $ 18,750. Andy has on hand approximately $ 30,000 to invest in Job A’s equity, which would result in $ 120,000. With a 5 year lens, which for many of us is beyond where we can reliably predict, Job A is far superior, to the tune of $ 45,000.

But what happens after 5 years? How far does that $ 45,000 advantage go?

   The skills we develop pay off now, but they keep paying us dividends into the future. A higher earning potential leads to our ability to generate substantial resources over the course of our careers. The job experience alone from an earned promotion can raise our financial outlook to untold heights, as we grow and increase our value. 

   Back to Andy, assuming his earning potential increases at the same rate for the rest of his career, 20 years from now with $ 15,000 extra per year leads to a gain of $ 300,000. That far in away exceeds the return of the $ 45,000 investment from Job A. When faced with the numbers, the decision became clear, Job B was the better route.

   How much time do we spend worrying about our investments right now? How valuable could we become if we spent that time learning, growing, increasing our earning potential?

   Investing in ourselves has the highest return on investment out of any investment we could possibly make. And the right time to invest is now. Invest in yourself. You can increase your value, and improve your future for the rest of your life.

Unsure of what the best way to increase your value is? The Career Growth coaching platform is designed to help you take control over your professional growth. Check it out here, or send me an email directly to brian.marchant@businessminded.ca to discuss if our program is the next step to take you to greater professional heights.

3 Questions to Align Your Goals

Are your goals really going to take you to the good life?

We all have goals in some capacity, focused on each of the areas of our life. Maybe that’s more money, a healthier lifestyle, more close friendships, or more impact in our careers. Many of these goals were set either some time ago, and we’re working towards them. Or they came about through social pressures; I should be healthier, I should chase more career success, I should save more money. Both these reasons for setting goals are valid and effective, but only when they are aligned with your values and your vision for your life.

And it is this alignment that we need to ensure exists.

But how do we know if our goals are aligned?

We can do this by looking at three different questions. These questions have been cultivated by some of the iconic thought leaders and speakers of our time, Jim Rohn, Zig Ziglar, Brian Tracy, and others. By spending time reflecting on the answers, we can determine if our current goals are in alignment with our life plan. Let’s look at the questions, and how they help us find that alignment.

What would you set as a goal for yourself if you won 5 million dollars? What would you do differently?

This two part question eliminates some of the constraints that we often consider when setting goals. Often times our goals, and the action plan associated with them, are influenced by our limited resources. Of the three limiting resources, this question reduces the impact of the financial side.

Take a look at your list of goals that you have today. If money wasn’t an issue, what would you change about that list? How would your goals be different? What would that do to your action plan, how you spend your time and energy each day?

What would you do if you only had 6-months to live?

A real eye-opener, which unfortunately some people actually do hear. Many of our goals are set with a long time horizon in mind. Saving for retirement 30 years from now, living a healthy life so we can experience those years with energy and vitality. Or climbing the corporate ladders to reach our highest levels of impact 10 or more years from now. But what if that time wasn’t there?

How differently would you act? How would your priorities change? This question helps clarify what is truly important in our lives, so that we can include more of that in today’s plans. If your answer involves adventure, what adventures can you take now? If your answer includes family and friends, are you spending enough time with them now? Are you showing them how much they mean to you?

What one great thing would you dare to dream if you KNEW you could not fail?

This final question asks about our current goals. Are they big enough?

Again, our current goals are often constrained by certain elements; our time, our energy, and our money. But there’s one other constraint we often don’t consider, but one that shapes our entire existence. The thought that maybe we might not succeed. This fear stops us from attempting those grand schemes and desires that would really make our lives great.

If you didn’t have that fear, what would you dare to dream?

Finding alignment between our goals and how we plan for life to turn out can be hard. By asking ourselves the right questions, we are able to find clarity over what is truly important. Knowing what we find essential to our lives helps us build more of that into our goals and vision for the future. Answer those questions, identify what is important to you. And most importantly, dare to dream that it is possible. You can have that life you dream of.

Action Item:

Break out a sheet of paper or a new word document. Answer the 3 questions:

  1. What would you set as a goal for yourself if you won a million dollars? What would you do differently?
  2. What would you do if you only had 6-months to live?
  3. What one great thing would you dare to dream if you KNEW you could not fail?

Now reflect on the answers, are your goals leading you to the life you desire? And one last challenge; I dare you to dream of what is possible for you in your life.

5 Benefits of Credit Unions

   As we grow in our ability to bring value to the marketplace, we earn more money. Knowing what our options are to handle that money is therefore an essential starting place. While we all know about the big banks, there is an alternative to be found in Credit Unions.

What is a Credit Union?

   A credit union is a member owned financial institution, that operates similar to a bank. Historically credit unions have restricted membership on the basis of company worked for, geographical location, or any other criteria. In recent years however, membership requirements have been loosened, which provides many of us an alternative to the banks. In terms of product types offered, credit unions and banks are generally the same. There is one major distinction between banks and credit unions. Credit unions are not-for-profit entities. This leads to a myriad of benefits to using a credit union.

1. Lower Account Fees

   Banks are for-profit companies, and as such they levy fees for the services they provide, in an effort to increase shareholder returns. Credit unions, on the other hand are not-for-profit, so the fees (if any at all) are lower. Without the need to drive shareholder returns, credit unions are only trying to cover operating expenses. This allows credit unions to charge significantly lower fees for services.

2. Lower Interest Rates on Debt

   Similar to the above, without the drive for consistently increasing shareholder returns, credit unions are able to offer slightly lower fees on borrowings. A December 2018 report released by the American National Credit Union Association (NCUA) shows that credit union loans charged lower interest rates for a variety of products, including home equity loans, car loans, and shorter term mortgages. These lower interest rates could save you thousands of dollars, depending on your borrowing requirements.

3. Higher Interest Rates on Investments

   While saving money on interest is good, on the flip side, credit unions also can offer higher interest rates for deposits. On the same report by the NCUA, certificate of deposits paid out higher interest rates for any time duration. This means that your extra cash can be put to work, making you more money.

4. Better Customer Service

   Since credit unions are member owned, customer service is generally better than big banks. Members are able to vote on initiatives at the credit union, which leads to a bigger focus on customer service. Contrast this to a bank, which focuses on profits and often leads to cost cutting, especially in the area of customer service. If there’s one thing we can agree on, its when there’s an issue with your money, sitting on hold to reach an unresponsive call-center is not the ideal situation.

5. Expansive ATM Network

   Credit unions typically have fewer brick-and-mortar locations, and even those are centered in a specific geographical area. To deal with this level of access, many credit unions enter into ATM agreements, allowing surcharge free access to an expansive ATM network. These agreements often result in thousands, or tens of thousands of no-fee ATMs spread across North America.

   We work hard to earn our money, which means handling it well is important. Credit unions are becoming increasingly more accessible, and provide an alternative to traditional banking options. From higher interest rates on investments, to lower account fees or interest rates on borrowings, credit unions offer some distinct advantages for our financial well-being. Couple those financial advantages with excellent customer service and extensive ATM access, and credit unions might just make your financial life a little easier.

Steps to the Finish Line

   Goals are essential for achievement, which is why we’ve looked at setting SMART goals. The SMART goal setting framework is one of the most effective and most widely understood frameworks for goals, whether personal or professional. This provides us a clear “finish line” to reach. For our largest goals, we should break them down into shorter milestones to keep us focused. But even those milestones can seem out of reach sometimes.

   Achieving a goal is a lagging indicator. You see the completed goal when you sit back to reflect on your progress. All this happens after all the work has gone into your success. Therein lies the issue many of us face, we only see a positive result after we have worked tirelessly for an extended period of time. While it sounds easy to sit here and spout motivation for the grander vision, or talk of the success we feel when we accomplish something, real life doesn’t work that way. In real life, we could lose our drive from one day to the next, and have it back again just as fast. Real life is unpredictable. 

   To face that unpredictability, we can’t look only at the finish line, that marathon distance away. If we look too far into the future we will stumble. We need to know where we are going, looking down the road, but also be aware of what is happening right in front of us each day. That is why we need to focus on leading behaviors. 

   Leading behaviors are the steps that we take each day in the direction of our goals. These steps are few and small enough that we can count. And we need to, count that is. Keep track of the steps or behaviors we take each day, each week, as these will carry us across the finish line of our goals. 

   What does this look like? This is the salesman who makes 50 calls a day (insert a realistic number for your profession). These 50 calls, made with as much enthusiasm and energy as the first, will eventually lead to sales. This is the husband who shows his appreciation each day, leading to a long and loving marriage. This is the athlete hitting the gym each day (except for rest days, those are also important), striving to become better, faster, stronger with each rep. This is the monk, absorbing scriptures or meditating, or expressing gratitude. This is the banker, making her own lunches to have money to spend on what is truly important. This is the parent, carving out time each evening for their child’s development. This is the dreamer, putting in the unappreciated work after the sun goes down, or before the sun comes up, striving to build a better tomorrow.

   This is you, making the small daily choices that carry you across your finish lines, and beyond.

Are you feeling Lucky?

   Have you ever met someone who is financially well off, and thought "Oh, they're just lucky"?

   The truth is, they probably are lucky. Luck plays an important role in everyone's quest for financial freedom. And for such an important factor, we had best uncover what makes some people lucky, and some people not so lucky.

So what makes people unlucky with money? 

   These are the people who search for financial well-being without putting in enough effort in first. We can see this all the time with lottery players and gamblers. Many people play such games of chance, and when relying on chance, the effort requirement for good luck to show up isn't fulfilled. As such, statistically speaking, nobody ever "wins" in these games. That's not to say they don't have merit, but if your reasons for playing are purely financial motivation, you will leave disappointed. But the horse races and gaming tables aren't the only places we look to luck to provide us a financial windfall. We also make investment decisions based on limited information, and hence rely a degree on luck to help us out. This could be as risky as investing in an unproven startup without first performing sufficient due-diligence on the business and owners. An investment like this is fraught with risk, but quite alluring especially for the ambitious young professionals looking to make a start in this world. 

   I know about this relying on luck from first hand experience. Many years ago I had the opportunity to invest in a startup company, and the silver-tongued promises of untold riches had me dreaming of how my life would be much improved. These dreams swayed me into making a risky investment, relying on a combination of hope and luck to turn those dimes into dollars. And therein I learned one of the hard lessons that Lady Luck teaches. Luck never comes to those who aren't deserving of it.

   We look for luck in other places too; there are whole companies built on selling you the latest, hottest stock tips. Making those rushed investment decisions based on a 3 A.M. hot-pick email, or the whispering you overheard from a couple tipsy bankers in a bar. This again doesn't fulfill the requirement of deserving luck, and as such your winnings will be lacking.

   If luck doesn't lie in those places, how are some people lucky?

   Luck is only a reward given to those who are prepared. Hard work will carry you to places where you might find good luck. I cannot tell you exactly where to look for luck, that is a function of the right time, the right place, the right people. But there are some places that you will have a higher chance of finding that good luck. These are the work opportunities that come about through hard work, impressing others with your knowledge, dedication, and character. I have met numerous people who embody those characteristics and ultimately find that good luck. 

   One such gentleman worked hard for years in a relatively unrewarding job. But through his perseverance, his dedication to his craft, he was ready when an opportunity came his way. This provided a substantial increase in his financial compensation. Already a financial win in his hand, his work performance continued to excel, and the reward was an ownership investment opportunity into company stock. This story isn't uncommon, but is only repeatable through consistent hard work. And that work is rewarded with opportunities that on the outside look like good luck. As Thomas Edison said, "Opportunity is missed by most people because it is dressed in overalls and looks like work."

Opportunity is missed by most people because it is dressed in overalls and looks like work.

Thomas A. Edison

   These opportunities are found in other places too. A chance encounter at a conference could open doors that you never thought possible, opening you up to financial abundance. Or a good idea from a course or book could completely change the way you see life. These experiences that we put ourselves in to grow and become more are the preparation you need to be ready to find good luck.

How do we get lucky?

   Looking for luck at the gaming tables or a chance email is as likely to pay out as those Nigerian prince's who ask you to hold their $ 50 million for them. Instead we should be taking advice from Thomas Edison, when we look for luck, we need only look at the opportunities disguised by hard work. Actively developing and growing ourselves will put us in the position to receive the boons of good luck, so when those opportunities come our way we are ready to step up to the plate.

   Perhaps we need to rephrase the question, instead of Are you feeling lucky? What we really need to ask ourselves is: Am I willing to do what it takes to be lucky?

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?

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!

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.

How to Create Career Success

20190728_184533

   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

20190728_185059

   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.

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.

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

20190611_203542

   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.

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.

The Three Parts to Growing Your Investments

   In a healthy financial strategy, investments are one essential element for achieving financial success. When looking at where and how to invest, there are three essential elements that need to be considered. These are asset allocation, market timing, and time.

   Asset allocation is simply how you have invested your funds. Here is where diversification comes into play. A well diversified portfolio enables you to avoid some risk, while taking advantage of economic growth on a large scale. To illustrate, let’s look at the portfolios of two friends, Bill and Katelyn. Bill invests in the S&P 500, as a diversified portfolio that tracks the movement of the 500 largest companies traded in America. Katelyn however has invested her money in a company she is betting on for the future, Tesla.

A chart showing the impact of one asset vs a balanced portfolio.

   By allocating your assets in an undiversified portfolio, you can expose yourself to massive risk. In Katelyn’s case, having $10,000 in Tesla on March 1st led her to see an unrealized loss of $ 3,044.88 by May 21st, 2019. This could be devastating to any portfolio, especially if life circumstances required her to sell at the low point. Bill on the other hand saw moderate gains in the same period. His more diversified portfolio wasn’t exposed to massive gains, but also was protected from the huge losses his undiversified friend.

   As this rather extreme but not unheard of example illustrates, the volatility of investments makes it very risky to keep all your eggs in one basket. For those without immense knowledge of the market, that risk is usually not worth the potential reward.

   The above example also works well when looking at the second element to growing your investments, market timing. Timing the market means buying low, and selling high. Knowing precisely when to buy and sell is impossible for even the most talented stock trader. Taking a look at the S&P 500 again as our benchmark, we can look at the price on the first of every month for the last 9 months.

A graph showing S&P 500 market volatility.

   No investor has ever accurately predicted the right time to buy and sell on a consistent basis to be able to beat the market regularly. By looking at the graph above with only 9 data points, we can see that it would be hard to time exactly. If we looked at the daily market prices, the graph is even more sporadic.

   The final element to growing your investments is time. In the long run, historically investments have increased in value. This can be seen when looking at the market price of the S&P 500 since its inception. For our example purposes, we are only looking at the last 5 years.

A graph showing S&P 500 market growth over 5 years

   Even in the last 5 years, despite economic fluctuations, the price of the S&P 500 has increased 43%, or 8.6% annually.

   The three elements that are essential to growing your investments are asset allocation, market timing, and time. Diversification of your investment portfolio helps mitigate risk, while combined with the final element, time, leads to consistent growth. Market timing is risky, as knowing when to buy and sell is impossible. And by staying out of the market thinking you will buy at the lows, and sell at the highs, leaves you missing out on the one main element you can control, and that is time.

   Investing part of your monies for the future is the only way to reliably achieve financial freedom, and that is something not worth gambling over. Investing in a diversified portfolio regularly, automatically, will help you stay in the market. This capitalizes on the time element you can control, and takes the gambling out of market timing.

Why you need an Emergency Fund

We often hear about Emergency Funds in personal finance texts. A fund of easily accessible cash put aside for emergencies, if they should arise. Sometimes, especially when savings seem hard to come by, it might sound tempting to invest all our extra reserves to take advantage of economic growth. Certainly these past few years (currently 2019) have seemed an opportune time. But it wasn't always so.

Recently we had the opportunity to speak with some more seasoned life travelers. One story in specific stood out among the rest.

Francis (name changed to protect identity) grew up on the other side of the tracks. Don't leave the house after dark kind of tracks. But after going to college and starting his life, he got out from that circle of viciousness. He had a job, a tidy sum invested in the stock market. Things were on the up and up for Francis and his budding family. But then 2008 hit.

In 2008 the stock market crashed, as the US economy entered the worst recession in recent history. Jobs were lost, housing and stock prices plummeted, for some, it was the end of days. And bad luck has a way of following some people around.

Francis had recently had his second child, a sublime cause for celebration! Except there were complications at birth, and suddenly that exhilaration turned to concern. And a hefty doctors bill.

Not to worry! Francis had investments.

But in 2008 during the stock market crash, his investments were at an all time low. Liquidating at this time was ill-advised. But with mounting doctors bills, necessary. See Francis didn't have an emergency fund. He was enjoying the upward trajectory of the economy, right up until he wasn't enjoying it any more.

An emergency fund would have helped Francis weather the storm, and would have saved him from extraordinary losses as he paid off doctors bills.

Fast forward 10 years, and Francis has recovered economically, but his learning were paid for the hard way. And those lessons? Keep a little stashed away on the side for those sudden curve balls life throws. With a little emergency fund, you can be sure to weather economic storms and not see your fortunes washed away in a tidal wave.

Who are the three people we all need in our lives?

   When we set about building our professional networks, there are a few key roles that we need to fill to set ourselves up for optimal success. These three roles are: a mentor, a coach, and a cheerleader.

   Finding and engaging with a mentor is one of the more popular professional development elements. These mentors are individuals who have the expertise in one or more areas of focus for our professional lives. They have the knowledge of the mistakes that they have made on their journey, and that wisdom can help us avoid the same mistakes. A smart person will learn from their own mistakes, the most successful persons will learn from others mistakes, so as to avoid those pitfalls. Mentors are relied on for advice, and looked up to as examples of what you hope to achieve.

   When dealing with mentors, they are best utilized with smaller, more infrequent interactions at critical times. Most of the mentors that we seek out are busy professionals themselves, and therefore lack the time to help with the day-to-day challenges we face. And their role isn’t to hand hold and do the work for you, a mentor gives solid advice based on their experiences, and lets you take action yourself. Based on these actions, a mentor will also help you pull out the useful lessons learned. Learning from their mistakes, acting upon their advice, and extracting your own lessons learned will help you optimize your relationship with your mentor. And be sure to share all the successes and failures with your mentor! People love hearing of the successes that their advice helped you achieve.

"There are few obstacles capable of standing against human willpower, but when that willpower starts to fade, you need a coach to keep you pushing forward."

   The second person you need in your life is a coach. Coaches are more hands-on than mentors, and while you are still the one putting in the effort, your coach will help you stay accountable and focused on the goals. The best coaches will help provide the focus to achieve your goals, working out what obstacles you are facing and helping determine the next steps to overcome those obstacles. By keeping you focused and accountable for both action and results, a coach is an essential component of any successful persons team.

   Coaches are also great for telling you the hard truths that other friends and colleagues won’t tell you. A good coach isn’t concerned about hurting your feelings, they want you to succeed, sometimes even in spite of yourself. This doesn’t mean they’re a drill sergeant, but if that’s what it takes, your coaches are the ones to yell, scream, and push you to be better. Your coaches are in your corner, pushing you to surpass any obstacles. There are few obstacles capable of standing against human willpower, but when that willpower starts to fade, you need a coach to keep you pushing forward.

   The last person you need in your life is a cheerleader. These are the people that you can talk with, who support you no matter what. They are always in your corner, encouraging you to be the best you can be, but also there to help you up when you stumble. Your cheerleaders are often friends who are genuinely excited for your success.

   Of the three people you need in your life, the cheerleader is the hardest to find. Mentors that you have a connection with are excited at the prospect of sharing their knowledge and experiences, especially when they see how it helps you succeed. Coaches are always eager to push their clients to greater successes. Holding you accountable to yourself and your dreams is an exciting prospect for the best coaches, and we’re eager to push you to greater heights. Cheerleaders on the other hand, these are the friends and partners that support you no matter what. Certainly the most valuable, but also the hardest to cultivate because they can’t be bought or sold. Ingratiating yourself into a community with similar interests and aspirations helps you meet like-minded individuals who you can support, and whom will in return support you.

   So as you build your team, your professional network, keep in mind these three roles. Who is your mentor? Who do you trust and respect, whose advice will guide you through the tough choices? Who is in your corner, coaching you to greatness? The coach(es) who push you past your limits, the coaches who hold you accountable in your journey for success. And who is your cheerleader supporting you and cheering you on? Who will be there to lend an ear when the times are rough, and to raise a glass when successes are realized?

   Your mentors, coaches, and cheerleaders all have one thing in common, we all want you to succeed.

What is the best investment?

   There are so many options for investing, the choices can be overwhelming. Stocks? Bonds? Real estate? Foreign currency? Or, weed stocks because we overheard a tip from our local barista? Oh! And don’t forget bitcoin, we could all be rich with bitcoin! Or we could be broke. Depends on the day. So when we invest in our future, which option is best?

   The list above has actually left out the best investment you can make. And no it isn’t rare metals, stamps, watches, or baseball cards. The best investment that you can make is, you.

Investing in yourself is the safest investment that you can make. And the ROI on that investment is unbeatable in the marketplace. And the best part? That investment can come in many different ways.

When you consider where you are in your career, does someone in your company make more money than you? Your boss, or their boss? Or for the self-employed, is there anyone doing something similar who is more successful? Investing in your skill set makes you more valuable, which you can use to command higher earnings. And those gains, just like investments, they compound. The better you get, the more valuable you are, and the higher your earnings will go.

The best investment that you can make is, you.

   You can also invest in yourself in other ways, that aren’t solely based on career progression. Take fitness for example, the more physically active you are, the lower your risk of costly health issues. These investments cost little more financially than a pair of running shoes, although a personal trainer might be handy for some. But these investments come more in the form of time and mental energy dedicating yourself to a healthier lifestyle. The return on investment (ROI) you will see here comes in the form of cost savings, with lower healthcare bills. And a not insignificant opportunity cost of being productive when you would otherwise be sick.

   Any area of our life can be improved with investment, and the returns can be exceptional. Want to eat healthier? Hire a nutritionist, or take a cooking class. Want to be more spiritually in tune? Go on a retreat, or speak to a counselor. No matter what area of your life you want to invest in, there are options and/or coaches for that. Find a coach or teacher that will help you become a better version of you, and enjoy the return on investment for the rest of your life!

   You may find yourself asking; if investing in ourselves is the best investment possible, why are these investments overlooked so frequently? The returns on investments in ourselves aren’t track able the same way as investing in stocks or real estate. Those have real purchase prices and selling prices, the difference being our gains or losses. When we invest in ourselves, how much of our gains, or savings from living healthier, can be attributable to our good decisions? How much of our “gains” would we have experienced naturally? The ambiguity of personal development causes many people to fail to invest in themselves as much as they should.

   Part of any solid financial plan involves investing in yourself. So whether that’s an extra course, hitting the gym, simply reading more, or hiring a coach - be sure that you invest in your future success by investing in you.

The Staircase to Success

   Previously in The Appetite of Success I shared the pathway to becoming an achiever. For the sake of brevity, I omitted two crucial elements, which will be dealt with here. If you haven’t read The Appetite of Success, I would strongly recommend doing that first.

   If you recall, we looked at the journey from Newbie to Achiever, following the Motivated Equilibrium line. (Refresher image below:)

Motivated Equilibrium

   The journey, as we discovered, was a series of increasingly challenging goals, causing us to develop our skills further. Each of these becomes a step along the path. But in this case, “step” is a literal translation.

Pick a goal that is  more challenging, and build the necessary skills.
Pick a goal that is more challenging, and build the necessary skills.

   The staircase we see is our skills building to surpass each new challenge we set before us. Each step pushes the boundaries of current achievement, the Motivated Equilibrium line, then we continue to grow our skills incrementally before taking the next challenging stair up the staircase. As we take each new step, conquer each new challenge, we gain a sense of satisfaction and accomplishment. This feeling of accomplishment helps us look towards the next step, and grants us the perseverance to stick with our craft, building more skills to take us to new heights.

   When taking stairs, in life and in our metaphorical sense, too many stairs at one time will leave you stumbling. This is why you cannot simply jump up entire staircases. Nor can you build skill and charge up too many steps at once, as fatigue will set in and cause you to falter.

   And faltering brings us to our next crucial element, landings. Not all skills and endeavors are destined to bring us to greatness. Indeed, we need to focus on just a few core staircases that lead us to our highest levels of achievement and success. That means some of our areas of interest we need to either abandon, or at least hold at a level that is acceptable. Let us quickly define acceptable in the instance of this article as: the point where desire equals effort + time. The landing we hold should maintain our desired skills without costing too much effort and time. If it costs more time and effort than we want (desire) to dedicate, then we need to scale back to a landing that is comfortable.

Maintaining your skills requires consistent practice at the same level of challenge.
Maintaining your skills requires consistent practice at the same level of challenge.

   Landings require some effort to maintain our skill level, but we are no longer devoting extra time and effort to grow our skill base. This means we are holding skills constant without striving for achievement in this area of focus. To tie this back to our guitar playing example, progressing along our motivated equilibrium between challenge and skill, but recognize that we would rather be an exceptional <insert profession here> mother, father, teacher, athlete, entrepreneur, lawyer, developer, salesperson, etc. Our efforts should be focused on that staircase, but since guitar playing is still important, we need to continue to practice to maintain our skills. Instead of playing Through the Fire and the Flames by DragonForce, perhaps we’re comfortable strumming out some Beatles around a summer campfire. This means we still need to practice, but to a lesser extend, freeing up time and energy to continue along the path of who we truly want to be. To thrive, to continue to climb upwards along your chosen staircase that is important to you.

The Appetite of Success

   We’ve all heard the idiom before:

Don’t bite off more than you can chew.

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

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

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

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

Motivated Equilibrium

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

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

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

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

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

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

How to Save for your Future

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

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

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

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

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