‘Tis the Season of Giving

   The holidays are upon us, and with it comes the inevitable bombard of requests from various charities. There is not enough money to donate to everyone, so how do you decide who makes the cut, and who doesn’t?

   The motivational Jim Rohn, an iconic figure for personal finance advice, said to allocate 10% of our incomes to help those less fortunate. Charity is a way of giving back to the world and society that shaped us, and allowed for our success. While 10% is not a requirement nor a maximum limit, we all are constrained by how much we are able to give.

   While it can be hard to say no to people in need, it is important to stick to our financial plan, even when it comes to charity. With hundreds of worthy causes, we need to identify the ones that speak to us directly.

Who makes the cut?

   This is a very personal question, which you must answer for yourself. Often the causes we support are ones we hold near and dear to our hearts; a loved one is sick with a rare disease, or we have a soft spot for furry four legged creatures. Whatever the cause, staying true to who you plan to help will enable you to give more generously to those causes that speak to you.

Avoid the Guilt trip

   We’ve all been there, walking into the grocery store, and someone approaches you. They spill out a long sad story of a family in need this holiday season. But you can be the hero, you can help them with just a few dollars!

   It’s a very sad fact that others in our society are struggling to get by on a daily basis. But you can’t save them all, and sooner or later you are going to have to say no, not today. The charity fundraisers will do all they can to make you feel guilty for “turning your back” on others. This is why you need to know what charities you support, which ones are going to receive your donations. Knowing that you are helping a worthy cause helps prevent those feelings of guilt that you have as you walk away from yet another outstretched hand. 

   The important thing is that you know who you want to support, which causes are just, what aid you can provide. There are many others just like you, each who have their own causes. While you may be trying to save the whales, let someone else save the children, and another save the trees. We can’t change the world alone, which is okay, because we aren’t alone. There are millions of other people out there doing their part to make the world a brighter place. And knowing that, you shouldn’t feel guilty, instead you should feel proud of the ray of light and hope that you can cast on your worthy causes. 

   Give generously to the causes you support this season of giving, and feel proud in the knowledge that you are doing your part to make the future just that little bit brighter.

How much are you spending this Holiday season?

   With Black Friday kicking off the holiday buying season, how much do we actually plan on spending?

   Recent reports by PWC, CPA Canada, and the Retail Council of Canada (as reported by CTV news) indicate that we are in for an expensive month. Canadians are planning to spend $ 650.00 on gifts alone this season, with travel and entertainment adding an extra expense for many Canadians. This all adds up to an estimated spend of over $ 1,500.

   While the numbers alone aren’t cause for concern, the surveys also report a few other more alarming statistics. 46% of Canadians won’t be planning out their spending over the holiday season, and in a Manulife report mentioned by CTV news, 60 percent of consumers are willing to go into debt over the holidays.

What does this mean?

   The old adage “Failing to plan is planning to fail,” might be applicable here. Without a general sense of how much you are planning to spend, it is hard to save for the holidays ahead of time. This leads to loading up the credit cards, and paying far more than you planned once those interest bills start coming in.  

   Putting a plan in place, and sticking to it, can avoid some of the nasty surprises that January usually brings. Since Christmas comes fairly reliably every year on December 25th, it would make sense to allocate some dollars to the gift fund throughout the year. Automatically contributing each month to a small gift fund will help ensure that you always have the resources to show your love and appreciation to those you care about.

But it’s too late for me now!

   Let’s say you don’t have a gifting fund already set up, and the holiday season is upon us already. What can you do? 

   There is still time to put a budget in place! Speak with those loved ones that you plan on exchanging gifts with, and work out a reasonable budget. This helps you both out, by taking the guess-work out of how much should you spend, and lets you focus on what you want to give. 

   And if you do need to take on debt this holiday season, make sure you pay off your credit cards in full each month. This will ensure that your high interest debt doesn’t end up costing you far more than you planned to spend on the gifts. 

   The holiday season is supposed to be full of love and joy, don’t lose sight of that amidst financial concerns. The right plan can help you get through this season with a full cup of holiday cheer!

Where are you spending your money?

   Do you think you could save some more money now for a brighter future?

   Many of us look at our current circumstances and believe that we’re stretched thin as it is. The moderate savings we make each month, that’s all we can afford. When we’re asked to find a little bit extra, our initial reaction is, I can’t do that.

   How well do you know your spending habits? Do you know where you are spending your money now? We often have a general sense, but when we get into specific details of where each dollar goes, the results are often eye-opening.

Get to know your spending habits.

   Becoming aware of your spending habits is quite easy these days, with the majority of our transactions occurring through credit cards and electronic payment methods. It is a simple, and not overly time consuming process to look at last months statements and learn where you are spending your money. 

   That knowledge alone can help you make better financial decisions in the future, and may even uncover some areas for additional savings.

   But you can take that process one step further, by becoming proactive versus reactive to your spending. 

Becoming Proactive in your Spending

   To become proactive, you need to be putting thought into your purchase decision, and what that means, before you actually swipe your credit card. One highly effective strategy to do this is to carry around a small notebook, and before every purchase write down what you are spending on, and the amount. This notebook will put a small interruption between the usual tap-and-go buying that you are habitually used to. That brief pause gives you time to reflect, do you really want or need that candy bar or bottle of pop?

   Our financial goals are usually not derailed my large decisions, rather they suffer death by a thousand cuts. It’s the small, habitual purchases that we make that robs us of the extra few dollars each week to contribute towards our financial goals. By tracking, especially proactively by using a notebook, you take back some control over your wallet. That small, powerful step puts you back in charge of your financial destiny. Financial freedom is yours for the taking, if only you get out of your own way.

Why You Need a Will Now

Is your family protected in the case of your death?

   You work hard to take care of your friends and family, that’s why you have taken an interest in achieving more. But what if the worst happens, and you aren’t around to support your family and community further? This is where a will becomes essential, to ensure what you worked hard for in life goes to where you want it to after your passing.

What is a Will?

   A will is a legal document that tells the courts what you want to happen to your property, and the care of any children still considered minorities, in the event of your death. 

Why are Wills important?

   Without a will, your property and any young children will be assigned to the courts to deal with. This creates a lengthy, time consuming, and often expensive process. Furthermore, disagreements over your property causes more stress on loved ones, and can result in fractured relationships as well as your property being distributed in a way you wouldn’t want.

   A will helps alleviate these issues, by telling the courts exactly what you want to have happen with your property. Through this document, you can allocate bank balances, property ownership, and distribution of family heirlooms to different people. You are also able to donate to charities or institutions. By creating a will, you are also able to create tax savings through gifting allowances, etc. This ensures more of the assets you gathered through your efforts are given to the right people, and less is lost in estate taxes to the government.

   Perhaps the most important aspect for parents of young children though, is the ability to direct who will be caring for your children in your absence.

And if I don’t have a will?

   If you don’t have a will, a probate court will assign an administrator to consolidate the value of the estate, and disburse the property and assets based on court decisions. This almost always splits the estate among the surviving spouse and children, if applicable. If neither of these options is available, the government takes ownership of the estate.

   Aside from stressing the relationships of surviving loved ones, a court appointed administrator must follow certain formulas and rules for distributing the assets of the estate. This could result in the family home being given to someone you wouldn’t have intended, or even forcing the sale of assets to divide the proceeds among the beneficiaries. When this happens, the tax laws come into play, and you can lose a substantial amount of value of your estate in taxes, leaving far less to your beneficiaries than you would like.

How do you prepare a will?

   There are a variety of ways to prepare a will, including some very low cost solutions. At the expensive end, you can hire a lawyer to assist in the preparation. They will help you compile a list of all your assets and debts (liabilities). From there, you can indicate who should receive what asset, or part of an asset. That same process is followed by the cheaper options, websites or even DIY kits that you can find on Amazon!

   Once prepared, the will should be witnessed by 2 adults who aren’t included as beneficiaries. The final element of creating a will is to name an executor, someone who will work under court supervision to ensure that your will is followed. Other than being an adult, there are few restrictions on naming an executor, and you can easily name a spouse or child to deal with this. The executor’s role is important in ensuring the smooth settlement of your estate, including discharging any remaining debts you have, and informing government and financial institutions. 

   Now that you have a will, store it in a safe place! A home safe is usually best for this.

   You work hard for your success. Make sure that those efforts aren’t wasted for your loved ones, family, friends, and community that you leave behind. Taking the time to create a will is an important step in ensuring that your assets are distributed fairly, without losing excessive amounts to taxes. And if you have young children, this step is even more important as it will ensure they are cared for by the people you nominate.

   A will is an important element of your financial plans, that will ensure your achievements keep paying off to your loved ones long after you’ve moved onto your afterlife adventures.

How to Finance your Goals

   There are a tonne of things you’d like to do, right? Go on vacation, upgrade your vehicle, go to that fancy hotel restaurant, learn something new, etc. Our bucket lists are long, and they should be! There is so much in this world to experience, and it would be a shame to not do all we want to. But most of your goals come at a price. 

How do you finance your goals?

   For many people, they would like to do a great deal of things. They talk all about those plans, without actually putting together an action plan to follow through. Often this ends up with most of that vacation, or the new TV purchase, or any other item on the bucket list, being charged to a credit card.

   Financing anything through a credit card is a risky proposition, and while credit cards have definite advantages, they shouldn’t be used in lieu of a plan. Instead, they should be a key part of your plans.

   We all know for big ticket items, like a house or wedding, that we must save for quite a while before we are able to purchase them. But are we regularly setting aside money for the rest of the things in our lives? With consumer debt on the rise, and an estimated $ 500 Billion of non-mortgage related debt held by Canadians (as of September 2019), many people are financing their lives through borrowed money. Delinquency rates, or people not paying their debts on time, is also on the rise. Too much lifestyle funding without a plan is getting people into trouble!

   Many Business Minded readers are in a better than average financial positions, and are certainly more likely to be paying off their credit cards every month. But that doesn’t mean having a structured plan isn’t valuable! 

   As with most aspects of your financial lives, you probably don’t want to spend much time thinking about budgets for your goals. So to make sure you stay on track, without spending much time or energy, we need to turn to automation to help us out. For the major events and purchases that we’d like to experience in our lives, we need to automatically allocate a small amount of funds to separate accounts. Over time, these accounts will grow, and when it comes time to take that vacation, or buy the new phone or computer, we have the funds ready to spend. 

   I try to take at least one vacation every year. To ensure I am able to do that, I allocate a small amount of funding each month to a separate high-interest e-savings account. Over the year, those funds build up until I take my planned vacation. And the process repeats itself from there. Automatically save, achieve my goal, rinse and repeat. 

   Having systems that look out for us protects us from ourselves. Knowing that my money is already spent on a vacation that will occur in 8 months helps curb my impulse purchases today. And when it comes time to take my vacation, I am not left stressing about where all that money will come from. 

Financing through a Simple System

   Automate your goals. This system seems simple, yet for the vast majority of us, it is a system we never put the time in to implement. So today, take 15 minutes and create your simple system.

1)   Decide which goals you are pursuing, and when. How much will those items cost? Divide the cost by the time until you need to pay, and you have your amount to save each period.

2)   Open a separate account to hold the monies. This shouldn’t take you more than 5 minutes through online banking. 

3)   Set up automatic contributions to your new account, contributing the amount you calculated in step 1 each period, automatically.

4)   Enjoy life!

   The systems you put in place to control your impulses and make sure you live life to the fullest are dull. Systems don’t inspire anyone. But spending 15 minutes today can provide you the resources you need, when you need them. Achieving your goals doesn’t need to be any more intimidating than it already is. Make sure you have the financial systems in place to help reach your goals. 

   This system will help you avoid the pitfalls of consumer debt, and prevent you from needing to borrow from your future to pay for your today.

Will your retirement savings be enough?

Will your retirement savings be enough?

   This question is enough to cause concern among many people. How much do you need to retire? With news media throwing around words like economic recession, these concerns also bring another element to consider, sequence risk.

   Sequence risk is the danger posed by an economic downturn on an investment portfolio in the short term. While a recession provides an excellent opportunity to build wealth for a younger person, that same recession could greatly impact retirement accounts for those already in retirement or close to it. Simply put, sequence risk is the threat of withdrawing money in a downturn.

   Despite an economic downturn, you still require money to live. Because of this, when your portfolio loses value, you need to withdraw more of it as a % of total to end up with the same benefits. Burning through your retirement portfolio too quickly can lead to more life at the end of your money, not a comfortable place to be in.

   To illustrate, we’ll look at a retirement portfolio of $ 1 million, invested in stocks. (We’ll pretend like you didn’t read the asset allocation articles and didn’t realize that 100% invested in stocks is risky!) If you retired in 2008, your $ 1 million portfolio would have been hit with a loss of approximately 38%. That takes your portfolio down to $ 620,000, and you’ll still need to withdraw to pay for retirement! Those withdrawals are $ 50,000 in the first year of retirement, which is 8.06% of the portfolio!

   If you had retired in 2011 instead, where the stock market virtually didn’t grow, with an average growth of approximately -0.00 %. A withdrawal of 50,000 from your $ 1 million nest egg would only be a withdrawal of 5%.

   That is the impact of sequence risk, that you may be withdrawing more as a total % of your portfolio in a market downturn. Spending through your retirement savings too fast, even when the dollar amount doesn’t change, is something that is almost impossible to recover from.

How can you mitigate sequence risk?

   Understanding what sequence risk is, and how it can impact your retirement savings allows you to create a financial strategy to mitigate the risk. There are many options available here, and anyone close to retirement would be wise to consider them.

   More heavily weighting your portfolio into fixed income, or bonds provides relative safety from stock market fluctuations, and can provide cash flow in the form of interest. While this will help deal with threats posed by sequence risk, bonds also have a much lower rate of return. 

   Also on a similar line as fixed income, you can also hold cash reserves, which again is a safe asset allocation approach, albeit with an even lower risk and returns. Ensuring you don’t have to liquidate your more volatile investments, like stocks, during an economic downturn will help you weather the storm. Historically in the longer term, stocks have always increased in value. As a result, if you don’t need to sell during market low points, you can ride out the financial storms.

   There are other options that provide some protection against sequence risk. Owning rental real estate properties can help generate extra cash flows. This again is a more diverse investment portfolio, and that diversification provides options.

   But what if you are close to retirement, and don’t already have the appropriate asset allocation or real estate? The good news is, it’s not too late to start making your portfolio more conservative, or look at alternate investment options. Another key consideration is phasing into retirement more slowly. This could involve working part time, scaling back hours while still generating some income, which lowers the amount you need to withdraw from your retirement accounts in the short term.

   Sequence risk can throw a wrench in our best laid investment plans. And with concerns over an impending recession, it’s never a better time to explore your options in case the global economy does slow down. There are many options that you can look into; from changing asset allocation to more conservative (less volatile) investments, to exploring real estate investment properties, or even working longer to weather an economic storm. Tough times will pass, and with the right tools at your disposal, those tough times don’t need to derail your financial future.

What is a Target Date Fund?

   Asset allocation is an extremely important lever controlling your investment risk and returns. Knowing how much risk you should have at each stage in your life will help you invest effectively, without chancing losing it all. To assist with this asset allocation, a type of fund called “Target Date Fund” were created.

What is a target date fund?

   Target date funds are portfolios of investments that are managed on the basis of risk. The idea behind these funds is that you select a date in the future, usually when you plan on retiring. The fund will then handle the asset allocation for you, gradually shifting from a stock-heavy weighting at the onset to a more balanced or fixed income heavy weighting at your target date. 

   Alright, target date funds do the asset allocation part of investing for me. Surely it’s not that simple?

What other factors impact target date funds?

   Not all funds are created equal. While the premise is the same, some target date funds will target different areas of stocks. For example, one fund may invest more heavily in natural resource companies stocks, while yet another fund focuses more on financial companies stocks. Each fund is trying to out-do other funds, while maintaining the asset allocation risk levels based on your target date. 

   Even the risk level can vary by a few percentage points across different funds. For example, several funds with a target date of 2045 may have different levels of stocks. Some funds might have only 85% stocks in the portfolio, and yet others may go as high as 92% of stocks. This could have significant impacts on both the risk and return of the fund.

   When investing in target date funds, research is required to make sure that you are investing in a fund that aligns with both your social and financial goals.

What happens when the Target Date is reached?

   Target date funds are usually used for long term investing. The target date is not the end of the fund, but rather the end of when you are expected to be contributing to the fund. After that date, it is expected that you will be withdrawing from the fund, as in the case of retirement. This means that the monies in the fund will be more heavily weighted in fixed income and cash, providing you marginal returns while reducing risk.

   Once again, this is a general case. Some funds do actually force a “liquidation” of sorts, and convert your target date fund into a different, more conservative portfolio. When picking a target date fund, this is an important question to ask; “What happens on the target date?”

   Target Date Funds provide a relatively straight-forward way to invest in a diversified portfolio, while also ensuring an appropriate asset allocation strategy is being followed. The fund will reduce risk as you approach the target date, ensuring that your long term investments will be better protected against market fluctuations when you expect to draw on those investments.

   As with all investment decisions, research and counsel from a financial planner is advised. But the most important element is that you take action and invest now, as soon as possible.

   Financial freedom is a goal of all of us, and target date funds provide an easy way to step into the world of investing with a reasonably good strategy right out of the pamphlet. Investing in your future is the only way to ensure that future meets your dreams. While the world of investing sometimes seems complicated, target date funds might just be the answer you were looking for!

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

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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.

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?

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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.

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.