Small Steps, Big Results

   How much do you need to set away to reach your financial goals?

   For many of us, reaching those big financial goals will take many, many years. And looking up now, it seems the mountain top is well beyond your reach. When even the climbers well ahead of you look a long way off from the top, and even they are hardly pin-pricks against the enormity of the mountain.

   It would be all too easy to be overwhelmed, standing there at the bottom. All too easy to throw the towel in. All too easy to just sit down.

   But every successful hiker knows, there is no shortcut to the top. Sure, there’s easier and harder routes to take. But no matter what path you travel, the only way to make any progress is to just take a step. And then another. And another. 

   Do that, just one step at a time, and soon enough when you look back, you’ll hardly even believe where you are, and how far you’ve come.

   We can apply this mentality to all of our goals. Breaking each momentous task down into just the next step.

   You don’t set out to write a book, you just need to write a sentence. 

   You don’t run a marathon, you just run around the next corner. 

   And you certainly don’t lay down on a mattress made of cash. You just set a small piece away. When you do that today, and tomorrow, and the next day, and every day from now on, one day you’ll look out from your own mountain, shocked by how far you’ve come.

How Big A Step?

   How far do you need to stride each day to make it to the top of the mountain?

   Of course, the answer depends on the size of your mountain. And how long you have to climb it. 

   But no matter how big your mountain is, you’ll only reach the top by putting one foot in front of the other.

   To help you decide on the size of the step you need to take each day, take a look at the chart below:

Latte Factor Table

A Game of Inches

   The above chart shows how much you need to set aside each day, with the assumption you contribute those funds on a monthly basis, earning 6.5% after-tax annually.

   This type of analysis, popularized as the “Latte Factor”, shows that saving a small amount each day will help you reach your financial goals.

   The key here is, take a small step each day. Don’t get hung up on cutting coffee from your life, or some other equally trivial excuse. This has nothing to do with your morning cup of Jo. 

   But for those who are already tapped out, those who can’t find an extra 2 pennies to rub together. Looking at your costs, like your latte, might provide that small step. It could also be cutting your cable. Or negotiating a discount on your phone bill.

   In the infamous words of Al Pacino (Any Given Sunday, 1999), “Your find out life is a game of inches, like football. ... The inches we need are everywhere around us.”

   Each day, find that step. Each day, take that step. Do that, and one day you’ll look up from atop your mountain, staring at the wondrous beauty of a world and a life lived on your terms. And each night you can wrap yourself tightly under that blanket of financial freedom.

Pumpkins and Mason Jars

   Amidst the soil and seeds lived a pumpkin farmer. He spent his days working the fields, tilling the soil, planting his seeds, tending his beloved crop. 

   One day, as he walked through his pumpkin patch he found a glass mason jar lying in the field.  Curious to see the interesting result, he pushed the freshly sprouted pumpkin inside the jar to grow.

   Weeks and months went by, and the farmer forgot all about that tiny little pumpkin in a jar. Until, one day at harvest time, he walked yet again down that row. To his surprise, that tiny little pumpkin had grown. It filled the jar, a perfect mold of the shape. Sitting beside the enormous pumpkins, the perfect jack-o-lantern carving type pumpkins, this tiny jar-shaped pumpkin looked rather odd. 

   And it certainly was. 

   Here was a pumpkin that could easily fit in the palm of your hand, while the pumpkins that grew to the left and the right were enormous, the size of a basketball and considerably heavier.

   But what was different about that pumpkin? It grew from the same seeds, in the same soil, drinking the same water. Why was this pumpkin unable to grow beyond the jar, into the big, beautiful pumpkins we see sitting on store shelves?

   This problem presents itself in your life too. No more so than when you start to look at money.

   For so many of us, values in our lives have been boiled down into dollars and cents. It’s how we spend our time, investing those precious few hours each day for a paycheck. All in the hopes that one day, we no longer need to make that trade. But, when will that be? The question of “how much is enough?” has plagued us for all time, and likely always will.

   Have you ever said, or heard someone say, “If I made that much money, this and that would never be an issue for me.”

   One of the problems with writing about personal finance is exactly that. How much is enough? 

   Each of us is currently living inside our own mason jars. Some bigger, some smaller. But each of us is just like that little pumpkin. We grow until we fill our jar. No bigger, and no smaller.

   It’s very easy to look at another person’s jar and say, “I wish I had that much.” And just as easy to look elsewhere and say “I could never live in a jar that small.”

   This is why, when we start planning your personal financial plan, it is important not to look at someone else’s jar. You need to only focus on what you have, the size of your jar. If there are chances for you to increase the size of that jar, that’s fantastic, but the measure isn’t in comparison with someone else, but rather with what you used to have. 

How Much Is Enough?

   How much should you put away then? The target isn’t a million dollars. It’s not 5 million, nor 10 million. The target that you need to aim for is only in proportion to the size of your jar. Because that’s what you know. You know your jar. You live there.

   When you’re looking into planning your personal finances, don’t covet thy neighbor. Examine what you have, and build your plan around that. 

The Right Size Jar

   What is the right size jar for you?

   Start where you’re at. Take a portion of what you make right now, and set it aside for the future. No matter the size of your current jar, you need to be filling that piggy bank for the future too.

   Estimate the amount of earnings you’ll be making at the peak of your career. 80% of that number should be the amount you plan on drawing when you’re no longer working full time for a paycheck.

   Finally, take that number, and divide by a reasonable number between 2.5 and 4%. That will estimate the size of jar that you’re working towards, in your life. Your target, based on you. Not your neighbor, your family, or your friends. Your jar, for you.

   This will put you on the right path towards financial independence. After all, this is your life, your journey.

   There is no need to look at the pumpkins growing on your left and right. You only need to become all that you were meant to be. To grow into as big a jar as you can, without discouraging yourself by comparing yourself to your neighbor, and certainly to not sell yourself short and living in a jar that’s a few sizes too small.

Fractional Shares: Investing for Everyone

   Do you own Tesla (TSLA) stocks? What about Amazon (AMZN)?

   One of the common issues with incredibly popular stocks like these is that their prices reflect that immense popularity. With an individual stock trading in the thousands of dollars, it can be quite challenging to add these to your portfolio, especially if you are trying to keep that portfolio well diversified.

   Trading platforms in the United States have figured out a solution to this, through fractional share ownership. And finally, that solution is now available in Canada through WealthSimple Trade.

What is Fractional Share Ownership?

   Fractional shares are exactly what they sound like - a piece of the pie, but not the whole pie. For example, if ABC co. is trading at $1,000 right now, and you only have $250 to invest, you can purchase 25% of a share (250/1000 = ¼ = 25%).

What Does Your Fractional Share Buy?

Dividends, and Other Stock Events

   In the above example, we bought 25% of a share in ABC co. If ABC co. decides to declare a dividend of $10, your fractional share will mean you are entitled to 25% of that dividend, or $2.50.

   Similarly, if there was a 2-to-1 stock split, where the number of stocks are doubled, your 25% of one share will become 50% of a share (25% * 2 = 50%). 

Voting

   As a shareholder, you are an owner of the company. That means you have a vote about how the company operates. Most fractional share ownership programs do not allow voting on any fractional shares. If you have 25.6 shares, you would only qualify for 25 votes from your fully owned shares, and the remaining 0.6 shares wouldn’t count.

Fractional Shares: Other Considerations

   One important note about fractional shares is that not every company’s shares are available. To run this kind of purchasing program, there needs to be sufficient trading volume to support these fractional share trades. Ultimately this means that only the most popular shares will be available for trade in this matter.

Are Fractional Shares A Good Thing?

   Anything that lowers the barriers to entry is a good thing. It can be far less intimidating to invest $10 than $10,000. Not only does that mean more people can get into investing, it also lowers the psychological walls that investors occasionally build in their minds. Those new investors can still build a well diversified portfolio without having large sums to invest. 

   And that, opening the doors of investing to anyone, is a good thing.

   If you’ve been looking for a way to start investing, fractional shares have made that even easier. Start putting your money to work for you, so that one day you don’t need to work.

The Three Investments Every Canadian Needs

   There are 3 essential investing accounts for anyone looking to become financially independent.

   Each of these accounts have their own advantages and disadvantages, but put together, they form an important foundation for your financial dreams and plans.

   The 3 accounts you need are, a Tax-Free Savings Account (TFSA), a Registered Retirement Savings Account (RRSP), and an unregistered investment account.

Why These Three Accounts?

   While there are several important factors at play for successful investing, there are two that you can directly control. The amount that you invest, and the length of time in the markets. These three accounts provide several key benefits, helping hit those key levers.

Tax-Free Savings Account (TFSA)

   The TFSA is one of the most important accounts for Canadians. Being tax-advantaged, it helps you minimize taxes paid on growth. As a result, your invested dollars stretch further than they would in an unregistered account.

   This works by contributing after-tax dollars, similar as you would in an unregistered account. But the perk here is that because those funds are already taxed, you won’t pay tax again on withdrawals, including any associated investment growth.

   Of course, with such an incredible tax saving, the government limits the amount that you can put in, to a cumulative lifetime limit based on your length of residency in Canada. If you’ve been eligible since the account creation in 2009, you can contribute up to $75,500.

   This account should be used early and often to minimize taxes paid on investment growth – the sooner you can max out this account, the more you can let time play its role, capitalizing on the compound growth over time, all tax-free.

   With more money in your pocket after taxes, the TFSA is an investment account that every Canadian needs to have.

Registered Retirement Savings Account (RRSP)

   Your RRSP is the second account you need in your quest for financial independence.

   The RRSP is again tax advantaged, this time as a tax deferral. Instead of contributing after-tax dollars, any contributions made to your RRSP help reduce your taxable income for the current year. This means you pay less tax now, and have more funds to contribute to your investments.

   Of course, the government always gets paid. Instead of paying taxes now, you pay your income taxes on withdrawal in the future. Unlike the TFSA mentioned above, taxes paid on the RRSP also include paying taxes on investment growth.

   Increasing the amount you can contribute, through the powerful tax deferral mechanism, helps you put more money into the markets to take advantage of additional compounding over time.

   Once again, this investment account has a limit, this one based on your total income. You can contribute up to 18% annually, with unused contributions saved for contributions in the future.

   This account also has the advantage of being tax-advantaged in the United States as well, which means that any investments made in US markets are subject to less foreign withholding taxes. Given the relative size of the US markets over Canadian markets, this opens up substantially more investment opportunities without those pesky taxes.

Unregistered Investment Accounts

   To round out the trio of investment accounts, you’ll need just a simple investment account.

   This account doesn’t have any perks of course, no tax deferrals, no special treatments. But, it also has no limits.

   Unfortunately, the two accounts mentioned above, the TFSA and RRSP, both have investment contribution limits. Those limits mean that those accounts alone likely won’t be sufficient to reach financial independence, and require to be supplemented by additional investments.

   By maxing out your TFSA and RRSP contributions, you capitalize on the tax savings that are available to you. The rest of the journey comes down to consistent, hard work, and your third necessary account for financial independence, the unregistered investment account.

Your Guide to Credit Scores

   Credit scores can make our lives easier, or vastly more complicated, depending on our rating. But what are these credit scores? How are they calculated? How are they used? And, where can you see yours? 

What is a Credit Score?

   Credit scores are a measure of your financial trustworthiness. Based on a sliding scale between 300 and 900, the higher your credit score number, the better. Put simply, a high credit score indicates to lenders that you are less-risky, and that you have a good track record of paying your debts. Different reporting agencies have different calculations, and even different scoring ranges, but in general a high score at one agency will match a similar score from another agency. As a result, finding your credit score from a single agency will give you a good indication as to where you stand.

How are Credit Scores calculated?

   Different agencies calculate credit scores differently, and even the calculations are proprietary and not known for certain. That said, the most common scoring calculation used is the FICO score. In general the FICO score can be broken down into 5 core areas, generally weighted as follows.

  • 35% Payment History
  • 30% Amount of Debt
  • 15% Length of Credit History
  • 10% New Credit
  • 10% Credit Mix

   While this isn’t an exact formula, it’s a good estimate as to the most important criteria. Each category influences your credit score. Let’s look at how it all stacks together.

Payment History

   How well you have paid your bills in the past is the biggest influence on your credit score. Are you paying everything on time, every month? By routinely making your payments for all your bills, you indicate to lenders that you are reliable, which drives your credit score higher.

Amount of Debt

   The amount of debt you have, and the amount you use also plays a role. In general, you want to be below 20% of your total allowable consumer debt. For consumer debt, credit card limits and lines of credit are the most important types. It is important to make the distinction between types of debt here, since mortgages and auto loans can be rather large, you won’t be adversely penalized for using them, despite throwing off your total debt usage ratio.

Length of Credit History

   How long you have had an established credit history impacts your credit score. The longer you have had credit available to you, the better your score will be. This of course impacts young people and immigrants the most, as they haven’t had the time to establish their credit history yet. 

   Another consideration in this area comes with cancelling sources of credit. For example, it might be beneficial to hold onto your oldest credit card or line of credit even if you don’t use it anymore because it proves you have a longer credit history.

New Credit

   Applying for new credit can drive your credit score down. This is seen as risky behavior, as you obtain new sources of credit in a short period of time. As you prove that you can manage the level of credit that you are eligible for, your credit score improves. Again, this doesn’t mean that you shouldn’t find new sources of credit, indeed there are good reasons to change credit cards, etc. But, making a lot of changes at once might make you appear more of a credit risk, and your credit score will adjust to reflect that.

Credit Mix

   The final element is credit mix, or the types of credit available to you. Having a diverse array of credit options improves your score. This can be a combination of auto loans, credit cards, lines of credit, mortgage, etc. Being able to effectively manage multiple sources of credit indicates to lenders that you are financially responsible, and your score is higher as a result.

How are Credit Scores used?

   Arguably credit scores are the most important number in your financial life. They impact everything from housing rent and job applications, to the interest rates you pay on loans. Your credit score can even impact your relationships, with studies showing that your credit score can even impact your dating. 

   Credit scores are used as a measure of your financial risk. A lower number indicates that you are more risky, and therefore lenders demand a higher interest rate to account for the increased risk. This means that being financially responsible isn’t just good practice, it’s also saves you money! The difference of a fraction of a percent on large items like auto loans or mortgages can mean thousands, or tens of thousands of dollars in savings over your life.

Where do you find your Credit Score?

   You are entitled to a free copy of your credit report each year from each of the credit scoring bureaus. For our US readers, you may request your credit report here:

https://www.annualcreditreport.com/index.action

   For my fellow Canadians, you may request your credit report from Borrowell here:

https://borrowell.com/

   Knowing how credit scores are calculated, what your score is, and how to find it is important. This three-digit number can have quite an impact on your financial future. As with any scoreboard, why not try and set the highest score you can? Your whole financial life will be better for it!

What is a Good Credit Score?

   Credit scores are extremely important in your financial life. Understanding what they are, and how they are calculated is important. But even then, what qualifies for a good credit score? And what about the other end of the spectrum, what is a bad credit score?

The FICO 8 as a Credit Score Benchmark

   While there are a few different credit scoring formulas, one of the most common is the FICO 8 score. Your FICO 8 score will provide a very close estimate to where you stand among all credit scoring methods. This is important to note, since when you retrieve your credit score from one of the different credit reporting companies, the number they provide should be close, but will not be exactly the same. This is partly because they are likely using a slightly different formula than the FICO 8. For that reason, using the FICO 8 as a benchmark will provide a very close approximation of your credit worthiness.

What is a Good Credit Score?

   The FICO 8 score, and all credit scores, are broken roughly into the following bands: Poor, Fair, Good, Very Good, and Excellent. A good FICO 8 score is in the 670 - 739 range. Individuals with scores in this area are generally not turned down for loans, and shouldn’t experience too many financial roadblocks. Unfortunately, the reverse is true. Individuals scoring below 670 may experience difficulty finding a credit card, and will pay higher interest rates on their loans. This is in addition to the other non-financial aspects, such as experiencing more barriers to job markets. The chart below shows the ranges of the FICO 8 score.

Better than Good

   A Very Good and Excellent credit score is even better than good (obviously). Individuals who achieve this range of credit score generally receive more favourable interest rates on loans, and have greater access to debt. Entering this level, over 740, will result in better financial options, and hence make your journey to financial freedom even easier. If you have an interest in achieving financial freedom in your life, there’s a good tangible target to shoot for: a credit score over 800.

Dividends You Can’t Live Without

   Dividends provide an avenue for you to see a return on your investment without having to “cash out”.

   This idea of dividends spans far wider than simply your financial plan. Those high-paying dividends can be found throughout your life. 

Where Are These Dividends?

   As you hit the gym day after day, week after week, your health improves as a result of your consistent commitment. The investments that you are making into your body pay off in small ways; a little extra energy at the end of a long day, a little less pain on a walk/hike with your loved ones, that little bit extra strength that makes all those little tasks just that little bit easier.

   And there are some big payouts too. That healthy lifestyle reduces the incalculable cost of major surgeries, saving you from constant pains, and months of lost time in recovery.

   Those dividends are received in the loving moments with your family. Or a deep conversation with good friends. The types of relationships that pick you up when you’re down. The relationships that support your dreams as you reach out for them. The relationships that give you a sense of peace during the stormiest days.

How Do You Get Dividends?

   There is no shortcut here. Dividends are only paid out to those who make the investments first.

   If you want to live a rich life, you need to make sure that you are putting the right amount away. You need to ensure your investments in all areas of life are well funded.

Dividends Without Investment

   Unfortunately, we see all too often the outcomes of people who don’t invest enough. When the account flickers in the red. When that cheque comes back marked insufficient funds.

   These shortfalls manifest themselves in all sorts of ways. Our failing health a few years before we should. An estranged child who just can’t find that connection with their parents. The divorce papers that sever a once loving union.

   These returned cheques happen all too often in today’s day and age. With Canadian divorce rates hitting or exceeding 40% according to the Divorce Collaborative in Vancouver. In “A Statistical Snapshot of Youth at Risk and Youth Offending in Canada” cites a juvenile delinquency rate of 6%. Of course these studies only pick up the worst offenders, when a wayward child embraces crime as they rage against the world. There are countless others who simply never narrow the emotional distance with their parents.

   With eye opening statistics like these, one has to ask, “where does it all go wrong?” 

Where It All Goes Wrong

   The biggest issue is that those investments are hard to measure. It’s often too hard to know that you’ve been letting those investments slide, until it’s far too late to do anything about it. You don’t get a quarterly investment report from your spouse and children. Oftentimes it’s hard to even tell if those little payouts we all spend occasionally were the result of dividends, or we had to sell some equity to make the withdrawal.

   See, nobody sets out with the intention of under-contributing to those key areas in life. The trade-offs are far more insidious than most people give them credit for.

   Let’s take the most common example: our ambitious young professional. 

   For simplicity, we’ll use “him” and “his” to indicate those small insidious choices. But this scenario works equally well for our female readers.

   Our young man does what so many others of his age group have done. He went to college for 4 years, and walked out with a degree. It’s time to get to work.

   He takes what sounds on paper like a decent job, but he’s starting from the bottom. No worries, his parents say, you’ve got to put in your dues before you can make it in this world. Sounds easy enough for our ambitious young man. He’s no stranger to hard work. Heck, this is a great opportunity to outshine his contemporaries.

   That salary says 40 hours, but those first couple of years go by in a flash. Days are long, and weeks longer. But he’s making some headway, professionally.

   As he ages, day by day, his twenties start slipping away. No matter, he’s got a steady girlfriend, and there’s even talk of marriage and babies. Those blessings come sooner than he could have planned, he’s still got a long way up that corporate ladder. No matter, his new wife is understanding, and the baby is simply too young to know better. Besides, a couple more years of these long hours and he’ll finally have made it.

   Before he knows it, that little baby is about to start school. It’s unfortunate that work took up so many hours when they were young, but the job is finally good now. Besides, he’ll just put in some extra time to forge those bonds when his kid is a little older. It certainly won’t be long now before he can really take his foot off the gas - he’s put in the hours, it’s time for that professional investment to start paying dividends, right?

   That first decade of marriage was a whirlwind. Career promotions interspersed with a growing toddler, upgrading the house a couple of times, even a new car in the driveway! Both professionally and financially, our young hero is crushing it.

   Then one day, after a grueling week at work, he arrives home. Takes a quick look into his child's bedroom, just a bit too late again to read that bedtime story. As he heads off to see the wife, he has a sense something is wrong. Did he forget a birthday? Surely not their anniversary, right? 

   Just like the other 40% of that statistic, he quickly realizes when he sees those papers on the kitchen counter. All those years, those long hours at work. He hadn’t been as vigilant, setting aside time and energy for career growth, but failing to make those investments in his family. His wife, his baby, they hardly knew who he was anymore. Those long hours, the “understanding” that he thought was established. That wasn’t a dividend of the relationship, that was a withdrawal. That account was in overdraft, and the tax collectors were at the door, brandishing a life fine labelled “divorce”.

   And who could he lean on for support? Those once cherished friends had stopped calling, he was always just so busy. Phone calls went from weeks to months, to haven’t heard from them in years.

   Throughout all those years, he’d been filled with nothing but good intentions. Chasing the good life. They’ll all thank me someday for the sacrifices I’ve made, he thought.

   If only someday could have come sooner.

How To Avoid That Fate

   What can you do to ensure the accounts in your life are growing in the right direction?

   Just like you receive a monthly or quarterly investment report, you need to make your own report to evaluate the different areas in your life. Are you making the right choices in relation to your goals? Are you considering everything that is important in your life when you set those goals? 

   Our young hero in the above story certainly had goals. But those goals didn’t include his relationships with family and friends. And while he was measuring his progress up the corporate ladder, he failed to measure the impact that grind was having on those closest to him.

   Each season, take an inventory of those important elements in your life: career, finances, relationships, romance, spirituality, and physical health. Are you making investments? Or are you withdrawing too much? 

   Success (and failure) isn’t one grand gesture, it’s the thousands of tiny choices made each day. Too many choices in favor of one of life’s priorities over another will tip the scales. Just make sure you know how much is sitting in each of those accounts, so that you can avoid life’s terrible bankruptcy courts.

How Do ETF Management Fees Work?

   Have you ever wondered how ETF Management Fees work? There is a management fee aspect, but those funds aren't regularly withdrawn from your bank account. 

   Are they paid when you make a purchase?     Or when you sell?

   Those looking for some financial voodoo will be quickly disappointed.

   Unlike stock trading, where you pay fees on each trade either a percentage or a flat amount per buy or sell order. ETF’s aren’t structured the same way. While your provider might still be charging transaction fees, those aren’t included when looking at the Management Expense Ratio (MER) for an ETF.

   The boring reality is that your management fees are paid out of the funds assets, which usually include a portion of cash. Those fees, usually paid monthly, are simply transferred out of the funds operating bank account directly to the administrators.

   That’s the simple answer. Once a month, the fund pays the administrators their set percentage with the funds from the operating account. 

   How unglamorous. No withdrawals from your trading account. No pre-authorized debit. No bill in the mail. It’s all taken care of automatically on the back end.

But, If I Don’t Pay the Fees…?

   By now you’re likely thinking that something doesn’t add up. You can buy once, hold forever, and never pay a fee? But there is literally an advertised fee. 

   I mean sure, it comes from the operating account. But that monthly payment has to come from someone, right?

   And right you are. Those fees are actually baked into the advertised price that you see on the exchange. Any premium incurred by those fees will be reflected in the price of the ETF unit.

   The cash to pay for those fees comes from the returns from the fund itself. Imagine you hold a unit of ETF ABC, which indexes to the S&P 500. Certain companies in the S&P 500 grouping will do very well, and others not so much. The ETF is designed to follow the performance of the index as a whole. As such, the fund is periodically rebalanced (remember, this is one of the tremendous benefits of ETFs). 

   During rebalancing some of the winners will be sold, crystalizing some of the upside from those winning investments. The proceeds of the sale goes into the operating fund, which then buys more shares of under-represented stocks. 

   But not all the proceeds are used for repurchasing, some of that cash is kept behind and paid out as management fees. 

   This creates a drain on the ETF’s returns, which is in turn reflected in the price that you pay. A lower return calls for a lower price.

   Ultimately, you do pay for those fees through the price you pay (or receive when selling), and the returns of the ETF while you hold. Since those fees aren’t directly coming from your account the same way commission or transaction fees do, they can be easy to forget about. But make no mistake, they do exist, and you are paying for them.

   ETF’s carry some excellent benefits for those who aren’t professional traders. I believe those benefits certainly outweigh the usually paltry costs. But nothing in this life comes free, which is why it is so important to know the management fee percentage on your chosen ETF.

The Times They Are a-Changin’

   As Bob Dylan wrote, the times they are a-changin’.

   Every year, around this time, we are blessed with some of the capitalists greatest minds sharing their thoughts, history, and even predictions of the future. Now both in their 90’s, Warren Buffett and Charlie Munger took to the stage once more at the Berkshire Hathaway’s annual shareholders meeting. Once again, these two brilliant minds didn’t fail to impress.

   During the meeting, Buffett asks a simple question:

How many of the top 20 companies (by market capitalization) are the same now as they were 30 years ago?

   Think of the biggest companies you know of today. Not just the Facebooks’ and Apples’ of the world, but also the oil and gas goliaths that seem to be unstoppable. How many companies have stood the test of time?

   None. Zero. Zilch.

   Of the 20 largest companies in 1989, none of those companies made it to the top 20 list in 2021.

   And the top performers in today’s market? Some of those companies hadn’t even been imagined 30 years ago.

The Times They Are a-Changin’

   What does this mean to you? Well, it means that the world doesn’t slow down. It means that your best bets today aren’t worth a grain of salt against the unstoppable momentum of time.

   Of the top 20 companies in 1989, Japan held the trophy for the most companies on that list. Today? Not a single Japanese company breached the top 20.

   Things that couldn’t possibly be conceived 30 years ago happened. The Japanese economy ground to a standstill, and their capital markets haven’t fully recovered even now. And in their place now stands a list of companies born into the changing world. Amazon, Apple, Alphabet, Facebook.

   If there’s one thing the past teaches us, it's that predicting the future is impossible.

   This is why Buffett’s messaging for new and experienced investors hasn’t changed. Don’t bet on a company. Even if you aren’t flat out wrong, that bet likely won’t stand up to the test of time. 

   Instead, bet on the market. Bet on the continued growth of companies, both new and old. Bet that industries will continue to evolve, and that evolution will bring new star players to the field.

   Just as companies like Tesla and Rivian are disrupting the traditional gasoline powered motor vehicles industry, similar changes will be felt in every industry across the world, over time.

   When planning for your future, especially a future that lasts 30 years or more, the only safe bet is to bet on the system. Taking a total market approach will help you benefit from the up and comers, and the growth of world economies.

   This is why even Buffett himself has set up instructions for the management of his funds when he dies. His widow will be given a portfolio of a 90% S&P 500 ETF, and 10% Treasury Bonds.

   You can argue all you want about the asset allocation choices that Buffett has made, but it goes to show that even one of the world's wealthiest persons drinks his own Kool-Aid. 

   Believe in capitalism. Believe in progress. Believe in your future. A total market fund, at least a fund with wide exposure (like the S&P 500) will serve your long term investing strategies now, as well as 30-years from now.

Prioritizing Success

   Have you ever felt your day just get away from you? Looked down at the clock and realized it's almost quitting time, and you haven't even started those things you planned on.

   We all have days that seem to get away from us. When our best laid plans are derailed just minutes after we open our eyes.

   Losing a day's worth of productivity hurts. But for many people, those endless to-do lists at work and at home are a fact of life. They find themselves caught on the treadmill of other people's priorities. Constantly running in place, and all too often, leaving their enormous potential untouched.

   There's no difference between you or I, and the best in our fields. So how do they do it?

   How do top performers retain their focus day after day?

   Top performers know that to remain the best in their field, they need to focus on delivering value. Day after day, month after month, year after year. The moment they stop producing the results they are paid for is the moment they slip off the top of the podium.

   We’ve looked at this before. Top performers know what they need to do to create massive value. But that knowledge isn’t worth much if we can’t escape the prison of those endless to-do’s.

   What practical steps can you take to keep yourself off the hamster wheel, and focused on the things that matter to you?

Bucket your Task List

   The first step in overcoming overwhelm is identifying what actually needs to get done.

   We’ve talked about being 1% better every day, so let’s use 1% of our time to get clear on what is important. This 15-minute planning exercise is deceptively simple, and alarmingly illuminating on what is important.

   First, decide on the 3-5 projects and tasks that are important for you to get done. It’s important to limit this number to just a handful, to really reap the benefits of your mind focusing on just a few problems. In a corporate setting, these priorities should be aligned with your KPI’s. The better you perform on your priorities, the better your performance, and the more value you add.

   Once you have your priorities, take a look at your To-Do list. Assign those To-Do’s to a priority. I prefer to simply number my priorities (more on this next).

   For every given priority project (numbered 1-5), you may have any number of tasks and to-do’s assigned. That simple structure will help you understand what you need to do now to move the needle. Of those priorities, you will also be able to look at which one is most important / valuable. If time is a constraint, focusing on the most valuable activities will still help you deliver.

   As you go through this exercise, you will undoubtedly come to the same realization as everyone else. You have more items on your To-Do list than you can reasonably allocate to your priorities. These tasks are distractions, and the reason that most people fail to realize their potential. Spending your time and efforts on tasks that don’t impact your priorities means that you are working on someone else’s priorities. For these tasks, simply delete them from your task list. You’d be surprised about how infrequently someone even circles back on those items.

Prioritize your Priorities

   You know what you want to get done. You’ve identified the 3-5 priorities that you have already. Now it’s simply a matter of scheduling the time to work on it.

   Make sure you have dedicated blocks of time in your calendar where all you will work on is those priorities. I prefer sending myself meeting invites, and sitting in a conference room alone. This gives the clear message to everyone else that I am not to be disturbed.

   Other strategies are to put on your out of office, or simply exit out of email and internal chat programs. A cautionary note re: going AWOL - some companies and bosses will take offense to not being able to reach you at all times. Make sure you set clear expectations in those circumstances, to ensure that you are measured on your results, not your attendance.

   As you begin to solidify your planning practices, you will undoubtedly be surprised by two things. The first, how incredibly efficient you can be when you have uninterrupted moments to get your work done. And the second, is that despite your best guesses, everything always takes longer than you planned. Make sure you’re setting aside enough “extra” time to close off anything you don’t get squared away in your original focus session.

Prioritizing in Practice

   When I approach this, I always start with 3-4 priorities for the week. Deciding on what my most important, or most valuable, project is for the week, I label that #1. #2 for the second most important, and so on and so forth.

   Then I do the exercise of assigning those numbers to my To-Do list. Since my lists are all electronic, anything that doesn’t get assigned a number gets deleted. While that might seem extreme, I have learned that even just seeing other people’s projects on my task list drains away valuable mental energy.

   Then, I take my calendar, and start scheduling off time for me. Anywhere from 45 minutes to 4 hours at a time. But the sweet spot is usually between 60-90 minutes. Any longer than that and I will inevitably distract myself with email or other such distractions.

   Starting Monday morning, I assign priority 1 to my first time block, eventually moving to a block for 1 or 2. Then just priority 2. Then 2 or 3, always allowing an extra “shared” block of time for work that spills over. This keeps me accomplishing the most valuable tasks first.

How to Become a 1% Better Version of You

   What separates the elite from the rest of society?

   While the list of results speaks for themselves, the real question is what are those top performers doing that the rest of society isn’t?

   No matter who you look at, the best of the best all hold a similar set of characteristics. And thankfully for everyone else, these are learned skills. There’s no advantage for introverts over extroverts. No nature vs. nurture. Even genetics rarely plays a role. No matter where you look, you can find people embodying a wide array of personality traits, each sitting at the top of their chosen fields.

   What’s the secret then?

   The most successful, those who achieve the most with their lives, all share 2 critical skills.

They know what to do.

   The top achievers in our society understand what they do to add value to others. Whether that’s setting corporate vision, building new products, or throwing touchdowns. A top performer understands what they do to drive success for their organization, family, or team. And then they double down on fulfilling those key objectives and critical activities.

   Look at what you are currently doing that adds value. Everyone does something of value. Whether that’s in your day job or at home with your family, everyone has the opportunity to improve the world around them. 

   After you identify the key actions and activities that you participate in that drive value, increase your personal worth by spending more time doing them. For example, the top performing sales people know that their value is increased exponentially by talking to potential clients. The more time spent speaking to clients, the better your results. That means less time spent on emails. Less time cold calling prospects. Less time attending internal meetings.

   By refocusing those time savings into the true value-add conversations, a top performer can dramatically increase their results.

   We all have tasks that need to be done, but really aren’t that valuable. Identifying those tasks, and either doing them faster, or delegating those tasks (if possible), frees up your time to really focus on the rain-making activities.

They have a relentless drive to improve.

   The other universal trait of the uber-successful is their relentless drive to improve. Not just improve the world around them, but most importantly, to improve themselves. Reading books, taking courses, attending seminars. Anything that they can do to improve, even marginally, a top performer will do. And this is important. The improvements might not be dramatic, but the results certainly are. 

   The difference between #1 and # 100 in almost any activity is less than 1%. 1% slower, and you start at the back of the race-track line up. 1% slower and you might not even qualify to compete.

   But the flip is also true. If you improve yourself by just 1%, you will make huge strides over and above the competition.

What does 1% look like?

   There are 24 hours a day. That’s 1,440 minutes. You have them. I have them. The best in your chosen field has those same 1,440 minutes. 

   If you want to approach the top in your field, start with using just 1% of those minutes to improve yourself.

   The most common objection to self improvement is the lack of time. So what is 1% of those 1,440 minutes each day?

   14.4 minutes.

   For 15 minutes each day, you can become 1% better. 

   For 15 minutes each day, you can move from the middle of the pack to leading the pack. 15 minutes, 1% of your day, to change your life.

   This month, spend 15 minutes a day, only 1% of your time, doing something to move the needle forward. I can guarantee that after just 1 month you’ll already see the results.

   What is that 1% for you? 15 minutes a day playing an instrument? Reading a book? Jogging around the block? Learning a language? Settle on something that will make you better. A better contributor at work, a better spouse, or just better to the person you see in the mirror.

Indexing for Financial Independence

   How do you plan on improving your financial life?

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

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

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

What is an Index Fund?

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

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

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

Diversification

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

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

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

Picking a Winning Stock

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

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

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

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

Barriers to Entry

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

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

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

The Easiest Winner - Index Funds

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

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

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

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

What’s Your Number?

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

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

   But, we need to work.

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

   Maslow’s Hierarchy of Needs:

Image Credit: Wikipedia

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

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

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

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

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

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

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

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

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

Emergency Fund

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

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

Financial Security

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

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

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

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

Why 6%?

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

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

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

Will You Be A Winner?

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

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

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

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

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

Up and Down

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

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

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

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

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

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

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

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

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

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

Balance the Sacrifices

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

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

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

The Path to Success

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

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

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

Follow A Path

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

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

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

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

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

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

But, Only One Path

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

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

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

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

The First Step

   Here is where reality sets in. 

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

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

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

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

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

 

How To Apply This To Your Story

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

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

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

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

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

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

Raise The Roof On Your Economic Potential

   Are you being paid for the value you bring?

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

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

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

How do Raises work?

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

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

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

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

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

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

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

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

How Do You Increase Your Value?

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

Attitude

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

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

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

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

Knowledge

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

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

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

Skills

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

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

How Do You  Demonstrate Increased Value?

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

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

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

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

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

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

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

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

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

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

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

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

Racing up The Ladder: Becoming More Valuable at Work

Ready to climb the corporate ladder?

   Are you worth your paycheck?

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

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

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

Do More of What Matters

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

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

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

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

What Activities Matter?

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

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

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

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

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

But, My Priorities Aren’t My Own

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

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

   What should you do in those situations?

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

What Are You Worth?

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

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

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

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

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

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

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

Voting for Better Returns?

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

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

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

What Happens if the “Other Guy” Wins?

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

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

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

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

What CAN the President do?

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

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

Who Does Control the Economy?

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

   The short answer is nobody, and everybody.

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

What Can You Do to Prosper Financially In These Times?

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

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

   What to do, you ask?

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

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

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

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

3 Steps to Recover from Identity Theft

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

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

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

  1. Call Your Financial Institutions

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

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

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

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

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

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

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

  1. Report the Fraudulent Activity 

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

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

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

  1. Update All Passwords and Accounts

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

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

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

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

5 Types of Insurance You Need

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

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

Life Insurance

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

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

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

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

Medical Insurance

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

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

Home or Renters Insurance

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

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

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

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

Auto Insurance

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

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

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

Long-Term Disability Insurance

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

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

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

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

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

The little things

The little things matter as much as your greatest accomplishments.

   The beer was flowing at a recent company evening social, just like any other. But this evening was not like any other. We were there to say farewell to an esteemed colleague, Greg, as he parted ways with the company. Over the past half decade, Greg reshaped the sales division of the company, and led the team to double digit growth year over year. His list of accomplishments was long, between bringing in some of the largest deals the company had ever sold, to entering new markets internationally. But this evening, as those who worked closest with him gathered to say thanks, none of those accomplishments were mentioned.

   Instead it was the little things that people reflected upon. 

   His cheerful demeanor, always quick with a smile. The way every situation was a learning experience, even when a prospective customer slipped away. Or the best practices and recent wins shared each weekly meeting. The way each team member felt valued and respected, regardless of their experience.

   Greg’s influence could be felt throughout the team, and that team, his team, had grown and prospered because of it. All because of the little things.

What are your little things?

   Much as Greg was remembered for the way he showed up for his team each day, you too will leave your mark not just through your grand accomplishments, but also through how you show up. These daily behaviours, the little things are what people cherish about you.

How are you showing up?

   Just as we cherish the little things that makes others who they are, they cherish the little things you do that make you who you are. Take some time to reflect on who you want to be, how you want to be remembered. Now, how are you embodying those values and virtues that you have identified? What little things are you performing each day?

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.

Is the Sacrifice too Great?

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

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

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

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

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

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

 

Action Item:

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

Giving Up to Grow Up

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

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

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

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

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

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

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

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

Understanding Income Taxes

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

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

Marginal Tax Rates

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

2019 Marginal Tax Rates

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

Marginal Taxes on 100K

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

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

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

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

Income Taxes and Payroll

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

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

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

Key Take-Away

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

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

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

Dressing for Success

How often do you go for a haircut?

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

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

Confidence

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

Competence

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

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

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