What Would You Do?

Occasionally, I’m asked, “What would you do if you were me?” The probability that you have faced the same question is very likely.  It’s a tough spot in which to find yourself!  Undoubtedly, if you know the person’s circumstances and have had a similar experience, you’re comfortable giving advice.  If you feel some hesitation, though, you would probably reconsider the facts and weigh several options in order to decide on the best advice.

The unknown piece is you can’t predict the person’s response to your advice because you are not the person asking the question.  Everyone reacts differently to advice from others so I am cautious as to whether they are sincerely looking for advice from me or seeking validation for a plan they have already thought through.

Different situations require different considerations.  Simple situations can be satisfied with easy-to-give advice.  Extreme questions require extreme considerations and planning.  If my friend was asking for the best apple pie recipe, that’s easy.  However, if my friend was asking how much to save for his retirement, that requires more thought and planning. 

Here’s the dilemma when extreme questions are about money.  Extreme questions require you to expose yourself.  One client said, “I feel like I am standing here naked,” as she handed me their investment portfolio, credit card statements, bank statements, and tax returns.  No doubt it’s a daunting experience to reveal what you’ve done with your life’s earnings.  Definitely you saved as well as squandered a share of your income.  You may even feel like you could have done a better job if you’d tried harder.  A financial planner can be compared to a doctor.  We diagnose potential problems when you are willing to expose yourself.  We examine any symptoms and treat any ailments with plausible remedies to make the “boo-boo” go away.  Many people are reluctant to go for their annual health check-up.  They also experience the same reluctance to make an appointment with a financial planner.  Much like an x-ray reveals broken bones, a financial plan can help diagnose broken parts in need of repair and ensure you are on the right track. 

 

The decision you must make is whether to work with CERTIFIED FINANCIAL PLANNER® professional or fly solo.  Equipping yourself with financial information is the secret to a successful outcome.  Financial Literacy Month and Financial Planning Week were launched for the same reason I publish my blog posts, to create awareness concerning “your financial health”.  We can’t do everything perfectly right.  I can honestly say I squander my share of money on things that are not always beneficial.  However, I believe we can all be coaxed into striking a balance between our spending and saving habits.  Maintaining great financial health is an impressive habit to develop, something which was discussed in my last blog.

With masses of information available on the Internet, here are three specific websites to gain access to various topics, such as dealing with life’s challenges, starting your first job, and how to open a bank account.  Pick a topic of special interest to your particular circumstances and get smarter about money.

- Get Smarter About Money

- Financial Planning For Canadians

- Financial Consumer Agency of Canada

To end on a different note, I’d like to share this story that I use in my “Money Matters” presentation.

A magician was working on a cruise ship in the Caribbean.  The audience would be different each week, so the magician allowed himself to do the same tricks over and over again.

There was only one problem. The captain’s parrot saw the shows every week and began to understand what the magician did in every trick.  Once he understood, he started shouting in the middle of the show.

“Look, it’s not the same hat!”

“Look, he’s hiding the flowers under the table!”

“Hey, why are all the cards the Ace of Spades?”

The magician was furious but couldn’t do anything; it was the captain’s parrot after all.

One day the ship had an accident and sank.  The magician found himself on a piece of wood, in the middle of the ocean, and of course, the parrot was by his side.

They stared at each other with hate, but did not utter a word.  This went on for several days.

After a week the parrot finally said, “Okay, I give up.  What’d you do with the boat?”

    

Like the parrot who wondered what the magician did with the boat, we, too, may be wondering at the end of our working careers, “What did we do with the money?”

I’m asking, “What would you do”

…with an inheritance

…to prepare for retirement

…when you face a critical illness

…if you lost your job

…to ensure you are on the right track financially

…to save for your children’s education

Extreme questions may require you to “get naked”?  So, what will you do?

Habits and Tools; Everything to Achieve Financial Freedom

 HABITS

How often do you hear people casually dismiss an inappropriate action as a “bad habit”?  We want to change…but it’s so hard!  We find ourselves always getting the same results from our repeated behaviors, vowing to do better the next time. Perhaps a first step might be to learn about habits and how to change them.  With the appropriate tools, we can stop beating ourselves up about our habits and proceed to make everlasting changes.

The book, The Power of Habit, Why We Do What We Do In Life and Business, was an eye-opener for deepening my understanding that there is an ingrained method to our routines.  Unconsciously, we go through the motions without detecting our hidden patterns.  Whether our habits are quirky or normal, we have them. Whether you floss your teeth at a certain time, tie your shoelaces in a certain way, or drive to work using a certain route, you have habits.  Unfortunately, when you want to change a routine or habit, you may face challenges.

People who attempt to change money habits related to saving and spending generally feel discouraged and defeated.  Understand that everything we do is cyclical. The loop begins with a cue which triggers a routine leading to a reward.

 


A simple neurological loop at the core of every habit

A fairly common occurrence happens on paydays.  The cue is having money in the bank account to trigger an event, a scheduled lunch date with friends or coworkers. The reward is a great meal with great people.  You may recognize this regular outing is becoming an expensive venture over the long term.  Your desires are to save more and spend less.  You know changes need to happen but you’re unsure how to break the cycle.  You may crave time with your friends but the question is whether you can find other less expensive ways.   

In the short excerpt, How Habits Work, Charles Duhigg shares his four step framework for replacing “bad habits” with “good habits.”   The four steps are:

1.     Identify the routine

2.     Experiment with rewards

3.     Isolate the cue

4.     Have a plan.  

In analyzing the cue, routine, and reward, you need to identify the unfavorable habit before you can forge ahead with a plan to change.

One of my favorite quotes in a long list of many is:

What you hear, you forget.

What you see, you remember.

What you do, you understand!

Often, I share this quote to highlight the importance in “doing” the action step to implement a positive change.  Whether the “doing” is to lose weight, exercise, or manage your money effectively, it’s about uncovering a new routine to lead to the reward.

TOOLS

Since you now have a better grasp on habits, let’s put this knowledge into action.  November is Financial Literacy Month.   Just like Christmas occurs every year, Financial Literacy Month has become a major event to aspire Canadians to take action.  This year’s Financial Literacy Theme is “Managing money and debt wisely; It pays to know.”   By committing to learn one new thing, over time you will develop money habits which inspire you to become a better money manager.  Cravings are the driving force behind habits.  When you crave “financial freedom”, the longing to be debt free or the desire to have a retirement fund, you are motivated to stick with your plan.

In order to measure your success, you need tools.  Financial tools are no different than other tools.  If you were fixing a leaky drain pipe or sewing a button on a coat, you need them to get the job done. These valuable financial tools, Net Worth Statement and Cash Flow Statement, were discussed in in the previous blog, Important Tools to Have in Your Toolbox.

Net Worth Statement lists your assets (everything you own) and liabilities (everything you owe) to determine your net worth.  It isn’t surprising to learn that the majority of people only create their Net Worth Statement when they apply for credit (loan, mortgage, or credit card).  This statement is a picture of your financial situation.  Creating this snapshot every year provides a clear indication of how well you manage your money.  Please don’t underestimate the value of this tool.   It’s a true measure of your financial success.



A Cash Flow Statement shows precisely the income coming into your hands and the expenses being paid over the course of a month or year. Tracking your income and expenses determines whether you have a surplus or a shortfall at the end of the period.  At a quick glance you also know whether you are “living within your means”.  The habit of tracking your expenses instills more control over spending because you categorize where your money is being spent.     

FINANCIAL FREEDOM

Whether you are developing new habits or learning new techniques, the greatest virtues are commitment, patience, and perseverance.  I was led to believe that new habits can be developed within 21 days.  Recently I learned that’s not necessarily correct.  When this tidbit of information circulated, somehow the words became skewed. The correct version is a new habit may take “a minimum of 21 days.” The truth be known developing a new habit takes as long as 66 days on average.  Do everything in your power to stay the course: find an accountability partner, seek a CERTIFIED FINANCIAL PLANNER^® professional to assist you, and use positive self-talk reminding yourself, “You got this!” You may soon enjoy the financial freedom you have been craving. 

Your Financial Well-Being is Too Important to Ignore



November is recognized as Financial Literacy Month in Canada. If you didn’t know, this is its 5^th anniversary.  The National Strategy’s primary focus is to improve the financial well-being of Canadians.  This month you have a chance to spring into action.  Treat November as your financial “check-up” month.  With the New Year only two months away, you may have thought about incorporating one or two money-related resolutions. Try jump starting your journey to financial health with some of the following ideas.

 

Transform Your Checklist into a Financial Tree.

 

We work more effectively when we have the right tools.  A checklist is a great tool. In addition to any financial plans you have, consider using the checklist with the ten recommended financial items every Canadian should have.  {Click here to print a copy.} Like Santa, who is known to check his list twice, you should too to ensure you haven’t missed anything.

Occasionally, transforming a tool into something easily relatable takes creativity. In my mind, I saw a healthy tree with branches depicting the ten financial items. Since I can only think of these things, I asked my friend, Liz, to create the poster board. This was the only instruction she was given.  I was astonished with the extra touches Liz had randomly added.  As you can see, pictures of life events were included:  spending time with loved ones including the family dog; enjoying recreational activities; and portraying scenic vacation spots.   My initial reaction was: “This looks too busy.  There are too many distractions.”  Then I made the connection.  Isn’t this the way life is?  Busy!  The added pictures created the reality. While you juggle life, you can’t ignore the important financial items which make up a healthy financial tree.

 

It doesn’t have to be perfect to work.

 

My poster board does not have to be fancy or full of state-of-the-art graphics to be effective.  My purpose is to create a connection to alert you that this information is too important to ignore. I believe anyone can distinguish a healthy tree from an unhealthy one.  A healthy tree’s leaves are vibrant; the bark isn’t scarred or pitted; and new growth appears yearly on its trunk and branches.  In much the same way, anyone has the ability to distinguish whether their financial situation is stable or unstable by assessing whether all the right financial components are in place.

 

How Healthy is Your Financial Tree?

 

A financial tree can be divided into three parts.  The top branches focus on taking care of the family’s needs first.     These items have a direct relationship to meeting a family’s needs if a catastrophic event occurs.

q  A Written Financial Plan

q  A Will and Estate Plan

q  Living Will and Power of Attorney

q  Insurance: Health, Disability, Life and Credit

The second part of a healthy financial tree is made up of the other items related specifically to money matters:

q  Pay yourself first

q  Registered Retirement Savings Plan (or Tax Free Savings Plans)

q  Pay your mortgage more frequently

q  Three months of savings

q  Credit:  Get it while you don’t need it

q  Registered Education Savings Plan for Children or Grandchildren.

The third part is the roots which represent  the type and amount of debt.  Debt will either make your tree flourish or stifle its growth.  “Good debt” often refers to mortgage or student loans. Building equity in your home or receiving an education to secure a well-paying job contributes to a person’s assets or ability to earn an income.   Excessive loans for any other purpose than these may jeopardize a person’s financial health.  

 

Items That Require Your Attention.

 

Here’s the challenge. 

Use this month to review your financial affairs.   If several items require your attention, then number them in order of importance. Begin the process of chipping away at them one item at a time. 

If you are a “doer” and all your items are checked, then book appointments to review your important documents, investments and insurance coverage.  This ensures you have accounted for any life changes.     

The media won’t let you forget Financial Literacy Month in November. Every year you will know when it’s time to schedule your financial health appointments so you don’t ignore the important things in life.  Just like the “Wise Owl” gloats as he sits perched on the branch in picture, you too can gloat about your financial situation. 

 

 



What's Your Story?

As both Financial Literacy Month and Financial Planning Week approach, the focus is on money management.  How well do we handle our money?  ABC Life Literacy Canada has put together a financial literacy program called, Money Matters.  This is synchronicity at its best.  The purpose of my blogs is to provide information in an understandable matter for people interested in wanting to learn and improve their money management skills.  So it’s no mere coincidence that I married the two ideas. Peoples’ dreams are as important as money matters which led to the creation of my blog, Money Matters and So Do Your Dreams.

In preparation to facilitate the ABC Financial Literacy program in the upcoming month, I believe this activity below is worthy to be shared with anyone willing to dare to compare.  I would like you to meet Tenzin and Riley.

Tenzin works hard for his money, but runs out of cash before the next paycheque.  He’s not sure where all his money goes.  There’s the cell phone plan, rent, cable and internet, credit cards, and of course, a guy’s got to eat.  He usually grabs a bite at a sandwich place around the corner from his work, or orders take-out.  He uses the bank machine at the corner store close to his place.  There’s always something he needs…and the place is open night and day.

Riley’s good at making money stretch. She knows how much money is coming into the family (income), and exactly where it goes (expenses).  She uses coupons, comparison shops, and makes the family’s meals at home.  She puts a little money aside each month for a “rainy day”, but wishes she could save more.  She’d like to set aside enough by the time her kids grow up to help pay for their education, but isn’t quite sure how to go about it.  One option she wants to learn more about is Registered Education Savings Plans, and the help she can get from the Canadian government to help her savings grow.      

What’s your story?  Do you have more in common with Tenzin or Riley?

What are some things that Riley does that helps her save?

What are some things that Tenzin does that he could change in order to spend less? 

 

• Think of examples of your spending and saving.
• If Tenzin is #1 and Riley #5, what number would you give to yourself?
• Why?

Spends a lot.
Saves no money.



Spends carefully.
Saves for her future

 

                                                                                                                                    
1                               2                               3                             4                               5


By circling the numbers 1 or 2, you are saying your money habits are more like Tenzin’s. By circling the numbers 4 or 5, you are saying your money habits are more like Riley’s.  If you circle the number 3, then you are saying you equally share money habits of both Tenzin and Riley.

Here’s one of many Money Challenges found in ABC Life Literacy’s activity workbook:

 

Start a money journal. Every day for a month, keep track of everything you buy, from groceries to your daily cup of coffee and snacks.  At the end of the month, use your journal to help you make or change your spending plan.

More information about the financial resources offered by ABC Life Literacy can be found by clicking here.  Happy Learning!