Gambling or Planning

Expecting a windfall of money is essentially gambling. If you are looking for or expecting a lump sum of cash to pay off debt, fund retirement or other large expense, this is what we mean by a windfall. Commissioned sales people often develop this mindset as they plan their finances to coincide with their commission payouts. Debt consolidation loans and refinances can have the same impact because they create a similar quick release of pressure with a lump sum that pays out and refinances the current debt and payments. The danger is that this mindset seems to overtake or cloud solid planning with the excuse being ‘that it’s hard to plan’ and therefore a life of jumping from windfall to windfall develops. In many ways, this is a gambling mentality for people who wouldn’t otherwise describe themselves as gamblers.

What can you do instead? When you adopt a true budget mentality and behavior, a plan will follow because the definition of a budget is ‘planned expenses and a program for financing them’. Figure out how much your monthly budget is for your desired lifestyle expenses, and work with your financial professional to create a plan to finance it on a monthly basis, not on a windfall to windfall basis.

Who Are You Listening To?

When you get a new idea, or tip, or financial or business recommendation, is your first reaction fear and skepticism, or enthusiasm and excitement? If your answer is excitement, then the idea is something that resonates with some part of your goals, values or priorities. Maybe you want to be excited, but a voice in your head is telling you that you have never done that before – be careful, you don’t want to get ‘burned’. Maybe the voice is actually someone you know – like a close friend or family member.

What do you do when faced with a new idea that could help you financially, and you have to sort through the emotions to make a decision? There are obviously lots of layers and issues to sift through, so the place to start is with a paper and pen. Get it all in writing: your goals, fears and excitement – these are the issues that the idea is intended to help. Treat the decision with the respect any good business decision does, and document the facts and the questions until you have sequentially, strategically and systematically compared and analyzed the idea as it relates to what is important in your life.

Write it Down!

The idea of putting either your existing financial situation, or your desired future on paper can be fearful, yet this is the only way you can properly plan. It is not enough to “guestimate” the expenses. You must know exactly what you are spending each month in order to do any future planning as well as to be able to make informed decisions about your current financial situation. The exercise of gathering this information is not to judge the spending, rather, it is simply research required to help you become more informed and more in control.
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What Are Your Sources of Income?

Within a household, you need to have multiple sources of income as well as multiple assets to build true financial security. If both income earners work for the same company or in the same industry, there is very little security in that.

How can you minimize this risk? Like investing, where one risk minimization strategy is to diversify among industries, type of investment, return, etc., the same is true for income within a family. For planning purposes, it’s best to have income into your home from different industries, different types of income (such as employment, self-employed, business, or investment), different payment frequency, etc. This way you cover your risk of income loss. Ideally you will want to ensure you have income that will continue regardless of whether or not you work to receive it. For example: investment income, royalty income, disability insurance, etc.

Life Insurance is For You Too… A Guaranteed Investment?

Life insurance is not just for your survivors when you die. It can be a phenomenal planning tool with great benefits for you while you’re alive. To benefit, however, you will need to plan ahead and be open to seeing beyond the premium payments and the death benefit to the opportunities the insurance can provide you today (peace of mind and living benefits, to name just two).

Why should you really add an additional expense to insure something that might not happen? One often overlooked benefit is simply the peace of mind that you get to take the steps needed to move you forward in your financial planning. If you know you are covered if things get really bad, or some unexpected situation comes up, you have more confidence to invest more, to start a business, to change your income and to enjoy your life.

Pen and Paper Planning

A simple notebook and pen is the best financial planning and tax management tool you can have. With every single purchase or financial transaction, make a note of what you bought and its purpose. For tax purposes, it is far less stressful to take ten seconds at the time of purchase to write on your receipt than it is to try to remember the details when you are preparing your tax information.

And, when you have questions about terms, strategies, and other financial matters, you can record them so you can find someone or someplace to have them answered later. You can also use your notebook to write details about items you have seen while shopping and ideas you have that can be explored for possible income generating possibilities.

Doing the Impossible

If a situation seems impossible, ask yourself if anyone has ever done anything similar before. If so, find someone or someplace to help you find out how they did it. Often people will say they are too old, too young, too broke, too tired, or too busy to do something they really want or need to do. Look harder. If you think you can, you will; if you think you can’t, you won’t. Maybe there are other ways of accomplishing the task at hand besides the ones you have already tried or heard of. If it’s that important, keep asking until you find the answers you need.

Why? Quite simply, even if a task or situation has never been done before to the best of your knowledge, does that mean you abandon the idea? That’s your choice, but history has proven over and over again that human ingenuity and perseverance are key components to creating anything new. If you want something different, find successful people to associate with. They don’t necessarily have to have done exactly what you’ve done before, but they will have had experiences of setting goals and reaching them, which is invaluable support if you are intending to make changes to your financial situation. Creating new associations is like making new friends: you don’t have to lose the old friends; you just have to be willing to go places, and do things where you are likely to at least hear the conversations of people who are already experiencing the sort of lifestyle you desire.

Practice Positive Thinking

With practice, you can learn to take some typical financial concepts and see them as positive, rather than negative. For example, we are taught to set aside money for an “emergency” fund implying some sort of disaster could be looming around the corner. Instead, call it an “opportunity” fund and you can see that the same money could be used to take advantage of investment opportunities, “once in a lifetime” experiences or to support you through a rough time financially with more calm. You can also use the “opportunity fund” to take time to find new work if your existing employment ended, or to do repairs or renovations to your home if needed.

What other common situations are there like this example? How about “bad debt” replaced with the belief that the benefit of the purchase has already been realized? Is it “risk” or “opportunity,” “spending” or “investing in your lifestyle”? These might not resonate with your experience, but the idea is to become aware of the way you speak and to think more positively about common financial situations. There is more than one way to see everything.