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.
Change Your Thinking
Look for ways to do something rather than ways not to do something. For example, rather than looking for ways to decrease spending, first look for ways to earn the money. This is more inspiring and will often result in the reduction of spending. Thinking positively and having a “bigger” goal produces a bigger purpose which will likely end up in a shift in spending anyway.
How? Rather than looking at the situation and saying “can’t because,” or “if only,” or “…but…” keep asking, “Who? What? When? Where? How?”. Keep asking and asking. As soon as you say “can’t”, you stop looking for answers.
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.
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.
Everything is related to Income
Every financial decision – whether to purchase, to invest, to borrow, to insure, to earn, or to not do these things needs to be made in relation to income. If you are going to make an investment, for example, what income will it generate – today or down the road? If you are making a purchase, how much income was required to pay for the item?
Why? Because you don’t live on cash in the account. You need a regular flow of money coming in to your home. This amount is a more relatable number as well. The larger accumulated amount of money is not a number we often talk about or think about in day-to-day activities.
What is Important to you?
Make all financial decisions based on what is important to you, not simply because you want to make more money. Why? What will more money mean? Why are you making that purchase or that investment? What will it mean to you in your life today and in the future?
Because: If you are not focused on what you truly want, then it’s too easy to make decisions that “feel good in the moment,” but aren’t really supporting your long-term vision. It’s too easy to make decisions because you have a sense that you “should” do something; or to make decisions because you feel guilty about what you have or have not done with your money in the past.
Is This A Good Investment?
You hear economic reports in the news. You see investment advertisements. You attend a seminar on how to increase your return or reduce your taxes. Your friend tells you about a great opportunity. Your financial advisor suggests you put your money into something as part of the planning they are doing with you.
You can trust your friend, your advisor or yourself, but do you have a strategy or system to evaluate the options you are presented?
Where do you start to decide if something is a good investment for you? Obviously, having professional assistance is important, but it’s not good for you or your advisor if your deciding criteria is simply ‘I trust you.’ It is also not good for anyone if your standard answer is ‘I only invest in xyz because that’s what I have always done’.
Without going back to full-time school to learn investment fundamentals, you can start with a few key questions:
1. What is my financial goal, short-term and long-term?
2. What type of investment is this: income, growth, combination, etc.?
3. What is the value of my overall investment assets?
4. What percentage of my overall investment assets does this investment represent?
5. If I invest, how and when would I get my money back?
If you start by considering the overall foundation of building an investment portfolio, the individual investment selections will be easier to fit into place because you will then have a basis for asking questions to help you decide what’s best for you.
What’s Your Level of Risk?
The biggest risk in the financial world is lack of knowledge. What is risky to some people is boring to others. And just because someone describes something as risky – or safe for that matter – doesn’t mean you can take that at face value. Safe and risky are subjective terms that need personal evaluation based on goals, situation, timeframe, reference point, knowledge, experience, etc. A second mortgage investment or a covered call option might be the best strategy for someone’s portfolio and might be considered conservative safe investments given the right situations. However, what does the rest of the picture look like and what other influences need to be considered before making that sort of decision?
How do you know? Always start your questions with yourself. What do you know about the transaction? Why do you want it? What are your expectations? What is influencing your decision? What do you need to know? And, how and when will you get out?
Almost half of Canadian homeowners aren’t confident they’ll retire debt-free… What about you?
The Manulife Bank of Canada surveyed 2132 Canadian homeowners in all provinces between ages 30-59 with household income of more than $50,000 between September 10-20, 2013.
According to this survey (conducted by Research House), Most Canadian homeowners rank becoming debt-free a high priority, but only 51% are confident they’ll actually reach this goal.
It can be tough to juggle the financial responsibilities of owning a home and raising a family while at the same time, trying to keep debt under control and save for your retirement years.
If you’re not confident you’ll be debt-free by retirement, there’s good news.
There are simple, time-tested debt-management strategies available that could help you become debt-free sooner.
As an advisor, I understand that discussing debt may be uncomfortable, but it’s a conversation critical to your long-term financial health. I can help you learn more about debt-retirement strategies and show you how an objective, customized plan could set you on the path toward debt-freedom.
If you’d like to discuss your debt-management plan further, give me a call or send me an email at: hjohns@assante.com or 613-332-5244