Today, I was speaking to an advisor I know about a client who was interviewing for a new advisor. The client asked another advisor what they would recommend for their portfolio. At first, maybe a simple question; however, when you put it in context, it’s not a very financially savvy one. This doesn’t mean it’s not important, it’s just that the key is to find an advisor who understands your philosophies and your goals first.
I heard a very interesting story of a young person who deposited their first pay check and went home thinking there was an error because there was more money than she was expecting. When she first looked at the information, she interpreted the section on deductions to be the money that was to be deposited rather than the amount that was subtracted from the full or gross amount of the pay.
Of course, she was pleasantly surprised to find that the larger amount was hers to keep. However, this story is so significant to me because I frequently hear of companies wanting to have financial professionals come to help their young employees make investment decisions. The reality is that what they need is the simple, day-to-day education on simple basics – like how to interpret a pay check, how to set up bank accounts, how to spend money and how to track money coming in and money going out (income and expenses).
When you assume that a young person needs help picking mutual funds for their retirement, you also miss the key aspect of their more immediate needs – like housing, food, transportation and understanding of basic finances.
Reading a pay check is one of those things that is assumed, and one that can have a significant impact on current and long-term finances. I know another story where the medical deduction was missed from a pay check and rather than it being listed than left blank it simply did not appear anywhere on the pay stub. You can imagine the implications of expecting that you have your medical insurance covered because it has been deducted from your pay check in the past only to find out that it hadn’t been paid.
The employer told the employee that it was his responsibility to know that the medical insurance premium was not being deducted. Fortunately for this employee, his wife had a solid financial background and was able to find the right person in the organization to help straighten the situation around with only minor complications. However, if you don’t know what you don’t know, you won’t know until it’s too late that there has been an error, or that you’ve missed an opportunity, were misunderstood or are completely out of luck!
I have these conversations all the time – the situation is so common it could be called a pandemic. As far as the economy goes, it’s just as bad as having too much debt – too much savings sitting idle seeming to not be ‘losing’ money – but in reality heading for a time bomb. In Canada, the government sponsored retirement savings program for personal savings means you contribute money to your plan and get a tax deduction for the amount you put in. That money is sheltered from any tax until you are forced to start pulling it out after a certain age. The amount you are forced to pull out is fully taxable at your marginal tax bracket – yikes!
People who think they’re doing all the right things by saving money, keeping it in something ‘low risk’ and work hard to pay no interest on their credit cards and to pay off their mortgages early are in fact many times inadvertently costing themselves thousands of dollars.
Their ‘savings’ isn’t actually set up to be tax efficient at a time when they need it to be most. The money they put into savings hasn’t lost any market value but because it also hasn’t done anything more than simply be ‘saved’ it has indeed many times gone backwards compared to the purchasing power of their money. The no interest they pay on their credit cards can infact be a detriment to their credit score and because the only aspect of credit they see as being valuable is the free points, they miss the opportunity to use credit to leverage their current assets and income to create more wealth, to get their money working for them, and to earn more income – like for example what happens when the mortgage is eventually paid off – now there is a lot of equity sitting idle that requires an income to maintain. And the extra money that was previously going to pay the mortgage is now going to additional savings which is also not tax efficient, or income efficient. And, so our hard working couple works harder and harder and longer and longer just to seemingly stay ahead of the game when in fact they are getting further and further behind.
The secret is to use your current income to get your money working for you to create more income and to wealth which creates even more income to go to work for you to create more wealth and so on and so on….
What do you do when everything seems like an uphill road with no clear destination? If your vision is clear enough, you will keep going and keep trying different roads.
What do you do if you’ve been trying to find the right road to your destination for a long time and still haven’t realized the vision?
What do you do if each road you take leads you somewhere you didn’t want to go? And as you travel each path it feels like you’re picking up more baggage so that each new road takes more gas and more effort to venture down – and remember that each road leads uphill.
A lot of people feel this way about financial issues and need encouragement to keep moving forward. Share your thoughts, stories, and inspirations for others to get some fuel for their journeys.
Suggestions in regards to setting an action plan to own a house one day.
Beginning today, take a pen and paper and write a date for when you’d like this house. Describe what it will look like in minute detail including the location. Studies have proven that physically writing down a goal ensures a 90% higher success rate in achieving it compared to storing it in your head. Next, pick up the real estate guides to see how much it will cost. From there you have the basis of some good questions to ask such as “What will the mortgage payment be”? and “How and where will you earn the money” and “Who should I talk to for some help”?
“The one constant is change” is a phrase and graph often used in connection to financial explanations about markets and interest rates moving in relation to economic and world events.
Looking at a chart, could perhaps give us an intellectual sense that perhaps everything will be okay because ‘things always seem to work out in the long-term’. But, seriously, in the middle of a significant world event or personal upheaval, are your decisions driven mostly by these sort of historical representations or by your current emotions? Obviously, emotions play a more significant role in how we all make decisions – especially financial decisions with potentially life altering consequences. Basic human nature is always driven more by what’s immediate and known. This means that experience and knowledge have the most impact on decision making because they are the factors that will effect emotions the most.
If you have parachuted from a helicopter dozens of times, you are likely to have a higher comfort level with what to expect than if it was your first time – this is the concept we are talking about. This month, we encourage you to become aware of how your emotions effect your financial decision making. Pay particular attention if you are making a decision because you are more comfortable with it because it’s what you have done before, and it’s what you know others have done. When you become aware of how your knowledge affects your emotions, which affects your decisions, you will start to become aware of where and how you can increase your knowledge to increase your comfort level. Ultimately, this will enable you to recognize and take advantage of other opportunities that, at first, might seem like a scary change, yet with increased knowledge and experience can potentially be the answers you’ve been looking for and not yet recognized.
We are not talking about enormous changes, we are talking about making the small steps to increase your knowledge, your skills and, ultimately, your confidence so you are able to get the results you never before thought possible.
I have had a conversation with a couple of our advisors and really come up with more questions than answers on why someone would want to close a credit card – mostly because we can only think of a very limited number of reasons why someone would ever want to close a credit card account. Those being:
- default – in which case the institution would do it for you
- it interferes with you accessing a lower rate or better credit
- death or divorce
One of the big mistakes people make is telling themselves they can’t be trusted with credit so they work hard to pay it off, then close it. This is only reinforcing a poverty mentality and an ‘I can’t trust myself’ sort of attitude which will just create more and more problems.
Closing an account before it’s paid off seems a bit odd. If your account isn’t in default, and your intention is to pay the balance, then you are best to just keep the account open and keep paying for it. It will still appear on your credit bureau, so I’m not sure what the benefit would be to ask for it to be closed while you continue to pay off a balance
Regarding how to check on your accounts, the answer is always the same – to take control of your situation and to check your personal credit bureau. If you want something changed, then it is your responsibility to check it and that is done through the credit bureaus directly. And, if you really do want to close an account, then it has to be done in writing – and each institution will have a different procedure – check with them individually, and follow up.
There is something very powerful when finding yourself in a position where you are completely helpless and have no alternative but to change your perspective and laugh at the situation. Thus is the situation we have been working with someone on this week: waiting for money to be transferred from another institution. In an estate settlement situation, the long awaited and much needed money will be a huge weight off their shoulders. However, there is this very interesting process that is not very well documented, but seems to appear over and over again in various bank policies about reasons why money cannot be available at certain times.
Here is the situation as well as what you can learn from this: Money is deposited to bank A. Client requests bank A send money to bank B. Bank A says the money is EFTd (electronic funds transferred) to bank B and a receipt is provided to the client so Bank A is no longer responsible for the money. Bank B says they know nothing about the money so they cannot do anything to track it. Both banks indicate that these things are ‘batch processed’ and should appear that day – oh, sorry, the next business day, oh dear, it is the weekend, the next business day is in 3 days.
The client knows they have the money so they take the various receipts to bank B to request an extension of their line of credit. Bank B says they have no way to verify the funds and have systems in place that will not let them act on the request that quickly.
Hmmm… where is the money? Neither the original depositor, nor the client has access to it for what will amount to about 4 days.
This is a question that warrants some serious discussion. But, in the meantime, my point to all this is that the client truly is stuck for the short-term unless they have friends or family or other resources to borrow funds from for the short-term. So what can they do is always the question to be asked.
In this case, they are going to have to wait, and because the situation has been tiring and stressful, they have decided to laugh and share jokes. It is never about the money, it is always about what is truly important such as friends, family, relationships, health and laughter. So in my last communication about this issue, it was signed Roflmao, which apparently means rolling on the floor laughing…
Whew, this was a long introduction.
Everyone wants to make more money, and everyone needs to have some money to survive in western society.
‘Just spend less than you make and you’ll live happily ever after’.
As you know, we get better results when we look at the positive side of things and can encourage people to take action because they are inspired and motivated. When you constantly hear ‘don’t do this and don’t do that’ a flash back to the 70’s rebellious years immediately comes to my mind. There was a reason why the Super Tramp song with these lyrics was so popular with youth: because they want to hear something about what they can do – not what they can’t do.
Consider first, the definition of risk from Dictionary.com:
Exposure to the chance of injury or loss; a hazard or dangerous chance such as: It’s not worth the risk.
- the hazard or chance of loss.
- the degree of probability of such loss.
In a dangerous situation or status; in jeopardy or under financial or legal obligation; held responsible such as: Are individual investors at risk for the debt part of the real estate venture? To take / run a risk, to expose oneself to the chance of injury or loss; put oneself in danger; hazard; venture.
Then become aware of what it means in your life. What risks are you comfortable with and which are you not? What is it that determines what you will accept as acceptable risk or not? Are your fears helping or hindering you in your life?