The general theme in the world of personal finance is fear. I’ve worked in the industry for a long time and more than I can ever remember people are afraid of loss. And, if they’re not afraid of loss, then they’re afraid to make a decision (which is really the same thing because that means they are afraid to do anything for fear they’ll make the wrong choice). EESHK – it’s exasperating. The dark cloud of negativity is hardly conducive to wealth creation – and this is the message we want you to hear this week: that you can learn to make decisions in any market. You can feel secure regardless of the media alerts to the contrary.

Where do you get your security from?

Where do you get your security from? Is it your pay check? Is it having money in the bank or invested in ‘safe and secure’ investments? Is it to have no debt or to know you have insurance in place in case something goes wrong?

How do you define security? And, more importantly, where is the line between security and risk when the fear of loss becomes stronger than the sense of security you feel? Know your rules, boundaries and sources of both fear and security. And, know where the line is drawn where you cross from one to the other… this is Minerva’s wisdom this month.

What do you do when the going gets tough?

What do you do when the going gets tough? You re-focus, get your specifics in writing and ask for help, right? What do you do then? You keep going, right? When do you stop? Whether in business, or in finance, or in any area of life, you start from your original commitment and if it’s a true commitment, you keep going no matter what – even when sometimes the results seem to be taking longer and the road is much rockier than you first expected. That’s what commitment is and it’s a great place to review as you navigate through the financial markets today.

Time

A valuable resource. A limited resource. A made up concept. We have created rules about how we use the time we have. What’s interesting is that time really indicates values. What you do with your time is an indication of what’s important to you. And, perhaps this concept isn’t earth shattering, however, what is always a good reminder is to stop and evaluate whether the way you are using your time is serving you or not. Are your true priorities being recognized by the hours you invest during the day? Sometimes there are things that need to be done that you might not enjoy doing, however, they ultimately support your higher priority to live a simple, honest, peaceful life. Housekeeping or paperwork are good examples of necessary uses of time that might not on the surface appear t o be good uses of your time, but if they ultimately mean you are able to focus on your family, your work and your health, then this is a valuable use of your time.

Some of these things that take time, and that aren’t enjoyable uses of your time, can perhaps be leveraged or automated. If that was the case, then you would have more time for your true priorities as well as being able to provide opportunities for others, and to make a bigger difference in your own life. Sometimes we hear people saying things like, “I can’t afford a housekeeper” or, “my business isn’t big enough to hire an assistant.” Perhaps, however, when you seriously consider the value of your time and your priorities, and you apply the financial principle of return on investment to how you use your time, then you might ask some different questions such as, “how could I afford extra help?” “How much extra could I earn if I had some additional help for a few hours a week?” “What tasks am I currently doing that someone else could do for me so I have more time to dedicate to areas of my life or my business that I enjoy and that will bring me the best results?”

Ask different questions; get different answers and results that line up with your true priorities and values.

The Best Credit Cards

Choosing a credit card should require the same research and planning as does choosing an investment or making a mortgage decision. The problem people have with credit is largely because it isn’t part of a strategic plan.

Credit card debt isn’t bad – it is an excellent tool to recognizing lifestyle choices, and access to credit is a fabulous tool to create wealth or to reach personal goals. For example, if you are choosing your first card as a newlywed couple, now is the time to take a look at your goals – what are you working toward? Is it travel? There are cards that collect travel rewards. If your goal is a new car, you can get a card that will reward you with a cash rebate when you make your purchase. If you are building or renovating, you can even get affinity cards for hardware stores. The choices seem limitless. So pick your goal first, and then go shopping for your cards. Once you have your cards, then develop a strategy to maximize the benefits you receive while creating a spending system that fits your lifestyle. As for interest rates, they matter less when you carry a low balance or none at all, and they are just part of the equation when factoring the return on investment you receive from purchasing on credit. If you use your credit card for business purchases, what is the income that is being created as a result of that purchase? And, if you are making a lifestyle purchase, the same applies: what is the benefit you will receive as a result of the purchase? Finally, one way to stay in control of your credit use is to ask yourself first how and when you will pay the bill. How many hours, days or weeks of work will it take to make the money for your purchase? And of course plan ahead so your credit cards become a strategic part of an overall financial plan.

Are you making money decisions from a spirit of fear, or spirit of confidence?

Decisions made from fear are more focused on the potential loss, risk, harm, or missing out.  Confident decisions come from applying the necessary skills and knowledge to analyze a situation from a practical, business-like position.

For example, if you have recently read something about investment fees and other negative impacts of active money management you could be tempted to convert all your investments to an alternate type.  This same situation can happen if you experience a drop in the stock market and you’re tempted to pull all your money out and invest it in real estate or fixed income certificates.

Another common situation is the one where you feel that the amount you have saved is going to cause you to work for the next several hundred years in order to finally be able to ‘retire.’.  In an attempt to alleviate this fear, you perhaps make a decision to take charge of your finances and start attending seminars on how to reduce your debt and increase your savings.  The biggest challenge with this is that the overwhelming majority of seminars are offered by people who are selling a particular product to fit with the information they have just taught you, or they are people who do not have a professional background and are therefore presenting strategies that are from their personal experience (which is good), but won’t have the connection to the technical aspects of the financial industry.

This situation leads to decisions that are often made with partial knowledge such as looking at reducing interest rates on mortgages or credit cards, but inadvertently reducing your long term flexibility or ability to access credit.  Credit scores are a complex serious force with far reaching consequences.  Anything at all to do with credit must be carefully calculated and considered with expert consultants.

So what do you do?  A solid financial foundation of skills and knowledge was not part of any formal curriculum for every adult trying to make these decisions today.  Because of this, the knowledge gap isn’t even recognized so we have decisions that appear to make sense on the surface based on ad-hoc, circumstantial information, but ultimately require a leap of faith to implement.  This type of decision making ultimately ends up being more like unconscious gambling, rather than a methodical, calculated, confident process that connects all the unique person circumstances to a desired outcome.

The first step is to realize that money is a dynamic, every increasingly complex situation, where decisions are not black and white.  Because of this, the component of the decision making process that can be controlled is your own values, priorities, goals, interests, passions, and unique purposes.  From here, the process of making decisions, implementing strategies and deciding on specific product solutions is a sequential balance of earning vs. spending; of saving vs. investing; of risk vs. reward; of growing vs. maintaining; and of the needs of today vs. the needs of tomorrow.

So What’s A “Bad Spending Habit” Anyway?

Many people who spend time and effort teaching others about money want to cure “bad spending habits”. That’s an intriguing point, because spending is not “good” or “bad” necessarily… even compulsive gamblers, at least in Canada where the government regulates gambling, have the results of their spending benefit many charities. It’s all in the values we attach to our spending, and when you come right down to it, how intentionally you spend it. So for argument’s sake, let’s say you open your closet door one day to find some shoes, and you realize you have so many that there are some you have never worn – maybe you don’t even remember buying them. That lack of awareness while you were accumulating all those shoes might be a sign of a spending habit you want to change. In order to change the habit, it’s not enough to stop what you have been doing – you need to exchange that habit for something with some more value to you. My tip: Why not take the shoes you haven’t been wearing, and donate them to a charity that outfits low-income women re-entering the workforce? Your habit now has a great benefit to others, and a tax receipt for you. If you want, keep that charity in new shoes for as long as you like.

The bottom line is to learn to spend in line with your core values and keep your overall big picture – your goals – in mind.

Should I cancel my credit card?

Some people, in an attempt to control their spending and get out of debt, believe that closing their credit cards is a smart financial move. But is it?

Having access to credit is actually of huge potential benefit. It’s how businesses are built and fortunes are made. It’s an indication that lending institutions have faith in your ability to make timely payments.

You can actually harm your credit rating by closing a long-standing card. The longer you can show a history of good credit, the better your credit score will be.

Of course there are ramifications of thinking your credit card is closed when you are actually carrying a balance. As well, if that credit card charges an annual fee, you might be surprised by a bill you did not expect. On the whole, you are better off keeping a credit card with zero balance and using it once in a while, and keeping a regular watch on your credit bureau as part of your overall financial management.

Likewise, having access to credit and a complete financial plan to achieve wealth is also a bigger benefit than closing a card. There are only a few times when it might make sense to close a card, such as when it could potentially interfere with other low interest, unsecured access to credit, but for the most part – keeping your cards and monitoring them is the wealth strategy I would recommend.

Is it a revival or renewal of your finances you’re looking for? 

Revive literally means to start again or bring back to life.  This means that if you feel like you’re off track and have been suppressing your passions because you’re overcome with guilt, or fear about money, then likely you need some encouragement to strengthen your belief that you can live a life where there is enough money flowing into your home to enable you to feel exhilarated about your days.

Perhaps you’re feeling like your life is pre-occupied with money every time you venture into a store or are faced with opening another bill, or statement.  If you need a fresh look at the situation to help you overcome the stress and struggle of working to make money to pay your bills while also somehow managing to save for that distant fantasy land called retirement, you’re looking for a revival.

On the other hand, if you’re thoughts are burdened with anxiety around how you have drifted away from the life you thought you’d be living, or used to be living, before something happened to halt your dreams (a job loss, medical situation, investment loss, divorce, fraud) then you’re looking for a renewal.  You’d like to be able to continue with your former life, mend the broken situation and carry on.  Perhaps you just need to breathe new life into your finances to reinvigorate your life.  Or perhaps you’re aware that there are some areas of your financial life that really should be replaced, but you’re not sure how to transform the situation.  Either way, a renewal is what you’re looking for.

A revival or a renewal requires a change.  In order to change you have to give up on current strategies that aren’t working which will first require acknowledging that the current thinking must stop.  You have to awaken a spirit of financial independence which means removing the concept of retirement from any discussion or thought around your finances.  It also means that you have to understand that what feeds financial independence is income.

What you’re after is income that is sufficient to pay for the expenses for the life you want to live; the life you have placed on your heart to live, not necessarily the life pictured in magazines or on TV, or the one you think you ‘should’ be living.  Ultimately, this means you have to revive and renew the entire concept of income creation.

Income creation, and therefore financial independence, is not dependent on a budget that requires you to spend less than you earn so you can get out of debt and accumulate a big pot of gold to retire with.  Income creation isn’t dependant on you having a good job or career.  Income creation isn’t a special investment or new business.  Income creation starts with an idea, and requires you to take one small step at a time in pursuit of that idea.  Along the way, each step will have financial requirements and decisions with financial implications.  Here it is important to look at the numbers in new ways to help recondition and recreate your situation in order to re-establish a life of financial independence.

Retirement: Nothing to do With Age, Everything to do With Arranging Your Finances

One problem with our society – it’s completely lost sight of the whole concept of financial independence and developing income. Retirement has nothing to do with age and everything to do with how you have arranged your finances so you have enough income coming into your household to live the life you want without having to go to work every day. Retirement is when you have arranged your finances so you are financially independent – regardless of age or how much money you have accumulated in your ‘nest egg’.

Encouraging & Empowering Financial Possibilities