The Good, the Bad and the Ugly: Debt (Part 1: Credit Cards)

I apologize for this blog being so late; but I think the information you find in the next three posts will be well worth the wait, enjoy:

Debt:  It’s what stresses us out, keeps us up at night, and is always in the top three things that couples argue about, often leading to separation or divorce.  All of this leads to overall decreased health due to stress and depression.  In fact, most people dream of money not so much to have more, but to be free from the bondage of debt.  So why do we get into debt knowing that it has so many negative effects on our health and relationships?  In four words: it is too easy!  When I talk to my grandmother, who just celebrated her 89^th birthday, she says she never had a credit card as a young adult and didn’t even know anyone who had one until decades later.  They were forced to buy only what they could afford.  Nowadays, we are offered a credit card every time we walk into a big box store, as discussed in ‘Profits, Percentages, and Procrastination’.  The standards for applying for a credit card have gotten lower and lower; hence, being easier and easier to obtain one.  To qualify for most credit, you can have up to about 40% to 45% of your monthly gross income going towards debt payments.  That is insane, not to mention unsustainable!

LOW INTEREST RATES: the interest limbo, how low can you go?

The most important component of your debt reduction plan is making sure you are paying the absolute lowest interest rate possible!  The problem is most people don’t know how to do this.  But have no fear, Tyler is here! There are a number of strategies you can use:

1)      You can call your current Credit Cards or Lines of Credit and demand a lower rate.  Tell them to lower it or you are taking your business elsewhere.  This will get you down from about 29% to maybe 12% if you’re lucky, sometimes they won’t budge though so… in which case you need to make paying that card off the first priority and then cancel it.  And make sure you tell them that (we will show you how to do that in just a bit).

2)      Another strategy is to transfer that debt to another form of credit that is the next lowest rate offered.  Often unsecured lines of credit can be as low as 6% to 10%, as opposed to credit cards that are at 18% or 29%.  You just need to shop around at the different banks and apply to see what happens.  (The rate they give you is mostly based on your credit score.)

·         Often people get scared by the system into not applying multiple times for different credit by telling you that your credit score will get hit each time you apply. The truth is, you can apply about 5 to 10 times a year for credit without any change in your credit score.

·         If for some reason it does change: you are looking at a 5 to 30 point credit score hit, which really isn’t significant, especially if your credit score is above 710, because anything over 680 is almost an automatic approval.

3)      The next thing you can do to decrease the amount of interest you’re paying is to refinance your home.

·         Oftentimes, banks and even mortgage brokers won’t give you the rock bottom rate because they get paid more the higher interest you pay.  So just make sure you have the lowest possible rate you can get from the lender you choose (see Part 2 of this post for more info on this and other mortgage strategies).

·         If there is enough available equity in your home, you might even be able to consolidate your other high interest debt.  Almost always, the secured loan is cheaper than the unsecured loan.  (A lot of mortgages are right around the 3% marker.)  When is the last time the bank called you to tell you that you could save thousands of dollars a year in interest by consolidating your debt at a lower rate?  Never.  They don’t want you to do this because that would mean less profit for them!  Once again, we remember the rule of 72 and how the banks get them to work for them, not you.  The same bank that gave you your mortgage at 3% is probably also lending you money on another credit card or line of credit at 6% or even 18%.  I know people get afraid of putting debt on their home – they fear that their home will never get paid down if they add more debt, but remember that the lowest interest rates always win! 

Let’s say you owe $50,000 in unsecured debt paying an average of 12% a year, which means you are paying $6000 in interest a year or $500 a month in interest.  Take that same interest against the home at 3% you are paying $1500 a year or $125 a month.  Imagine how fast you could pay down the mortgage and be debt free if you paid an extra $375 a month against that mortgage while still spending the same you are now on your current debt.

·         The way companies scare you into keeping you locked in to your current mortgage/debt situation, is by threatening penalties if you refinance.  A good Financial Advisor or Mortgage Broker can run the numbers and show you if it’s worth it or not to take the penalty (some of the best hockey players and games had lots of penalties).

·         Remember, often we have a philosophical or emotional problem with our money, not a money problem.  Think like a “1-percenter!”

4)      If you don’t have any equity in your home and have gotten the lowest possible rates you can everywhere else, there is one last strategy.  This one is mostly used in the states because the credit card companies are so competitive down there.  But here in Canada there are not as many options.  We only have a few to choose from: the first is the 0% MBNA card ... what 0%? … is that a typo? … nope it wasn’t; but offers like this only last a short time: 6 to 18 months (depending on the card or company) and then it shoots back up to 29%.  You see the companies take a statistical gamble that you are either not educated enough or too lazy to switch the money out once it bounces up to 29%.  They are playing the law of averages just like the big box stores do when you get their credit cards and go after those extra reward points and then don’t pay it off.  Some of these cards have annual membership fees so make sure the fees don’t outweigh the interest you are paying; always run the numbers or get someone to run them for you.  The beauty about this strategy is once the time limit is up and the interest rates revert back to the 29% you can flip it back onto your low interest line of credit (LOC) and then cancel the credit card.  Often the same company will send you an offer again in the mail to reapply with the same 0% interest or you can just reapply again and qualify for the same offer, online.  In the meantime, you’ve saved a lot of money.  Here are some sites where you can apply for these cards:

·         MBNA: 0% interest, 12 months, $0 fees (all are day of posting and may change)

·         Scotia Bank: 0.99% interest, 6 months, $29 fees

·         AMEX: 2.99% interest, 12 months, $0 fees

These are great deals and a lot of money can be saved, BUT there is a catch: if you get new credit cards and max those out without paying off your old ones, you run a huge risk of doubling your current debt load and being in debt forever. And in case you didn’t quite catch that:

YOU RUN THE RISK OF BEING IN DEBT FOREVER!!!

This can be risky if you are not monitoring it with discipline.  If you were wondering about the title of the blog, this could turn into the “Ugly” part.  So please make sure your calendar is marked, you have a clear debt reduction plan, and work with a professional on this.  Make sure you have a low interest LOC to transfer the money back to when the promotion runs out and keep that LOC open until the debt is zero.  This requires work and discipline.

DEBT REDUCTION:  Implementing the most efficient plan, the Snowball Strategy

Now let’s talk about the most efficient type of debt reduction plan, the Snowball Strategy.  Ever watch those old Bugs Bunny cartoons when they are in the snow?  There’s always a scene were someone falls down a hill and slowly picks up more and more snow until they are one big unstoppable snowball rolling down a hill and then disintegrates when it smashes into something.  This is what happens to your debt when you use the Snowball Strategy.  The debt reduction starts small but grows exponentially, and finally, smashes your debt out of existence!  Doesn’t that sound awesome?  Read on to find out how it works.

1.       Once you have gotten the absolute lowest possible interest rates on all of your debts, you need to determine the absolute minimum payment you can make on these debts (in other words, the absolute lowest payment you can make without the creditors coming after you with all those annoying phone calls).  For example: if you have student loans, call them and see if they can’t lower your interest rates, then call them again and give them your best sob story to get them to lower the monthly payments as low as possible.  (Student loan interest is often tax deductible so you may want to pay it down last, but run the numbers.  If you don’t know if its tax deductible, ask!  Get a trusted accountant to help you with the tax deductions.)

2.       Next, you need to make a budget to find the maximum amount of money you can put towards that debt (my next post will discuss how to do this painlessly). Once you have the maximum amount to put towards your debt and the minimum payments you need to make, watch this video and download the spread sheet (I use it for my own household and have referred all my clients here). The video will show you how to enter in the information and how to run the Snowball Strategy.  It will show you what to pay each month to which credit card, line of credit, etc.

Basically there are two options to the Snowball Strategy:

1)      You pay down the smallest debt first, regardless of interest rate.

·         Why do this, you ask? Well psychologically, it is the best for us because we see actually progress, and quickly.  We get to scratch one debt off the list and then cut up that credit card or close that loan account and it feels amazing!

2)      You pay down the highest interest debt first.

·         This one makes sure you pay the absolute lowest cost of interest.  It’s the most effective way to pay down your debt and has the biggest snowball effect.  The trade off? You don’t get the emotional high of quickly knocking off a few debts, it may take a year before the first emotional high comes; so this one takes more discipline.

Whichever path you choose, you now have a plan for lowering your high interest, bad debt, quickly and efficiently!  Keep working the plan by focusing on one debt at a time and then “snowballing” the payments into your next debt as you pay them off one by one. 

The final step for successful debt reduction: once you’ve paid down your debts, don’t rack them up again!  Cancel the credit cards, cancel the lines of credit.  When it is all said and done keep one credit card in your name and one credit card in your spouse’s name and maybe mix them up so one has a Visa and the other has a MasterCard.  Then, get each other matching cards for each company.  That way you are both building Credit Scores and you have two different cards that are more likely to be accepted wherever you go to use them.  (A colleague of mine once had a widowed client and she could not apply for a mortgage because she had no credit history, everything had always been in her husband’s name, not hers.  This can be devastating for a family.  Luckily my colleague was an amazing mortgage broker and was able to pull some strings, but anywhere else and this lady may not have had a home for her and her children.)  Lower both those cards to $500 maximum each.  That means you can never get into debt more than $1000; and most people can pay down $1000 reasonably fast.  What?  But $500 won’t even buy me a plane ticket, you say.  Most people don’t know this, but you can “overpay” your Credit Cards.  Let’s say your plane ticket cost $2000: just drop $2000 on your card and the new balance will be $2500 available.  You spend the $2000 and are never in debt again.  Got it? If you have a credit card through your bank and it is connected to your accounts this can happen almost instantaneously online.  Otherwise, there may be one to five business days hold on the money transferred, but that gives you the time to make sure that’s what you want to purchase, or that you truly can afford it; rather than impulsive buying.  Remember the system is designed to entice you into debt so by putting up as many blockers as possible, you’re going to win this money game!

My next blog will tackle the biggest debt we will ever take on: our mortgages!


If you would like to speak with me more in-depth about building a financial plan, please click here.  Please don’t waste your time or mine – only click here once you’re ready to move forward; both of our time is valuable!

If you aren’t quite ready to move forward with a plan, scroll down and subscribe so you can read the next blog on finances;  until you’re ready to move forward on your own.

Disclaimer: The opinions expressed in this blog are purely the opinions of Tyler Piccini and do not reflect on the any of the companies or associates, Tyler works for or represents.

Percentages, Profits, and Procrastination

In yesterday’s post, we learned about the need to change our mindset or philosophy on money and we alluded to the fact that we need money to work for us and not us for money, but let me show you exactly how money can work for you in a major way:

Have you ever heard of the Rule of 72? Albert Einstein is quoted as calling it ‘the eighth wonder of the world.”  Some sources say he even places a greater value on it then his beloved E=mc²!  The basic premise is: take the number 72, divide it by the rate of return (ROR) you are receiving on your investments, and it will give you the number of years it will take for that sum of money to double.  For example, let’s say you invested in something that was giving you an average of 8% return over the years.  You then take 72 / 8% = 9 years.  That means that every 9 years your original investment will double.  **small explosion** That was the sound of your mind just being blown.  Let’s see this in action in the chart below:

 

In this chart we see that at 4% ROR we double our money every 18 years.  Let’s say you went to the bank and invested in that super awesome rate of return (please sense the sarcasm in that sentence).  In fact, the banks usually put you in a savings account earning maybe 1% or into a GIC (pushing the fear of possible loss in the markets and that you want the safety of a GIC – that will be for another blog though).  But the highest return on a GIC that I could find on Google as of this date was 2.45%.  72 / 2.45% = just above 29 years.  How many doubling periods do you have in your lifetime?  Not to mention that the rate of inflation is about 3% annually, so that your money is actually losing value by being in a GIC.  Did the bank’s financial planner mention the risk of inflation outpacing your investments?  Probably not.  They probably don’t know better because they are trained by the bank’s system, and who do you think the bank is looking out for?  You?  You better hope that Canadian scientists find that fountain of youth real quick because you aren’t going to make it if you’re counting on 2.45%.  In fact you would probably be better to make charitable donations to the institute that is researching the fountain of youth than investing in a GIC for long-term growth – you would probably make better returns by getting a better tax return than the return you will get on 2.45%.  End of rant until another day. 

So you have given the bank your $10,000.00; what do you suppose the bank then does with you initial deposit?  Do they stick it in the vault and wait for you to draw from it again?  They either invest it in that “big scary market” they told you to avoid (slave masters tricking their slaves into staying slaves again and again) or they do something even worse: they lend it back to you on a credit card or high interest unsecured line of credit (now you’re not only a slave but you’re a shackled slave).  Most mainline unsecured credit cards run from 12% to 29% interest.  Yes, that’s right; the banks know the rule of 72 all too well and they will use it against you. 

Let’s assume you only got the reasonable 12% interest card; that means the bank was doubling your money every 6 years.  The $10,000.00 you gave them over the years now multiplies up to $640,000.00 over 36 years.  So they give you your GIC “guaranteed not to lose money” 4% earnings of $40,000.00 over 36 years at 4% and they pocket the other $600,000.00 you left on the table.  Getting irate yet?  Now you know why I talk so passionately about a boring topic like finances.  The everyday Canadian is getting fear mongered into not having their money work hard for them and then getting shackled by the lucrative industry of buy now pay later.

First of all let’s take a look at the fears out there: war, conflict, recession, unstable markets, yadda-yadda ... whatever (in my best teenage high school girl obnoxious voice).  This is all thrown at us on a daily level.  If you ever watch the news, it’s all fear-based and that fear becomes the invisible shackles that keep us paralyzed and keeps us repeating the loop of defined insanity hoping for something better.  Take a look at this brochure produced by CI Investments posted by Infinite Financial (read their article but only after you finish mine):

This just goes to show that even if your investments had suffered through the Great depression and World War II, you still would have come out on top with long-term investing.  Once again, this illustrates how it’s our mindset/philosophy about money that determines whether we stay a part of the “1-percenters” or the “99-percenters.” So block out all the Armageddon fear-mongering out there!  There is a growing percentage of the middle class that are assuming the Armageddon will come and so there is no need to prepare for the future.  Not to get all preachy or religious on you, but take a look at the Bible: 2 Thessalonians 3:10: “He who does not work shall not eat.”  Paul was saying this to the early Christian community because there was a number of people doing no work at all because they were sure that God was coming and the end of the world was any day now, so they just gave up and waited.  Let me try and bring this home to you: those who don’t get their money to work for them won’t eat!  Just go talk to any elderly woman working as a greeter at Walmart if she would rather be there or spending more time with her grandkids – most of them aren’t there because they choose to be.  The sad problem is no one taught her to get her money to work for her, or she was made to fear investing in anything but bank GICs.  She waited, hoping and trusting in the system, and it let her down.  Now she is paying the price.  Don’t let fear grip you.  Take control! Be the BOSS, be in charge of your finances.  The “1-percenters” have almost an eternal belief that no matter what happens, things will get better.  They aren’t afraid to lose.  I once read that Donald Trump declared bankruptcy several times.  Think he’s scared? No because even if he does lose his wealth he knows he can build it back up again; that things will get better.  I challenge you to take a look at the numbers above and plot out any 10 years.  In any 10 year period, was the market lower or higher ten years later?  Let’s look at 1974 the market was at 616 steepest market drop in 40 years; fast forward to 1984 and the market is at 1212, a 197% increase or an average of 19.7% per year increase.  In the previous 10 years you would have lost some money from 1964 to 1974 but take that and stretch it out from 1964 to 1984, 20 years you would have gained more than you lost.  Take a look at the Franklin Templeton slide show, especially slides 8 and 9: they show there have been way more gains than losses. Now past performance cannot guarantee future returns (just in case a compliance officer is reading this) but – come on – do we really believe that all of humanity is just going to suddenly epically fail?  Where is your hope people?  And even if it did, that means that it wouldn’t matter which investment vehicle you had chosen anyway – we’d all be in the same boat fighting off zombies.  With today’s technology, new industries and emerging markets in third worlds: we build markets and opportunities faster than any other time in history.

That is just the market investment opportunity – there are many different opportunities to build wealth which we will talk about in time, but don’t be fooled: if you don’t plan now, you may not eat later.  You need to get the power of compounding interest working for you; you need to get the ruler of 72, “the eighth wonder of the world” working for you. 

The corporations know about the rule of 72 as well.  Does anyone know why Canadian Tire has a financial division?  I mean they are a tire company for crying out loud, so why are they in finances?  It’s because of the rule of 72.  Ever walk into a Canadian Tire only to be greeted by someone asking you to sign up for their free Canadian Tire Card? Which is at 19.99%.  Don’t believe it?  Click on the link.  Have you ever gone to Walmart and have them ask if will you be paying with your Walmart Master Card from Walmart financial? That one is at 25.99%, but you need to read it in the fine print to find out, and only once you’ve read all the grrrreat advantages you get in large bold print.  This is why Walmart can sell all their merchandise at such low prices and put moms and pops shops out of business.  They can lower their prices by 15%, get you to put it on the card, play the law of averages that a lot of your purchases will stay on the card, charge you the crazy interest, and still make an extra 10.99%.  Now these numbers are pretty simplistic, but believe me that’s why so many big-box stores have a financial division.  It’s to steal more money from you and get the rule of 72 working for them.  “But I get all those extra Walmart points and Canadian Tire dollars when I sign up for the credit card,” you say.  Trust me; the benefits don’t outweigh the cost.

Here is a thought: if this is how we all do business anyway; maybe towns through the chamber of commerce and local credit unions could create a town card with membership rewards programs for all the moms and pops store and small business in the town.  They could totally mark down the prices and share some of the profits with the other moms and pops stores.  This would allow some of small local businesses to offset their costs and possibly lower their prices; it would also increase customer loyalty, and customer awareness about local small businesses; and town pride!  Just a thought, in case there are any active civil servants out their passionate about their communities.  Beat them at their own game.

So now you know how the Rule of 72 can either work for you or against you.  Let’s take a look at what the most basic wealth creation formula is:

                Wealth = Money X Rate of Return (ROR) X Time

1. I will show you how to save on debt and taxes and even build a kick arse budget that won’t leave you feeling like you have no life; those strategies will help solve the money problem.
2. I will also show you different investment options over time and teach you what you need to do to help you choose investments that are right for you. That will solve the ROR problem.
3. But the only problem that is completely dependent on you is the TIME!  The major thing that will stop all financial plans dead in their tracks, no matter how good it is: PROCRASTINATION!  I know it’s hard to get started and to get all your poop in a group but it is imperative that you do!

Let me show you an example of waiting till later and investing earlier:

 

We see that for half the money, Mr. Start Early, made almost the same amount of money as Mr. Wait Longer.  Now this is just an illustration and there are many other factors but the more doubling periods your money can get (the RULE of 72), the less you have to work, because your money is working and growing for you!

Let’s say you want $1 million dollars (in best Dr. Evil voice) for retirement by the time you are 65, and you receive an average of 8% over the time of your investments.  Now depending on the age you start to save, you could either have to save as little as $290/month or as much as $81,000/month!         

Start at:                Monthly savings required:

    Age 25                  $290 /month

                                Age 35                  $680 / month

                                Age 45                  $1700 / month

                                Age 55                  $5500 / month

                                Age 64                  $81,000 / month

Do you see now how powerful the rule of 72 is?  How you need to get time on your side?  You need to get as many doubling periods as possible working for you.  Procrastination is the number one killer of wealth.  The best time to start a financial plan is now ... unless you have a time machine then it would be yesterday... but for those who don’t have that technology: now, immediately, today, is the time to start!

Tomorrow I will show you what good debts and bad debts are; I’m sure you already have an idea about bad debt, but can there be good debt? You might be surprised! I know I was. See you tomorrow!

 

If you would like to speak with me more in-depth about building a financial plan, please click here.  But don’t waste my time or yours – only click here once you’re ready to move forward; both of our time is valuable!

If you aren’t quite ready to move forward with a plan, scroll down and subscribe so you can read the next blog on finances till you’re ready to move forward.

Diary of an Angry Financial Planner

Welcome to the first official post of ‘Finances for the Everyday Canadian’.  I thought about calling it ‘Diary of an Angry Financial Planner’ but thought it better to stay positive and keep my blood pressure down so my wife doesn’t nag me.  The reason this is being posted for the everyday Canadian and why I’m angry is because I feel Canadians aren’t being educated on their finances.  Canadians are not being taught how to preserve and grow their wealth.  I truly believe that the current financial system is run by the greedy elite and is structured to hold the everyday Canadian down, sucking people dry and making them little more than slaves to the elite and our governments.  What’s worse is that we don’t even realize it because the only financial education we’ve received is from these very slave-drivers.  Ask yourself: What did I learn about finances while at school? From my parents? From the banks?  Is it the same financial education that the wealthy receive?  We’ve been conditioned to expect little, procrastinate, fear “risk,” and give up on our dreams.  A baby elephant in captivity has a chain put around its ankle and a large spike nailed into the ground so it can’t get away.  Then, when it reaches adulthood, because it has been bound its whole life, whenever it feels the tug of the chain on its leg, it stops; its mind says, “No, you can’t,” even though this powerful animal has the strength and ability to break free anytime.  And it’s the same with us! By the time we have been brought through the system, we don’t see past the “spike in the ground” (See Napoleon Hill’s book “Outwitting the Devil”). 

Now you might be telling yourself: “Wow ... Tyler, those are some strong words!”  I know, I know.  And I will try to tone it down a bit, but sometimes my passion for financial education can bring out fighting words! Stay with me here and you’ll see why.

Have you ever felt like no matter what you do or how hard you work you never seem to get ahead financially? I know I felt that way for years; I was even working three jobs for a time and just ended up owing more taxes; it felt like the harder I swam, the faster I sunk.  If you have ever felt this way, this blog is for you. 

Over the next thirty days, I’m going to try and hit as many topics as I can and then every Friday afternoon I will post something meaningful and practical for you and your personal finances.  Then YOU will have the weekend to build a plan and implement it in your own financial life.

Whenever I sit down with a family, the first thing I ask them is: “Have you ever heard about the ‘one-percenters?’” Most of them have no idea what I’m talking about but in the world today about 1% of the population have all the true wealth and the rest of us “99-percenters” fight over the crumbs that drop from the table.

Please don’t take this as an exact statistic, but you get where I’m going with this; most people don’t have real wealth in this world, even in Canada, arguably the richest and most abundant country in the world.  We as Canadians are always topping the charts as the most desired place to live, the most stable banking system, the friendliest people, etc, etc .... Oh Canada.  But then why have so many fallen through the cracks?  The answer to that question, in my opinion, is with another question: Do you think the 1% think the same way about money as the 99%?  Almost everyone says no, hopefully you did too.  The third question then is do you think the 99% get the same advice and information about their finances as the 1%?  Almost everyone says no again.

The real divide between the middle class and the wealthy is not money ... it’s knowledge.  We have sayings like “they come from old money.”  How did money age?  The Canadian mint almost always takes old coinage out of circulation!  What the saying means is that for generations the wealthy have been able to pass on their wealth to their heirs and more importantly, they have passed on their knowledge about how money works and wealth is generated.  The most important thing the wealthy teach their heirs is how money can WORK FOR THEM.

How many of you have stayed up late worrying about money? Worrying about how you’re going to pay those bills? How can I work harder to earn more money?  There lies the problem.  You’re wondering about how YOU can work instead of wondering how your MONEY can work.  It’s actually a philosophical problem that you have, not a money problem.

We have all heard that ‘Knowledge is Power’ but as a mentor of mine, Ed Mylett, told me: this statement is false; knowledge is not power – knowledge is potential power but if no one acts on that knowledge then nothing is released into the world and no power comes forth.  Therefore, ‘Knowledge is power when actualized.’  Knowledge becomes power when people take action with that knowledge!

Sorry – I got a philosophy degree before I became a financial planner so hopefully this isn’t boring you. Hopefully, it’s inspiring you to become more knowledgeable and then act upon that knowledge.

DISCLAIMER: READ NO FURTHER UNLESS YOU AGREE TO THIS:

I listened to Kevin Trudeau’s ‘Your Wish is Your Command’ CD series.  Yes, Kevin is controversial, but he makes a lot of sense when he talks about the “teachability index.”  The teachability index is a multiple scale from 1 to 10 based on two principles:

1.       First, you need to have the ability or yearning to learn.  The desire for knowledge.  On a scale of 1 to 10 how much do you desire knowledge on building wealth? Hopefully 10.

2.       Secondly, you need to have an ability to change.  Albert Einstein said the definition of insanity is: “doing the same thing over and over again and expecting different results.”  Have you changed nothing in your financial practices but kept hoping something would give?  Have you gone to the same job day in and day out hoping your paycheque gets bigger?  Do you feel now that might have been insane?  Sometimes we get stuck in such a rut we don’t see the daylight anymore.  We don’t see how to get out, so we just keep plugging away hoping things will change or work out.  Guess what?  That never happens.  Knowing this now, what would you say your ability to change is on a scale of 1 to 10? Hopefully again it is a 10!

Now to see how teachable we are, multiply your two scores: desire for knowledge X ability to change = teachability.  If you had 10 X 10 = you are 100% teachable.  If you had 5 X 5 = your only 25% teachable.

I would say if you are anything under 75% teachable you should seriously stop reading this blog and wasting your time.  You need to go and figure out how to work harder for your money and then keep doing the same thing over and over again.  Reading this would be a waste of time because man, you are going to be busy!

If you are still reading then maybe you will be ready to implement some ideas into your financial planning.  But first we have to understand why we need to have a financial plan.

Another mentor of mine Xuan Nguyen loves to say: “people don’t plan to fail, they just fail to plan.”  Let’s be honest, how much time have you really spent learning or planning what your financial future will be?  Have you ever thought of how you will pay the bills and keep up your same quality of life once you retire?  Woody Alan said, “Showing up is 80% of life;” so many of us have just failed to show up to the financial planning party.  The everyday Canadian spends more time planning their summer vacation than they do for their entire financial future.  That being said, even if we give our 80% by showing up, the other 20% isn’t even taught to us and when it is, it’s a myriad of bad advice (most of it fear based) that keeps Canadians stagnant in their financial positions.  But don’t be afraid!  We’ll get there together.

Evelyn Jacks, president of the Knowledge Bureau, teaches her future financial planners that there are three main documents you need to focus on for your financial future:

1.       Your Notice of Assessment: this is the bad boy you get in the mail after filing a tax return.  It has a number of stats on it like how much RRSP and TFSA room you have available and most importantly how much tax you have paid.  (The goal of this document is to stop paying taxes! Legally, of course.)

2.       Your Financial Plan.  When you were planning that great vacation down to Disneyland for the kids, did you just jump in any plane without worrying about where it was headed?  What if you ended up in Siberia instead of sunny California?  I’m sure the borscht is great there but - come on - it’s not going to be fun for the kids (my heartfelt apology to any Siberians I may have offended).  But as Canadians we don’t want to be impolite, so far be it from us to demand more from our financial planners and banks and accountants.  We just jump in any old plane dangled in front of us and hope it will get us there.  What did Albert Einstein say again? ....

3.       Your Net Worth sheet.  This is the terrible piece of paper where all your assets are on one side and all your liabilities on the other.  Pretty simple math one minus the other and let the proverbial chips land.  Assets good, liabilities bad.  You want this number to be positive and to have it keep going up positively each year.  So stay positive and we will get you there!

Have you ever heard of the X-curve? Again this is one of my mentor’s (Xuan Nguyen’s) favorites:

This is the basis of all financial plans.  So let me explain what you are looking at:  The green line at the top is basically your standard of living: it’s the vacations, the house, the car, the movie channel, etc.  However you choose to live your life, you need to have the income to support it.  In fact, right now you are working your arse off in order to keep up to that green line.  The red line would be if you had no income and lost it all.  It would be like a bad country song.  So no matter what, you need to make sure there is something there paying you to keep your life style up at the green line and avoid making any country albums; unless of course that’s how you make your income.  But for the rest of us, that often means making sure there is a plan in place to catch us when we’re down.

Now the blue arrow is the Law of Decreasing Responsibility: presumably you pay off your mortgage and other debts, the kids move out and are educated, life hopefully slows down a bit and the pressure is taken off; big time.  Now you don’t need as much as when you started out.

The grey arrow is the Law of Increasing Wealth.  Finally, the sweet spot!  We need to make sure that while those responsibilities are being taken care of, we are growing wealth so that one day we won’t have to worry about ANY responsibilities and they will all be taken care of.  You see on the far right it says wealth and Net Worth – that means that over time, your net worth sheet has shown that your liabilities have gone down and your assets way up! Won’t that feel amazing?

Congratulations!  Now that I’ve taught you about the three most important financial documents and the X-Curve, you now know more than the average Canadian about financial planning.  Scary isn’t it?

I know you are reading this feeling, “Thanks a lot Tyler!  All you’ve told me here is WHY I need a financial plan you haven’t told me HOW to make a financial plan and get to all my lofty goals and dreams.  Relax, young padawan.  The road to the lightside of finances is long and requires discipline.  The darkside is easier but less powerful and you usually end up in a dumpy government subsidized apartment working as a Walmart greeter, **enter the Simpsons shudder** uhhhuhhh...

We need to understand the WHY before we can learn the HOW; because if we don’t know the WHY, we can’t make the tough decisions of HOW, and we soon lose focus.  In fact, I challenge you to write down WHY you want to become more financially literate.  WHY you want to achieve certain goals, WHY you want to retire, WHY you want your money to work for you instead of you working for it, WHY you want to think and act like a “one-percenter” and have wealth rather than acting and thinking like the other ninety-nine.  WHY is the only thing that will move us through the HOW.  Because the HOW can be a lot of work.

Tomorrow find out how the banks and major corporations are raping and pillaging your savings and how to end it.  The Vikings have nothing on the banks; just look at the old Capital One commercials.  We will arm you to the teeth!

If you would like to speak with me more in-depth about building a financial plan, please click here.  But don’t waste my time or yours – only click here once you’re ready to move forward; both of our time is valuable!

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