Financial Experiment for 2020

It’s almost the end of the first month of the year. Did you set financial goals to start the year? Are you actively working toward them or are you just hoping that they happen? January 17th was the worldwide ditch your New Year’s Resolutions day and then January 20th was Blue Monday when people get their credit card statements. Have you lasted longer?

Here’s a financial experiment for you to start the year with that might make financial goal setting a little more of an urgent reality.

Did you know that the average combined CPP and OAS payment in Canada last year was $1286 per month? If you are married and are both receiving the average CPP payment and maxing out OAS, your combined monthly income would be about $2275 per month.
I’m sure you have all seen the meme’s on Facebook saying that the government needs to increase senior’s pensions, however, many fail to realize that this pension is based on YOUR contributions over your working years based on your salary. Your employer contributed to this amount as well. If you are self-employed, you paid both. If you take dividends, you won’t get that at all.

Here’s the experiment….

Can you live on $2275 per month? This includes everything. Mortgage or rent, cable, vehicles, groceries, cell phones, if you pay for it now, figure out the cost. Or pay your mortgage and then see if you can pay all your other bills and expenses with $2275 per month. If you can’t do it now, why do you expect yourself to do it later? If you can do it now, and if you have money left over, why are you not saving the extra? What kind of retirement do you want? I’m sure you don’t want to have one that is just scraping by.
Right now, I am reading Napoleon Hill “The Laws of Success in 16 Lessons”. I love Napoleon Hill. His books were written in the 1920’s and 1930’s but they are still as relevant today as they were back then. You can actually download this book for free, as well as “Think and Grow Rich”, another amazing book!

Napoleon Hill’s fourth law of success is the Habit of Saving. Everyone knows it has to be done. There really is no getting around it. In fact, because so few people have done it over the years, the government created the mandatory contributions into CPP so that people would have at least a little something in retirement. When you take a look at the $2275 per month for a couple, compare it with your existing monthly expenditures, it probably is very little compared to what you would like to have, or probably even need.
Do you have a habit of saving or a habit of spending?

Lots of people have this built in belief system that in order to accumulate wealth or financial freedom that they have to make more money first. Now in some instances that is definitely true, however, for the majority of people it’s not. Everyone has a lot of wants on their money list. Charlie Munger said, “It’s not greed that drives the world, but envy.” So much of our lives are spent in the “Keeping up with the Jones’” mentality. That’s envy.

Napoleon Hill actually gives people who are on a salary the following breakdown for how their budget should look:

Savings account – 20%
Living – Clothes, food and shelter – 50%
Education – 10%
Recreation – 10%
Life insurance – 10%

What he found was people’s budget’s actually looks like this:

Savings account – nothing
Living – Clothes, food and shelter – 60%
Education – 0%
Recreation – 35%
Life Insurance – 5%

I will be honest, it’s actually rare for people to spend 5% of their income on life insurance.

What should you do? A good reality check! Be honest with yourself and make this the year to create the habit of saving. Most people have the extra room in their budget, or could simply create the extra room, to save a few dollars and it adds up. In fact, according to Napoleon Hill, and I’m not going to doubt him as I have clients who do live by his principles and have accumulated substantial wealth, the more you save, the more you will end up earning, the more opportunities that will open up for you and the happier you will be.

Start small. Create some financial goals for yourself. How much debt do you want to pay off? How much money do you want to have saved? Wealth is not a one-time event. It doesn’t just happen. It has to become a habit.
Once you have a clear idea about what you want, prioritize it! There has never been a time in history that it is simpler to create good financial habits and yet so few people do because there has never been a time in history that it has been simpler to just spend money. You can have money go into savings automatically each and every paycheck without having to find the energy and time to do it. Ok, so initially you might have to find the energy and the time to get it set up, but if it’s important, you will do it. And then it’s simple from there.

And notice that I said SIMPLE, not EASY.

It’s not always easy. It might not be easy to take a look at spending habits and find that if you cut something out that you don’t really need in order to pay off that credit card bill faster, but it’s simple. It might not be easy to cancel the cable and put that extra hundred bucks a month into savings, but it’s simple. I mean, who has cable anymore anyways? And if one of your friends has it, go over to their house to watch that hockey game, it’s more fun that way.

Do something today that your future self will thank you for. It’s that simple!

I am looking for people who want to change their financial future, who want to have more than $2275 per month in retirement. Is that you? Let’s have a simple conversation about it today.

“O Divine Providence, I ask not for more riches but more wisdom with which to make wiser use of the riches you gave me at birth, consisting in the power to control and direct my own mind to whatever ends I might desire.” Napoleon Hill

3 Popular Financial Tips that should be Thrown out the Window

These days we Google everything, including money tips. There are so many tips out there, the right way and wrong way, and then disputing each way….. it is confusing and it’s no wonder so many people are broke! How do you know what is the right advice?

Even as a Financial Planner I have to admit that a lot of my money views have changed over time the more financial courses I take, the more successful Planners I work with, and even the more wealthy clients I get to work with over the years. I have the advantage to pick their brains from their money lessons.

Here are 3 Financial Tips that I have thrown out the window and the alternatives that you can apply to your money instead:

1. Pay off your mortgage early

This is probably the worst piece of advice ever, with one exception, which I will explain in a bit.

Paying off your mortgage early is the number one finance tip from people like Dave Ramsey, his daughter, Rachel Cruz, or the FIRE community. They focus on the interest you will save over the long run by paying it off early. It makes sense….. However, there are two sides to this story.

First of all, I hate to be the bearer of bad news, but your house isn’t actually an investment. It is a lifestyle and a forced savings account. The value of your house will likely appreciate over time, not always, and it depends on when you bought and when you sell. Your house is not a liquid investment, meaning that if you have an emergency or want to go to Hawaii for a vacation, you can’t just draw money out of your house. You will get the money back when you sell it but you will still need a place to live once it is sold. With interest rates being as low as they are, take the extra money and invest it. This is even better advice if you are a business owner and look at interest rates versus tax rates.

Putting money into an investment will grow your money faster than your house. Plus, it’s liquid. If you need the cash, you can have the money out of your investments within a few business days.

The only time I recommend paying your mortgage off early is if you don’t qualify for life insurance. Why? Mortgage’s tend to be our biggest debt and if you pass away, your family is still obligated to pay that debt, or sell the house, which doesn’t happen over night. Not every one qualifies for life insurance. If you don’t – pay off your debts as fast as you can! And don’t buy the life insurance offered through your mortgage – it is not guaranteed to pay out!
2. Don’t buy Permanent Life Insurance

This is another one of Dave Ramsey’s favorite financial tips. Buy Term Life Insurance because it’s cheaper and invest the difference. The problem with this? 99% of people don’t invest the rest! The other problem with this? For the majority of Canadians, CPP and OAS are the biggest portion of a person’s retirement portfolio. If you are married and both you and your spouse rely on each other’s CPP and OAS income in retirement, when one of you dies, so does half of their CPP and all of their OAS benefit. Chances are, one of you will live longer. Chances also are that you will live past the age of 65 when the majority of Term Life Insurance policies expire or increase exponentially in premium making it unaffordable. You will likely outlive your Term Life Insurance, that’s why it’s cheap. That’s why you need a Permanent Policy.

Permanent Life Insurance has so many uses and wealthy people buy it all the time. The younger you are, the cheaper it is, so buy it early! It is an investment. The best thing about this investment is that earnings are typically around 6% and the lowest it will go is 0%. It is not volatile like other investments these days.

Permanent life insurance will replace your CPP and OAS for your spouse. They need that. You both do! Plus, it can be used for so many things. It is more expensive to buy, yes, but it is more versatile and has many more uses than most people realize.
3. Save for your child’s education with a RESP and avoid student loans

Don’t worry, I was once suckered into a RESP as well. They sound so good; they are so easy to sell – building hopes and dreams of what the future will bring for your child because now they can be anything they want to be – blah blah blah. We want the best for our kids and it’s an easy dream to sell.

Often a lot of people ask me what the fees are on their investments, but the funny thing is, they never ask what the fees on a RESP are. Does it really matter when you are getting “free” money from the Government for your child just for contributing? Yes, it does!

The reality is….. the fees are insanely high with a RESP to cover administration costs. If you have ever started one for your child you know how lengthy the whole application process is. I swear those things have a hundred pages! And every page costs you a lot of money because of all the different people that are involved to set it up and manage it over time. The positive side is that you are giving a few people a job and everyone deserves to earn an income, however, you are throwing away money that should go to your child instead. Or even to you.

What should you do? My best advice is to set up a Permanent Life Insurance policy for them. They earn more interest in the end because the administration costs are a lot less, plus your child can use it for so many other things than just school, like start a business. Or use your own TFSA to save the money. You will earn way more interest in the end.

On the flip side, student loans are not a bad thing! I used to think they were evil and that’s how I was so easily sold on a RESP for my son. They are tax deductible (RESP’s are taxable), they have a low interest rate and no interest while going to school. This is great if you use your TFSA to earn interest while they are going to school and then giving them some money towards their student loan when they are done. It is so much more flexible in the end than an RESP.

It’s not easy to find good financial advice and every person’s situation is different and requires a different plan. One size does not fit all! If you are struggling to find the right financial advice, I hope I can be the person to work through that with you.

3 Ways to Change Your Financial Situation TODAY!

Over the last almost 10 years of working with people and money, I have experienced and witnessed so many different things. Different money attitudes and beliefs, different financial situations – good, bad and especially the “I want that client’s financial portfolio”, different goals and objectives, and certainly varying forms of financial fear.

You have all heard “The rich get rich and the poor get poorer and the middle-class struggle in debt”, right?

Why does it work that way?

First, rich people have a different mindset. They view money differently than most people do. They talk about it differently, they use it differently, money is a different game to them altogether.

Second, rich people are more financially literate. They are eager to learn more about it and they have a whole team working with them to manage it from financial people like myself, to accountants and lawyers. Don’t be fooled in believing that they do it themselves. Not even Warren Buffet or Bill Gates manage their finances alone.

The gap between the rich, middle class, and poor happens because the subject of money is taught at home and not in schools. I often hear, “I wish I would have learned that in school!” In fact, if I had a dollar for every time I heard that, I would be rich already! But schools are designed to teach scholastic and professional skills, not money skills. That leaves us with learning our financial skills from our parents.

If your parents are among the rich, then lucky you! You are being passed down a financial mindset, financial literacy and a financial team to help you get ahead faster in life. And by rich, I mean, have more than a few million in assets, cash flow, and are at least in the top 5%.

For the rest of you, which is where the majority of people fit – 95%, you are learning from your parents the exact same mindsets as your parents. It’s not that your parents are trying to hurt you or that you as a parent are trying to hurt your kid, this is just the way it works. The following phrases are likely something you have heard your parents say, or you have said, at some point in your life, if not recently. It’s time to change that.

Here are 3 things that will help you change your financial situation today:

1. Stop saying “I can’t afford it” and start saying “How can I afford it?” Everyone is guilty of this and I hear it way too often. By saying “How can I afford it?”, you put your brain to work. It doesn’t mean you should buy everything you want; it means you are starting to think of ways to do it and you are exercising your brain. By saying “I can’t afford it”, you are automatically shutting down any creativity and problem solving skills. It’s a sign of laziness. Just like working out and eating healthy increases your chance of health, proper mental exercise increases your chance of wealth.
2. Stop saying “I’m poor” and start saying “I’m broke” instead and even go a little further to add, “I am rich”. Poor is an eternal state, whereas broke is a temporary situation and lots of extremely rich people have had periods of time when they were broke.
3. Stop saying “The reason I’m not rich is because I have you kids” and start saying “The reason I must be rich is because I have you kids”. Interestingly enough, I am guilty of saying the first one and only thinking the second one. Words are so powerful and we need to choose them wisely.

Positive thinking alone and choosing your words correctly are only the beginning of fixing your current financial situation. There is education and action as well. Financial literacy is at an all time low. Outside of our parents, it is taught by the banks and the government and they are way too corrupt to be teaching people about money. This explains the why the majority of people’s financial situations are what they are.

Money is only one form of power and security. Financial education is much more powerful. Money comes and goes, but if you know how money works, you gain power over it and can begin building wealth.