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.

Doing Your Taxes VS Tax Planning

As most of my clients know, I talk about taxes a LOT. Why? It’s the easiest place to save money!
No, I am not an accountant. This is much different than accounting. Here is the simplest way to explain it.
Whether you like RRSP’s or not (and if you are a business owner, you shouldn’t), RRSP’s are an excellent tax saving strategy. They reduce your tax and defer tax as long as the money is invested.
RRSP’s are something that I do. I go through them with you and explain the tax savings and tax deferral. I help you pick from a variety of investments to put the money in depending on your investment goals, comfort levels, age, etc.
Your accountant takes the receipts you receive for your RRSP contributions to get you a reduction or a refund of your income tax bill when they do your taxes. They aren’t reviewing the actual investments because that isn’t their expertise.
If you aren’t using RRSP’s, your accountant most likely won’t recommend them. Not because they aren’t good to use, but like I said, that’s not their expertise.
I’m using this example because most people are familiar with an RRSP. There are so many different strategies that I put together for your accountant to use in a similar strategy.
Tax rules change every year. With those tax changes, financial products change in response to adapt to the new tax rules. While both your accountant and I are staying on top of the tax changes for you, I have the added benefit of staying on top of the changes with the financial products.
I try to review with clients every year a lot of the tax changes that will affect them now and, in the future, because they change every year. It’s a good conversation to have with me and it will help your accountant out too!

Going Broke Safely

The stock market is at an all time low for the number of investors. Before the Financial Meltdown in 2008, 62% of Americans were invested. Today, only 54% of Americans are invested in the stock market. That means that that 46% of people aren’t invested. Out of the 54% that are invested, the majority are just barely invested.
There are many reasons people don’t invest. For example, low income households are less likely to invest because they don’t have the free capital to do it. Other’s might not invest because they have a lot of debt and are more concerned about paying that down instead.
What about the rest of the people that aren’t investing?

They are going broke safely.
Fear is the biggest reason people don’t invest.
People are scared of another “crash” like 2008. While it’s hard to have your money in the stock market and watch it’s value go down, it is the best time to start buying! It’s just stocks going on sale. For most things in life – clothes, shoes, a new motorbike, a car – we try to find the best deal possible. For the stock market, we wait till it’s going up before we are comfortable investing. Even though there might be short periods in time when the stock market goes down, the stock market always goes up. There has never been a time in history that it hasn’t gone back up.
If you had of invested $10,000 in March 2009, today it would be worth $40,000.
In 2008, the majority of people were pulling their money out and trying to prevent losing any more. Those are the people that lost money. Their money wasn’t in the markets to recover. The few that started putting more money in, those are the people that made a lot!
The best thing that could happen in the next few years is another crash. It’s going to hurt watching your money that is in there. But with a good mindset and a steady strategy of investing more, that is when you will be able to catch up and get ahead.
The most recent example is at the end of 2018 and the markets went down. For my clients that kept their investment strategy going, they have earned 10%. For people that didn’t buy more, they are at a break even point now.
Not investing has far more negative consequences than investing:
– If you hold your money in bank investments, earning only 1 to 2% per year, you are losing money to inflation which is running about 2 to 3% per year. You are actually losing money, and this is what I call going broke safely.
– If you aren’t investing because you are concerned about paying off debt, you might still have debt in 10 years and still not have any money. I love putting together a good debt/investment strategy! Debt can be a “lifestyle” when taken care of and used properly. Sounds completely contradictory to everything most of you have been taught, but it’s true!
– If you don’t invest, you will still be no better off financially in 10, 20, 30 years from now. Don’t you want something to show for all your hard work?
Now that you know a few of the downsides and that not investing is the equivalent of going broke safely, there is no better time than right now to get started. Markets will always go up. As of this moment, you are actually buying them on sale. If debt is holding you back, there is a plan for that. If lack of additional funds is an issue, there could be a plan for that too. If fear is a problem, well there is some protection from the downside that I often set up but the only fear there should be is not investing. Let’s grab a coffee and discuss a plan for you!

Your Life as a Statistic

There are 2 paths that we can take in our lives. The first one is the one that we have created so far. Our families, our financial situations, our health, our hobbies. It is good, comfortable and predictable. In fact, it is so predictable that for 80% of people, scientists can project with amazing accuracy what the trajectory of what our lives will look like.

Then there is the 2nd path. The one that is scary, uncomfortable, unpredictable, and with more than a few problems along the way. It doesn’t sound very appealing does it?
Take a look at these sobering financial statistics:
“….. take any 100 people at the start of their working careers and follow them for the next 40 years until they reach retirement age, here’s what you will find:

Only 1 will be wealthy
4 will be financially secure
5 will continue working, not because they want to, but because they have to
36 will be dead
54 will be broke and dependent on friends, family, relatives, and the government to take care of them.” Hal Elrod; US Government
Having been a Financial Planner for more than a few years, I see these statistics manifest way too often. They are much more predictable than you think. Out of 100 clients, I don’t know which 36 will be dead, of course, but it is easy to spot the differences between the top 5 and the bottom 54.
What is different between the top 5 and the bottom 54? Lots! This is the first newsletter. Over time I will discuss different ideas, strategies and mindsets that really separate the two groups of people. I don’t claim to be a great motivator, great leader, or even very inspirational. The top 5 don’t actually need that. The top 5 are looking for opportunities along the second path, and that’s where I come in.

The top 5 people have a different attitude about opportunities and money in general. They treat money differently. They have a strategy and focus on long-term instead of getting stuck in the moment. They use debt efficiently and have it work for them instead of against them. They use tax strategies to keep more money in their pockets. They respect money on a higher level and take care of it differently; that’s why they have more of it. It’s not economies, stock markets, or bad luck that cause a lack of money. They use those problems to their advantage, know those problems are short term, and turn them into opportunities that the bottom 54 miss out on.
The traits, mindsets, and qualities of the top 5 can be learned by anyone. The top 5 did not become the top 5 because they naturally possessed these skills. Regardless of what end of the money spectrum you are on, there is a chance that you learned your current money skills and attitudes from your parent’s, friend’s, community or co-workers, even if unknowingly. If any of them are multi-millionaires, then great, you have likely picked up on some of the right mindsets just by association. If they aren’t, then you might have picked up on some negative money beliefs that you aren’t even aware of.
The best thing about all of this is, it doesn’t matter what situation you are in financially, how old you are, or what your current views of money are; you can start where you are and you can change it. The sooner you start, the further ahead you will get. The key is, as Tony Robbins says, “taking massive action”. The expression “window of opportunity” carries the truth that opportunities only stay open for a few, brief moments. Hesitate, procrastinate, and the window closes shut. Unfortunately, the bottom 54 don’t recognize the path they are on until later in the game.
There will be lots of tips and strategies and mindsets coming in newsletters as time goes on, but if you are wanting the opportunity to start earlier, let’s get a coffee. There really is no time like the present!