Posted by Robert on November 21, 2011
This is a guest post by Robert, who lives in Calgary and works as a financial advisor retired at 34. He is married, has three kids. Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.
News Flash: “High net worth linked to how you manage money”. It might be difficult to believe that someone would consider this news. But last week, the Calgary Herald printed an article with exactly that headline. Here are some things a reader might learn from the article.
Be frugal. To my mind, this doesn’t mean “be cheap.” The difference can be significant. A person who is cheap will still buy all the stuff they want, but they will buy low quality in order to spend less. The person who is frugal will restrain their spending, but will still buy quality. As an example, being cheap might mean buying a pair of shoes (regardless of need) at Wal-Mart; being frugal means buying a pair of shoes (only if they’re needed) in the clearance section of a high quality shoe store.
Control debt. Debt is dangerous because it saps future resources that could otherwise be used to pay accumulate wealth. Interest costs must be paid from current income, reducing the amount that can be saved. Debt can be profitably used for investment, if it builds capacity for future income. But because debt can be used for any purpose, it must be controlled.
Have a plan and monitor it regularly. It is quite possible to succeed by accident, but it’s not likely. I find that having a goal, something to work toward, is motivating. A goal to accumulate a certain amount of money by a specific date makes it clear how much needs to be saved, but also why you’re making this difficult choice. It’s also easy to get off track, or for outside circumstances to change. For this reason, monitoring your progress can provide a chance to correct course or to adjust the plan..
Don’t divorce. This seems more like an aside of the article. I doubt anyone marries with the intention to divorce. And finances aren’t enough reason to stay together if a marriage is just not right. But divorce is costly and destabilizing, and could very easily jeopardize most financial plans.
Many millionaires didn’t grow up rich. In fact, they probably learned the habits they needed to accumulate wealth: frugality and an aversion to debt, because they grew up in humble circumstances. But there’s a saying: “From rags to riches to rags in three generations”, which illustrates the difficulty of the wealthy to pass on both wealth and good financial habits. Being rich doesn’t require a greater than average intellect; it only requires being able to take the actions that lead to accumulating wealth.
What actions do you take regularly to accumulate wealth? What else do you still need to do? Which actions take you further from your goal?
Posted by Canadian Dream on November 17, 2011
I was recently attending a leadership event put on by my employer which featured a interesting guest speaker. While I normally don’t find leadership training particularly interesting, I did find this speaker’s one particular point very illuminating on the problem of why people don’t save for retirement or any other long term goal. His advice was merely “people can’t commit to what they can’t see.’ To me this seemed obvious, but I had never articulated it here on the blog.
Basically if people can’t visualize it, the ability to commit to a goal is difficult. Hence this is where long term goals are difficult to save for including retirement. We don’t have a clear picture in our heads of what we are trying to achieve. For example, I have a goal to pay off the rest of my mortgage by the end of 2012. What motivates me to keep working towards this goal isn’t so much the numbers or the logic of the decision, but rather a picture in my head. In my vision of what this will be like I have a party to celebrate where good friends and family come over. We drink wine, eat some appetizers, and I’m in a extremely happy mood while I give a little speech and thank everyone for coming out and they cheer our good fortune (aka the plan). It’s not a complex vision, but I do have one part firmly set in my mind: the feeling of accomplishment.
Yet that vision is what most people can’t even tell you about in all that much detail with regards to retirement plans. What are you working towards? What will your days be like? What will you do to provide a sense of accomplishment? We have no vision of the event so committing to getting there is difficult to do without the vision to provide emotional motivation to keep going when things are tough.
Not surprisingly I do have a little vision in my head of the ‘perfect’ retirement day. While the details shift around a little bit the general gist of the story goes something like this.
I wake about 7:30am and the proceed to do a little yoga, eat some breakfast and drink coffee for a while while I lounge around reading the news. By 9am, I’ve grown restless so I’ve dressed and sit down at my computer to write in the library/den. I split my morning writing into two periods: one for a paid project or more commercial writing and the other for a fun project like my latest novel. Selling the novel is irrelevant since I do it for my enjoyment and not to make any money at it.
By noon, my wife and I sit down for lunch together and discuss our plans for the rest of the day. We typically split our afternoons into personal projects and doing something together. Today our plans include me working on a simple wood bench for our son’s apartment. I’m making it more to have a place to sit and take off my boots than for him. I’m not that good at woodworking so it isn’t a masterpiece, but I enjoy it. Later that afternoon, about 3pm, I meet my wife at the library where we browse the latest books and check out this week’s stack of books to read. Then we go home and cook a simple meal and talk about our day. Then that evening friends stop by and we visit over a pot of tea and perhaps if we are in the mood play a game of cards, a board game or something that doesn’t distract you too much from chatting. Then I read for a while after the guests leave and then head of to bed.
You will notice my vision doesn’t involve me a in another country, have any sports cars or sailboats or giant houses. It’s largely like my life right now, but just more time to do things I like to do. You might have also noticed it did contain a little paid work, but perhaps only an hour and a half. Which was mainly to help pay for the other hobbies, I don’t really need the money.
The point of this little story isn’t to say what you should do, but you should have a daydream in your head to work towards. So go ahead and take some time and dream. What would my day be like if I didn’t have to work?
Posted by Gwen on November 16, 2011
In my day job, one of my tasks is payroll, which for some reason allows others to feel comfortable talking to me about their financial situation in detail. Most of time, I am happy to listen and make suggestions where they are having issues, whether it is an income tax issue, or a personal budgeting problem (How do I get my partner to spend less? etc).
The ones I find I resent are the whiners. The ones who always complain how broke they are but make more money than I do, take vacations every year, drive newer cars, wear designer label eyeglasses, buy their breakfast and lunch out every day, and are sure to tell everyone of the latest home improvement they have done (the expense of which was added to their line of credit). I know any suggestions I may have will fall on deaf ears, and I don’t want to listen to how “hard” their life is.
Sometimes the conversations, both private and public, turn to real household expenses. Although I accept I think of most things differently than most, some things are constant. For example, how much it costs to heat a home in Southern Ontario varies only by the size of home, how efficient the home is, and how warm the occupants like to keep it, so to me, comparing costs like that are reasonable. Groceries and discretionary items seem to be in an entire different league.
A little while ago, I had a discussion about the cost of living with a youngish woman who seemed like she has an idea about where her money goes. We both have homes with two adults, no kids living at home. I thought I was doing well, approximating that I spend $400 monthly on things from the grocery store (food, laundry supplies, pet food etc). When I heard she thought it was a lot of money as she only spent $250 per month (and seemed to eat more steaks, cheese, and other “high cost” foods), I was wondering what I was doing wrong (Plus, I’m a bit competitive in things like that, to be able to spend less and still keep a quality of life).
Feeling like it was pointless to press how she did it, I started paying more attention to other conversations with her. Although she claimed they were short on cash, and hardly ever ate at restaurants, I learned over the next few weeks that they order pizza weekly, buy take out lunch every work day, skipped breakfast entirely, and went out to a sit down restaurant once a week. Through a bit of fishing for more information, I figured out she also didn’t count the food they bought when they went to the family cottage every weekend in her grocery budget.
That got me to thinking that if the only food I counted in my grocery budget was dinner 2 or 3 days a week, I would eat very well on $250 per month. Since that realization, I’m relying more on reality checks that come from my own sources (debt going down? did I overspend? is there a way I could have done that cheaper?), than those of the general “I’ll work until I’m 65 and retire in debt” people.
Just as an update, I’ve been maintaining four different spending / budget trackers so far in November, all of them found for free on the net. I’ll post about my experiences with them after a few more weeks.
