SMS 140 – Harnessing Your Financial Emotions

Harnessing Your Financial Emotions

Your emotions make most of the decisions in your life and our logical brain tries to create sound reasoning to support your emotional decision.

Control: We have the elution that we control things we actually have no control over. If we submit to the fact that our emotions are in charge and we control far less that we think we do you can begin to put in place a framework of a financial value system that will drive our actions.

The problem with making emotional financial decisions is we often evaluate those decision later with logic.

How do you know you are making an emotional based decision?

  1. Excitement
  2. Sadness
  3. Anxiety
  4. Anger

Ways to control your emotions when making financial decisions

  1. Don’t rely on your “gut”
  2. Pause and come at it from a different angle
  3. Write it down – Pros and Cons (pen to paper awakens the logical brain)
  4. Get external opinion – hire a professional (lawyer, agent, accountant)
  5. Don’t marry yourself to an outcome – make it about the process

Solution: Have a value system based on overarching rules that you can rely on for your decision making process.

  • Car loan: maximum 3 year
  • Mortgage: paid off in 15 years
  • I will never pay for a service I can do myself
  • I will not commute more than 30 minutes
  • Borrowing money for things that go down in value is not an option
  • Credit cards are a form of payment never to be used for credit
  • I will never use the equity in my house as a source of money
  • Replacements decisions are based on an items functional utility
  • Never mix money and family

SMS 139 – Living on Minimum Wage

Living on minimum wage

Can it be done?

If you do figure out a way to survive on minimum wage you actually have a superpower.

When does it make sense:
To build a career or it leads to greater prosperity
Supplemental income
Summer employment

Concerns with living on minimum wage:
Not a long-term solution – deprivation will catch up to you
Living on the financial edge for an extended period of time will wear you down
Raising a family would be a challenge
Credit could be your undoing
Location is important – if you can’t solve the income equation work on the expense side
You will not be able to build wealth
Are you really being deliberate?

SMS 138 – Rent – How Much to Pay or Should You Buy

How Much Should You Pay for Rent?

  1. One week’s pay equals on month’s rent
  2. Consider all of the costs when comparing

Determining Your Housing Rental Needs:

  1. Can you do a reference check on your landlord?
  2. Location, location, location
  3. Assess how long you plan to live there
  4. How much space do you really need
  5. Luxury comes at a cost
  6. Beware of a deal that is too good to be true

Rent vs Buy:

  1. You are not throwing money away – you get a place to live
  2. Home ownership is not for everybody
  3. Home ownership does not make sense at every stage of life
  4. There are more costs to home ownership than just mortgage payments
  5. The transactions cost of buying and selling are significant
  6. Read the Wealthy Renter by Alex Avery

SMS 137 – Retirement Considerations

Retirement Considerations

Divide you expenses into three buckets:

  1. Survival expenses
  2. Comfort of life expenses
  3. Luxury life expenses

Considerations in determining your costs base in retirement:

  1. What costs will remain in your life in retirement
  2. You shouldn’t have any debt payments
  3. You won’t have any savings requirements
  4. You won’t be supporting your children
  5. You should relocate to a low cost region
  6. Don’t plan for the worst – unfortunate events will be offset by unanticipated benefits
  7. My research has determined – you need less money than you think
  8. Statically you send 2% per year less past the age of 65
  9. Part-time employment will provide more than just supplemental income
  10. You can always make more money – you can’t make more time

Sources of retirement income:

  1. Pension plans (DB and DC)
  2. Retirement savings (RRSP, TFSA)
  3. Government pensions (CPP and OAS)
  4. Other investments
  5. Inheritance

SMS 136 – The Cost of Convenience (Roundtable)

Types of conveniences you can buy

  1. Transportation
  2. Meals
  3. Chores
  4. One-time events
  5. Professional services
  6. Specialty

The problem with paying for convenience

  1. Cost – financial
  2. Resourcefulness – you will lose this skill faster than you think
  3. Quality – either less you accept lower quality or get use to very high quality
  4. Lazy – you don’t use your new found time productively
  5. Speed – you either have to wait or you get used to things being done immediately

SMS 135 – Guilt Free Spending

Guilt Free Spending

Guilt free spending vs purchase justification

Why guilt free spending is important?
– deprivation is not sustainable
– bring change into your life

How much should you be spending guilt free?
– relative to your income

Spending considerations:
– on a regular interval
– not on life’s necessities
– not automated spending
– be deliberate about it
– make sure it is aligned with your priorities
– no room for personal agendas (not significant in value)

Sources of guilt free money:
– allowance – make it part of your budget
– gift money

Beware of the purchase justification machine

Mr. Money Mustache

SMS 134 – Re-Thinking Emergency Funds

What is an emergency fund?

  • should be 3 to 6 months of survival expenses
  • Insulation from life (living insurance) – removes risk from you life

The purpose of an emergency fund:

  1. Job loss
  2. Unanticipated expense

Who needs an emergency fund:

  1. Negative net worth – having debt in your life adds risk
  2. Relative low income – close to the financial edge
  3. Home owner – learn to predict expenses
  4. Car owner – learn to predict expenses
  5. Unstable employment – be observant
  6. Significant number of dependents – adds complexity to your life
  7. Known credit issues

How to build and manage an emergency fund:

  • Make it a line item in your budget
  • Stop all savings & aggressive debt repayment until you have $1,000
  • Aggressively build up 3 to 6 months of survival expenses
  • Have the discipline to not spend it on non-emergencies
  • Make it accessible but not too accessible

Who doesn’t need an emergency fund:

  • Positive net worth with no debt
  • Earn significantly more than you spend
  • Do not have credit issues
  • Very stable employment

Mr. Money Mustache

MMM vs. The Emergency Fund – MMM Show Episode 9

SMS 133 – Does Costco Really Save You Money?

Starting from the standpoint that everybody should have a Costco membership and the reason you want it is to save money.

Membership cost:

  • Gold Membership $60 per year
  • Executive Membership $120 per year with 2% cash back (spend $6,000 cash back $120)

My personal issues with a Costco membership:

  1. Membership costs – have to save the membership costs plus
  2. Altered consumption – having an endless supply could change how you use
  3. Walk past the shiny stuff – everybody know my weakness for electronics
  4. Creates a sense of scarcity
  5. Not supporting local business
  6. It stands for consumerism (more is better)

Who should not have a Costco membership:

  1. Single people
  2. You don’t own a car
  3. Have a consumer weakness
  4. No Costco in your local community

SMS 132 – Financial Myths

Personal Finance Myths
We like to make excuses; easier to blame others then ourselves. We all, like eating, have the ability, for thee majority, to earn, save, and spend.

1.“Personal finance is too hard.” — news flash, a lot of the most important things we will ever embark on in life are really hard. Anything worth having, anything worth being good at is always going to challenging, But its how willing you are to fight to achieve what you want to achieve is the true measure of strength and resiliency. Change will come from a place of discomfort.

2. “Personal finance is easy… just don’t buy anything or spend any money, I’m set…” — things happen, clever marketing ads get shoved in your throat in all sorts of subconscious ways, its harder then ever not to spend money

3. “My parents are bad at it which means they didn’t teach me how to get too at it.” — the moment you stop letting someone else dictate how good or bad you are and will ever get at something is the moment you relinquish control. Control and permission to excel at something and be great. You are not your parent’s legacy, instead you can foster your own legacy at leading an incredible personal financial life. Yes, you may not have been dealt an incredible hand, but you own how you play that hand out. I will also in the same breathe be the the first to admit that my parents are incredible with their finances, that everything I know and everything I told true is because of them.

4. “People with a financial background have an upper hand.”

5. “Personal finance is a place you get to.” — in reality, it’s a journey not a destination and you have to be kind, gentle, and patient with yourself as you grow and go through this journey

6. “There’s a “right” way to do personal finance” — and by right way we mean there are right strategies to take on i.e. spend less then you earn, but the things that work for your neighbour, friend, etc. might not work for you. It’s easy to get caught up in the perfectionist side of things, that if you live your life according to the success plan that worked for someone else it’ll work for you, however in reality our lives are all so unique.

7. “I’m older now, its too late.” — its never too late

8. “Caring about personal finances is only for those with lower incomes.”

9. “If I made more money I wouldn’t have any financial worries or problems”. —Don’t look for external solutions to an internal problem

10. “Everyone else around me is living large, why can’t I?”

11. “It feels like my debts will never get paid off, why even try or start?”

12. “I tried the personal finance thing and it didn’t work.” — Trust yourself — trust yourself that you’ll have the ability to succeed

13. “My spouse takes care of the personal finances so I don’t have to.” — faulty approach, important to delineate roles, but also as important for both partners to have a pulse on your joint personal finance situation and be jointly involved (regardless of who may be the primary/larger bread winner of the family unit). Each partner serves as a sounding board, your accountability partner. Ensures your immediate/short term actions align with your long term goals.

14. “Thinking about personal finance is too restrictive — budgets, curbing my spending…”

15. “I’m not wired that way.” — its not about math, its something you need to learn, something you should embrace getting good at

16. “Personal finance is something I can ‘dabble in’ whenever its convent for me” / “I have a bad habit on spending money on things I don’t need.” — no, personal finance is a way of life and a way of living, not a habit to be broken and then commit to next week or next year when you think it’ll be easier.

SMS 131 – Financial Mentoring

Financial Mentorship – You need to be willing to be mentored and be willing to be a mentor

Ways to be a financial mentor:

  1. Demonstrating
  2. Teaching
  3. Coaching
  4. Accountability Partner

Choosing a Financial Mentor:

  1. Somebody who is moving in a direction you want to move
  2. Somebody who has your long-term interest
  3. Somebody who is your senior – generally not a sibling
  4. Somebody who will be in your life for an extended period of time
  5. Somebody you are will to share your financial life plans with

Being a Financial Mentor:

  1. Listen and understand the issues
  2. Be compassionate
  3. Somebody you think you can help
  4. Somebody you think you can communicate well with
  5. Somebody you can motivate and inspire
  6. Somebody you are willing to share your financial details – successes and failures
  7. Somebody you can be available for the teaching moments

When is it time for a Mentor:

  1. Preferably ongoing but before significant life events
  2. When you start to lose direction, motivation, or traction
  3. When this go bad – one-time events or a pattern of behavior