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Financial Risk - Dealing with Debt / Mortgage Payments

Posted on 20 November, 2018 at 16:45 Comments comments (0)

Financial Risk - Dealing with Debt / Mortgages

Tom and Dick were debating the other day about who was carrying more financial risk.

Dick thinks Tom is carrying more risk because he has $0 of savings, and $0 of debt.

Tom, on the other hand, thinks Dick is carrying more risk because while he has $20,000 of savings, he also has $20,000 of debt.

What do you think? Who is carrying more risk?

Tom - $0 Savings, $0 Debt,

or

Dick - $20,000 Savings, $20,000 Debt?

We’ll talk about that in a minute.


Organizing Income / Dealing with Debt and Mortgages Workshop

Tuesday, November 27th. 7-9 PM. 875 Gateway Rd. Wpg, MB

Currently, The average Canadian saves only about 4% of their income for the future (for most people that means short term future like a trip or a big expense rather than retirement) and spends 34.5% of their lifetime income on interest payments. Our mortgage is often the biggest interest expense.

In this 2 hour workshop we’ll walk through structuring our income for success and discuss how much of our income should go to our current lifestyle, how much for the future, how much towards our housing costs etc. We’ll also discuss some guidelines on how much house to buy, and an alternative way to pay off your house that could save you thousands in interest and years in payment time.

Finally, we’ll discuss some simple strategies to help pay off debt more quickly.

In short - we’re budgeting well and paying off debt more quickly in this workshop.

Register here


Alright, Back to Tom & Dick

While Dick has debt, Tom is actually carrying more risk. If Tom were to lose his job or become disabled or ill, he would be in a very tough position, as he has no money available to him. If Tom ended up in this situation, he would likely be unable to get a loan because the bank would wonder how he is going to pay off the loan, having no job. He will have no way to cover his monthly expenses as he has no money in his accounts and no way to get access to money.


Dick on the other hand has $20,000 of savings in his control, to access and to use if he were to lose his job. He will be able to cover his monthly expenses for a time, giving him some financial security while he tried to get back on his feet.


Why do I share this example with you?


Most Canadians hate the idea of debt, especially big debt like a mortgage. Because of this, they use most of their extra monthly income to pay off their debt. What they may not know however, is that this will likely leave them taking on a lot of risk because the rest of their "financial house" is not in tact, or structured well. They'll often leave themselves under - insured (most Canadians are under - insured), and use those dollars and the dollars that should be directed towards saving for emergencies, saving for opportunities and saving for the future to pay of their debt instead.


While it is important to pay off debt quickly, it should never come at the expense of leaving your household poorly structured financially, and taking on undue risk. Before paying more into debt, we should ensure that we have access to money when we need it, that we are prepared financially for difficulties that come our way such as a death or an illness, and that we are saving for the future - the retirement years come much more quickly than we often expect.


My encouragement for you - whether you have debt or not - is to make sure that you have money that is accessible to you and in your control at all times. With access and control of money, you are ready for any emergencies and opportunities that come your way.


We'll discuss the ideas in this blog in more depth at the November 27th workshop Organizing Income & Dealing with Debt, including paying your house off more quickly while paying less interest.


We send out thoughts and tips like this regularly in our newsletters.

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Organizing Income

Posted on 4 October, 2018 at 14:00 Comments comments (0)

Today’s Topic: Organizing Income.

“Do not save what is left after spending, but spend what is left after saving.” - Warren Buffett


** Financial Strategies To Get Ahead - a one-day seminar on October 20th - is designed to help people protect and growth wealth for themselves, their families and their businesses. Click here for more information and to register. **


Putting money aside on a monthly basis for emergencies and for the future is very important. Doing this puts us in control of our financial situation. If we do not have savings we often borrow when an emergency comes up. Those who do not save are usually indebted to those who do.


One way to ensure that you can save first is to make more than you spend. This allows us to structure our money, and plan for the future much more easily, because it gives us that room to save, and invest, and deal with emergencies along the way. Making more than we spend every month is the first step to wealth building.


Budgeting, and planning your cash flow - having discipline with your dollars - is a great way to ensure that we make more than we spend. Here is a helpful guideline to ensure that we can make more than we spend every month and have plenty of room for saving, for sharing with others, and taking care of our monthly needs.


The Goal (based on net income)

10% or more: For others

10% or more: Savings

30% or less: Housing Costs - includes mortgage payments, house Insurance, property tax.

25% or less: Daily Living - includes entertainment, eating out, hobbies, travel, clothing, gifts, infant needs, pet bills, personal care, etc.

25% or less: Everything Else - includes maintenance, phones, TV, internet, gas, parking, insurances, debt payments, investments.

Total: 100%


These percentages are the goal. If you haven’t been saving anything yet, don’t worry too much. The key is to start. Maybe start with 1% until you hardly notice it and then increase it. 

Your Children's Future Career Choices and their Impact on Insurances.

Posted on 25 July, 2018 at 15:45 Comments comments (1)

Children’s Future Career Choices and their Impact on Insurances.


A few weeks back I helped a client in their mid-twenties apply for $600,000 of life insurance at a monthly premium of just under $30 a month.


This client is a licensed pilot, but currently doesn’t have all that many flying hours and is currently not working for a reputable company.


When the insurance company contacted us with their decision, my client was given two options:


He could continue with the $30 premiums but aviation would be excluded from the policy. This, of course, meant if he passed away while flying the insurance company would not pay the $600,000 benefit.


His other other option was that he could include the aviation benefit in the policy but his monthly premium would increase from $30 to over $200. Yes, you are reading that right - a rate nearly 7 times higher than initially applied for.


This is just one example of an occupation that hugely impacts peoples ability to get good life insurance coverage to protect themselves and their families well. Roofers, Farmers, Construction Workers,Truck Drivers, Firefighters, and Police Officers are just a few of the people with occupations that can cause premium increases or there may be exclusions on their insurance policies.


Many of us teach our kids that they can do whatever they want to, become whatever they want to become. The reality is some of these career decisions can have a major impact building a healthy financial plan and protecting our families when life doesn’t go as planned.

 

There are many great reasons to insure your children and the ability for your children to choose any career they want, become whatever they want to become, without it impacting their ability to get insurance is one of them. By insuring your children you have ensured that they have insurance coverage for life at a monthly premium that will not increase, giving them the ability to pursue any career opportunity that interests them without it impacting their ability to take care of their future families, if something unfortunate happens.


When your children become adults, you can transfer the insurance policy over to them and they become responsible for the policy. This way you do not have to worry about the policy any longer but you’ve ensured that no matter what your children choose to do with their life, they are insured, and taking care of the ones they love.


If you’d like to learn about the many benefits of insuring your children, We’d love to talk to you.

What Motherhood Has Taught Me About Money.

Posted on 29 June, 2018 at 9:55 Comments comments (0)

So, your wondering what got in to us to post an article about mothering and money! We're definitely not speaking from experience but thought it was a good article. I hope you enjoy it.


What Motherhood Has Taught Me About Money.

I never realized just how much disposable income I had until I gave birth to my first kid.

Before my daughter was born, it was so easy to throw money around. Weekend getaway? Sure, let’s go! Get my hair highlighted for $200? Yes, please!


Now every penny that we have that isn’t socked away for the future is accounted for—and the vast majority of it goes towards our family.

If you’re looking for a lesson in personal finance, all you have to do is get pregnant. Parents learn so many life lessons, in such a short time, that they form a special club of their own. I’ve found that, when you’re a mom, you just get it.


Here are six things I learned about money after I became a mom. If you’re a mother, you may know what I mean. If not, well, here’s what you have to look forward to:


1. Going out for lunch is a luxury — diapers aren’t.

When you become a mom, your priorities change. Drastically. Enough said.


2. You won’t believe how fast kids grow.

A pair of tennis shoes for a 4-year-old can cost as much as $50! So your best bet is to often shop consignment stores for the wee ones because kids grow so fast that second-hand clothes are basically brand new. If you shop carefully, you’ll likely find expensive brands that you may not be able to purchase new. The same goes for you: Gently worn clothing is a great way to save on items that you won’t wear often—like maternity clothes!


3. If you grocery shop without a list, you’ll spend double.

When you have a family, planning ahead for meals and snacks reduces your food budget significantly. Additionally, before you make an impulse buy, think seriously about the trade-off between time and money. For example, some moms will advise you to forgo the bag of pre-cut baby carrots, but I think my time is worth more–it’s a fast, healthy snack kids love that you don’t have to prepare


4. Rainy days happen (and umbrellas are important).

Even a few dollars saved every month can build a significant nest egg–or an emergency fund. Should you or your spouse get laid off, that cushion can see you through tough times. Or if one of your children suffers a significant illness, you won’t have to worry so much about paying for treatments. Being a mom means being prepared for everything … even the worst-case scenario.


5. Don’t feel guilty about spending on yourself.

Okay, spending your monthly mortgage payment on a spa weekend isn’t smart, but a good haircut or a new dress every now and then makes for a happier mom. Here’s why splurges are important and how to splurge wisely as a mother. For example, check out local deals site for coupons for a massage. You’ll feel even better because you got pampered for a steal.


6. The desire to spoil kids is almost overwhelming.

If we could give them the world, we would. There are lots of reasons not to create your own little Veruca Salt, but saying no all of the time can be a real bore–and not just for your child. No matter how hard you try to shelter them from the massive amount of marketing aimed at kids, they will inevitably want the latest gadget and the hottest toy. At some point, all of us wonder, “Am I spoiling my child?”

Here’s a secret: Although it’s important for kids to hear “no,” timing your gifts responsibly and making sure kids understand the value of a dollar means that you can sometimes indulge them. For example, you can find toys, sporting goods and entertainment for cheap if you shop carefully, and you’ll reap huge rewards in the form of that big smile on your little one’s face.


Amy L. Hatch is a writer and editor, as well as the co-founder of chambanamoms.com. She currently lives in Illinois with her husband and two children.

Your Financial House Pt. 2 - Debt Elimination & Wealth Building

Posted on 20 June, 2018 at 17:25 Comments comments (0)

Your Financial House

Part 2: Debt Elimination & Wealth Building

A couple of weeks back we discussed the Strong Foundation to any financial plan - the insurances. Once your insurances are in place, you can start dealing with the other 4 areas of your financial house - debt elimination, wealth building, retirement planning and legacy planning.


Throughout our lives we will focus on some of these areas more than others. In the earlier years of financial planning, when you have young families and are building careers, you’ll typically be dealing more with debt and trying to create wealth, with much less focus on retirement planning and legacy planning. This of course makes sense but keep in mind that the decisions you make with your finances today - even in the areas of debt elimination and wealth building - will impact your retirement and your legacy. Thus, you must make your decisions now, with what you hope for your retirement and legacy in mind.


For many who have debt, getting rid of it is the first priority, causing them to dump much of their extra income into their mortgage or loans. Paying off debt quickly is important but do so without compromising the rest of your financial house. Warren Buffett says, “Do not save what is left after spending, but spend what is left after saving.” Even if you have debt, saving should come first. Saving puts you in a position of strength, as those who do not save are generally indebted to and reliant on the people who do. We’ll discuss savings and wealth building shortly but the first step to getting rid of debt, is to not get into more debt. The best way to avoid more debt is to save first, ensuring you have a surplus every month.


Now that we understand that, let’s discuss some basic strategies to paying off debt most effectively. 


The key to dealing with debt is unification. With multiple debts, payments typically end up covering interest cost, with little going to the debt load. Unifying debts at a similar or lower interest rate will see more of those payment dollars going to principal, thus speeding up the progress. There is a great strategy to pay off our houses more quickly, with less interest using the unification strategy.


If unifying your debts is not an option, deal with one debt at a time. Choose one loan to push most of your payment dollars into and pay the minimums on the rest. Once the first loan has been paid, take those dollars, and push them into your next loan.


As mentioned earlier, saving first is the first step to wealth building. If there is no surplus at the end of every month, it is impossible to build wealth. Saving also gives us access to money in case of an emergency or opportunity. Having access to money allows for more opportunities to present themselves, creating the ability to build more wealth. A good goal is to save 10% of net income. And the earlier we start the better, as that money has more time to work for us. If you currently aren’t saving, the best thing to do is to start. Begin with 1% or 2%. As that becomes a habit and manageable, increase it. Slowly progress towards the goal and build wealth.


Many people will take what little savings they have and throw that money into the market, using RRSP’s and putting them into mutual funds. While this can work, it may not be the best option. The market is volatile, constantly going up and down. If you have money you’re willing to lose, putting it into the market is just fine, but safe, consistent, guaranteed strategies are what to look for with your early savings. Growing your savings consistently and safely is better than losing what little you have.


For more information on the topics discussed today, feel free to contact us for a free meeting, or sign up for Session 2 and/or 3 of our summer education series “Financial Planning for Young Families.” You can find out more and register for the sessions under the Financial Education tab.


Next Blog we’ll discuss some of the things we need to think about now - in regard to building wealth, saving, and investing - that will have an impact on retirement and legacy planning.

Four Tips For Talking Money With Your Spouse

Posted on 25 May, 2018 at 11:00 Comments comments (0)

Forbes

Liz Frazier Peck

May 15, 2018

Think back to the last time you and your honey talked about money? I’m going to guess that it wasn’t a positive experience. That’s because most of our money conversations are reactive; they’re based around bills, budgets, overspending or other issues that pop up. Rarely do couples have positive discussions about their dreams, values and feelings around money. Talking about money with your spouse is critical not only to your future planning but also to the strength of your marriage. Marriage.com lists money as the No. 2 reason for divorce among couples (only behind infidelity). And it’s easy to see why. Money touches everything. If you and your spouse don’t have positive communication around money and support each other’s values, it can lead to constant bickering, fighting and worse.

The good news is if you’re reading this article, you want to improve your communication with your partner. Congrats. Below are four tips to having positive and open money discussions as a couple.

Set a “money date”:

As the very first step, Megan Lathrop, co-creator of Capital One’s Money Coaching Program, recommends setting a money date with your partner. Don’t worry, this isn’t what you’re thinking; we’re not asking you to bring your budget spreadsheet to review over a romantic dinner. The focus of this date is to have an open conversation about your relationships around money. Don’t even set an outcome or goal, just talk. Make sure you’re in a supportive and connecting environment, such as a hike or over wine (wine always helps). This begins to build a foundation of trust and understanding as you embark on future conversations.

Discuss your values around money:

In Lathrop’s workshops, she encourages couples to list their top five values. It doesn’t need to be about money, just whatever’s important to them. From there, compare your lists and identify your similarities and differences. This can be eye-opening to why you may have issues with your spouse around money. Lathrop states that typically what comes out of her workshops is the realization that the couple is not arguing about money, but about values. For example, your spouse may list adventure as a value, while you may list stability. After digging deeper you may realize that this is why he spends so much money on travel, and why you are always buying pieces for the home. The beauty of this conversation is if you make the discussion around values, both partners typically step in and want to support each other. This type of larger structured conversation is non threatening and positive. 

Plan for your future: 

This seems obvious enough, but according to Capital One’s Financial Freedom survey, one-third of couples never talk about their retirement plans with each other. If you don’t discuss your hopes for retirement then you end up making assumptions about what the other wants. Maybe your husband wants to garden with you ten hours a day like you planned. Maybe he doesn’t. The only way you’ll know is by asking him. Most importantly, having open conversations about your future allows you to plan for it, rather than just letting your future happen by default. 

Turning triggers around:

We are all human and we all have our triggers. You know how it goes. You intend on just having a quick talk about the budget, and within five minutes both of you have your arms crossed and are glaring a hole through the other. What’s the best way to avoid these trigger flare ups, according to Lathrop? Slow down. “If one person is triggered, how they respond naturally can trigger the other person. Then we have two triggered people.” Think of it as the stop, drop and roll fire safety method. When you feel your blood heating, take a pause. Acknowledge how you’re feeling and take a break from each other to reflect. Then come back together to discuss when you’ve settled down.

This article was written by Liz Frazier Peck from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.