Archive for June, 2009
Monday, June 29th, 2009
Like many people, I don’t claim to know all the details of Bernie Madoff’s massive Ponzi scheme. In fact, I’m just as caught up in the disbelief at the whole thing as everyone else. I do not know anyone personally who lost money in this scam, but I know many others, some well, who have lost money to fraudsters over the years. My heart aches for the thousands of people whose lives have been forever altered because they trusted someone with their money who was not honest. I know what it’s like to lose money and no matter how seemingly insignificant the amount, it is always incredibly painful.
While Bernie Madoff has now traded the rest of his life for the money and lifestyle that was created from this scheme with the 150 year prison sentence he received, there are others who have unwillingly done the same. I wish I could wave a magic wand to help them go back in time to prevent or minimize the effects, but since that is impossible, I will use it as an opportunity to remind everyone (myself included) of the principles of know yourself, know your advisor and know your investment. We certainly will not be able to prevent fraud, but hopefully we can use some processes and decision making tools to help make personal financial decisions that can minimize the devastation of losing money.
The process should be life first and then money, not vise-versa. This is some of the earliest work I did in the area of values-based financial decision making. If you’d like to know more, please visit www.moneyminding.com for the ‘Accepting Financial Advice’ report, or ‘Lifestyle Financial Assessment’ and the ’12 Step Plan’ roadmap to help make sense of this situation going forward.
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Friday, June 26th, 2009
I had a conversation with a man who exemplified how deceitful and gimmicky marketing messages, when disguised as good financial advice, can have harmful effects on someone that does not have the financial education to know the difference. I have these conversations all the time. The situation is so common it could easily be called a pandemic.
With this economy, it’s just as bad to have savings sitting idle, as it is to have a lot of debt. While the savings account may seem not to be ‘losing’ money, in reality it might be a major problem. In Canada, the government retirement savings program for personal savings is set up so that when you put money into the plan, you get a tax deduction for the amount you put in. This is a good thing because it means you save taxes right away. The money that you put in the plan gets invested and your investment earnings are not taxed as long as the money stays in the plan. However, in the future, you will start taking out the money which will then become fully taxable at whatever your tax bracket is at the time. In other words, if you start to save at young age, and you take money out years later after you have your career set and making good income, you actually lose more money because the money you are taking out is at a higher tax bracket than when you were first saving when you were younger– yikes!
So here’s the problem: If you think you’re doing all the right things saving money by keeping it in a ‘low risk’ plan, or are doing other seemingly solid financial strategies such as not ever paying interest on your credit cards or paying off your mortgage early, think again. You may in fact not know these strategies are costing you thousands of dollars.
Your ‘savings’ are actually NOT set up to be tax efficient at a time when you need it to be most. The money you put into savings hasn’t lost any market value however, because it also hasn’t done anything more than simply be ‘saved’, it has indeed many times gone backwards compared to the purchasing power of your money.
Likewise, the no interest you pay on your credit cards can in fact be a detriment to your credit score and because the only aspect of credit you see as being valuable is the free points, you miss the opportunity to use your credit to leverage your current assets and income to create more wealth, to get your money working for you, and to earn more income – like for example what happens when your mortgage is eventually paid off - there is a lot of equity sitting idle that requires an income to maintain. Also, the extra money that was previously going to pay the mortgage is now going to additional savings which is also not tax friendly, or income efficient and so you work harder and harder and longer and longer just to seemingly stay ahead of the game when in fact you are getting further and further behind.
The secret is to use your current income to get your money working for you by using powerful tools like access to credit to create more income and wealth which creates even more income to go to work for you to create more wealth and so on and so on…
If you like what you have read and want to learn more about money as it relates to you personally, please go to the moneyminding.com website and subscribe to our mailing list for more tips.
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Friday, June 26th, 2009
I was sitting in a reception area with a variety of magazine headlines competing for for my attention: ”Ways to Save on Everything”, ” Live More Spend Less”, and the beautiful book beside them all, “The World’s Finest of Everything”.
This is a perfect example of the conflict we all face every single day in many unsuspecting ways. This is the reason why having a clear vision for our lives is critical. This is the reason why making financial decisions is stressful without a structure to link your vision to every day…
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Wednesday, June 24th, 2009
Something has come up over the past week that I just don’t understand. There was an announcement by a financial company about some research they’ve done to come up with a $20 rule for retirement planning. This was one of the most ridiculous marketing messages I’ve ever heard. One that borders on malpractice from what I can tell, based on what I know about the psychology of money and the importance that personal preferences play on financial decision making.
The basic concept was to say that rather than the age old standard rule of thumb amount of money needed for retirement of 70% of pre-retirement income, the new ‘rule’ said you need to have $20 saved for every $1 of income you want to receive in retirement.
This is so totally absurd. It makes no sense and takes most of the money myths that keep you broke and wraps them into one neat and tidy message. Retirement is not based on savings at all. Retirement is based on your ability to bring enough income into your home on a monthly basis that you can live the lifestyle you desire without having to go to work everyday to earn it. It is a point in time which has nothing to do with you age, but rather when you would be financially independent.
From what I can tell, the only good thing about this new ‘rule’ is that it did break down something far off and unrelatable into a small very relatable, real, tangible number. Many people can relate to $20 so if that same message could have been related to day to day spending – then it would make sense.
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Tuesday, June 23rd, 2009
While I would never want to comment on someone else’s marriage, the situation with Jon and Kate plus 8 has certainly grabbed my attention. For 12 years I have been studying and applying the emotional side of money with the practical day to day money decisions we all make - in my own life and the life of clients I work with – individually and couples.
We all know that it takes commitment and work to be married so it’s interesting to me, and I’m sure many others, what role money has played in the public breakdown of this marriage. Obviously they make a lot more money now from their reality TV show, than they did when Jon was working to support her and the 8 children.
My husband and I have a daughter who loves the show so we take note of the message she receives by watching it. Together we have survived a bankruptcy, death, cancer, and a host of other family crises and are still married after 14 years because one of our values is commitment. Obviously, couples of our parent’s generation who have been married for 30, 40, 50 and more years, have lived through financial struggles and triumphs and have stuck together through it all.
The fact that Jon and Kate’s marriage is in trouble now when on the outside they have all the money that many people think will solve their problems is a great reminder that more money is not the answer to money problems. In fact, it’s your values, priorities and commitments that are the basis from which to make financial decisions.
If you like what you have read and want to learn more about money as it relates to you personally, please go to the moneyminding.com website and subscribe to the newsletter.
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Friday, June 19th, 2009
I wrote this in response to an article piece that I found online in regards to teaching the younger generation about being financially responsible. Although there was a lot to the article, I found myself focusing on a piece in the article that focused on the message that I see all the time in the media: That we need to cut back on spending. I have spent over 12 years studying the psychology and emotional sides of money as it connects to everyday financial transactions. I have a system that I teach to the financial industry as well as to consumers of all ages and economic backgrounds that is a values-based financial decision making program. I still stand by my comments about deprivation because there is a very big difference between living within your means and earning what you spend.
I absolutely agree that we need to reach out to our young people to teach them to be financially independent – meaning they have enough money coming in every month to live the lifestyle they chose without having to go to work to earn their pay check. For over 50 years we have done a very poor job in teaching this to anyone – in part, because the financial curriculum is very simple in it’s approach: save a big pot of gold to live on when you get old. It’s not the big pot of gold at all that we need – it’s an ongoing income. And, what is immediately in front of us is always more powerful than what is off in the distant, yet we learn very little about how to earn an income today, let alone in the future. We now have a society dependent on a job and their ability to save whatever they can only to be told that when they do finally accumulate some money, that they better not risk it because it’s all they have. It’s no mystery that running out of money is the number one stress in retirement. And, it’s no mystery that young people get into debt and aren’t motivated to fend for themselves – because all they are bombarded with marketing messages to buy now, yet all they learn is to ‘live within their means so they can save money for the future’ when they still have their youth in front of them and they see the financial stress of their parents generation.
Barak Obama called for a paradigm shift in his inaugural speech in order to help the economy – it seems to me that to help make this happen we need to help people, one at a time, to learn to spend money so that while they’re spending they’re also learning how to earn it, manage it, grow it and maintain it.
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Wednesday, June 17th, 2009
I received a very relevant question today from a young woman asking me if I had any suggestions in regards to setting an action plan to own a house one day. Her situation is that she is working in a temporary position within a company, waiting to get fulltime hours, with very little savings at the moment. Here is my response:
Oh yes I do have suggestions. This is a fun one. I love helping people buy a home because that was my biggest goal a few years ago. Beginning today, take a pen and paper and write a date for when you’d like this house. Describe what it will look like in minute detail including the location. Studies have proven that physically writing down a goal ensures a 95% higher success rate in achieving it compared to storing it in your head. Next, pick up the real estate guides to see how much it will cost. From there you have the basis of some good questions to ask such as “What will the mortgage payment be” and “How and where will you earn the money” and “Who should you talk to for help”?
MoneyMinding has re-introduced a program called Simple Steps to Lifelong Financial Security that will walk you through these simple steps along with any other area of personal finance. To get started, just call the office or visit the website. Mention this email to our team who can process your order and get you started.
Looking forward to helping - and to seeing you in that new house -
Tracy
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