June 20, 2017

Things I Have Gleaned

By William Fraser

I was recently asked about what I had learned from the financial books I have read. One thing that I found was that there were certain common recommendations in all of them. As a result, I have put together my take on the main behaviours for financial wellness.

Start by keeping track of your spending. Almost all of the writers suggest that a person keep track of their spending for a month or more. Write down everything that is spent in a month—from monthly bills, such as mortgages, to smaller items like coffees. Fuel for your car, bus or admission tickets should all be included. Understanding that there may be items that you will never purchase again, include them nevertheless. While you may not buy a lottery ticket next month, you may buy a few boxes of Girl Guide cookies. Remember that you cannot have more money going out than coming in.

The next step is to look at your spending for the month and decide what is a need vs a want. We like TV for entertainment but do we need 125 channels? We need transportation but do we need a Ram 3500 diesel? We need food but do we need a Starbucks coffee each day? All of these types add to our immediate cash outlay such as coffee or tie us down to payments, insurance and fuel for a larger vehicle as opposed to a smaller one. In the book, “Stop Over-Thinking Your Money!” the author says he loves fast cars. Rather than buying a Porsche he suggest that you buy a Honda Civic. With the money you saved on fuel, purchase price and insurance, you can rent a Porsche for a weekend and get your high octane fix that way.

Creating a budget is the next step that all the writers stress. Set aside monies to cover the monthly bills such as power, gas, phone, computer and TV. A rent, mortgage or loan payment should also be included in that initial draft of your budget. Then add a fixed amount for food, clothing and even entertainment. Include in your budget a ‘rainy day fund’. This can be any amount that you are comfortable with but is reserved for those unexpected expenses. The water tank explodes, the roof needs repair or the car needs a major repair or replacement. At the same time have a plan of attack to get rid of any outstanding loans. This includes credit card bills. Keep in mind that a purchase on a credit card is actually a loan from the bank at extremely high interest rates.

Here there are a variety of opinions as how to attack these loans or credit bills. One is to tackle the smallest amount first and get an instant rush at being one step closer to being debt free. The other is to tackle the one with the highest interest rate and so save even more money once it is paid off. Once one bill has been paid, add that amount to your next bill target and don’t assume that it means you now have more money to spend.

Try to stay away from credit cards as much as possible. Rewards programs are seldom to your advantage if they lure you into spending more money. Does it make sense to spend ten dollars more to get fifty more Air Miles? Remember that while some credit cards reward you with 1% back on your purchase, they are charging you 16 to 24% on that same purchase.

Another stratagem is to defer or budget any large expense. Rather than paint the whole house, which would mean taking out a loan, you might do a room each year as money became available.

Finally, if you have money left over you may want to invest that into something that earns more interest than a bank savings account. This is where you need to go to the experts such as a licensed financial planner. Like any investment, get references and talk to their clients about their service and advice before putting any money into their hands.

Finally, this will work as long as you have the willingness to think honestly about your life style, needs and wants. There may be major changes to your spending that is needed and do you have the will power to make those changes? Like so much in life there is no magic bullet but only hard work and a willingness to work at it in order to gain success.

For more posts like these, visit the Pension & Financial Wellness Committee page.