Blog Posts - Page 13 - Avraham Byers

Your Standard of Living Bubble

No matter who you are, no matter what you do, no matter how much income you earn each year, if your debt is growing, even just a little bit, your lifestyle is not sustainable. Why? Because eventually, that debt will start eroding your lifestyle. Even before you get to that point, you will probably feel stress, or other unpleasant emotions. At the end though, we reach a point where the debt gets so big that we can’t pay it back without apparent consequence to our lifestyle. We stay on trajectories like this one, however, because we believe we have two ways out at our disposal: The first is to earn more money. This doesn’t work. I’ll explain why in a minute. The second false belief is that we can consolidate and simply start over. It’s relatively easy to see how consolidation efforts don’t work in practice. Virtually everyone knows someone, or has firsthand experience with the cycle where debts are consolidated, and even sometimes paid down, while our lifestyle spending carries on unchecked, and the debt begins to creep higher once again. In the long run, multiple consolidations can lead to an accumulation of large debts, that force us to […]

Getting rich on small potatoes

Watch your pennies. It’s not terribly difficult to do, and the pennies, the little things, are usually what add up to big savings over time. I was speaking with a client recently who was introduced to the concept of tracking his daily expenditures. This task of “watching the pennies,” really had him questioning things. “What’s the big deal?” he asked us. “How could this help me save money?” Think about it though: $21 a day works out to $7,665 a year. How often, without much thought at all, do we pull out a $10 bill here, a $5 bill there, then spend loose change on gum or a lottery ticket? (Or whatever it is that you spend your loose change on.) Before you know it, even on a relatively frugal day, you’ve spend at least $20, if not much, much more. All of it can add up to thousands of dollars each year, but somehow we think it’s beneath us to keep track of it all. The fact of the matter, though, is that even rich people watch their pennies. According to documentarians, industrialist Andrew Carnegie, who died August 11, 1919, was the richest man in the world during his […]

Tax refund madness

The urge is typical. You’ve completed your tax return, happily confirming your hope the government owes you a refund. Before you’ve even received your refund in that recognizable brown envelope, it’s likely you’ve already earmarked that money for goodies you want, but haven’t had the chunk of cash to pay for. In the back of your mind though, you know paying down your debts, and saving your money for a rainy day or retirement is the responsible thing to do. Although at a first glance it seems like the least satisfying course of action, but in truth, it’s not. By paying off your debt and getting ahead, you may not be buying your way to the tropics, but you are paying off your worry, your stress, and the pressure that money can make you feel. Think of it this way: If you could purchase a magical wand that could take away (or at least significantly) reduce your financial worries, there’s a good chance you’d whip out your cheque book and pay top dollar to buy that wand. You would probably even allocate a large portion of that tax refund we were talking about, to get some peace of mind. How […]

Two common budgeting hurdles (and how to clear them)

There are two, very common, hurdles people face when attempting to budget. Unfortunately, these hurdles often go unacknowledged, setting a lot of people up for failure, almost before they even get started. Quite simply, there are two hurdles or speed bumps people encounter with the process: The first challenge is the not-so-simple task of getting started. Unlike starting a diet (which is difficult enough), budgeting requires a lot of work and planning up front. This heavy lifting phase requires a lot of time and a concerted effort to track spending, and categorize those expenditures. Done properly, it can be a prolonged exercise. The second, predictable challenge comes four to six months down the line, when boredom sets in, or when the excitement about initial, early success begins to wear thin. This creeping discouragement (boredom, malaise, or even rebellion) can manifest itself in a few ways: One person might start to slack off in their effort to document expenditures. Procrastination kicks in. Others will overspend in certain categories. Avoidance of the subject altogether is another big sign that plans are off (or on their way off) the rails. How can a Personal Financial Trainer help? Much like the work you do with […]

Needs and Wants: The Difference

For some people, it can be incredibly difficult to discern the difference between what they want and what they need. Here is just one practical example: Let’s say someone goes to a mall to replace a broken dish. Walking through the mall, they see a shirt in the window that would go perfectly with one of their outfits. (People generally want to look nice, and clothes are usually viewed as a means of achieving this.) Excited about the new wardrobe match, they try the shirt on. Not only does it look sharp, the sales associate adds a little boost, confirming that the shirt does indeed look perfect. At this it point it’s common to believe the shirt is a necessary purchase. They may feel so strongly about the shirt, in fact, that giving it up can even cause them to feel a sense of pain or loss. Let’s step back and take a look at the situation though. Why did they go into the mall in the first place? To replace a broken dish. But what did they walk out with? They probably left with both the dish, and the shirt. In fact, “need” for the shirt probably felt even […]

Unexpected Expenses, Your Budget’s Worst Nightmare

Unexpected expenses are, hands down, usually the biggest budget breakers out there. (An unexpected expense is anything that you did not foresee or plan for in your budget.) A clinical look at all cash flow for three full months, including all income and expenses, is one of the first exercises we conduct when working with new clients. During this time, it’s fairly common to look back and see some months where expenses exceeded a client’s income. This is called negative cash flow. I can’t count the amount of times where clients have looked at these numbers before simply declaring that it wasn’t a typical month. If you really think about it, though, what is a typical month? In our experience, months without unexpected expenses are the ones that are somewhat atypical. When you start to create a budget, there are four categories to forecast: Fixed expenses are any bills where the amount is set for at least a year – mortgage payments and your insurance premiums fall into this category. Semi-fixed expenses vary to a certain degree, like your gas and hydro bills, but still need to be paid throughout the year. Discretionary expenses are usually point of purchase items, […]

Savers versus Spenders: A Matter of Perspective

Why are some of us natural savers, while others are spenders? In a way, it’s a matter of perspective. The main difference is that savers take in the big picture, while spenders only see things as they are, or as they appear to be at that moment in time. We say savers tend to have an Encompassing Perception, where spenders are more focused on their Perception of Detail. To understand this concept, let me give you a practical example: Couples generally earn a set salary each month. The broad thinker will say: “Life isn’t over today, and it won’t be over tomorrow. Therefore, it’s a wise idea to save some money for the children’s education, for retirement, and for other future needs.” This person is a saver who views life in an encompassing manner. He or she tries to earmark funds to provide for present needs, and for life in the future, whether that future is ten, twenty, or even forty years away. The saver with an Encompassing Perception will not frivolously buy something today because they know they have to save for the future. When winter is approaching, he is not willing to buy the latest style coat, because […]

Emotion: Where Budgeting Misses the Point

A lot of people are under the impression that having a budget, or being able to create a budget, is all they need in order to get ahead of their finances. In reality, this is not the case for most of us. People fail with their finances because money is far more emotional than any budget might suggest. It’s one thing to write out a budget, it’s another thing to stick to a budget for the long haul. I recently saw an interview where Mint.com founder, Aaron Patzer, claimed people will automatically adjust their behaviours for the better if they simply knew where they spent their money. I know from firsthand experience that this is not usually the case. We may feel a bit shell-shocked when we first add up all the money we’ve spent at Starbucks, but those feelings dissipate over time. Before we know it, we are standing in line for a White Mocha Frappuccino once again. Financial guru, Dave Ramsey tells people that financial management involves 20% head knowledge and 80% behavioural change. He couldn’t be more on the money, so to speak. It’s true that knowing where your money is going, and then figuring out a […]

A good income doesn’t always lead to a good outcome

A lot of us have the pre-conceived notion that the more money we make, the better off we will be. This is so engrained in us, we assume this cause and effect will be automatic and guaranteed. In reality, this is an illusion, albeit a very powerful one, that people fall into. Let’s look at it honestly: When we get a significant raise in our income, consciously or not, we inevitably think “now that I am making more, I can finally afford that __________ (larger home, renovation, new car, new gadget, new clothes, or long awaited vacation).” Ten years down the road, however, we look back and wonder how we are still not ahead financially. Despite receiving many raises and opportunities, we still feel like a hamster in a wheel. Truth be told, our expenses rise with our income because we’re in the habit of spending, and we justify living beyond our means. This is not a new problem; even Charles Dickens (1812 – 1870) made note of the phenomenon in the pages of David Copperfield when he wrote: “Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and […]

Consolidation and the Never Ending Mortgage

In this time of historically low interest rates, you would think people must be paying off their mortgages at lightning speed. Why? When interest rates are low, less money from each payment goes towards paying interest and more money is applied against the principal of the loan. This means homes can be paid off months, maybe even years earlier. The reality, unfortunately, couldn’t be further from this ideal. Many homeowners are actually increasing their mortgages with debt consolidation because of our low interest rate environment. Average interest rates for secured debt like a mortgage, range around the six to eight per cent mark. With mortgage rates being much lower than that, instead of paying things off more quickly, people see this as an opportunity to consolidate their other loans and credit debt. The prospect of consolidation doesn’t bother them as much as it might normally, because the debt is relatively cheap to carry. Consolidating debt is a band-aid solution. It might save you money or relieve pressure for a time, but it won’t solve the underlying problem. Let me explain: Oftentimes, debt is a symptom, not the root cause of your money troubles. There are many reasons why indebtedness occurs […]