Golden Girl Finance
 
Niagara Region Money Coaches
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Personal Finance

This might seem simple: Frequency drives volume

August 16th, 2016 by

Shopping less frequently will help you keep more of your money

 
 

Shocking news: The more often you shop, the more you buy. This is true in just about every category – whether it is groceries, clothes, shoes or your favourite collecting hobby. What most people don’t think about is that a habit of shopping frequently can drain financial resources away from more important areas in their life.

When a client of mine is in the grocery store 6 days a week, without fail I will notice that their total monthly grocery bill exceeds that of clients who shop for food 2 days a week. I would say on average the difference is about 20 to 30 percent. And it’s not just wastage – it’s spontaneous purchases, unnecessary purchases and just plain temptations that can be avoided with a list and less frequent exposure to sales.

The same can be said of clothes and household purchases. ‘Going shopping’ is one of the more dangerous things you can do with your wallet, because you are open to, and at the mercy of, some of the best marketers in the country – who are very good at convincing people to part with their money.

A bad case of 'stuffitis'

At a conference I attended recently the speaker cited that the goal of every advertiser is to “make the customer feel insecure”. By doing so they are able to entice customers to want what it is that they are selling – whether it’s a granite countertop, new bedroom furniture, the latest electronic device or a new car.

Of course it sounds ridiculous when you read it, but it’s true. We buy things to impress people we don’t even know. And this ‘stuffitis’ or ‘consumerism’ and sometimes even ‘conspicuous consumption’ can get us into big trouble with debt.

One of the best things you can do for your future self is simply shop less frequently. I have some clients who have a ‘Don’t Spend on Tuesdays’ motto. They don’t spend a penny on Tuesdays. And this discipline and awareness of spending has them spend a lot less in discretionary categories than those who spend without a thought for their longer term goals.

Give it some thought – frequency drives volume. And make a change or two in your life to take a bit more control over your spending habits.

Personal Finance

Act like you earn less than you do

May 10th, 2016 by

It's that simple

 
 

One of the best things you can do to improve your financial health is to spend as if you earn less than you do.

Everyone who makes good money knows it. And that is a dangerous thing, because the more you make the more you feel you should – and can afford to – spend.

Know your limits

What retailer doesn’t enjoy welcoming high income earners to their establishment? You might have witnessed this before, where someone enters a high-end retailer with an air of arrogance or a sense of entitlement that “the world is their oyster”.

For those unfamiliar with that phrase it harkens back to Shakespeare’s play ‘The Merry Wives of Windsor’ when Pistol retorts to Falstaff after being told a penny will not be lent to him, ‘Why then, the world’s mine oyster. Which I with sword will open’. [Act II, Scene II.]

Those who believe that they can purchase anything they want, are wrong. For those who earn $500,000 a year, there are many luxuries that are beyond them. For those who earn $1 million a year, there are many luxuries that are beyond them, too.

In fact, there is no limit to the amount of money that can be spent in virtually every consumable category – whether it be food, land, housing, vehicles, boats, clothing, technology and furnishings. As soon as you think you’ve heard about the ‘most expensive’ widget ever, there’s another one coming along right behind it.

Most millionaires become wealthy by choosing to spend less than they earn for decades. By creating a lifestyle that is below their means, they are able to build up savings and investments, and eventually it adds up to over $1 million.

Simply build your wealth

And it doesn’t take much – just $20/week for 60 years will do it. But even that simple example of how to accumulate $1 million requires that you never touch the growing investment account.

So, when you’re tempted to indulge in the latest luxury, give it a second thought and consider the alternative. Being selfish to your future self is about foregoing something today to enjoy tomorrow, and by delaying gratification you will build up significant wealth. Guaranteed.

Personal Finance

How to tackle your resolutions any day of the year

March 23rd, 2016 by

Financial peace means taking control - today

 
 

The two most popular dates on the calendar to resolve to make changes are New Year’s Day and Labour Day. Both represent a new start, a change of season, an opportunity for self-improvement. A resolution is a promise to make a change for the better – and there’s no time like the present to tackle whatever it is in your life that needs a re-set. Every day is a gift so TODAY is probably the best day to take control of something that requires attention.

At Niagara Region Money Coaches, we help people say ‘yes’ to Financial Peace all year ‘round – it’s about putting in place the pillars that empower and helping clients make the changes required to win with their personal finances.

There are several areas that I tackle – and it starts with cash flow. If winning with money has more to do with defense than offense (spending is more important than earning), then it is critical that there are appropriate controls put on spending habits – no matter the level of income enjoyed. The word ‘Budget’ has a lot of negative connotations associated with it, but for some to truly take control it is the right noun (and verb) to action.

For others, simply ‘Tracking’ is enough to provide the insights to help make informed trade-offs and improve cash flow. Experienced Money Coaches can help you build sustainable systems that work.

An Investment Plan is a longer term cash plan that has your long term goals top of mind (like retirement, self-employment or saving for your children’s education). Understanding projections, educating yourself on investing principles, reducing investment fees, understanding your risk profile, having an appropriate asset allocation, and over time increasing your confidence level as an investor are all important.

At Niagara Region Money Coaches I explain each of these in detail, and I have a strong belief that a passive/low cost/well-diversified approach is most sound. We don’t have to look much further than the words spoken and written by Warren Buffett [Hathaway Berkshire CEO], David Chilton [The Wealthy Barber Returns] and Dan Bortolotti [MoneySense Guide to the Perfect Portfolio] to know we’re right. Experts in the field who don’t sell any financial products are of the same mind here. Educating our clients on how to save tens of thousands of dollars over a life-time through smart investment choices is one of things we enjoy most.

Of course, having valid wills, life insurance and a legacy plan in place are also good to check-off the Financial Peace list. Again, I make these easy by describing to each client what is necessary for them, providing great resources, tips and contacts within my network to get these in place if needed.

For grandparents and parents, don’t forget that part of your financial legacy is teaching your grandchildren and children great money habits. Empowering young people with the information needed to succeed financially is very rewarding, so please don’t ignore this important category of family care. For clients interested, I have a number of best practices that have been proven to prepare children of all ages for the world of money.

If you are interested in hearing more about how to achieve Financial Peace, please check out other pages on our website: www.NiagaraRegionMoneyCoaches.com and consider setting up a free, no-obligation consultation. It might be just what you need to achieve your financial resolutions – regardless of the date on the calendar.

Relationships

This is the secret to a long and happy marriage

March 11th, 2016 by

It starts with a surprisingly simple (hint: financial) concept

 
 

So, you married your "money-opposite." Join the club! One thing is certain - getting aligned in your financial life will bring riches to your married life.

Everyone seems to know that money is the number one reason for divorce in the first five years of marriage. However, if blaming a relationship breakdown on something made out of paper seems odd to you, it’s because money isn’t the real issue - it’s generally something else.

When it's easier to just blame money

root cause is the true underlying source of a problem. Perhaps in a challenged marriage relationship, the root cause is a ‘need for control’ or ‘a need for power’ or ‘a feeling of guilt’ that is causing the conflict. It’s just a lot easier to blame money, which is why this is the response of choice when broken couples are asked for the reason.

Successful marriages are all about give and take, respect and appreciating different perspectives. Two heads are always better than one when they are working well together. So if you think that making a big money decision is best made solo, beware - listening to another perspective from someone who is aligned with your financial future (and with a vested interest in it!) is always a good thing.

Don't do it alone

The biggest financial mistakes I have personally made, were made without my wife’s involvement. I no longer make big financial decisions without her because she brings a different perspective from mine to the table - she will ask questions I won't. She sees the world from a different angle and she will challenge me - together we simply make better decisions than we do separately. The same could probably be said when it comes to parenting, career planning, retirement and most other big decisions in life.

So what matters is not whether you have two chequing accounts or one chequing account. What matters is that you are communicating openly, discussing pros and cons, actively participating in the journey and learning from each decision made together.

With one life to live, we can all learn a lot from our life mate. Don’t forget the reasons you’re together - to make each other better.

Retirement

The golden goose strategy

February 24th, 2016 by ,    photos by

What to do with your retirement nest egg

 
 

If you don’t have a Defined Benefit Pension from your employer, and you want to supplement whatever Old Age Security and the Canada Pension Plan will provide (which will not exceed $20,000 a year in today’s dollars), then you’ll want to build up a nest egg of your own.

These nest eggs might come in the form of a Defined Contribution Pension Plan, a group RRSP, an individual/spousal RRSP, a TFSA or other forms of non-registered savings.  Most retirees have accumulated a lump sum in one or more of these accounts that is now available as an income-producing asset upon retirement.

So, what to do with it?

There are essentially two alternatives to choose from when deciding how to convert a lump sum amount to an income-producing stream of payments.  The first is the Registered Retirement Income Fund (RRIF); the second is the Annuity.  There is a third, the Life Income Fund (LIF) which is similar to a RRIF but only accepts money from locked-in retirement accounts.  I won’t spend any more time on this last one.

The RRIF is a popular choice for many because it works like a reverse RRSP.  When you decide to ‘collapse’ your RRSP (which you MUST do in the year you reach 71), you can convert the entire proceeds to a RRIF.  In the year you reach 72 you MUST withdraw a certain percentage of the value of the RRIF as fully taxable income. 

Some people ask ‘Why do I have to pay tax on all of the RRIF value; isn’t some of it tax-paid capital that I contributed to it as an RRSP?’  The answer is yes and no.  While the money contributed to an RRSP is after-tax capital, the tax deduction you got for contributions actually makes the RRSP work more like a tax-deferred vehicle.  The government will give you a refund based on your working marginal tax rate, and then tax the RRIF as income based on your retirement tax rate (beneficial for most).  Plus, the growth within the RRSP (and RRIF) grows tax-free - another great benefit.

In the year you turn 72, you must withdraw a minimum of 5.4 percent of your January 1 RRIF balance as taxable income.  There is no maximum withdrawal rate.  And while the money can be invested however you want inside the RRIF (again, like the RRSP), you must continue to withdraw higher percentages each year until death. 

Many Canadians prefer the flexibility of the RRIF:  They can invest their retirement assets how they want, and they can withdraw any amount over the minimum each year.  The RRIF also gives retirees the comfort that whatever balance is left in their RRIF when they die (after the full remaining amount is taxed as income in the year of death) is passed down to beneficiaries.  If there is a surviving spouse, the RRIF can be transferred to them tax-free.

On the other hand, Annuities are quite a different option for the retiree.  When a retiree purchases an Annuity, they are essentially giving up control of their principal in return for a guaranteed monthly payout, which is typically until death.  This means that the retiree does not need to worry about how to invest their nest egg, they needn’t worry that they will ‘run out of money’ and they can count on a guaranteed income for life.  The biggest pitfall is that the Annuity is worth nothing upon death – so there is typically nothing for beneficiaries to receive.

There are many different shapes and colours of Annuities.  Some offer guaranteed payout periods of say, 10 years.  So even if you died the year after you purchased an Annuity, the payouts would continue to your beneficiary for those nine additional years.  Some are joint-life annuities, so payouts continue until the ‘last to die’ of the spouse/common-law partner.  You can purchase an indexed Annuity, where the payouts increase by an inflation factor.  So there is an Annuity that fits just about everyone’s needs.

And they are taxed similarly to RRIFs.  If you purchase an Annuity with registered funds (like with the proceeds of your RRSP), then each monthly payment will be fully taxed as income.  If you purchase an Annuity with non-registered funds, then only the interest will be taxed each year.

How to choose your golden goose

The option that is right for you will depend on many factors.  It depends on your adversity to risk, your money personality, current interest rates (which will dictate the guaranteed value of Annuity payments), whether you want to control how money is invested and whether you want to leave money to your beneficiaries.  It also depends on how big your nest egg is. 

And for those who can’t decide, you’ve got the option to do both.  There is something comforting about having a guaranteed flow of income each month, while also controlling another nest egg more directly, some of which will pass down.  The right money professional can help you make the right choice, and make sure your hard-earned money is doing all it can for you during your retirement years.