I have seen thousands of clients over the last 17 years in the Financial Services industry. Although there is no “one size fits all” or “cookie cutter” solution for every individual or couple, the problems tend to be very similar, and the cause is almost always the same. By investing some of your time reading this article and the rest of my blog series you will be able to put yourself in a better financial position tomorrow than you are today.
The majority of people that I’ve met who want to be in a better financial position have spent time feeling like the fences between the 5 stages of Financial Success are too high. They know that the grass really is greener but they lack the tools, resources or knowledge to experience life on the other side of those fences. It’s time for people to stop wondering what it’s like to be financially comfortable, and start experiencing it by making different choices.
People are creatures of habit. We wake up at the same time each day. We go to bed at the same time. We travel the same route to go to school, work and home. There are times and situations where repetitive behaviour is a good idea. If I want to be a marathon runner I am going to go running every day, and I will expect, over time, for my running ability to improve. I will be able to run faster for a longer period of time. This is true for professional athletes in all sports. They practice and train over and over and they get better. However, there are also many situations where repetitive behaviours are detrimental. When we are in the cycle of living paycheque to paycheque or carrying high levels of debt, which most people are, this is probably a time where we need to do some things differently.
The first thing that people in that type of position need to do is to make a decision that they truly want to improve their situation. This will usually involve behavioural changes. It isn’t possible to get different results by continuously doing the same thing over and over again.
The second thing that needs to be done is to identify what stage of Financial Success you are presently in, and which stage you want to achieve. This is a lot like a sport or a game in many ways; the more you practice, the more you play the better you get at it. If you want to be really good at anything you have to invest time into understanding how to do it better.
The name of the game is Financial Success which will mean different things to everyone, but the basic principles are the same for most people. The basic principles of the game are:
1) Spend less than you earn
2) Have a plan
3) Have a back-up plan
4) Monitor and track your progress
5) Update your plan at least once or twice a year
6) Make proactive positive changes as required
I once heard someone say “Money isn’t everything, but you can’t say that without it” and I feel this is a very accurate statement. When you are trying to enjoy life and raise your Standard of Living it is impossible to do this without money. That is an undeniable truth.
Imagine that your lifestyle, or standard of living, is a snowball which, throughout life, you are pushing up a hill.
During childhood we are Dependent on family to provide us with the necessities of life. As we grow up, move out on our own we perhaps rely on the charity of friends and family to a certain degree. Think about your first apartment or even your first home. In the beginning maybe you had Grandma’s 30 year old couch, it was dark green and really didn’t match other stuff in your place, but that didn’t matter because it was still comfortable, it was free, and it could pull out into a bed for when your buddy couldn’t quite make it home after that poker game. During that time perhaps you were a “starving student” and every so often a family member would come to visit with a bag of groceries or you spent your weekends at Mom and Dad’s house doing laundry and eating your only meals that came from the traditional four food groups as opposed to the post-secondary food groups: bottled, bagged, canned or frozen. This is how many of us spend those years in higher education.
Then school is over and other than student loans many people don’t have a lot of other debt so our monthly debt payments are reasonably affordable at this time and our other lifestyle expenses are also reasonably low. We have simultaneously graduated post-secondary and into the next stage of life – Independence.
Independence is the stage where we are able to float in the ocean of life on our own without the big rubber ring of external support around our financial waist to keep our head above the water. Progress is slow and may, at times, seem non-existent but the income and expenses are relatively equal. We are now able to support ourselves without assistance.
Each of these stages we all experience at different points in our lives depending on the decisions we make, how well we establish the foundation and plan for the unexpected.
We work hard building our career, enjoying our personal life, then we meet that special someone, buy a house, and start a family. Now we are starting to acquire assets, things we own that have a resale value, because Grandma’s couch isn’t going to be worth much more than memories. For as important as those memories are, it doesn’t help increase your standard of living. At this point we are starting to enjoy a Quality Lifestyle.
Over the years we finance new cars, the mortgage gets paid down further and further, and we start to enjoy some of the Comforts. Some of the Comforts may include a trip for the family occasionally, a vacation here or there, a newer vehicle even though maybe the old one is not that bad, extra gifts “just because” for those special people in our lives.
So we continue to work hard, save, pay off and eliminate debt, perhaps purchase a vacation property, and other Luxuries, things that we want but do not necessarily need. This is the final stage, Luxuries. This is the point where our debts are virtually gone (except those which are giving us tax benefits, I will discuss this more later) and each month we have the bulk of our income being available to do with as we please. Many people, for a variety of reasons never make it to the “Comforts” stage let alone the “Luxury” stage.
By virtue of the fact that you’re reading this, you already have one of the most important components in financial success.
If you do not want it, aspire for it, and do everything in your ability to acquire it, simply put, you won’t get it. In anything you do, your level of success is in direct correlation to your level of desire and motivation to succeed.
Where many individuals find their desire and motivation can become challenged is when life throws us a curveball and we are not prepared. In order to reduce the impact of these curveballs you must have a plan. We cannot predict the future but we can prepare for it.
Now this snowball, called our Standard of Living, which we have been pushing up the Hill of Life – what holds this standard of living in place? We work 40 – 60 hours per week trying to build a standard of living that will provide our 2.5 kids and our chosen life partner with (what we hope will be) not only what they need but what they want as well. That standard of living is held in place and indeed is pushed forward by our income and assets. So what happens when this wedge of income and assets that we have lodged in place, gets hit by a curveball in the game of life (health issues, changes in the economy)? Suddenly, it’s like our snowball has hit an ice patch and it starts rolling back down the hill because we have a significantly reduced income/assets. Proper planning for these “what ifs” can help secure your snowball in its place on the hill so that it doesn’t slide very far, thus making your move up the hill easier the further up the hill you get.
Over the years I have seen many situations where people did not have a plan and when they started to slide down the hill they experienced significant financial stress and sometimes families were torn apart.
By following my advice in this blog series you have just made an excellent investment in your future.