Archive for the ‘Quick Updates’ Category

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Poor Spending and our Genetics?

January 21, 2011

A Halifax advisor colleague of mine Stephanie Holmes-Winton (see her excellent blog at www.advisordefusingdebt.wordpress.com) discusses the research done by Dr. Santos of Yale University. Dr Santos was curious to determine if the poor spending habits of humans comes from a genetic predisposition.  The following is an exerpt from http://www.advisor.ca dated Jan 14, 2011:

Dr. Santos and her team gave their small community of capuchin lab monkeys some money – not real money of course, rather unmarked coins the primates could use like money. This was to be her monkey economy and the coins were the currency. The team of researchers introduced the monkeys to a monkey market which they had created for them. They taught the monkeys how to use their coins to gain food and treats. Our primate cousins quickly got the hang of it and began using their monkey money with ease.

As it turns out, the monkeys got up to a few bad behaviors humans sometimes exhibit, like stealing the coins when no one was looking or taking them from other monkeys.

Things were humming along at the monkey market and then came the twist: the monkeys were given situations where they had to take risks. Dr. Santos wanted to see if the primitive friends would make the same mistakes we humans do when presented with financial risk. What they found is that monkeys, just like humans dislike loss more than they like gains.

In the end, Santos and her team discovered that indeed those impulses that drive our financial behavior were no different than those of our very prehistoric relative “Ida”, the lemur. Our financial behavior is indeed to some extent is in our DNA and a 35-million-year-old habit can be hard to break.

I surmise that the very same carnal impulse that causes us to zig when we should zag in the market also drive our behaviors around spending and debt. The very instincts that once upon a time kept us alive don’t always serve our financial best interest. The best part of Santos’ discovery is that we are not destined to repeat the monkey’s behavior or even our own. Our ability to see what we have done and make a different choice is remarkable.

Make no mistake behavior is a huge part of finance from the panicked investor wanting to sell at the worst possible time to the borrower purchasing a house they can’t afford. It’s coming from the same place in our brains. Offering clients’ behavior change recommendations as part of their work with you may go a long way to helping them make meaningful financial change without allowing irrational instincts to sabotage their efforts.

To add somewhat to this I ask you if you really should be upset because our neighbor bought a new SUV and you have no kids. What the hell do you need such a ridiculous new vehicle for if yours is perfectly acceptable and paid for and running well. This need to compete is undoubtedly also part of our genetics as well and is often a major part of our financial undoing. It is a self-conscious “tell” of our weakened emotional state and only leads us into unnecessary debt. Your emotional health should be based on how much cash flow you retain, not how much you display.

So, what do we do with this new found knowledge?  Again, I turn to Stephanie for a creative resolution for 2011:

As the new car smell of 2011 wears off and the excitement of promises made during a champagne induced pledge to be better this year fades, I’ve got a challenge for you.  Let’s start a resolution revolution.  Every year millions of us make a resolution to do better with our money, but generally by the third week of January we’ve abandoned the thought and gone right back to what we were doing before.

If you change nothing, you change nothing.  One thing I know is that our clients will not listen to advice that we are not willing to follow ourselves.  So for the next four weeks I dare you to be the change!  From today until midnight 28 days from now change the way you spend.

Go On A Cash-Diet

Don’t worry; there are no pesky points or weigh-ins on this diet.  All you have to do is this:

  • Gather your family  (if your are single, get a few friends together to join you in your resolution);
  • Decide how much money you are willing to spend on a weekly basis on emotionally affected expenses such as food, clothing, entertainment, gifts, coffee, eating out, liquor, etc.;
  • Elect one person to retrieve your family’s weekly cash amount;
  • Divide the funds based on who normally does what, making sure everyone has at least a small amount to spend on themselves only;
  • And repeat for four weeks.

Rules

  • NO ADVANCES.  Take the cash on the same day every week.
  • TELL EVERYONE.  The more people you tell about your little resolution the more revolutionary it will become.  Tell clients too; they might just start to open up about their cash flow knowing you are working on yours.

You can do just about anything for four weeks.  I myself live like this most of the time, and I’ll be on it with you because I wouldn’t ask you to do anything I wouldn’t do.  The limit isn’t as important as the fact that there is a limit.  So, in the words of a very famous active wear company … just do it!

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Pay yourself first.

January 11, 2011

Remember:

Those who spend first and invest what’s left always end up working for those who invest first and spend the rest. Also, and most importantly, your money should be tied up in investments not assets.

With that in mind read an excellent, simple, and potent strategy below: (the experpt can be found at: http://www.taxtips.ca/freein30/payyourselffirst.htm)

Pay Yourself First!

This means that the first priority when you earn money is to put some of it aside to save for your future.  This is the key to your financial freedom

Use

bullet 10% of your gross income for making extra payments on your debt, or
bullet 10% of your gross income for saving or investing outside of an RRSP, or
bullet 15% of your gross income for making contributions to RRSPs.

The reason for using 15% for making RRSP contributions is to include your approximate tax savings in your contributions.

Example:

Your family income is $70,000 per year.  If you are using your pay-yourself-first money to make extra payments on your debt, you would use 10%, or $7,000.

If you want to contribute your pay-yourself-first money to your RRSP, you would contribute 15%, or $10,500.  If you are in a 30% tax bracket, your refund for the RRSP contribution will be $3,150.  This means you are out-of-pocket only $7,350.  If you are in a 40% tax bracket, your refund would be $4,200, and you would be out of pocket only $6,300.

So, in order to have approximately the same after-tax money as when you are using 10% of your gross income to pay down your debt or save outside of an RRSP, you will have to contribute about 15% of your earnings to your RRSP.  You can then do what you want with any tax refund.

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Income Splitting and Investing

June 21, 2010

Simple Tip: The higher-income (and hence higer tax-paying) family earner should pay all the bills (rent, mortgage, utilities, groceries, credit card bills, etc) as well as any income tax bills for the lower income earner. This frees up the lower earner’s “retained earnings” to maintain a larger investment base with which to invest at a lower taxable rate.
Moving down one tax bracket can translate into a +10%* differential in possible investment returns from a similar investment strategy over that of the same investments by the main earner (subject to identical investment strategies and return scenarios).
*Estimate based on combined marginal and provincial (NS) rates for 2010. see http://www.taxtips.ca/marginaltaxrates.htm

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Website Design

June 18, 2010

Almost have it ready. Check out how pretty. Stay for some content

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Zen Habits

February 22, 2010

Aside from my own rantings, I will rely on several sources that I believe support my life-balance approach. We must always come back to this when we obsess about our financial situation, good or bad. Its the ying to the yang so to speak.  See the following article from http://www.zenhabits.net about finding moments of stillness each day. http://zenhabits.net/2010/02/powerful-stillness/

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Work in progress

February 22, 2010

Have you ever spent your time building your brand? Actually we are always doing that. Some of us ignore impulse and knowledge out of routine (which I consider partly an enemy) and simply exist like forest gump, moving like moths toward whatever is handed to us. Some of us don’t have the vernacular to manage and control our life in a way that flights us towards our brightest light. Some of us are just told that we can’t and accept that blindly. Well, that’s not the only template for life.  The same holds true with your finances. Can you accept that your templates do not fit the current and future climate.  Its the vernacular and patterns of the wind that will give you those proper wings to wear and proper paths to follow… But first you must recognize  that there are other templates..i.e. first, you must know that you are allowed to put those wings on…I hope to help you provide this awareness and empowerment through some disspensing of commentary/advice/information on both life and money. First I have to build this blog. More to come.