Month: April 2010

Pay Yourself First

” Pay Yourself First “, how often you have heard these three words? 

Can you remember the person who told you to pay your self first ever taking the time to really explain what they meant or giving you examples of how this can be done?

I was observing a financial workshop and the facilitator said. “You must pay yourself first. Remember to always pay yourself first.”  When he stopped, one of the participants said, “But I do not owe myself any money. What do you mean by paying myself first?”  The facilitator replied,” Save some of your money.”  He continued with his class, never touching that subject again.

This really made an impact on me. While sitting there, I knew I could do a better job of explaining that statement by enlightening, educating and encourage the people attending the workshop with ways and means of paying themselves first.

Over the years, I’ve talked to many people about “Paying Yourself First”.  Here are the three key things that work for everyone:

  1. Treat your savings like a bill you owe to yourself give it the same importance as paying your rent, or making a debt payment.
  2. Make that payment  to your savings automatic, your bank will    gladly set it up for you the entire process should take less than 30 minutes, and its free.
  3. Consider saving the equivalent of the first hour you work every day. For example – if you work a 40 hour week or 37.50 hours, calculate your hourly wage and save that amount.  Your hourly wage is $15.00 an hour that means you need to save $15 x 5 days = $75.00 every week.  If at first that amount is not feasible because of other commitments do half or a quarter. But the most important thing is to begin and remember a journey of a thousand steps starts with one. 

The most important thing in saving, once you have  decided how much you can and want to save every payday is to have is done automatically.  Behave like the Government. They take their income tax from your pay long before you get to it. They don’t trust you to send it to them so why do you trust yourself to pay yourself.  Pay yourself automatically and consistently.

Tessa- Marie Shillingford is the author of Controlling the Debt Monster.  She is Personal Financial Planner, with a designation from the Institute of Canadian Bankers, and a Financial Counselor certified by the institute of Canadian Banker. She is presently a Program Facilitator of Financial Literacy at JVS Toronto.  Tessa- Marie was employed by TD Canada Trust for twenty years in the retail section of the bank.  During her tenure at TD Canada Trust she held various positions interacting with customers of the bank.   As a Financial Advisor and Manager of Financial Services she led a group of Financial Advisors in helping customers of TD Canada Trust successfully manage their finances. Details of her book… Controlling the Debt Monster, can be found at http://www.controldebtmonster.com

The Story of Karen

 

This is a story about a young lady who had really great potential when I first met her. Her story started out quite differently than it ended.

There are some people who seek help and advice but are unable to stay focused on their goals and plans. Well, Karen was one of those people. She completely changed her plan because of a friend’s investment suggestion. Unfortunately, Karen was not ready and not financially prepared for such a big investment. Karen will suffer for years as a result of this poorly planned financial move.

I began working with Karen in 2006. She was introduced to me by one of my other clients. I initially met with Karen for about two hours once a week. Karen was earning an income of $34,000 and was still living at home. Her total debt was about $2500 with total monthly expenses of $1,136. Karen did not have any savings and spent what was left of her pay throughout the month and often found herself short of funds till the next pay period

Karen’s short term goal was to pay off her bedroom set which was bought on NO PAYMENT FOR 15 MONTHS. We started a special account to have this paid in 13 months and really pay no interest.  Her other short term goals were to save for a lap top computer and a vacation within one year.   Her long term goal was to save to purchase her home in 5 years. Once Karen’s plans were in place we met only monthly for awhile.

Ten months into the plan I got a call from Karen that her friend just introduced her to a real-estate broker and that Karen and her boyfriend had bought a house. Needless to say I was quite shocked. I contacted Karen and asked her to visit me and bring all the papers she had about the purchase. I knew she was not financially prepared to buy a house.

I never saw or heard from Karen again.

In 2009 I heard that Karen and her boyfriend were breaking up. They tried to sell the house but were unable to unless they came up with $30,000 to pay the builder as per the contract, otherwise, they needed to stay in the home for 5 years before selling it on the open market. Since neither of them were able to come up with the cash they are now locked into a situation where neither of them wants to be in. They are facing many years of turmoil and financial uncertainty.

At the time of the house purchase, Karen was simply not ready and her boyfriend was only working on commission. The boyfriend had no savings and he was not involved in the financial planning process. But, they bought the house because it seemed to be an offer that was too good to be true. It was!

Karen decided to change her plans years before she was ready, making decisions that were not well thought through. She was trying to keep up with her friend, who may have been planning for a much longer period and was ready to make her purchase.

I urge my clients to remember that the situation that suits your friend or family does not necessarily suit you and may not be the best for you.  If you have set goals, with time frames it is advisable that you stay on your plan or rework your goals as your needs changes while seeking the advice of your Financial Advisor or another professional who is trained in helping you make the right decisions.

Tessa- Marie Shillingford is the author of Controlling the Debt Monster.  She is Personal Financial Planner, with a designation from the Institute of Canadian Bankers, and a Financial Counselor certified by the institute of Canadian Banker.  Tessa- Marie was employed by TD Canada Trust for twenty years in the retail section of the bank.  During her tenure at TD Canada Trust she held various positions interacting with customers of the bank.   As a Financial Advisor and Manager of Financial Services she led a group of Financial Advisors in helping customers of TD Canada Trust successfully manage their finances. Details of her book… Controlling the Debt Monster, can be found at http://www.controldebtmonster.com/

The Story of Kathleen and Sean

Have you ever had a time when you had to assist someone to get on the right track and found it to be an effortless thing to do? The story of Kathleen and Sean is really one of those times.

This is a financial journey that was well planned and executed to the highest level. It is a story that will make you understand the importance of knowing what you want, when you want it, and how to plan to attain your financial goals. Kathleen and Sean did have one bump on their journey but because they had a road map of where they wanted to end up, they did take a detour but quickly got back on track. It is my pleasure to tell you about Kathleen and Sean.

I started the financial journey with Kathleen and Sean in the late summer of 2007.  Kathleen called and asked me whether I would be free to work with herself and her finance Sean on setting up some financial goals – some of which would be life changing.

On the very first meeting I asked Kathleen and Sean to tell me what they were looking for on this part of their journey and how they thought I could help them. Before the sentence was out of my mouth Kathleen took over and told me exactly what they wanted and when they wanted to accomplish these goals.  I actually had to slow her down in order to write it all out. Now, here was a young woman and young man who were clearly ready and had made some plans.

From the way they both spoke I realized that they had given this quite a bit of thought and were ready to embark on their financial journey with both their heads in the same place. That type of preparation makes the job of a Financial Advisor very easy.

Their financial goals were SMART:

Specific………. They wanted to get married and own their own home.

Measurable….They had specific milestones to achieve along the way.

Attainable……They knew at this time of their life they were attainable

goals.

Realistic……. They were real and practical goals.

Timely……….Both goals had to be accomplished in 2010.

With such clear directions I found it very easy to set the plan in action.

Kathleen and Sean had a small amount of debt, about $3,000, between them. We looked at their incomes and their expenses which included things that were very common to a young couple both living with their parents.

They both had cell phones, eating out, spending whenever necessary for their WANTS, so we needed to work on the very concrete NEEDS that they had in mind, which was buying their own home and paying for their wedding in cash which would make them debt free.

We set up some very specific saving accounts like an RRSP, a House saving account, a Wedding account and a Vacation account.  The deposits into these accounts were made automatically from their chequing accounts. They kept their credit cards but they had to pay off in full what ever they charged each month.

There were a couple of occasions when the discussions became very heated such as when Sean thought it would be a great idea to get a flat screen TV.  With my help, we were able to convince him it was not in the immediate plan but if he could come up with extra overtime and reallocate some of his entertainment money, he was free to do as he pleased.

Then we had the bra incident, Sean brought up at one of our meetings that Kathleen spent $26.00 on a bra but he could not get his TV. Again we had to show him that there were a few more “0”s in the price of a TV, than the price of the bra. These small discussions took place a few times but it never distracted them from attaining their financial goals.

There was one incident when the Debt Monster sent in his brother, Spend Monster, for a visit with Kathleen and Sean, but they soon realized that is was a family member of the Debt Monster who came in to open the door for him to let him walk in again.  That was nipped in the bud and the sister, Regret Monster, dropped in to push them just a bit off their financial plan. But, because they had such solid goals, they were able to kick all the members of the Debt Monster family off the track and Kathleen and Sean carried on their journey.

Financial planning has really paid off for Kathleen and Sean. They took possession of their new house on March 31, 2010 and even their wedding in the fall is all paid for.

The story of Kathleen and Sean is a great study in making sure you know what you want and when you want it. Far too often I meet with people who spend the first hour telling me what they don’t want. My job is to help you get what you want so when meeting with me you must be prepared by knowing what you want to achieve.

Study the definitions of SMART goals again and use it in setting your own financial goals. Make this yor first step in preparing your own financial journey.

Tessa- Marie Shillingford is the author of Controlling the Debt Monster.  She is Personal Financial Planner, with a designation from the Institute of Canadian Bankers, and a Financial Counselor certified by the institute of Canadian Banker.  Tessa- Marie was employed by TD Canada Trust for twenty years in the retail section of the bank.  During her tenure at TD Canada Trust she held various positions interacting with customers of the bank.   As a Financial Advisor and Manager of Financial Services she led a group of Financial Advisors in helping customers of TD Canada Trust successfully manage their finances. Details of her book… Controlling the Debt Monster, can be found at http://www.controldebtmonster.com