Have You Missed a Credit Payment Lately?

I just read a short article on why it’s important to always make  your credit payments (regardless of your age).  The story takes place for someone living in the US, so the outcome may differ if you live elsewhere, but don’t let that fool you – missing a credit payment is serious business!

as soon as you missed a payment on your condo loan, you credit went south. Even though you are continuing to meet your other obligations, a delinquent mortgage payment results in a substantial hit on your credit score. Miss one or two more and you move into serious default territory. However, as you said, at 83, what do you need good credit for, anyway? Depending on your contracts with your credit-card companies, the rates you pay could be ratcheted up if your credit score falls

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Can You Teach Financial Management Through Financial Rewards?

How do you reward someone for learning a new subject?  Usually it’s the satisfaction of knowing you learned something new, or in the case of financial management, it’s the knowledge of knowing that you have a strong foundation to keep you financially healthy for years to come.  But not everyone thinks this way, and sometimes there are new ideas out there.

I was recently reading about how Citibank is offering a new card called the Citi Forward Credit Card, which rewards cardholders for paying your bill on time and staying within your credit limit.  The card is being marketed towards teenagers and Gen Y’ers and offers benefits such as:

100 points for paying on time and staying within your credit limit each month, 5 points for each $1 spent in “responsible” categories such as books, movies, music, and restaurants, 1 point per $1 for all other purchases, and 5,000 bonus points for signing up for paperless statements.

Citi decided to pursue this new credit card offering after conducting a survey and finding out that:

76% of [survey respondents] said they would rather learn by being rewarded for the right things they do, rather than learning from their mistakes.

Interesting concept, but is it really teaching you sound financial management, or is it giving you a false sense of learning?  The rewards program doesn’t advocate paying off your credit card bill in full, and there are hefty interest fees (29.9%).  It’s a good start, but I’d like to see something which teaches you how to set financial goals and create budgets to meet those goals!

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Why A High Un-employment Rate Might Not Be Bad

I like to read, in fact, I like to read a lot. I’m always reading newspapers, magazines, books, and blogs, but how do you know if what your reading is accurate, honest, and trustworthy? How do you know if the point of view you are reading is the right point of view? The reality is, there isn’t a right point of view and there isn’t a wrong point of view, but there is always more than one points of view.

Recently Jon Stewart interviewed Jim Cramer on The Daily Show, citing that their recent tiff is because of:

The gap between what CNBC advertises itself as, and what it is, and the help that people need to discern this

In fact, Stewart goes on to say that that the real problem is that the financial news media is not reporting on the markets in an ethical manner:

When you talk about the regulators, why not the financial news network? That’s the whole point of this. CNBC could be an incredibly powerful tool of illumination, for people who believe there are two markets.

Now to pretend that this was a crazy once in a lifetime tsunami is disingenuous at best, criminal at worst.. A CEO lied to you, but isn’t that financial reporting?…[Financial Reporting is when] you don’t just take their word at face value, you actually go around and try to figure it out

There are many times in life when you only hear one side of the story. For example, when the dollar drops in value, do you hear stories about how companies who export products to other countries are happy because they are making more money, or do you hear stories about companies that import products into the country who are unhappy because it costs more for them to do business? You should be hearing both stories, because both stories are relevant and true.

When you hear about Canada having an unemployment rate of 7.7%, what are your first thoughts – probably that this is a bad thing right? I was listening to an alternative music station today, and they ran a public service announcement that went something like this:

Now that the unemployment rate is 7%, the markets will crash, or will they? Did you know that in the past year we have added over one million jobs to the economy? What if an unemployment rate of 7% really meant that 93% of the population is employed?

So what am I getting at?  It’s important for you to continue to read the news, but at the same time you have to remember that there is always more than one point of view, and as a person educated in financial management you have to remember that.

This post reminds me of something I learned in business school, called “The Pig”. When you see the image of this pig, what do you think? A child might think the pig is cute, a parent might think this is dinner, a farmer might see the pig as money, and a butcher might see it as a product. At the end of the day, everyone will see the pig differently and every view is right – different people have different points of view, and just because you hear one view, doesn’t mean that is the only view.  So next time you are reading an article in a magazine, think to yourself, “How do I see the pig?”

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Budget is not a four letter word

What does the word budget mean to you? If you ask dictionary.com, it will tell you that a budget is

an estimate, often itemized, of expected income and expense for a given period in the future

Sounds scary doesn’t it?  Well lucky for you, a budget doesn’t have to be scary, and it doesn’t have to be a four letter word.  Everyone will tell you it’s important to create a budget and stick to it if you want to have control over your finances, but I bet that many people won’t tell you that you don’t always need a formal budget written down on paper.

In fact, you can get by with a basic informal budget by just knowing how much you can approximately spend each week on certain items.  For example, if you know that each week you make $500, you should not be spending more than $500 each week. In reality, you should be spending much less because you want to you make sure you are:

1. paying yourself at least 10% of your salary to put into savings
2. putting aside additional money to meet your financial goals

So how does this work? Well, first off, let’s take that 10% off right away, so of the initial $500, you now have $450 left. From there, let’s say that each week $200 has to go to rent to make your monthly rent payment of $800. This leaves you with $250, let’s take off another $150 each week for other expenses including cable, internet, cell phone, and miscellaneous, leaving you with $100 each week to spend. Finally, let’s subtract another $50 because every month you want to put $200 towards the purchase of a new TV.

Now that you know that you have roughly $50 to spend a week, how do you want to spend it? I like to buy my lunch once in a while, so I know that $10 a week I spend buying food, leaving me with $40 to either put into my savings, or spend on whatever I want. For those of you who are visual, here is a simple diagram.

And there you have it, we were able to make a simple budget in under five minutes, and you don’t have to write anything down in a formal budget , because each week you know you only have $40 which is not allocated to something. So the real question is, will you spend or save that $40 each month?

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Following The Goods in the Press

Check out my recent interview on insidetoronto.com

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Selecting A Financial Professional to Work With

When I have a problem that I can’t fix myself, and my friends can’t help me out, I turn to a professional for insight and help.  I like to work with people who have been referred to me – if a friend or a family member used the professional’s services and had a good experience, chances are I’ll have a good experience.  Think about it, if you need a mechanic, do you ask your friends and family for a recommendation, or do you just randomly pick someone from the yellow pages?  When you need to see a doctor, do you just randomly show up to a doctor’s office, or do you ask your family who they use?  If you needed some financial advice, who would you turn to?  Recommendations help you sort through all the options, hopefully helping you to find someone that you can work with and helps you solve your problems.

Unfortunately this doesn’t always work out.  A friend of mine was telling me how he is frustrated with his current financial professional, which was a referral from a family member.  He has been using this professional for years, but after a bad experience last year, and a somewhat complicated situation this year, he doesn’t have faith in the professional’s abilities – in fact, he never liked this professional, but always used her services because that’s what his family recommended.

There are two good lessons from this story

1. Just because someone is recommended to you by someone you know doesn’t mean that you have to use that person – you need to work with people you trust and like; do your due diligence and make sure you can work with this person.  If you’re unsure, do a trial run, or go find someone else, there is always someone else.
2. You are not tied to anyone – if you are currently using a mechanic you don’t trust, a doctor who won’t listen, a hairstylist that doesn’t know what style is, or a financial professional who does not meet your needs, then you need to switch to someone else!  Ask your friends and family for a recommendation, ask the company you are working with to recommend someone else, do some research online, but make sure you remember lesson 1, do your homework before you work with the person.

Professionals can be a great tool to help you manage your finances, but you have to work with people you like and trust.  Take control of your financial future and find someone that works for you.

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Playground For Learning How To Invest

One of the more advanced topics in financial management is investing – there is a ton of information out there on the subject, and a wealth of advisors to help you de-mystify the world of investing. The only problem with investing is there is an element of risk – especially in today’s economy.  But what if I told you there is a risk-free way to learn about investing?

Have you ever wanted to learn about the stock market or how to invest your money, without the worry of losing your savings?  There is a great site called weseed.com, which allows you to learn how the stock market works without putting any money at risk.  The site uses real companies, with real data, but in a fictional marketplace, where you don’t actually use any real money to buy stocks – think of it as a sandbox for investing.  The site uses social networks to help individuals learn about investing, to help better prepare you for investing in the real stock market.  And the best part is, the site is free!

Watch the video below, and if you are interested in learning about the stock market, go check out weseed.com

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Reasons Why Young People Don’t Care About Their Finances

I recently wrote a guest post over on fivecentnickel.com entitled, Why Don’t Young People Care About Finances.  If you get a chance, go take a read and join in on the conversation.

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How Did the Credit Crisis Happen?

Have you ever wondered what the cause of the current economic downfall was?  Well, there is a great video from the Crisis of Credit website explaining how we got into this problem, check it out below.

http://www.vimeo.com/3261363
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How Much Does That Weekly Bag of Popcorn Really Cost You?

I’m a big fan of movies and love watching them on the big screen in the movie theatre. Sure movie prices have gone up over the years, but I still enjoy watching them and consider it a treat to myself whenever I go (remember, you have to enjoy life!). The one thing I stay away from though is the concession stand – those snacks are pricey. But have you ever wondered how much that bag of popcorn costs you over a year?

Last time I was at the movies, I saw that a bag of popcorn sells for $6. If you’re like me, you probably go to the movies once every two weeks (depending on what movies are released). Let’s just assume that you go to the movies twice each month. Now, if you buy a bag of popcorn each time you go to the movies, that’s $12 per month – doesn’t sound like a lot does it? But what happens when you look at the cost of popcorn over a year? Well, that $12 per month turns into $144 – still, that doesn’t sound very expensive does it? Over ten years, that’s $1,440 – do I have your attention yet?

Let’s compare that movie theatre popcorn to the same popcorn you can find in the grocery store.  The grocery store I shop at sells a box of 6 bags for $5.89, or roughly $0.98 per bag. So if we made our own popcorn at home instead of buying it at the theatre, we would spend $1.96 every month, $23.52 each year, and $230.52 every ten years.

With this new found information, ask yourself, does that $6 bag of popcorn sound expensive, knowing that over one year you’ll pay $120 more at the movies than the grocery store, and over ten years you’ll pay almost $1,200 more?

The goal of this isn’t to scare you off of popcorn, or to get you to bring your own popcorn into the movies (most theatres won’t let you bring it in anyway). The goal is to get you to understand, that even something as simple as popcorn can affect your budget if you aren’t watching where you spend money. Next time you are at the movies and are in line to buy some popcorn, ask yourself, “What could I do with an extra $120 this year?“  If you don’t have a good answer, or you are just craving some popcorn, treat yourself, just remember, that bag of popcorn needs to go into your budget!

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Financial Education in the School System

There was a great article in the newspaper discussing how the Canadian education system has failed to teach people about the basics of financial management.  The article goes on to identify five main areas that we need to focus on:

1. The relationship between risk and return
2. Know how compound interest works
3. Learn the basics of debt and credit
4. Teach financial responsibilities in the context of an entire lifetime
5. Financial literacy needs to be ingrained throughout the school system

It’s unfortunate that basic financial management is not a required course in school, as many would argue that this is a fundamental skill that is used throughout one’s life. If I had learned the basics of financial management when I was younger, I probably wouldn’t have ended up 28 Years Old and Broke.

When did you learn how to create a budget, and more importantly, when did you learn why you need to create a budget?  Knowing how to use a tool is only useful if you know why you need to use it.

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Chapter 2 is Now Live!

Chapter 2 of Following The Goods is all about helping you understand where your money comes from, and being able to use that knowledge to help you with meeting your financial goals.  I`m happy to announce that Chapter 2 is now available online for you to read for free.  Also, if you haven`t read chapter 1 yet, you should check it out.

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