Most blog posts and advice columns talk a lot about what it takes to be successful financially and share tips on improving your finances, such as setting up and following a budget, spending wisely and saving strategically. So I thought it refreshing when I came across an article quoting Brett Wilder’s book, The Quiet Millionaire, entitled The Seven Deadly Sins of Personal Finance, which focuses more on what to avoid doing.
I would like to offer a slightly different take on each of them, and that is the perspective from an insolvency professional’s viewpoint, one who works with individuals every day to help them improve their financial situation.
1. Lack of Discipline
This reminds me of the saying “If you fail to plan, you plan to fail.” Every day I meet with individuals who have no plan around their money management. There is no system in place to enable them to know where their money is going, what will get paid and at what time. It’s more of a “fly by the seat of your pants” approach, which does not work in personal finances regardless of your level of income. Setting up some type of plan and monitoring your success with it, is the cornerstone of financial success.
Oh dear, this is a tough one. As Madonna so aptly put it, “I am a material girl, living in a material world.” We certainly live in a material world. Temptations are all around us. The desire to do more, have more and be more is steeped into our society. Having the discipline to avoid temptation at every turn is almost a full-time job!
Ok, confession time. As I was scanning my Facebook feed the other day, an ad came up for handmade clothing that was having “a closing out sale.” Now, I know that is most likely a ploy to get us to buy based on fear of loss. And guess what? I bought something. I know! I am supposed to practice what I preach and here I am doing the thing I just said we all struggle with. Well, I am no exception. The only difference is that I have a plan, and this impulse buy has to fit into it, so that money will either come from my clothing account (if I want to wear it when I get it), my gift account (if I want to give it to my hubby and ask him to wrap it up for me for Christmas) or one of my other occasional expense accounts.
Some say there is good debt, and bad debt. I like to look at it as necessary vs. unnecessary debt. Necessary debt would be a mortgage or car loan and unnecessary debt would be a line of credit and credit card(s). One could argue that neither a mortgage nor a car loan are really necessary, but for the purpose of this article, let’s just say they are.
If debt is an unwanted part of your life, own up to it! Take stock. Record your debt on paper, in a spreadsheet or using a program or app, and get a clear picture of where you are and then implement strategies to pay if off sooner. There are lots of resources online to help you. You simply need to google ‘debt repayment calculator’ and have your info ready – amount owing, interest rate and current payment. Plug in the numbers and look at the results. How long will it take you to clear your debt at your current payment amount? What if you increase it? How much to pay it off in a certain timeline? Play with the numbers and come up with a workable plan for you. Look into Debt Snowballing and Debt Avalanche methods as a strategy to repay your debt. Figure out which one suits you better. Get creative and make paying down/off your debt a priority today!
When it comes to filing taxes, a little planning goes a long way. Tax planning is implementing strategies to reduce the amount of taxes that you pay. And this is one area where having expert advice is important. I have seen too many people owing too much tax because they did their taxes themselves and missed a whole bunch of opportunities in the process or, let’s be honest, messed it up. I would recommend finding a good tax consultant, and asking them for advice on what you can do better. If you don’t feel like that is an option, then do some research yourself. Apparently the most common overlooked tax deductions are medical expenses, professional fees, moving expenses, student loan interest, childcare expenses and employment expenses. Do your research and see if any apply to you.
According to Wilder, “Inflation is wealth’s silent enemy. It will not destroy you all at once, but it is there, nibbling at corners of your life, consuming a little cash every year.” What can you do to mitigate the effects? You might change your investment strategy (you most definitely will want to consult an expert on this one), look at ways to reduce expenses by bartering or exchanging services. There’s a cool app that I have recently discovered encouraging you to borrow (rent) tools versus buying them. It is called ‘The Good neighbour.’ Residents rent out various tools and equipment for a day or a few days. It’s a great way to avoid buying something you will only use once or a few times.
There are many small things you can do to keep costs low including carpooling, growing your own food or investing in green energy to save money for years to come. The key is to always look at ways to earn more or spend less to keep up with the cost of inflation. Do not just ignore it. It is not going anywhere.
6. Investment mistakes
This is another one that is getting the spotlight these days with several crashes in the market. Investors have seen their portfolios all but disappear overnight. If you are in for the long run, you will likely recover these crashes, but those planning to draw on their investments sooner might find their entire plan had changed.
I cannot express enough the importance of investing for retirement. Every month I have several retired individuals in my office looking for solutions because their retirement income is barely keeping up with the cost of living and they are struggling to make ends meet. Debt repayment exacerbates the situation, as do all the other items mentioned above. Make sure you have good solid financial advice going in. Find an investment advisor with a good, solid reputation. Ask your friends and family for a referral. And most importantly, do some research and understand the different investment strategies available to you, and choose one that meets your needs and risk tolerance.
The final of the 7 enemies is the unexpected (unemployment, death, illness, legal complications, business closure and the list goes on). If there is one thing I am quite certain of, it is that life will happen to you and things will come up that you did not anticipate. You may not be able to plan for everything, but you most definitely should be planning for some things.
Insurance is one way to protect yourself so ensure you take inventory of what you have coverage for, what you do not, and the cost to fill in the gaps. Again, consult an expert and decide which coverage is for you and which is not. Let’s face it, we could spend our entire paycheques on insurance, so we have to choose wisely keeping in mind our monthly cash flow and long-term goals. And for heavens’ sake have some type of emergency fund in place!
First, plan for the expected emergencies (aka occasional expenses, referenced above) such as car repairs, vet costs, health costs. Then focus on having something for emergencies. You might want to set a goal to have a certain amount set aside, or simply put a certain percentage of your income aside. My advice: just get started. Even if it is $5 per pay, it is something and it gets you moving in the right direction. Explore ways to ‘pad’ your savings – sell stuff, get a second job, or a side gig, put part of your bonus or unexpected windfalls away. As Nike said, “Just do it”.
And there you have it. Now you know the 7 deadliest enemies to financial success. So go ahead, make a plan, get it started, test it out and fine tune it. Do not get discouraged if it doesn’t all come together perfectly. Life often is not designed to work that way. Doing something is better than doing nothing. Meet yourself where you are and start the process to move towards happier, healthier finances.