The Financial Facelift articles in the Globe and Mail are usually pretty interesting – and a recent one got my attention. A recent edition of this series profiled a mid-40s couple with two teenage children earning a combined $244,000 per year. That income-level might have stopped some readers from reading but I kept going…
The article went on to state the couple is “financially comfortable”, but the couple admitted they are “clueless” when it comes to investing their money.
It’s not a surprising statement. I’ve read this before.
I was somewhat guilty of being “clueless” or at least “in the dark” with money too – not that I had a high income nor as high as that couple has now. Given personal finance and investing principles are not taught in school – you’re on your own to seek out this information. Information is everywhere but the accurate, trusted information is hard to find. Unfortunately there is a ton of misleading information out there: “fake news” goes far beyond Tweets from Donald Trump!
Luckily you have this blog where you can get some straight-talk on what works (and doesn’t) when it comes to saving money and investing – at least from my perspective.
Here are takeaways and what you can learn from anyone that has a great income but little financial literacy.
Great income reflections
- The irony is, some people with great incomes don’t have to be financially literate – there is no incentive to do so. I would argue that middle to lower-income earners have a much more vested stake in learning where all their money goes than higher-income earners by necessity. I think regardless of how much you make you should be mindful of how you spend your money, what value your spending delivers, and what you consume at it relates to your impact on others and the environment.
- If you have a defined benefit or defined contribution pension plan – there is less incentive to care about your money. From the article: “Margaret and John are in good financial shape, thanks mainly to their defined-benefit pension plans, but they are a bit behind in saving for their children’s higher education…” says the independent Toronto financial planner. Pension plans are however going by the wayside as time goes on. I suspect this is forcing more people to think and act on their own. This could be a great thing.
- If you’re not tracking your expenses, I believe you’ll never get on the right financial path. I’ve read hundreds of these articles over the years and one thing continues to stand out. Most of the individual’s profiled question if they should “…hire an investment adviser or planner” to whip them into shape. In my opinion these are not the people or what you need to turn to first. The answer of what you need to do first is starting at you in the mirror every day (or online). It’s you. It’s your credit card bill. It’s your hydro bill. It’s your property tax bill. It’s what you bought last week sitting in your closet. It’s many other things. It’s expenses in general. Regardless of your income I believe if you’re not willing to track your expenses (something you don’t need an adviser or planner or anyone else to help you with) you might have no help or hope at all.
Tough love? Maybe. The truth sometimes hurts. It hurt me too when I wasn’t tracking my expenses many years ago and I started to question everything. I’m glad I did. I wouldn’t be where I am now if I didn’t use my brain.
OK, that brings me to this. Here’s what you can do regardless of your income to improve your financial literacy.
Suggestions on any income
- Track your expenses. Don’t worry about doing it every day or even every week. Pick a day, any day, and start recapping what you spent and how much. Write it down. If you’ve never done this I have no doubt you’ll be surprised at some of the results.
- Read something. I don’t care what it is – preferably not Trump’s Twitter account for any ideas though. It doesn’t have to be the Globe and Mail that I got this article from – that costs $27 per month for my subscription! Read this blog, forward this blogpost to someone you know. Read another blog. Read a personal finance book. Ask me to giveaway a book on my site or write another article on this site. Leave a comment and tell me what you want more of. Take 5 minutes this week on a money-related subject and just read. You don’t even have to understand everything you are reading (yet). Just read something related to money management.
- Ask lots of questions. When you think you’re done asking questions, ask more questions. Ask stupid questions. (There are no stupid questions.) Here are some starters for you:
- What happens if I don’t pay this minimum payment on my credit card?
- I’ve heard about “buying RRSPs” – should I do that?
- I’ve heard about the TFSA – what is this?
- What is a mutual fund?
- Would I have enough money on hand to pay for an emergency car repair tomorrow?
- I’ve heard people only lose money in the stock market – is that true?
- Do I pay fees at my bank? How could I find out?
By now you should see the key to financial literacy is not unlike anything else in life – just start doing something different. It doesn’t cost you anything to read your credit card statement. It doesn’t cost anything to visit my site.
My suggestions are to take all of 5 minutes this week to write down your expenses, read a little, and ask yourself a few questions. Eventually you’ll get the answers you are looking for and maybe you’ll consider making a change. Regardless of your income these three small steps can be your keys to financial literacy. Just start.
Where did you get your financial literacy from? I’m still working on mine. What about you?
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Yeah, some of those Globe and Mail articles simply baffle me. ‘We want to fully fund our kids post-secondary, retire early, get a new car and a bigger house. Work your magic for us!’ And I have always found it a bit odd how many of the articles describe the people as barely getting by on their cash-flow when they list $500-1000 of RRSP/TFSA savings per month as expenses. I mean, good for them for savings so much, but if worst comes to worst they can always hold back on that.
Anyways, I definitely agree that tracking income/expenses is a first great step on getting an idea of where one stands financially. It really helps to find where you may be over spending.
Yes, barely getting by with $1000 per month going into investments is doing rather well I think. For those that are doing that, on modest net income of say $5,000 per month are doing well – that’s a 20% savings rate.
Thanks for reading Wisp.
Good article/post – your suggestions are bang on.
I can wholehearted endorse your third suggestion of tracking expenses – it is the without a doubt the cornerstone for all personal finance.
I can speak from experience having > 3 decades of expense tracking – I don’t need to do it any more – now I WANT to do it 🙂 .The numbers over the years are quite astounding, both in where it went and in size! I use a very KISS system – pencil and paper transferred monthly to my spreadsheet – works for me.
I didn’t track any expenses for years. Something so simple yet so powerful to do. If you have no idea of where your money is going, and how much, it’s very difficult to change money behaviour especially when spending money is so easy to do.
We keep a very simple running log of planned expenses vs. planned income and ensure we 1) pay ourselves first including debt obligations and then 2) we have a budget for everything else leftover. Seems to work.
Could we be saving more? For sure but I try not to stress about it.
Thought provoking article, especially if some of those people who are in that position would read your comments. They may certainly be in a great position today, but things change and if they are relying too much on their current income or DB pension and their position changes to the worst, then what. People loose their jobs, companies close or run into bad times. How many companies closed during the financial crisis, especially in the auto industry. Remember the uproar that many of those workers were going to loose their pension and begging for gov’t bailouts.
That’s the thing – some folks with a high income don’t have any incentive to learn. It’s only when something bad happens (i.e., job loss) that people start figuring things out. I guess it’s human behaviour. We are more shaped by consequences than any carrots.
I learned Financial Literacy in my late 20s. I had copied my mum’s financial style for years: shopping will make you happy when you are unhappy :). I was living paycheck to paycheck, always felt like a fraud, but always paid of my credit card each month (with my line of credit :). I started getting serious about paying off debt when I realized the line of credit that I had taken out to buy my used car was NOT going down and the habit of paying off any credit card expenditures over my income with my line of credit was not helping me. I started subscribing to a few blogs and that daily reminder in my inbox of how to improve my finances was of SUCH great help. OF course, most of the sites that I was looking at were American, so I am branching out now (15 years later) to ones more close to home.
Question: For those who have a defined benefit pension plan (no room left in RRSPs due to good pension plan), have 3 month’s living expenses fund (will got to 6), and track all their expenses (go YNAB), have an extra $300/month AND a young family, where would you put the extra $300/month? (Any money that comes from the government goes to fund RESP). The Budget is pretty lean and at times I feel pinched in the entertainment category-so would like to up some fun expenditures/family activities. However, should I be investing it outside RRSP in lieu of increasing fun? (sigh, no I don’t fully fund my TFSAs).
Having been in similar situation (except single child) there is no real solid advice one can give. Things were looking great until DW became disabled. Then DD got sick in university and had to withdraw. Luckily we had disability insurance and I’d been investing since 19 so finances were not all that of an issue. One thing I am thankful for is that DD did a lot of travelling during high school as it would be very difficult now. So if I were to give advice, don’t count on the future and live life for today. Especially for the kids. Once they are old enough to appreciate travel I don’t think it’s a bad idea to go on some trips. And if there are grand parents or even great grandparents, take lots of pictures and video, it’s priceless.
Great advice Lloyd!
Well done Heather – “I started subscribing to a few blogs and that daily reminder in my inbox of how to improve my finances was of SUCH great help.”
The think I like about running my own blog, my bias of course, is I can document my own progress and journey. I can share what I know, what I don’t, and learn from others in a written, documented way. I hope this site continues to help you!
So, a DB plan, no room in RRSPs, 3 month’s living expenses fund (will got to 6), AND an extra $300/month – I would max out the RESP first with a young family. If that’s already done, I would max out your TFSA.
I know for my wife and I, with no kids, we aim to max out our TFSAs every year. Then we try and max out our RRSPs – mine is done. Then we put extra payments on the mortgage.
https://www.myownadvisor.ca/2017-financial-goals/
Then we spend what is leftover and whatever we want. We all have to live and have some fun too.
Thanks for your thoughts Mark and keep up the great, pertinent, and Canadian posts!
Well thanks 🙂
“Where did you get your financial literacy from?”
My humourous response would be The School of Hard Knocks but in reality it’s basically trial and error and research. The old Aviation Safety Letter used to have a quote about learning from the mistakes of others and not living long enough to make them all yourself. That would probably be applicable in many cases and finances would be no different.
On a slightly different, but somewhat related topic. I’ve noticed that quite a few of the people around here have some kind of blog. Would I be out of line in assuming that income is derived from these blogs and the prolific interplay between everyone is to enhance visits and thus income?
Well, I also learned the hard way, but losing money and after that was gone I figured that was “enough”. I needed to figure out how to grow money on my own and some of the best ways to do that – I eventually landed on dividend investing and indexing approaches for me.
As for the blog income thing. I have no idea. I visit who I like to visit and tune everything else out. I barely make minimum wage running my site but I enjoy it.
Great post. Really enjoyed it. Since I paid all my non-mortgage debt saving for my retirement became my biggest monthly expense.
Well done. That’s a great expense (retirement saving) to have.