Return to flip book view

MONEY 2 0 10 steps to take control of your finances and build wealth

MONEY 2 0 10 steps to take control of your finances and build wealth Rob MacRae R F P C F P C I M CAMBOR PUBLISHING Hamilton Ontario CANADA

2014 Rob MacRae All rights reserved This publication is designed to provide accurate useful and authoritative information in regard to the subject matter covered It is sold with the understanding that the publisher is not engaged in rendering legal accounting or other professional service Laws vary and if legal or expert assistance is required the services of a competent professional person should be sought The authors and publisher specifically disclaim any responsibility for liability loss or risk personal or otherwise that is incurred as a consequence directly or indirectly of the use and application of any of the contents of this book All characters in this book are fictitious Any resemblance to actual persons living or dead is purely coincidental ISBN 978 0 9936402 0 9 Developmental Editor Rita Silvan Editor Catherine Leek of Green Onion Publishing Electronic Page Composition Kim Monteforte of WeMakeBooks ca Cover Design V John Lee Printed in Canada Cambor Publishing 25 Main Street West Suite 1110 Hamilton ON L8P 1H1 Canada www takecontrolofyourfinances ca This material is provided for general and illustrative purposes only and is subject to change without notice Actual results may vary from your investment savings loan or other investments available to you Interest rates are hypothetical and are not meant to represent any specific investment Rates of return will vary over time particularly for long term investments Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness Before acting on any of the above please consult your financial advisor for individual financial advice based on your personal circumstances Assante Capital Management Ltd advisors are licensed to sell equity securities bonds mutual funds GICs and other securities that are subject to available regulatory exemptions The advisors may also offer insurance related products such as segregated funds provided that they are duly registered to do so under applicable insurance legislation and the dealer firm approves such activity to be conducted outside of the dealer The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd Assante Capital Management Ltd is a member of the Canadian Investor Protection Fund and is registered with the Investment Industry Regulatory Organization of Canada

Contents Memories 1 A phone call from a local company sets the stage for our financial advisor Tom White to present his 10 steps to take control of your finances and build wealth and brings back a lot of memories for Tom Opening Night 11 Tom faces a pretty somber group but getting to know a couple of the attendees Sue and Dave helps him connect and discover the group s main concerns STEP 1 Find a Financial Coach 25 Select a Financial Advisor or Reaffirm Choice of Current Financial Advisor First on the agenda is selecting a financial advisor or reaffirming the choice of your current financial advisor Tom provides some information but the group works together to build a list of qualities that an excellent financial advisor should possess

STEP 2 Bag That Shoebox 35 Get Your Finances Organized A simple 4 drawer filing cabinet is all you need to get your finances organized along with some helpful tips and a personal story from Tom STEP 3 Arrange a Safety Net 43 Build a Rainy Day or Emergency Fund Sue offers some comical ideas on what constitutes an emergency before Tom gets into the nitty gritty of how to build and use a rainy day or emergency fund STEP 4 Where Are You At and Where oh Where Does It All Go 49 Complete Your Personal Balance Sheet and Income Statement Here comes the math segment but Tom s approach and worksheets make it easy to find everyone s starting point STEP 5 Get Protected 59 Put Insurance Coverage in Place Dave s on crutches What a great segue to discuss the importance of and the various types of insurance to put in place

STEP 10 Yes You Do Need Some Legal Help 97 Develop a Relationship with a Lawyer At the last session Tom encourages each member to plan for the unexpected and develop a relationship with a lawyer who will set up an estate plan The Phone Call 107 Another call but good news this time Sue thanks Tom for the difference he and his 10 steps made in her life financially and emotionally Investment Jargon 111 Forms 119 Here you ll find all the forms that Tom provides during his sessions ready for you to use Acknowledgments 129 About the Author 131

Opening Night T hanksgiving was around the corner In town the shop windows were decorated with autumn leaves and pump kins while some still had Halloween motifs with bats black cats and enough cobwebs to fill a row of haunted houses Evenings arrived earlier accompanied by the sharp bite of frost Tonight would be my introduction to Sure Steel Then we d follow with 10 focused sessions Back in my college basketball days I always followed a pre game routine Before a big game I would arrive at the gymnasium at least 45 minutes early scope out the landscape do my warm up and get mentally in gear It never failed to boost my confidence and performance on the court Today in lieu of my college jersey I wore black dress pants and my favorite golf shirt yet my warm up routine was the same get to Sure Steel early to get the lay of the land and psych myself up for what I was certain would be a challenging first session After all I 11

Opening Night In a minute or two I m going to get you involved But first I d like to share my philosophy on life with you I believe that we are here to continuously learn and evolve Earlier this year I attended a seminar on family businesses As I was listening to the presentation the proverbial light bulb went on Not everyone runs a traditional business like a factory or a retail enterprise but we all have business interests Our hard earned money and how it works for us is our business So like any entrepreneur the question we should be asking ourselves is Am I taking care of my money It s my business Over tonight and the next 10 weeks my job and more importantly my goal is to help you take control of your finances and build wealth The first thing that I want to do is review my four step process for financial success This is not a scientific complicated model based on some high level theory No It s just a basic framework that has evolved over 20 plus years of discussing personal finances with people just like you Its beauty is in its simplicity It has allowed me to clearly concisely and efficiently get the information required to help people achieve financial success I m now going to sketch this model out on the whiteboard for you STEP 1 Your Questions Concerns I ll simply ask you What questions or concerns do you have about your money That s it Then I simply listen and record your responses You d be amazed what I hear from people If 17

18 Money 2 0 I have a husband and wife I ensure both respond I never let one spouse talk for the other partner You got that guys The women have a say too STEP 2 Current Position This is where I get facts and figures Things like your legal name date of birth address employer and phone number Together we re taking an inventory of your assets and your liabilities We record all your investments and insurance policies We review your tax returns and your pension plan if you have one Really what we get here is a snapshot of your current financial position STEP 3 Review Alternatives and Select an Option Now for the first time I provide the information The first two steps are information gathering Here I educate you by discussing a variety of strategies that may be implemented to address your questions or concerns based on your current position Like all decisions in life there are always pros and cons Good and bad Positive or negative Hey you folks don t need me to tell you that You know this You live it in all facets of your life and your finances are no different Just another example Once discussed and reviewed I help people select the best option available based on their personal circumstance Let me give you a for instance from my own household about decisions and pros and cons Years ago my children wanted a dog Well as a parent I know there are both pros

20 Money 2 0 Four Step Process to Financial Success Step 3 Step 1 YOUR QUESTIONS CONCERNS REVIEW ALTERNATIVES SELECT AN OPTION Step 2 Step 4 CURRENT POSTION ONGOING SUPPORT Now if you folks thought I was going to stand up here and do all the work at these seminars you re wrong My goal is to get you involved and make what we discuss relevant to your situation I know of no better way to do that than to have us as a group complete our own four step process to financial success What we come up with in Step 1 your questions and concerns will provide the framework for the information I present to you over the coming weeks So I m going to ask you to volunteer to share with me based on the upcoming plant closure what are your immediate questions or concerns as they pertain to your personal finances I let it sink in Let me ask that once more What are the questions or concerns that you have that you would like to see covered in the upcoming seminars Silence Some people looked down at their nails others rummaged through handbags for candy they shuffled papers doodled whispered to each other

24 Money 2 0 I was making good money How am I ever going to catch up now Sue I understand how you feel You know the old saying when the student is ready the teacher appears Knowing that you don t know is the first step in taking control of your finances and building wealth Believe me I ve helped a lot of people just like you Step by step we re going to build this plan together as a group Can I count on seeing you next week and for the following nine sessions after that I asked Sue exhaled as she nodded I noticed Dave heading out the door and called his name He turned around and approached us Listen I know you two are married to different people but Dave would you skip the coffee and cookies tonight and take Sue out for a nice cold beer instead I don t think I know she could use it We all laughed Dave turned to Sue What do you say My treat You re on Sue replied I ll drink to that

STEP 1 Find a Financial Coach Select a Financial Advisor or Reaffirm Choice of Current Financial Advisor A round half past five I finished up with my last client of the day a retired police officer who wanted to take a monthly income from his portfolio Then I went down to the restaurant on the first floor of my office building grabbing an early supper before heading out to Sure Steel for my second workshop I must have done something right because earlier in the week I received an email from Sherry saying that more employees had signed up 25

26 Money 2 0 By the time I arrived at Sure Steel an hour later the sky was already dark The street lights lit up the glass grid of office windows As I entered the Commodore Room I noticed that some of the seats were already filled Sue caught my eye and gave me a little wave and a few others lifted up their heads from reading newspapers to nod hello I put away my coat and briefcase and then wrote tonight s topic on the whiteboard Step One FIND A FINANCIAL COACH Select a Financial Advisor or Reaffirm Choice of Current Financial Advisor More people entered and it began to buzz with different conversations At 7 o clock I stood in front of the lectern Welcome and good evening everyone I said Just before we get into tonight s topic I ve put together the list of questions and concerns we created last week and well I thought I d made enough copies but I might need a few more I ll start these here and you can just pass them along 1 Select a Financial Advisor or Reaffirm Choice of Current Financial Advisor 2 Get Your Finances Organized 3 Build a Rainy Day or Emergency Fund 4 Complete Your Personal Balance Sheet and Income Statement 5 Put Insurance Coverage in Place 6 Manage Your Debts

STEP 1 Find a Financial Coach 7 Start an Investment Savings Plan 8 Develop a Strategic Asset Allocation 9 Develop a Relationship with an Accountant 10 Develop a Relationship with a Lawyer As it happens these are also the 10 steps to financial success that I go over with each and every one of my clients Using the four step process I talked about last week we ll cover all 10 of these steps over the upcoming weeks So let s get going on this list Tonight we are going to tackle step one to financial success the selection of a financial advisor for those who don t have one or the reaffirmation of the choice of your current financial advisor for those of you who do Let me get my bias out on the table right off the top I think everybody should have a competent financial advisor There s no shortage of us out there so this should be an easy task Tonight I m going to show you how to select the right one for you Let me tell you about one of my clients I ll call him Jim Jim attended one of my seminars and indicated that he wanted to set up a meeting with me to go over his finances Now remember this was back in the early 90s before GPS devices or Google Maps We set a date and he told me how to get to his house in the country I was to head west out of the town on the main highway take the first left and then the second right His house was on 27

STEP 1 Find a Financial Coach should offer a wide choice of products or services for onestop shopping I wrote licenses and product offerings Sue pumped her hand in the air and said she needed to feel comfortable to be able to tell them personal things I nodded and wrote tummy test The whiteboard was now filled with notes We ve got a good list here I said Next I handed out copies of my financial advisor evaluation form Please read through this form and compare it to the list on the board A few minutes passed as people finished reading and then I asked So what did you folks notice Dave raised his hand Hey Tom I think we already covered what s on your form Yes you sure did See folks it s not rocket science hiring a competent financial advisor just good old common sense Okay Now let s look at the evaluation form in detail starting with education Here s my take It s nice to see a formal education because it shows intellectual curiosity and aptitude but in the grand scheme this should be a minor factor in your selection of a financial advisor I ve known some top advisors who did graduate degrees in philosophy or art history Just because someone has a degree in economics or commerce doesn t necessarily make them a great financial advisor 29

30 Money 2 0 Financial Advisor Evaluation Form Prospective Advisor s Name ______________________________ Formal Educational Background ___________________________ _______________________________________________________ _______________________________________________________ Professional Experience _________________________________ _______________________________________________________ _______________________________________________________ Current Employer _______________________________________ Professional Designation s Yes No If applicable list ______________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ Liability Insurance Yes No Licenses Product Offerings _______________________________ _______________________________________________________ _______________________________________________________ Compensation Method s Commissions Tummy Test Fees Positive Combination Negative Final Comments Strengths ____________________________________________ ____________________________________________________ Weaknesses __________________________________________ ____________________________________________________

32 Money 2 0 what products are offered Folks there is no gray area here Either they can or can t offer particular products or services Number six Compensation Often we feel squeamish asking this question A true professional will always give you a clear answer If someone dodges or says it won t cost you anything to work with me run don t walk out of the meeting The answer is not complicated Advisors either earn fees or they earn commissions or some combination of both depending on what they sell Their fees affect your total return so you have the right to know Number seven is what I call the tummy test Never underestimate the importance of it If your potential advisor has passed the previous six hurdles you must ask yourself What s my emotional comfort level Can I see myself sharing my questions and concerns and my life aspirations with this person If the answer is not a resounding yes keep searching To underline the point I wrote Search until you find One question I often get is how many people should I interview For some reason three seems to be the most common answer Maybe your first advisor interview will meet all your criteria and pass the tummy test with flying colors Lucky you On the other hand you may need to keep at it until you find the right one Don t rush this decision because it is critical to your financial success I looked over at the clock Eight o clock right on the button People started to close their notebooks and laptops and

STEP 1 Find a Financial Coach shuffle back into their coats that they had hung off the back of their chairs All right we re done for tonight But before you go one more thing here s your homework assignment A collective groan rose up in the room and then some giggles Take this form and use it with your current financial advisor if you have one This will put your relationship on more solid footing or highlight areas where you need to make changes And if you don t have one start to network to meet some Trust me we re everywhere Think of it like the red Mustang syndrome once you buy a red Mustang you see them everywhere Good luck with your homework and we ll see you all next week 33

STEP 2 Bag That Shoebox Get Your Finances Organized M y alarm went off at 5 AM an hour earlier than usual Today was going to be a steady line of back to back meetings I figured that if I wanted to get in my daily run it was going to have to be an early one I slipped out of bed as quietly as I could to avoid waking my wife and grabbed my gear Jasper our golden lab was already at the front door wagging his tail ready to roll By 5 15 we were well into our run I watched the cold air turn my breath into a cloud of mist and began to think about tonight s session at Sure Steel I wondered if people were feeling good about what they were learning 35

STEP 2 Bag That Shoebox I grabbed a black marker and drew four big squares on the whiteboard Drawer 1 Household Bills and Receipts Get one of those accordion files and put all of your household bills and receipts in it hydro water heat property taxes credit card statements filed by month This way if there s ever a dispute over a payment you ll easily find all the information you need At the end of the year simply shred everything and start again Have a separate file for each of your major purchases computer TV hot tub lawn mower anything substantial Keep your original receipts and the warranty information stapled together You can even keep the manuals in here too Last year around the first week in March we had a really warm Saturday Everyone was out and full of excitement after enduring a long winter It felt like spring so my wife decided to give her car a thorough wash and cleaning While she was vacuuming the interior a terrible burnt rubber smell came from our central vac unit I went to the store where we had bought it to see if it could be repaired The owner looked at the scuffed vacuum I had placed on the floor and then pointed out some of the new models he had on display and explained their many features and benefits I was sorely tempted just to buy one of them dash out and get on with my weekend chores but instead asked him to please try to repair it He promised me he d look it over and call me later in the day with the verdict Around 3 in the afternoon the phone rang Well like I figured he said the motor s burnt out I don t suppose you 39

STEP 2 Bag That Shoebox section devoted to previous tax returns Keep 3 years back in this drawer and the rest stored elsewhere Drawer 4 Miscellaneous I get nervous calling it this because I worry it might get filled with junk So here s the deal it s for stuff that s important to you but you re only allowed to file it here if it goes into a labeled file folder Got that Labeled I looked around the room People were writing in their notebooks When they finished I asked What do you think Doable Never underestimate the benefits of getting your finances organized It will turn a chaotic situation into a manageable one Anyone care to guess what the homework assignment is Yup you got it Buy a four drawer file cabinet and get your finances organized over the next week Hey if you mobilize as a team and shop in bulk I bet you could negotiate a great price and save some money See you next week and good luck 41

STEP 3 Arrange a Safety Net Build a Rainy Day or Emergency Fund I t had been a great weekend My family went to the local college football game We were dressed warmly and had a big thermos of hot chocolate while cheering our team on They won but the next day I awoke to discover I had left my voice somewhere at the stadium For tonight s session at Sure Steel I had planned to talk about building a rainy day or emergency fund As fate would have it I had my own little emergency going on right here By evening my voice was as rough as sandpaper I had considered canceling but now it was too late everyone would already be there Well I thought I ll go with hand signals 43

STEP 3 Arrange a Safety Net Rainy Day or Emergency Fund Monthly x 6 Expenses These are rough estimates only Your homework this week is to nail this number If you have a significant other work through it together Dig deep Pull up your bank statements review your check book debits the works Find out what you really spend every month You re going to be surprised when you find out why your money seems to disappear Instead of fighting it accept that as a reality of life We ll talk more about this number in a later session In the meantime get a grip on what that number really is Then call your bank and arrange a line of credit for this amount This is your emergency lifeline folks And even if you never tap it and I hope you don t have to it ll help you sleep at night I looked over at the clock We still had 10 minutes left Any questions I whispered Sue raised her hand Tom I know you said a Caribbean vacation was not an emergency but in the middle of our long winters it sure feels like one Sue I rasped I feel your pain I really do But this is one emergency that will expire on or around the end of March Do you catch my drift Sue nodded and shuffled into her red coat On my way out I overheard her say to Dave Hey Dave want to stop at Margaritaville on the way home We can pretend we re in Acapulco 47

STEP 4 Where Are You At and Where Oh Where Does It All Go Complete Your Personal Balance Sheet and Income Statement W e were a third of the way into the program and I wondered if interest would fade The initial thrill of getting one s finances in order had past This was the part of the program where the rubber hit the road People had to face the reality of their spending habits and lifestyles now there was nowhere to hide 49

52 Money 2 0 Personal Balance Sheet ASSET LIABILITY Personal Assets Real Estate Home _____________ _____________ Condo _____________ _____________ Cottage _____________ _____________ Rental Property _____________ _____________ Other _____________ _____________ Automobile s _____________ _____________ Lifestyle Household Items _____________ _____________ Personal Effects _____________ _____________ Other _____________ _____________ Portfolio Assets Cash Bank Accounts _____________ _____________ Non Registered Investments _____________ _____________ Registered Investments _____________ _____________ Other _____________ _____________ TOTAL _____________ _____________ NET WORTH ASSETS LIABILITIES _____________ _____________ _____________

54 Money 2 0 As I handed out the blank income statements I referenced Drawer 3 that contained their income tax information neatly filed here their tax returns will provide total income numbers including employment and investment income As well all tax paid will also be in Drawer 3 Drawer 1 will have all household bills and receipts which will be helpful in completing the expenses portion Get ready to write down all the sub categories I ll list them and you include what applies to your situation Ready 1 Debt Repayment Loan payments Credit card payments 2 General Expenses Groceries Clothing 3 Housing Costs Mortgage or rent payment Property taxes Home insurance Maintenance Hydro or electricity bills Water bill Phone bill Cell phone bill Cable or internet bill Other 4 Transportation Lease or finance payment Public transit costs Childcare

STEP 4 Where Are You At and Where Oh Where Does It All Go Automobile insurance Gas Maintenance Parking Other 5 Health care Health insurance premiums Life insurance costs Disability insurance premiums Vision or dental costs Medication Other 6 Recreation Entertainment Dining Sports Hobbies Club memberships Subscriptions Other 7 Miscellaneous Gifts Charities Other 8 Your Investment Savings Plans Registered savings plans Education savings plans Non registered savings plans Other 55

56 Personal Income Statement Worksheet Household Income Employment Income ________ Pension Income ________ Other Government Benefits ________ Rental Income ________ Investment Income ________ Other ________ Debt Repayment Loan Payments ________ Credit Card Payments ________ Other ________ General Expenses Groceries Clothing Child Care ________ ________ ________ Housing Costs Transportation Mortgage Rent ________ Loan Finance Payment ________ Property Taxes ________ Public Transit ________ Insurance ________ Insurance _______ Maintenance ________ Gas ________ Hydro Electricity ________ Maintenance ________ Water ________ Parking ________ Cable ________ Other ________ Internet ________ Phone ________ Recreation Cell Phone ________ Entertainment ________ Other ________ Dining Out ________ Sports ________ Health Care Hobbies ________ Health Insurance ________ Club Membership ________ Life Insurance ________ Subscriptions ________ Disability Insurance ________ Other ________ Vision ________ Dental ________ Miscellaneous Medication ________ Gifts ________ Other ________ Charities ________ Other ________ Your Investment Savings Plan Retirement Savings ________ Education Savings ________ Non Registered Savings ________ Other ________

STEP 4 Where Are You At and Where Oh Where Does It All Go Get all these amounts and then multiply each number by 12 for an annual cost Folks did you notice I slipped your own savings in as a bill Your own investment savings is your most important bill because you are paying yourself When you ve wrangled all these numbers take your total income number minus your total expenses The number that remains is your total discretionary income What do you think I d like you to do with your personal balance sheet and personal income statement I looked out at the group and what I saw was a couple of blank stares and some confused faces So I said Here s a hint Does Drawer 2 ring any bells Create a folder and call it Personal Balance Sheet and Income Statement and file it here Ideally you should do this annually It s great to watch your net worth grow year after year I do mine quarterly every December March June and September It keeps me focused and I always know where I stand Great work tonight This has been a lot The good news is next week it gets better I took a long pause when we start to discuss insurance The group broke out in a predictable collective groan to which I responded Enough already Get outta here and I ll see you next week 57

58 Money 2 0 Personal Income Statement Total Household Income ____________ ____________ Total Expenditures Debt Repayment ____________ General Expenses ____________ Housing Expenses ____________ Transportation ____________ Health Care ____________ Recreation ____________ Miscellaneous ____________ Investment Savings Plan ____________ TOTAL _____________ Total Total Total Discretionary Household Expenditures Income Income ____________ ____________ ____________ _____________