Simple ways to use your resources wisely
Written by Mike Crofts
Financial security is something everybody wants, but not many people have. If that’s you, you’re not alone. Right now 78 per cent of North Americans are living paycheque-to-paycheque and 40 per cent have lost hope on ever achieving financial freedom. That doesn’t have to be you.
Listen, if you’re ready to kiss the stress and overwhelm goodbye, I have five steps to achieving financial security in your life.
1. Start each month with a plan
Proverbs 21:5 tells us that a good plan and hard work lead to plenty, but hasty shortcuts lead to poverty.
A cash flow plan is one of the best ways to have confidence about your spending decisions. Statistics Canada tells us that 78 per cent of Canadians are living paycheque-to-paycheque with no real plan on how to manage their monthly income. That’s why I recommend starting each month with a cash flow plan. I’ve been doing it for 10 years and it has transformed my finances.
Here’s how it works. At the beginning of the month, list all your expected income for that month. If you work off commissions or bonuses, give it your best guess. Next, spend that income on paper first. Give every dollar an assignment. Allocate your income to each category you plan on spending. For example: Food $750; rent $1,500; gas $200.
At the end of the month, track what you actually spent. Don’t be scared if the numbers are different. This is now an opportunity to adjust and refocus. You’ll be surprised to see how what you thought you spent and what you actually spent differs.
In my role as a financial coach, I’ve seen that on average, clients end up finding an extra $250 to $500 more per month than they expected.
2. Build cushion into your life
According to Smart Money Magazine, 80 per cent of North Americans can expect to have a major negative financial event every 10 years or so.
Before working on a plan to get out of debt, build some cushion into your life. If you were blessed like I was, you may have had a grandmother who told you to save for a rainy day. That was her way of saying that an emergency is going to happen someday, so be prepared. Emergencies pull so many people back into debt unexpectedly.
If you’re still paying off debt, save a mini emergency fund. This can be $1,000 to $2,000 to start. If you’re consumer debt free, I recommend saving a three to six month emergency fund. That’s three to six months of expenses put aside.
Ear mark it for an emergency and only an emergency. Put it away in a low interest savings account that you can access when life happens. You will be grateful you have it the next time an unexpected challenge pops up.
3. Avoid debt or evict it if you’re in it
I get to work with a lot of Gen Xers (40-60 year olds) who all have one thing in common. Consumer debt is competing with their ability to save or invest. They all end up saying to me how they wish they avoided consumer debt when they were young. It would have set them up to win later in life.
Credit cards can cause a lot of the trouble. Here’s a dirty little secret the banks don’t want you to know. Consumer debt is not a tool to build wealth, it’s a tool to trap you into years and years of debt payments. Because here’s the truth. I’ve never met anyone who said,“Mike, I just got my first credit card and I’m going $20,000 into debt!” Yet the majority of North Americans have racked up credit card debt unassumingly over time.
According to a 2020 Equifax report, the average Canadian owes $23,035 in non-mortgage debt. The best way to have financial security is to avoid consumer debt and pay for things with money you have saved.
4. Put your money to work for you
One of the great opportunities in our generation is the ability to invest. Whether it’s in the stock market or the housing market, putting your money to work for you will always be a great investment and bring you a return.
Is becoming a millionaire still possible? Check this out.
Let’s say you’re currently 18 and you decide to invest $100 a month into a good Exchange Traded Fund (ETF), such as one that tracks the S&P 500, returning 10% on average. Such ETFs are low-fee and low-risk diversified investment instruments, meaning that by the time you’re 65, that number will grow to $1.2 million dollars!
This is what Albert Einstein called the eighth wonder of the world. Compound interest over time. One of the best things you can do today for your future is to start investing 10-15 per cent of what you make into a long-term investment account.
For Canadians, I recommend starting with a Tax Free Savings Account, a Registered Retirement Savings Plan, Registered Disability Savings Plan, or a Registered Education Savings Plan. There are a ton of rules when it comes to investing so you want to work with an investment advisor that you trust.
5. Live in gratitude
Have you heard the saying that it’s hard to be hateful when you’re grateful? It’s one of my favorites and it’s absolutely true because gratitude opens you up to receiving.
There was a study conducted for a college basketball game. The focus group had a 10 minute basketball game they were to watch. During the 10 minutes they had to count how many passes happened.
Here’s where things get interesting. A man in a gorilla suit showed up. He walked onto the court and stood there for 1-minute and then left. At the end of the 10 minutes, the focus group was asked who saw the man in the gorilla suit. Only two people in the focus group saw the gorilla. Everyone else was so focused on counting the passes they missed what was so glaring obvious.
And here’s why, when we focus intently on something, our brains are like a canvas. Go look it up, it’s called the reticular activating system. That study proved what we all know to be true. That when we focus on something our brain goes and takes pictures of it everywhere. Essentially it looks for evidence and references.
You may have noticed this with a car you just bought. All of a sudden, you start seeing that same car all over the road. But it’s not that the car has begun appearing more frequently, it’s just that you’ve become more intently focused on it.
When we see and focus on our failure and rejection, doubt, fear, and pride, it becomes the lens through which we see the whole world. And it locks us up. Gratitude is a key that opens us up to receiving and living in generosity. There are things to be grateful for all around us, we just need to start tuning into it.
So many millennials and Gen Zs have fear and cynicism about their economic future, but that doesn’t have to be you. Following the five steps will bring you confidence and security about your financial future and decisions.
Mike Crofts (Money Coach Mike) has been committed to helping people regain control of their finances, build wealth, grow their businesses, and enhance their lives through personal development since 2015.