The Leader in Personal Financial Training

A letter to my younger self: Financial lessons I’ve learned along the way

A letter to my yonger self

Dear me, many years ago,

Well, it finally happened; I got old. I hit the big 7-0 last week, and it has me thinking about times gone by, about mistakes I’ve made and regrets I hold. Looking back on my life – on our life – I wonder what I could have done differently to protect myself from the financial hardships I’m facing today.

I wish I could go back and talk to you at 20, 30, 40, 50, 60, any of those landmark ages, so you could benefit from the financial lessons I’ve learned over the years, and share that advice with your beloved children. So I’m writing to you now to tell you everything I’d like to be able to tell my younger self.

If I could, I’d ask you to read my words of wisdom carefully; I would beg you to follow my advice to ensure that you don’t fall into the financial traps that have pulled me down.

When you’re 20

Life is pretty great, isn’t it? You’re young, vibrant and healthy, and it feels like everything is an opportunity waiting to happen. Even though you’re still in university, your thoughts are starting to stray beyond the campus. Between studies (and sometimes even during studies!), you’re grabbing coffee with good friends and hitting the pub with classmates. What I wouldn’t give to spend another day in your shoes…

Where you’ll work and who you’ll marry are questions that open the floodgates of your imagination. Times are exciting and the future is wide open. You’re carefree, but you’re also an adult now, with the credit card to prove it. You like the freedom of being able to shop when you want to, and you get a bit of rush out of buying the latest fashions and gadgets. So what if you owe a few hundred dollars on your credit card? You’re confident you can take care of that once you enter the workforce.

My advice to you

Enjoy yourself. But know this: Your 30s will be much better if you spend your 20s a bit more wisely. Over the next few years, that $500 credit card limit you currently have will increase to $10,000. At first, you’ll be happy to get the offer for the increase; trust me, I remember the feeling like it was yesterday. You’ll think you finally “made it” – the bank has put their trust in you, and you have access to plenty of cash. The only problem is that you’ll soon rack up more than $9,000 in credit card debt (never mind the nearly $2,000 you’ll pay in interest each year).

I’ve learned how to reduce my costs and start chipping away at my debt. But if I could teach you something now, to spare us both the headaches later, it would be this: When you’re tempted to buy something you don’t have the cash for, don’t buy it! It may feel like a painless purchase at the time, but whatever you buy winds up on your credit card bill, and you could be paying for it for years later (I’m still kicking myself for all those pricey meals out… What a waste!).

Be wise; get into the habit of budgeting your money now. The sooner you start, the better off you’ll be. You’re still living at home, so there’s no need to go into debt over consumer products. Use this opportunity to budget and save your money. Believe me, those savings could really come in handy someday – perhaps when you’re 70 and wish you could afford that cute little house downtown.

When you’re 30

Married and with your first child. What a special time in your life. You’ve gone through so many changes in the last few years. Your first job out of college seems like eons ago (finally, all the grunt work is behind you!). You’ve paid your dues and can enjoy a better job title.

I know you’re trying to be responsible about money, and have even started saving a bit for retirement through the company plan (you figure you’ll up your savings when you start earning more). But you’re also tired of renting and are anxious to get settled into a home of your own. And why not? All your friends are buying houses now, even the ones making less money than you. If they can do it, so can you. On top of that, you can’t wait to crank up the music whenever you want, without the neighbours calling to complain. Imagine the freedom!

My advice to you

If you buy a house, make sure you consider all possible expenses. Without a proper budget, I know all too well what will happen. At first, you’ll love your charming home and be overjoyed when you and your young family move in. But you’ll soon discover that you underestimated how much it was actually going to cost. For one thing, you didn’t factor in a contingency plan for the renovations, which will go over-budget. For another, the home’s existing infrastructure will start breaking down. First the furnace will stop working (on the coldest day of winter, of course; it won’t be fun moving in with the parents for a week), then the fence will collapse during the ice storm. And just when you think you’re in the clear, a neighbour will notice some crumbling bricks on your chimney…

Beware the hidden costs of home ownership. They can sneak up on you and force you to jack up your line of credit; if you’re not careful, yours will hit $35,000 before you reach 40. Take the time to factor unexpected expenses into your budget, and if that puts you over the edge, don’t be afraid of holding off on buying a house. I know you don’t want to wait, but it would be very wise to build up a bit of a financial cushion before buying your first house. You don’t want to rely on credit to bail you out.

When you’re 40

So you’re in your house and you have the bigger family to fill it up. Congratulations on your second and third children. Your eldest is smart as a whip, asking questions faster than you can answer them. All three kids are growing up so fast; you wish you could just freeze time and keep them small and young, even just for a couple more years.

You’re focused on making more money so you can build the best life possible for your family. What you haven’t learned yet is that bigger isn’t necessarily better. If I remember correctly, you’re eyeing that bigger house right about now, that brand new one around the corner that just went up for sale. It won’t require any renos and there will be no unexpected repairs (at least not for many years to come). It’s more spacious and much nicer than your current home – the one you once thought of as your dream home! You imagine how much your family will enjoy the state-of-the-art kitchen and the generous backyard. And deep down, you secretly believe your friends and peers will think better of you if you live in such a beautiful house. You don’t have to admit it; I know what you’re thinking.

My advice to you

Stay where you are. You’ll be happier in the long run if you hold on to the house you’re currently living in. If you buy the bigger house, you’ll love it for awhile. But after a couple years, you’ll realize – too late – that it was a mistake. You’ll see your debt increase month after month, and you’ll wonder why the bank ever approved you for that large mortgage.

I’ll tell you now what I wish I’d known at your age: Being approved doesn’t necessarily mean you can afford the payments. Having the means to pay for a mortgage is a very different thing from getting approved for a mortgage. You need to calculate your numbers before making any big moves.

Right now, you have some debt but it’s manageable. If you buy the brand new home, all your equity will slowly trickle out of your hands. By your late 40s, the kids will be grown and off at university. The backyard will be empty, as will those extra playrooms you wanted so badly. And you’ll feel like your finances are running on empty, too.

Don’t give in to societal pressures and misguided expectations. The extra space in the new house would be nice, but you don’t really need it. And your true friends won’t care what size your house is. So look for happiness in your current home; you’ll thank me later.

More than that, your kids will thank you. By making smart financial choices, you’ll not only help yourself and your household, but you’ll set a valuable example for your children. Teach them the right lessons while they’re young – when they’re still eager to learn and have every opportunity to get it right from the beginning. Lip service will only get you so far; it’s important that you show your kids how to budget properly by doing so yourself.

When you’re 50

Happy 50th! What a milestone. You’re highly valued at work and are at the pinnacle of your professional career. You’re earning more than ever before, and although bringing in the dough is keeping you pretty busy, you’re still fit and strong enough to handle it – for now. (The truth is, you’re starting to notice that you’re slowing down a bit these days.)

In the back of your mind, thoughts of retirement are creeping in more steadily. But it’s scary to think about, and you’re easily distracted by the hustle and bustle at work. (Or maybe you’re using work as a way of putting off dealing with your fear of retirement… Just putting it out there.). I know what you’re thinking: You’ll increase your retirement contributions as soon as you get some downtime. Never mind that you haven’t increased them since you were 35.

My advice to you

That fatigue that’s starting to set in? It won’t get any better as you age; you need to take steps now to properly prepare for retirement. Otherwise you’ll find yourself approaching 60, far more tired than you’re feeling now, but with too little savings to stop working any time soon.

The problem won’t be the returns; your investments will do well. It will be that you never made a point of increasing the contributions to your retirement savings; you just kept putting it off. Busy days led to busy weeks, which led to busy months and years, followed by a busy decade. And let’s be honest: You never really wanted to think about retirement, did you?

It’s not too late. Harness your thoughts about retirement right now. Take some time to determine how much you’ll need when you retire, and how much you have to set aside now to make that happen. You’d be shocked by how much you can truly save over the next decade.

When you’re 60

Retirement is only a few years away, and I know that brings up mixed feelings for you. Even though you’re no spring chicken, you’re sure you can stick it out for a few years beyond 65 (isn’t everyone saying that 65 is the new 45?). But you don’t know how realistic that is, and you feel overwhelmed when your financial advisor tells you your retirement savings aren’t enough to live on. And I know all too well how disappointed you are that the line of credit on that house you bought at 40 got so out of control; you’re embarrassed by the small a percentage of your home you actually own. It feels like the cards are stacked against you, and you don’t know what to do.

As if that weren’t enough, you’re concerned about your children. They’re adults now, in their 20s and 30s. Unfortunately, a couple of them seem to be following in your financial footsteps. They rely too much on credit, whether it’s from the bank or from dear ol’ dad. I know you feel torn; you want them to stand on their own two feet, but you feel terrible when they shamefully approach you to bail them out from their credit card debt. Every time they come knocking on your door, you cave under the guilt and pressure, and bail them out (even though your retirement plan can’t afford the hit!).

My advice to you

I’m 70 years old. I’m semi-retired, and it isn’t rosy. There are no thriving vineyards outside my living room window, no leisurely walks along the beach. I’m still in that same too-big house, still struggling to pay off the mortgage.

At work, I felt I couldn’t keep up with the pace of the young upstarts around me, and I had to make room for the next generation. I still have a part-time position with the company, and I’m grateful for that (when I’m not too tired to appreciate it), but it’s hard on me; I used to be the person running the show, making things happen, and now I feel sidelined.

I wish I could have left on my own terms. I wish I could have had a big send off, leaving work at the height of success so I could enjoy a decadent retirement. But that didn’t happen. Instead, I faded into the background, not capable to perform the way I used to, and unable to retire completely because of my finances.

I look at the younger generation, so full of potential, and I hope they won’t make the same mistakes I did. I hope they make the effort to budget wisely and spend within their means, so they don’t end up like me. And I wish I’d set a better financial example for my kids, and given them the gift of tough love so they’d be better able to support themselves without relying on credit. It worries me to think they’ll wind up in the same boat I’m currently in, but without their dad to bail them out.

So I leave you with this, my final piece of advice to you, before you catch up to my 70 years: Know that a good income doesn’t always lead to a good outcome. Don’t buy more than you need, and don’t get sucked in by status symbols. Keep track of your expenses, always allow for a contingency plan, and don’t delay in setting aside money for your retirement; you owe it to yourself and your family.

No matter how old you are, it’s never too late; start budgeting now and learn to live within your means. It will only serve you well. This is the secret to financial success.

Avraham Byers

Budgeting and forecasting: How to get on track and reach your financial destination

Don't get lost budgeting

When it comes to finances, it’s easy to feel lost. We all know we need some kind of budget, but we aren’t always sure where to begin.

Many people start by categorizing their expenses in a spreadsheet or computer program (like Mint.com or Quicken), hoping to figure out where they’re going wrong. The problem is, simply organizing/plugging in numbers won’t solve your financial problems. Let me explain.

Going over past expenses is a great way to know where you stand. It gives you a solid foundation to create a cash-flow forecast for the next year. However, what is the next step once your forecast is completed? In other words, how do you stick to the forecast?

The truth is that you need both a forecast AND a budgeting system to keep your spending in line. Because while forecasting helps predict what we want to happen with our finances, budgeting provides the means to make sure it WILL happen.

A Road-Worthy Analogy

Imagine you want to take a road trip to the Grand Canyon. The first thing you do is map out how you’re going to get there (think pre-GPS, please). You calculate the most efficient route and pencil it in. You factor in rest times, plan your accommodations, and voila! – you’re all set to go.

The trouble is, when the time comes to hit the road, your car sputters to a halt, and you barely made it out of your driveway. You’re puzzled for a while, wondering what’s gone wrong. And then it hits you: You forgot to tank up!

On a road trip, a map won’t get you anywhere without enough gas. Similarly, when you’re heading toward a financial destination, a forecast won’t get you where you want to go if you don’t have a good budget to fuel your journey. Forecasting gives a general idea of what should happen with your finances, but without a budget, you won’t get off to a good start. Instead, you’ll find yourself stuck just outside the driveway, asking “What do I do now?”

On the flip side, you won’t get very far if you’re trying to reach your financial destination with only a budget and no forecast. Let’s return to the road trip analogy. There you are, headed to the Grand Canyon, all set to go with a full tank of gas – not to mention some tasty munchies. You hop in the car and get on your way. The skies are clear and all signs point toward a smooth trip.

After several hours of travel, you pull into a gas station and ask the attendant how far you are from your destination. The answer? “Another 15 hours or so.” You’re shocked. The Grand Canyon should only have been 12 hours away. That’s when you realize you were headed in the wrong direction. You took a bad turn because you didn’t map out your trip.

It works the same way when planning a financial journey. Without a clear idea of where you’re going and what you can expect along the way, a budgeting system can only take you so far – and it may well be in the opposite direction you intended to go.

I admit that the road trip analogy might be an oversimplification. But I want to drive home the point that you need both a road map (your forecast) and fuel (your budgeting system) to reach your financial destination. One without the other will either get you nowhere or get you completely lost.

Let’s take a closer look at these key components for a successful financial journey.

Forecasting: Mapping Out a Solid Spending Plan

Forecasting is the attempt to accurately predict your expenses for the coming year. It’s your financial road map, and it should be the first thing you do to get your spending under control.

Here’s how it works: Categorize all your expenses from the previous year (you might save time by doing this with a program like Quicken or iBank.) Be sure to remove any categories that won’t apply in the coming year; for example, physiotherapy bills for an injury you’ve recovered from.

When that’s done, you need to brainstorm any new expenses for the upcoming year. It’s important to anticipate financial roadblocks, such as that leaky roof that really should be fixed. You can use a simple Excel spreadsheet to input your anticipated expenses.

Once you’ve charted out your relevant previous expenses and anticipated expenses, you’ll have a workable forecast for the coming year.

Budgeting: Fueling Financial Success

I often say that budgeting starts where the spreadsheet stops. With a brand new financial forecast in your hands, the next step is to find a budgeting system that will enable you to stick to your forecast.

There are lots of different types of budgets out there. Some involve dropping cash in jars, others involve stuffing dollar bills into envelopes. But I prefer the Daily Discretionary Income (DDI) system. I find it the simplest and least time-consuming budgeting system out there.

Your DDI is what you have left over to spend each day at your discretion, for items like groceries, gas, clothes and entertainment. In a nutshell, here’s how it works:

Step 1: Calculate your Annual Discretionary Income (ADI)

ADI = Annual Net Income – Annual Fixed Expenses

Step 2: Calculate your Daily Discretionary Income (DDI)

DDI = Your ADI ÷ 365

Once you know your DDI, you should track it daily. If you have any extra at the end of a given day, carry it forward to the next day and watch it build up. You might be surprised at how fun it is to watch the numbers in your DDI column grow.

The DDI budgeting system is just one of many that might help you reach your financial destination. If you want to explore other options, Google “household budgeting systems” and find one that fits best for your needs, goals and temperament.

On the Road to Success

The road to good spending may be paved with good intentions, but those won’t do you much good without a plan and a means of getting where you want to go. To gain control of your finances, you need an accurate forecast and have a reliable budgeting system. Once those key components are in place, you’ll be well on your way to reaching your desired financial destination.

Avraham Byers

4 tips on how to talk to your spouse about money

The Globe and Mail
Chosen best of the web by Globe and Mail personal finance columnist Rob Carrick



One word sums it up: Disconnected. That’s how most couples are with each other when it comes to their finances. I’m not talking about having separate bank accounts – that’s just a banking preference. What I am addressing is something much more profound: our inability to truly be honest with one another about our financial selves. Deep down, our disconnection stems from being too scared to communicate with our spouses about finances. (And no, shouting doesn’t constitute real communication!) We’re so afraid of being judged or criticized for our spending habits that we clam up rather than discuss the subject.

So what can you do about it? How can you overcome the anxiety of talking about your finances with your loved one? What can you do to ease your partner’s fears of being upfront with you? Here are four tips that will help you open the communication lines with your better half so you can create a team-like approach to your finances:

1. Keep your cool

If you discover unpleasant truths about your spouse’s spending, it can be tempting to confront them right away. But don’t ever say this: “I went through the credit card statements and can’t believe you spend so much on stuff we don’t even need!” Putting your partner on trial will only make them defensive, and highly unlikely to listen to any of your suggestions (even if your ideas are great). Instead, take some time to chill out. If you learn that your spouse is racking up the tally on your credit card, apply the 24-hour rule: Wait at least 24 hours before saying anything about the issue. This cooling off period will help you be more level-headed when you do approach your spouse, making it much more likely that your feedback will be heard and considered.

2. Come clean – totally clean

It’s tough to open up about your finances, especially if you’ve been secretly hiding some of your mistakes. But we all know that coming clean and getting everything off your chest is essential to moving forward with any endeavour – especially finances. Remember, we all make mistakes. We’re human. Bruce Lee used to say “Mistakes are always forgivable, if one has the courage to admit them.” Once you muster the strength to reveal your inner spending secrets, try to say something along the lines of: “I made a mistake. I’m sorry and hope you can forgive me. I want to change the way I handle finances.” If your spouse senses your sincerity, it’s very likely they’ll do more than accept your apology – they may return the favour by sharing their own spending secrets. By opening up and letting your partner see your vulnerable side, you can strengthen trust and create a sense of oneness.

3. Make a fresh start

Regardless of whether you or your partner did the buying, you should accept this fact: Money already spent is water under the bridge; it isn’t coming back no matter how much you want it to. If you focus solely on financial blunders, you won’t be able to move forward and identify positive next steps. Instead, empower yourself. Change your perception of yourself, or your spouse, from the villain of yesterday to the financial hero of tomorrow. Know that it is possible to take control. You and your spouse have the power to change the way you perceive and handle your finances. I know this firsthand; I used to be horrible with money, and now, not only have I cleaned up my own spending habits, but I’ve helped countless clients transform themselves from spender to saver, simply by changing their self-perceptions. I think author L. M. Montgomery put it best when she said “Isn’t it nice to think that tomorrow is a new day with no mistakes in it yet?”

4. Create a unifying budget

Once you’re ready to develop a new budgeting strategy with your spouse, you’re well one your way to a blissful financial partnership. But it’s important that you choose the right strategy. Certain types of budgets can bring spouses closer, while others can drive them apart. You should avoid budgets that are stiff and rigid; they often make people feel like they’re living in a dictatorship rather than a partnership. Tell your spouse what your financial priorities are, and be sure to listen to theirs. You and your spouse have to learn how to sit side by side, not across the table from each other. Keep in mind that there must be flexibility in budgeting, and that no one changes their financial behaviours overnight.

Here’s a handy tip: Try inflating your budget for discretionary spending by 10% in the short-term (four to six weeks), so you can build commitment and achieve solidarity in the long-term. Budgeting can be a lot like learning to ride a bike; it takes a few scrapes and bruises to get good at it. Flexibility mixed with a pinch of patience and a dash of support will bring you and your spouse closer together and help ensure your financial success.

Reconnecting for your financial future

Clearing the lines of communication isn’t always easy. But it’s an essential step in building a solid, connected partnership. Be honest about your perceived financial failings, be willing to listen to your spouse, and remember that you can both change your spending perceptions – not to mention your spending habits – to become a stronger, more fiscally responsible team. Mattie Stepanek, the late American prodigy, poet and peacemaker, summed it up best when he said: “Unity is strength… When there is teamwork and collaboration, wonderful things can be achieved.”

Avraham Byers

FIFA World Cup 2014 holds 4 important lessons for your personal finances

Avraham Byers – Special to Financial Post

Amazing SaveIt was spectacular. The crowd went wild when they saw Robin Van Persie leap into the air for his gravity-defying header against Spain – a play he calls “the best goal of my career.” And rightfully so; it was truly remarkable. Scoring that goal has solidified Hollands’ Van Persie’s reputation as one of the world’s greatest soccer players, earning him the title ‘The Flying Dutchman.’

But those astonishing plays are the exception, not the rule; teams can’t rely on them to win games. At the end of the day, good defensive soccer moves are equally important as jaw-dropping goals, although they’re often given less attention. If you want to win, stopping opponents at midfield may not bring in the glory, but it’s a vital component of the game. It’s great to score five goals, but you still lose if they score six goals against you.

The same is true in the game of personal finances. Just like in soccer, if you want to succeed, you need a good defensive strategy. It’s nice to bring in the big bucks, but if the money leaves your bank account faster than it comes in, at the end of the day, you will lose the game. Increasing debt always causes a financial mess, no matter how many offensive points you score along the way. As I always say, “A good income doesn’t always lead to a good outcome.”

All too often we get caught up in the grandeur of landing a high-paying job or scoring those big sales. And who can blame us? Having a successful career can put us in the limelight, make us more popular and even boost our self-esteem.

Defensive strategies, such as saving thousands of dollars by taking public transit to work, or brown-bagging lunch, are not as culturally popular as scoring a big paycheque. We have to change our mindset and really internalize that a win is a win and that a dollar saved is a dollar earned.

If you’re puzzled as to why your debt keeps piling up despite your good income, it’s time to develop a good defensive strategy; a budget. You need a game plan that will enable you to guard your net: to pay off debt and save for retirement, as well as for those unexpected expenses that creep up from the far side of the field.
Following are a few game-day tactics that will help position you for success:

1. View your expenses as your opponent

Just like in soccer, it’s essential that you know your opponent. In this case, it’s your expenses. Analyze your opponent’s “moves.” Start by breaking down your fixed and semi-fixed expenses over the last 12 months – your mortgage, property taxes, investment contributions, utility bills, etc. In today’s online world, this process won’t take long at all; in fact, a client recently told me they did it in less than an hour.

2. Know your score

Once you have a handle on fixed and semi-fixed expenses (your opponent’s basic moves), it’s time to get a read on your score – that is, how much discretionary money you have available to spend. A wide range of transactions fall under this category, and, like soccer players’ tactical manoeuvres, they tend to sneak up on you. The simplest way to handle these intricate plays is to subtract your fixed and semi-fixed expenses from your annual net income. From that, you’ll have your “score” and will know how much you can really afford to spend on things like groceries, gas, flowers, clothes and entertainment (or tickets to World Cup games).

3. Keep your eye on the ball

Having a solid game plan is essential, but it doesn’t amount to much unless you deliver on your strategy. To prevent your opponent from scoring and taking the lead, you must keep your eye on the budgeting ball. Track your discretionary expenses on a weekly or even daily basis to make sure they aren’t creeping up on you. Use a financial tracking software (there are a myriad available), or go the simple paper and pen method – whichever you prefer.

4. Eliminate your opponent

After a month or so of tracking discretionary spending, see how it lines up against what you actually have available to spend. If you’re under budget, great! You’ve taken your opponent out of the game.
Just keep your eye on the ball so you can secure your long-term victory. If you’re overspending, though, it’s time to shift into defensive mode. Look to reduce or eliminate any fixed expenses (hello, telecommunications bill!), and tighten up on your discretionary spending. The goal is to eliminate your opponent and make your budget balance, every month.

Budgeting may be a little lackluster compared to scoring great financial goals, like a high income, or a high-profile job, but they’re equally as important. If you want to win the game of personal finances, you have to think defense. So keep landing those goals whenever you can; but just be sure to always protect your net. Making consistent, defensive financial plays will put you in a much better position to take the lead and win your financial game.

Avraham Byers

Six spending personalities that can wreak havoc on your finances

The Globe and Mail


   Chosen best of the web by Globe and Mail personal finance columnist Rob Carrick


Spending Personalities

Overspending is a common problem for many people; it creates debt, anxiety and relationship problems, even among high income earners. All too often, people’s spending habits seem to rise to meet – and exceed – their incomes. So why does this happen? What compels people to overspend when they already have the items they truly need? The answer lies deep within each person’s spending personality.

Recently, I read Dr. April Benson’s book I Shop Therefore I Am, and was fascinated by what the contributing authors uncover about the emotional and psychological factors influencing our buying habits. I thought it would interesting, and beneficial, to touch on the six key spending personalities they explore: image spenders, bargain hunters, collectors, compulsive shoppers, co-dependent spenders (a.k.a. gift-givers) and bulimic spenders.

For most people, their spending personality can influence purchasing decisions on a daily basis, and can sometimes have adverse affects on their personal and financial affairs. If you feel your spending has a tendency to get out of control, it can be helpful to consider which personality best matches your own. As you read through, you may perfectly fit into one category, or more commonly, may feel that you share traits with several of the personalities.

Image spenders

For image spenders, appearance is everything. They live well, dress well and are likely to pick up the tab for others in order to appear generous as well as prosperous. Image spenders have an inner drive to be admired and seem powerful. It’s common for them to belong to prestigious clubs and associations, fly first-class and reserve the best tables at restaurants. When opening a new business, an image spender will probably be prematurely concerned with having pricey office digs, expense accounts and glossy marketing collateral, even when they’re just starting up. Whether they can afford it or not, they will give lavish gifts, and lend money even if there’s a good chance they won’t get it back and even if they already owe money on their credit cards.

Bargain hunters

As the name implies, bargain hunters are in it for the hunt. They view getting a good deal as a victory, regardless of whether they actually need the product in question. For them, finding a bargain isn’t simply about being a conscientious shopper; bargain hunters are in it for the thrill of finding a great steal, and often get a kick out of “besting” the seller by talking them down from their original price. Many times, bargain hunters don’t even care about the item they’re buying, as long as they can buy it cheaply. Unfortunately, all those cheap purchases can add up, and when the bills come in at month’s end, these shoppers often get more than they bargained for.


Collectors have a deep well of knowledge about a particular subject area, whether it’s comic books, antiques, dolls, model cars – you name it! They enjoy the status and admiration that comes from being an expert and having an exclusive collection. Most collectors get a feeling of bliss or elation from making new acquisitions. There’s nothing wrong with that in and of itself; collecting as a hobby can be very satisfying, and if the items in question aren’t too pricey (for example, a friend of mine used to collect tea cans), there’s little harm in it. But sometimes collectors seek more than just satisfaction. They’re driven by a hunger to expand their collections, and that appetite doesn’t go away no matter how many acquisitions they make. The collection trumps all other needs and desires, and that can take a heavy financial toll, particularly if the items they covet are on the high end of the scale – say, expensive shoes or vintage wines.

Compulsive shoppers

Compulsive shoppers hit the stores because they have an unconscious desire to avoid unwanted feelings. For them, shopping provides a distraction from negative things like depression, anger, fear, loneliness or boredom. When they pull out the credit card or Interac Flash, they’re looking for the sense of well-being, excitement and control that often accompanies a shopping spree. Unfortunately, once compulsive shoppers get home with their new goodies, they’re usually hit by feelings of guilt, anxiety and confusion about their behaviour, not to mention disappointment that the spending didn’t resolve their initial negative feelings. This can set off a nasty cycle that sends the person right back to the malls.

Co-dependent spenders (a.k.a. gift-givers)

Wanting to make others happy is something most people can relate to. Who doesn’t like seeing a friend or family member’s face light up when they receive the perfect gift? In its mild form, co-dependent spending can be as simple, and innocent, as wanting to give joy. Things get a little darker, however, when gift givers are driven to doll out lavish presents so they can gain attention, friendship or love, even if their gifts go over budget. (Think of those holiday shoppers who always go way overboard, offering presents that are far too extravagant or unique for the recipient to possibly reciprocate.) This type of co-dependent spending often leads to disappointment and resentment when the receiver doesn’t respond in the way the giver intended. In these cases, gift giving can be less of an act of generosity and more an act of control – one that can be financially draining for the shopper, and emotionally draining for both the giver and the receiver.

Bulimic spenders

Bulimic spenders feel compelled to spend their money as quickly as possible so they can be rid of it. For example, they might quickly blow through any extra cash left at the end of a pay period. Bulimic spending can also present itself when people come into an inheritance or win the lottery, and feel the need (consciously or unconsciously) to shed those extra dollars so they can return to their normal lives. In either case, this kind of binge spending is all about eliminating excess, but it doesn’t allow for the fact that the spender could benefit from holding onto their money and investing it for a rainy day. Usually, once all their money is spent, bulimic spenders are overcome by a strong case of buyer’s remorse, and sometimes even profound embarrassment and disappointment about their behavior.

Which spending personality are you?

The desire to impress and compete, or to feel good and loved, is a powerful motivator. Let’s be honest; even the smartest among us are likely to sabotage budgets in the face of strong emotional needs.

If you feel that your spending sometimes gets out of control, you can help yourself by identifying which personality you relate to most. Knowing what kind of spender you are will enable you to understand your underlying needs and spending triggers, and can empower you to break down long-established patterns and habits. Once you do that, it becomes much easier to curb your spending and stay on track, so you can make better choices for your budget – and your life.

Avraham Byers


Why you should pay full retail

Sale BannerRetail marketing scientists have mastered the art of seduction. They make a living by influencing your purchasing decisions and, on occasion, roping you into buying something you really don’t need. They have a myriad of analytics at their disposal, and they’re not shy about using them to tempt you into abandoning all rational behaviour and making impulse purchase decisions – the kind that result in shocking credit card bills at the end of the month.

Marketing scientists have many tricks up their sleeves, but the most common way they get us to drop our purchasing defences is by provoking us with sales. Sales have a powerful allure, appealing to restrained and uninhibited shoppers alike.

One of the most extreme examples of how far sales can drive otherwise rationale people to total shopping madness is Filene’s Basement’s ‘Running of the Brides’ sale. (The reference to Spain’s ‘Running of the Bulls’ is entirely appropriate, given the frenzy this sale invokes.) Filene’s Basement is now closed, but while in business, its annual sale event attracted thousands of brides-to-be from around the world, all eager to find their dream designer dress at a rock bottom price. And who could blame them? Wedding gowns worth thousands of dollars were discounted as low as $249, to a maximum of $699. The eager shoppers assembled their own teams and created strategies for grabbing and trying on as many dresses as possible on event day. At 8:00am the pistol was fired and the doors flew open, launching an all-day bridal war that sent silk and lace flying, and sent etiquette right out the window – all for the sake of bargain basement pricing.

Hopefully most people won’t be involved in a brawl over retailers’ wares. But we all feel that inner itch when we learn about a good sale. Marketing tactics have become so slick these days that retailers can regularly convince us to part with our money in unplanned ways, and even leave us feeling happy about it.

Smaller prices

Think of how retail marketing scientists manipulate pricing signage during sales. They commonly use signs that emphasize the original price in big font and deemphasize the sale price in small font. They do so because research has shown that when the sale price is presented in smaller font, it gives the illusion of being more affordable and triggers impulsive purchases. It’s a subtle but effective way of swaying our willingness to spend.

Of course, sales aren’t the only way retailers lure us into spending more. There’s the ever-popular “number nine” ploy. In the past, whenever I saw items marked at $9.99 instead of $10, I used to say to myself, “Who do they think they’re fooling?” But like most people, I underestimated the power of the number nine. As William Poundstone points out in his book Priceless, eight different studies show that setting price points that include the number nine increased sales by 24%!

Pricing decoys are another way retailers get you to part with more money than you planned on. In his book Predictably Irrational, behavioural economist and professor Dan Ariely demonstrates how a large magazine successfully employed a strategy called the “decoy effect” to increase revenue from subscription sales. Prospective subscribers were given three choices:

1. Web-only subscription for $59
2. Print-only subscription for $125
3. Web + print subscription for $125

At first glance, the middle price point appears to be superfluous. Why would anyone buy a print-only subscription for $125 if they could get a web and print for the same price? Ariely tested the price points with MIT students and found that 16% of students chose option 1 and 84% chose option 3; not surprisingly, none chose option 2.

Then Ariely did something really interesting; on the assumption that having a decoy price (option 2) was influencing people’s choices, he removed the decoy and retested the price points. This time, the subscription choices were as follows:

1. Web-only subscription for $59
2. Web + print subscription for $125

With the decoy removed, the option that had previously been the most popular – the more expensive print + online access subscription – suddenly became the least popular choice. Only 32% of those surveyed chose the more expensive option, with 68% selecting the online-only subscription. Clearly the middle price point wasn’t superfluous; it was smart marketing that made option 3 look more attractive to subscribers.

The decoy price

The decoy effect applies to other items as well. Take wine, for example; we end up spending more if we are given three different price points as opposed to two. If one bottle is cheap, say $10, and the third bottle is expensive, ringing in around $50, then suddenly a $30 bottle seems reasonable – even if the customer only intended to spend $15-$20 at the most.

Retailers aren’t about to stop using the tried-and-true tricks that have worked for decades. Ultimately, it’s up to us resist their persuasion and take responsibility for our spending. But there are a few “tricks” of our own we can employ to help protect our wallets and preserve our sanity. If you’re easily enticed to spend money on sales items, or often succumb to manipulative pricing, you could save a lot of money by following these two rules of thumb:

Rule #1: Follow the 24-hour rule

Retailers count on the fact that we get into a ‘hot’ state when we see an item we want to buy. It clouds our judgement and makes us irrational about our fiscal responsibilities. If you find yourself in this predicament, the best thing you can do is abide by the 24-hour rule. Here’s is how it works: Don’t deny yourself the item altogether. Instead, tell yourself “I can buy it if I still want to after 24 hours.” Let’s face it, the item likely isn’t going anywhere fast, and even if it sells out, you could probably find it online. There’s no harm in waiting a day before buying a product, but there is a lot to be gained. By following the 24-hour rule, you give yourself time to get into a ‘cool’ state, one where you can resist the impulse buy and embrace your inner accountant. If you find that at the end of 24 hours you still want to make the purchase and have rationally determined that it’s an investment worth making (that is, it fits into your budget), then go ahead.

Sales aren't always the bargain they seem


Rule #2: Only pay full retail

This rule might seem counter-intuitive, but consider this: If you added up all the unneeded items you bought on sale (like clothes in your closet that still have tags attached, or toys and tools in the garage that have never been used), you’ll probably find that the cost outweighs what you would have spent if you’d only bought things you really needed, even at full retail price. If you consciously walk away from every sale and always pay full retail prices – on items you really need – your finances will almost certainly come out on top. Keep in mind I’m not talking about toilet paper and toothpaste; those daily necessities are great to purchase on sale. It’s those big ticket items, like high-tech toys or designer duds that you should look to buy only when you really need them, not just because they’re marked down.

When there’s a “60% off” sign dangling in front of you, it takes a lot of will power to resist. You may need some practice, and a lot of dedication, to be able to consistently respect your financial limits. But if you follow the 24-hour rule and commit to paying full retail price, the “60% off” sign loses a lot of its persuasive power. Don’t submit to temptation; take control of your spending habits, and your financial future will remain yours to dominate.

Retirement Savings: On your shoulders

Burden of Retirement SavingsMy grandparents had great pensions, and my parents have OK pension plans. Me though? I have none. The most I’ve been offered by any employer, is a group RRSP.

It used to be commonplace for employers to guarantee their employees a specific pension payout for remaining loyally employed with the company.

However, in recent years, a lot of employers have shifted the responsibility for your retirement income from their shoulders onto yours. The newer designed company savings plans are entirely dependent on your own savings and participation. These days, it’s far more prevalent for employers to offer matching programs – group RRSP’s are one way of doing this – where the employer contributes a certain amount, say $0.50 for every dollar that you contribute, up to a maximum amount.

Although there are some debatable sociological reasons for the shift, one thing is certain: It is less risky for an employer to contribute to a group RRSP than it is to guarantee a retirement pension for its entire workforce.

Nowadays, the common group RRSP doesn’t come with much security; the amount you receive at the end is not fixed in stone. Instead, it remains a nebulous number, dependent on interest rates, stock market fluctuations, and on your own participation.

Your own participation is where things get tricky.

In its annual report, How America Saves, The Vanguard Group, an investment management firm, says nearly 1 in 3 employees do not bother to sign up for voluntary employer-offered retirement savings programs.

Let’s step back for a second and analyze this. Say I have an investment that immediately pays you 50% return on every dollar you give me, up to a maximum of $1000. That means when you give me $1000, you get back $1,500 right away. In order to increase your confidence in the deal, we will use a close relative, say your mother, to mutually deposit our money. You give your mother $1,000 and I immediately give her $500 for you. Who would pass up this deal? Nobody!

Similarly, this is how most employer-offered retirement savings programs work today. You deposit money into a RRSP account, and your employer deposits funds to match your contribution. Why, then, would almost everyone take the deal involving Mom, yet nearly 1 in 3 people don’t take advantage of employer-offered retirement savings programs that do the same thing?

Although these two scenarios do seem very similar at first glance, there is one salient difference that explains why people pass up the free retirement money; that being the payout delay you endure with a retirement savings program.

Let me explain: In the investment deal offer involving your mother, you get your investment back almost immediately. With your employer’s retirement plan, however, there is a gap in time between depositing your money, and when you will reap the reward of your deposit (this being your retirement). This gap in time creates a cognitive disconnect. Behavioural economics call it “hyperbolic discounting”.

In essence, hyperbolic discounting is the human tendency to prefer smaller payoffs now, over larger payoffs later.

For example, if you offer people the choice between $45 now and $50 tomorrow, many will choose the immediate $45 being offered today. However, when offered $45 in one year, or $50 in one year, plus one day from now, they will choose to wait the extra day.

Even though you only need to wait one extra day in each scenario to receive the $50, we tend to become impatient when the reward is immediate. This occurs because we grossly discount the value of things we’ll receive in the future (hello, retirement).

In the back of our minds, we know we need to save for our golden years, but our hyperbolical minds discount the future, telling us to go on vacation this year, and worry about saving more next year.

Unfortunately though, the old cliché “tomorrow never comes,” rings especially true in this case. According to Vanguard’s research, only 12-15 per cent of all participants who are offered the opportunity to catch up on lost contributions, ever do so.

It’s not exactly a case of being crunched for cash either. Even among those with incomes over $100,000, only four in 10 made catch-up contributions. (Just think of all that extra RRSP contribution room you might have.)

Another common reason why people fall so far behind is that they put their contributions “on hold” when times get tough, and they start feeling the crunch.

During rough patches, we will convince ourselves we cannot give up certain things that we think we need, or are used to having. (Think about your cell phone, or cable television bill for a moment.) We will instead opt to skip or reduce our retirement plan payments to “save” ourselves a few hundred dollars each month.

Of course there are cases that people will need to stop contributions altogether, such as employment loss or serious illness.
With our own clients, we work hard to modify their expenses to keep them from going into the red each month. Skipping retirement contributions though, should be a last resort.

Here’s why: Even when people only intend to skip payments for a short time, without any accountability in place, several years can pass by rather quickly before they start contributing again. Often, they’ve lost a huge amount of accumulation time along the way, and they never catch up. Just like the Vanguard study suggests, that most do not even try.

Retirement is a costly proposition though, and the responsibility for accumulation, and stewardship of our future retirement income is a large one. We might be able to put it off, but it’s not something we can avoid forever. Eventually, all of us will age past our prime, even by George Burns standards.

Retirement is a consideration which needs to be taken seriously, no matter how alien, foreign, or far off into the future that reality might seem.
If you haven’t started contributing to your company matching retirement program, start today. Avoiding it means you are, quite literally, turning down free money.

If you must stop making contributions, find some way to be accountable, and get back on track as quickly as you can.
Even under the best of circumstances, a group RRSP will often not be enough to support certain lifestyles in retirement. Think of your savings as a fixed cost: take a certain amount off the top, right away, and put it in your retirement savings.

Admittedly, this can be harder than it seems because we are more willing, almost hardwired, to take a small reward sooner (in this case, the ‘reward’ is a slightly larger take home paycheck), rather than hold out for a larger reward at a later time, no matter how nonsensical that decision might be.

If you tweak your financial situation today, and get past your hyperbolic mind, you will reap the larger reward in your retirement years.

The true cost of a healthy diet

The true cost of a healthy dietWe’re into a fresh new year which, of course, means a lot of people have started dieting this week.

The health benefits of shedding some extra pounds are obvious. What’s hidden, however, are the financial costs of a healthy diet. I know it from personal experience.

Three years ago I joined a weight loss program, and lost 40 pounds. The program cost was $1,200 for 6 months.
When I signed up, I thought this was going to be my only cost. Soon after though, I was surprised to discover the diet came with two significant hidden costs that I hadn’t anticipated or planned for – the cost of healthy food, and the new wardrobe I had to buy.

The cost of healthy food

A recent study from Harvard showed that a healthy diet costs $2,000 a year more than an unhealthy one, for an average family of four ($500 per person).

In truth, I thought the number should be much higher.  My own average weekly grocery shop has gone up by almost $80 since I started my diet.  That’s an annual cost of over $4,000.

Fresh foods are more expensive than processed foods. The sheer volume of vegetables you need to consume on a actual healthy weight-loss diet is no small feat, and low-fat proteins can also cost a lot of money. (If you’re buying organic, the USDA estimates you can add on an additional 10% to 30% on top of that, as well.)

Your new wardrobe

Then, as your pounds fall off, so will your clothes, making it necessary to either alter your current wardrobe, or buy a new one.

I personally started to swim in my clothes, and the pressure to buy a new wardrobe started to build, after losing my first 20 pounds. I knew that I still had some distance to go in my weight loss journey however, so I put off buying new clothes, and instead decided to alter what I had.

After six months, I reached my “set-point.” In the program I was using, this is the point where you stop losing weight. For me, it was a green light to go ahead, and buy some new clothes. Even with my simple wardrobe though, I found I still ended up spending almost $1,500 on new threads.

Depending on your dressing needs, plan to have a  “wardrobe fund,” that will allow you to buy, at least the basics, for two seasons – spring, and the fall.

Where is all this money coming from?

When you start on a new and exciting weight loss journey, it’s incredibly tempting to say “let me lose the weight, and I’ll figure it out the finances later.”

Trying to eat healthier is difficult enough though, without adding financial sabotage. So let’s get to the point: If you’re already maxed out, or spending more than you earn, you need to budget, and figure out how you’re going to pay for these new, additional expenses.

If you plan to carry that additional cost on your 19.99% credit card, a $2,000 diet will actually work out to approximately $17,000 over the next five years.

The bottom line

As a personal financial trainer, I want you to succeed in the effort, quite simply because getting sick will cost you money. A healthy diet is probably one of the best things you can do for yourself, for your health, and for your finances.

I always say “don’t go cheap on your health because it will cost you more in the long run.”  This is not just a cute saying.  In Canada, Sun Life Financial says almost 40 per cent of Canadians will face financial hardship after suffering a serious health event. Those between 45 and 54 will be hit hardest by “unforeseen” heath care costs.

So eat healthy! You can do it, and it’s worth it to everyone involved for you to try. To help stay on track, however, plan for those additional costs. That $17,000 credit card bill is more than enough to set off an emotional eating response, no matter how strong your will power is today.

So this new habit change doesn’t derail your other self-improvements underway too (hello, debt reduction), you need to plan for the cost. Continue Reading…

1 in 4 Canadians feel helpless to control holiday spending


When making decisions about where to spend money, generosity often trumps or supersedes money concerns at this time of year. For some, it can be so difficult to go against this pattern, they actually feel helpless to control their spending, budget or not.

In a recent Investors Group poll, 1 in 4 Canadians feel helpless to control holiday spending. Two-thirds of this group admit this is a reflection of how they handle their finances, year-round.

Even with a budget, they feel out of control. I suggest this is because a lot of people misunderstand the difference between a budget, and budgeting as part of their day-to-day lives.

What is a budget? Is it a series of numbers entered into an Excel spreadsheet?

Yes, but that is only the beginning. To make it work, there needs to be a system in place that will bring the spreadsheet to life, out in real world application.

There’s a quote I love: ‘Personal finance is more personal than it is about the finance.’ We’re emotional people. We spend for all sorts of reasons. The holidays simply highlight our existing patterns.

With that in mind, remember that actual budgeting starts where the Excel spreadsheet stops. To stick with it, get help. At the very least, shop with a plan – you can’t go into a buffet and expect to be 10lbs lighter when you leave. In the same way, don’t subject yourself to the buffet of shopping opportunities out there without a list, a plan, and some help to stick with it, and make the budget work in practice.

Having the best, and the damage it brings

Porsche EmblemWe have a lot of decisions to make in life. Sometimes the easiest, or most reassuring way to go about making those decisions, is simply to spring for the best your money can get.

Do you need to have the very best internet or cell phone package though? Maybe. In reality however, a lot of people overpay, without using even a fraction of the service they paid for.

In other examples, people will pay for a really good television, for a top-of-the-line computer, or even for a really good dog leash. All of these are undoubtedly superior than their less costly counterparts, but most of the time their quality, any advances and superiority, are only marginally better, no matter what the higher, added cost might suggest.

It’s common for people to pay for far more television than they watch – telecom company business models depend on it. When it comes to technology, or gadgetry, some companies in fact only make one model, then actually impair the technology in some way, to provide an entry level model for consumers.

You can have the very best high-definition television that money will buy today; within six months, if not sooner, there will inevitably be something out there which performs better. We get upgrades all the time too – we’ll also upgrade our fixtures when making renovation decisions, we’ll get the very best countertops, and the very best windows, even if our mid-market options have nearly all of the same features.

How can a Personal Financial Trainer help?

It can be very comfortable, even enticing, to fall back on the habit of buying the very best. We sometimes think of it as an investment – in a future with fewer replacements or upgrades, or just an investment in something that is better.

A Personal Financial Trainer will help you see how all of these decisions can add up. A Personal Financial Trainer can also help you break the habit of buying the very best, when the same utility can be had, or the same need met, with a more modest outlay of cash.

A trainer will also help you see that you are not losing out when you curb this type of spending, and help you to appreciate how this desire for marginally better things can take away from your chances of being drastically better off in the long run.