Chapter 1 - Reality Check

Family Financial Planning

So much training goes into how to make a living. You go to school to become an engineer or a schoolteacher or a pilot. You learn how to create cash flow. You can become an accountant or get an MBA to become a manager of some large company’s money. They may be diligent in managing their career and that company’s money but they do some incredibly thoughtless things with their money. They focus so much on what they do creating income that they may have hundreds of thousands of dollars sitting in a checking account for years. I know of two examples of this exact oversight. Some executives will make 6 figure incomes but they don’t insist on a pension or have enough put away for a comfortable retirement when it is all over. There are those who are struggling to make ends meet but waste 10% to 50% of their incomes on frivolous things that hold no long term value. All groups can identify ways in which they just plain waste money and apply an inadequate amount of thought and planning to their own personal finances.

Don’t make excuses

This book is dedicated to helping people who are asking, “Why am I making enough money to have savings and build wealth but success is just not happening?” Look around you and you see evidence that it is not how much money you make but what you do with it once you have earned it. I worked in a union shop. Everyone knows what everyone else is making and everyone has a pretty similar wage and benefit package. Yet some of these equally paid workers live in the up-scale neighbourhoods and support a family while others struggle and are always short of money before payday even though they are on their own. Is it a magic formula? Are the wealthiest of the group just lucky and got all the breaks? Were they born with a silver spoon in their mouths? Do they have so much money that they can’t spend it all? Did they just inherit from a rich aunt? How many rationalizations have you heard on this theme? How many have you used? There is no doubt that people get good breaks and some people get bad breaks.

There are three points I want to make on the theme of excuse making. Number one is that most people have a nice mix of good and bad luck come their way and in most cases it pretty much balances out. You can surely think of instances of both measures of luck happening to you in your life. An instance of a chance happening can have both good and bad results. The result you focus on, the positive one or the negative one is the one that affects you most? It is about attitude and choice. Often I have found that my first perception of an incident is that it is a bad thing that has happened. However, as life plays out the event turns out to be a good thing. For most people there is a balance. I do not deny that some people, through abuse or mayhem, bad health or an act of God such as the Tsunami in East Asia suffer from an overwhelming case of chance destroying their lives. This book is not for them. Books of philosophy and healing and charity are for them and our empathy and compassion are for them. This book is for those who have the power to control their resources and who will choose to take a positive attitude about what comes to them as good or bad luck.

My second point on this theme is that most people can create good or bad luck for themselves. The best analogy I can think of for this is the sports analogy. I don’t think it matters what sport you follow, the team that works hard, plans thoroughly, and believes in themselves is the team that will get the big break. Why is that? A lot of it is that they have not given in to the bad breaks. A lot of it is that they know that life does offer up good breaks so you prepare for them. You structure your plan for when you do get that break so that it is not squandered. You structure your plan so that when you get bad breaks you minimize the damage. You make the best of your good luck and you minimize the effects of your bad luck. It is not magic. A lot of it is just recognizing and accepting what forces are at work and then adjusting how you manage yourself to accept the consequences of the natural spectrum of chance happenings.

My third point is that even if you accept and plan how to deal with chance happenings, you must execute your plan. It always means hard work and conscientious management of your resources. It means “Just Do It” to quote another jock standby phrase. Execution is everything. Making quick, sharp decisions to minimize damage when a situation becomes a financial liability is essential. Minimizing the damage is so important when bad luck happens or when you have made a mistake. A bad situation has the potential of undoing so much positive initiative and undoing ones confidence. Making the decision to sever a negative relationship or back out of money losing business associations should not be procrastinated. Deferring the cessation of a negative situation has the potential of being such a drain that it can take down everything positive that you have done. A great present day example is that the global banking industry knew that the subprime crisis and all of the ABCP in the system was toxic and dangerous years ago but the ignored it. Individuals allow the same thing to happen to them. Recognition of a problem is no go unless one initiates some corrective action. Similarly, when something good happens, execution to capitalize on ones good fortune is essential. Here we can go to the sports analogy. How much sports page copy has been filled with stories of the team that did or didn’t make the best of a golden opportunity? It’s the last second touchdown or the overtime goal makes sports page headlines. There is nothing that trumps a comeback story for the headline.

So don’t make phoney baloney excuses for financial shortcomings to yourself or anyone else. Everyone has access to the same toolbox. It is just a matter of using them.

New perspective

A book usually is full of personal anecdotes to illustrate points made. A recurring theme in my motivation for writing a book on personal finances is that it is hard to do because folks just won’t tell the truth about their personal finances. Maybe that is why nobody has written a book dealing with money at this level before. Nobody would give the author any personal anecdotes and any financial professional is sworn to tight client confidentiality laws. Imagine if you were used as an example of financial mismanagement. I don’t think many people can think of anything that would spark a stronger emotional reaction than having your complete financial situation made public. The juiciest family gossip is often the financial dirt on some family member. So I have tried to write this book with a psychological spin to make it not quite so personal while it does analyze the root of many money problems. This has the added effect of informing you that you are not alone. There are personality developments that you go through at certain ages and stages of your life. A huge part of your personality is reflected in your attitudes about your money. You can read situations as bad or good luck or you can try to understand them. You can learn what expectations are realistic and understand what goals you should set for yourself at certain ages and stages.

In my financial dealings, I feel I have tried to make every single mistake possible. I have lived the adage about “You learn from your mistakes so you have to make mistakes to learn”. I have done a lot of learning. Because I have done so much learning, I have also done a lot of reading, a lot of observing, a lot of talking and I have worked my ass off. At my peak I had three careers going and a family.

I learned that financial institutions and our robust economy have come to depend on people under managing their money. Economies of growth are about getting more and more dollars circulating faster and faster. That is the treadmill. You are on it. If you get off it or slow it down, is this necessarily a good thing for the society even if it might be good for you? Financial institutions create their income by picking your pocket every time you make a move. Service industries do everything for you so that you can rush around creating more economic activity. Consumerism is our culture. The focus of advertising is to get you to manage your life and your money so that you are a gerbil on a wheel. You must get off that wheel. Part of my experience was that at my lowest point, I cut my work activity by 50% and therefore reduced by income by 50%. I used my time to manage what I did have coming in better. I found that after 2 years I had more money that was mine at the end of the day despite making less gross income. Plus I had still had time left over that was mine. I learned the lesson of the adage that “Less is More”. You too can get off of the treadmill and THINK YOUR MONEY.

Of course money is not everything. However, it is a huge part of what we do and it is integrated with everything that we do. In our toolbox we have a form that identifies 7 areas of life to set goals in, Spiritual, Emotional, Financial, Career, Social, Physical and Family. You can see only 2 are money oriented but you know that for all of the others money does have an influence. Even in the spiritual life they have to pass around the collection plate. So when you manage your money properly, you will have a positive influence on your whole life. You increase your options in the other areas and allow your life to fill with the joys of a multi-faceted life. Within this perspective you can use the financial tools offered on the website to enhance your whole life. You can make your work and your money about you and your life. This is the first attitude that must change to give you your new perspective on your personal finances. Good Money management starts with the proper attitudes toward personal finances and this focus is the heart of what this author is trying to teach you.