Top 10 “Back to Basics” Financial Strategies.

Does this sound familiar?

One day you think: “I really need to start planning for “X” financial goal or situation.” All you really want is to reach that goal but you know that you need a plan. So you dive into the infinite spiral of knowledge and information known as Google. Aside from being distracted by cat videos and memes on the internet, you find yourself no closer to understanding and getting control over your personal financial situation.

Welcome to overwhelm. You don’t know where to begin. Worse yet, you may be looking at very advanced concepts without first understanding the basic building blocks of personal finance. When you feel frustrated and lost, it is impossible to make progress.

We have become increasingly alarmed that many fundamental financial planning concepts are not widely known and practised, so we have created this short “back to Basics” primer to help you make better progress toward the goals that matter to you.

The best time to start learning and taking control of your finances was with the first dollar you earned, but the second best time is now. We can’t get distracted by hindsight. Nelson Mandela said it best: “I never lose. I either win or I learn.” When reviewing the past, we must simply ask “what did I learn?”

If you can relate to this, I challenge you to start now. Don’t look ahead to the future, as it could be intimidating and overwhelming. All you need to see is what the next step is and take it.

We hope that these financial basics empower you to finally begin achieving those important goals. Click on any of the following points or simply scroll down.

Know Your “Why.”
Deal With the Overwhelm.
Make a Progress Shift.
Harness Your Cash Flow.
Only Spend the Money You Have.
Deal With Your Debt.
Don’t Mix History With Hysteria.
Action Plan.
The Magic of Compound Interest.
Stay Disciplined.

Know Your "Why."

Have you ever wondered why you were doing something? For example, why are you planning on retiring? Is it because society has told you so or do you have a purpose for retiring?

We often plan for financial goals without actually knowing why. This leads us to pursue unmotivating and unfulfilling goals. We are often left wanting, searching, or otherwise trying to find meaning. Your goals and dreams are unique to you and you should be clear on what is actually important to you and why.

It is often difficult to understand your why, especially when your real why is rarely your first answer. Over decades of working with people and their goals, we know that this is the time to go deep.

We use a tool called the “Focus Finder,” to help focus this process. However, you don’t need us to get started with discovering your why. Here’s what to do:

Ask yourself specifically what you are doing. For example, “I am saving the most amount of money that I can so that I can retire at 58.”
Ask yourself why you are doing that.
Now that you have done steps 1 and 2, repeat them. However, this time you are not allowed to repeat what you said before. Push yourself to go deeper.
Continue repeating this process until you feel that you have found your true why. If you feel an emotional response, that’s a good sign.

If you want to see an example of this, read our article “The Transformational and Annoying Power of “Why.”

It is important to live a life that is meaningful and fulfilling to you, rather than marching to the beat of someone else’s drum. You may have been feeling unsure or directionless regarding your goals. We hope that when you work through this exercise, you have a deeper sense of clarity, progress, and confidence.

Deal With the Overwhelm.

We have all been frustrated at some point in our lives, often feeling stuck and unable to act or move forward.

This is often caused by overwhelm or lack of progress and direction. As a result, you are not moving ahead in your life or on the things you want to achieve. This frustration is keeping you from pursuing goals that are important to you. It is so hard to achieve a goal while enduring the same frustrations over and over.

Ironically, we’ve seen that the frustrations are actually the key to unlocking your progress.

“The secret of getting ahead is getting started. The secret to getting started is breaking your complex, overwhelming tasks into small manageable tasks, and then starting on the first one.”
Mark TwainTweet

When dealing with overwhelm, the best course of action is simply to move forward. In our busy lives, this is easier said than done.

Here’s what to do:

Close the door, you need time and space to move ahead.
Write down everything that is overwhelming you.
Simplify each thing into the smallest steps you can take to make progress.
Take action. Schedule your next steps.

If you don’t know how to break your frustrations down into smaller steps, perhaps you need to speak to someone. Feel free to contact us if you need help establishing clarity, progress, and confidence.

Make a Progress Shift

True story. I was at a conference in Santa Monica with my dad a few years ago and we took the time to visit the testosterone centre of the universe: “Muscle Beach.” While watching one particular muscle-bound man repeatedly banging his forehead into a wooden post (true story), I was reminded me of an old story you may have heard:

A man walks up to another man who is repeatedly hitting his head against a wall. When asked why he is doing it, he replied “because it feels so good when it stops!”

We all want to move forward in life, but every time we get anywhere close to progress, we encounter the same problem. It’s like there is a wall in our way and we keep on hitting our head against it, knowing that the only relief comes when we stop doing it!

Our progress lies on the other side of this frustration.

What if the real problem was not the wall itself, but how we see it? We see this problem as a barrier to move forward, often causing us much frustration, pain, and perhaps feelings of failure. This is especially difficult as we have so many dreams and goals to pursue, if only we can break through this wall.

Making progress in anything in life is not an easy task. In our pursuit of progress we often fail, and may even give up.

Dan Sullivan, founder of Strategic Coach said it well: “There are three great obstacles to progress: guilt, envy, and resentment.”

So how do we do break through these barriers?

The first step is to identify what you would like to improve. Be specific about the problem.
Write down what you really want the ideal outcome of this problem to be instead.
Write down what is not working.
Write down how could you make this experience better by improving on what is not working.
Write down the next smallest action steps you will take to move toward your desired goal.

Often we give our obstacles more power by focusing on them as problems rather than learning experiences. This shift in mindset is helpful in avoiding frustration and lack of progress in all areas of your life.

You may have felt stuck, powerless, and frustrated with yourself and your problems before, but hopefully with some strategic thinking and structure, you see yourself learning from your obstacles and eventually overcoming them.

Harness Your Cash Flow

Cash is the root of the financial goals that we set. How’s that for a blinding flash of the obvious! More specifically, cash flow is the blood that brings life to your financial goals.

The biggest problem is a lack of clarity regarding your cash flow. You may not know where your money is going, or if it is enough to make progress toward your goals. Symptoms include overspending, under-saving, and the absence of a cash flow plan. You end up stuck, overwhelmed, and without direction in the pursuit of your goals. The tragedy is that the problem can usually be resolved with a little direction and structure.

It is hard to pursue your financial goals when you feel like your resources and work are not being directed to supporting your dreams. Although we see this situation a lot more than we would like to, we also get to experience the break-throughs where people are confidently loving toward their long-term goals through a disciplined and consistent approach.

The old saying “cash flow is king” is so true, but let’s take it one step further through the following simple formula, assuming that you are redirecting your abundance toward your goals:

Progress toward financial goals = income – spending

There are many potential outcomes to this formula:

By reducing your spending, you are increasing the amount that could potentially go toward your goals.
By increasing income, you are also increasing the amount that could potentially go toward your goals (assuming that your spending remains the same).
If spending exceeds income, your upkeep will be your downfall!

Now if you really hate formulas, the basic message here is to spend less than you make and have a plan to work toward your financial goals (this part is also important because when we don’t have a plan for our excess money, it usually disappears).

We have a cash flow calculator that you might find very useful in your journey. Click here to calculate your cash flow.

Progress toward your financial goals is fueled by your cash flow. The worst response is to not be aware of it. You must respect cash flow as the most important factor in achieving your financial goals.

Only Spend the Money You Have.

Let’s face it, we all get distracted by the latest and greatest gadget, style, or trend.

Does this following scenario sound familiar? We go to the mall, get pulled into a store, see something we “need,” and without hesitation take it up to the counter and put it on our credit card. After all, our credit limit always seems to increase and we get points – right?

If this sounds like you, there may be a serious problem underlying this credit card fueled shopping spree: buying something on credit when there’s no money in the bank. It’s often easy to forget that the available credit remaining on your cards or lines of credit is not actually your money. To use that limit, you are essentially renting it – at a very high rate! Sure, you may feel great buying everything on credit, but remember, you need to pay for it eventually. I’m not saying that credit is a bad thing, just that it is a powerful tool and, like a chainsaw, can be dangerous if not used properly.

It is difficult to control our spending when we want something. Most situations that we have seen involving out-of-control consumer debt could have been avoided had there been some education and discipline in the use of credit.

Since credit is a valuable tool that we have never been taught how to use properly, here are a few simple guidelines that might help:

Never buy something on credit that you cannot immediately pay off.
Even though you may have a lot of credit available, regularly spending over a certain percentage of that limit has a negative impact on your credit score.
Use cash or debit instead of credit – I know you might argue against this saying “but what about my points?” Let me just say that sacrificing those points is cheap compared to the outrageous interest costs and stress if you cannot control your spending.

We have two great articles that also talk about the use of credit, cash flow, and debt elimination if you find yourself in those situations.

Credit is an important tool in this world. It has great power and requires responsibility, discipline, and proper use. Without fully understanding the potential risks associated with credit and spending there is a real possibility of damaging your financial future. Don’t let the distractions and greed of this world pull you off track. Only spend money that you actually have and take control of your financial future.

Deal With Your Debt.

Is this you?

You want to make progress toward your financial goals, but you find yourself constantly held back by debt. Not only is your consumer debt a problem, but you also have no structure or direction to help overcome your debt. This can be paralyzing and you don’t know what to do. When you are not confident in your direction or how to move forward regarding your debt, you are wasting money through the interest you continue to pay.

Debt is one thing that we have never really been taught about. We generally just know that it is bad. In all our encounters with people carrying this burden, we are amazed by what happens when they are given a simple structure and direction in paying off their debt.

Do you want to exponentially accelerate your financial freedom? We have created a simple debt elimination worksheet that will guide you through the steps to move forward in overcoming your debt. Please click the button below to download the worksheet.

We hope that this tool gives you direction and clarity in moving toward overcoming your debt. There is a real cost to not moving forward and trying to reduce your debt, through the interest you must pay. You may have been feeling overwhelmed, and held back by your debt, but hopefully in gaining direction and confidence you can work toward your future of being consumer debt free.

Don't Mix History With Hysteria.

Turn on the news, read the papers or scroll through your newsfeed. Do you end up feeling confused, fearful, or anxious about the future? Welcome to the distraction economy – “if it bleeds, it leads!”

The biggest obstacle to overcome is the financial media, which preys on our emotions and fears. This media hysteria causes many to be distracted by headlines, noise and negativity rather than focusing on truth, logic, and data. Your anxiety level goes off the charts and can cause you to sabotage your long term goals, swayed by the noise. This violates the very trust we often place in the media as a voice of reason and truth.

We know that emotions play an important role in many of our decisions. This often works against us, especially when our fears and emotions are being exploited. We must remember that the media is a business that makes money from advertising when they are able to grab our attention.

Let’s take a look at events that have hit the headlines since 1970 and compare them with what actually happened to the stock market in the long run. The following picture tells a great story:

Progressing toward your long-term goals requires focus, direction, and discipline. Don’t be swayed by the things that are trying to steal your attention. Try to think critically about the messages and headlines that you see and look past the headlines by engaging your financial advisors in the conversation.

Action Plan

We all have goals and we usually need to save money in order to reach them!

The biggest obstacles in saving money is our spending or lack of saving habits. By not having structure or a savings plan in place, it’s no wonder that there is usually nothing left to save. Have you ever noticed how your money just disappears when you have no plan for it? This makes it seem like you cannot make progress towards your financial goals, often feeling discouraged and without hope. To make things worse, everyone thinks that coming up with a savings plan is overly complicated.

I’ve got some good news that can help you overcome the discouragement you may be feeling in not making progress on your financial goals. We have seen lives transformed and goals achieved with a little structure. Creating a savings plan is not overwhelming or intimidating, but actually quite simple.

For the purpose of simplicity, we will not factor in rate of return or inflation. Planning your savings and retirement income is a more complex issue, one requiring a proper financial plan.

To begin your savings plan ask yourself these questions:

What am I saving for?
When do I need this money (in years)?
How much do I need to save in that time?
Take the amount in step 3 and divide by the time in step 2.
- This answer is the amount that you will need to save per year.
- You can even break this down further into months, weeks, and even days.
- For years to months, divide by 12
- For years to weeks, divide by 52

To start a conversation about pursuing your financial goals or setting up a savings plan, please feel free to contact us. However, you don’t need us to get started. We have several financial calculators available as a resource to answer many of your questions. Click here to see them all.

Pursuing your financial goals shouldn’t be so overwhelming that you procrastinate or never pursue them. With some structure we hope that this gives you clarity and direction. The biggest obstacle is procrastination, so start now. You deserve to achieve your goals and dreams.

The Magic of Compound Interest.

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.
Albert EinsteinTweet

Albert Einstein basically created a whole new framework for physics and the concepts of space and time, so it’s only natural to pay attention to his thoughts regarding a fundamental principle of wealth creation, and its destruction!

Probably the greatest example of the power of compound interest lies in a fable about the day the inventor of the game of chess showed the game to an Indian King. Impressed by the game, the king wanted to reward the inventor. The brilliant inventor replied: “My wishes are simple. I only wish for one grain of rice for the first square of the chessboard, two grains for the second square, four grains for the third square, eight for the fourth square and so on for all 64 squares.”

The inventor had simply asked the king to double the amount of rice for each of the 64 squares. The king agreed to this seemingly reasonable and modest request. The week after, the king’s treasurer informed him that the reward would add up to a huge number and far greater than the rice that could be produced in many centuries.

The amount of the reward?

18 Million Trillion grains of rice!

The lesson here?

Have a solid plan for investing.
Start investing early.
Don’t spend the earnings but reinvest them.
Stick to your plan!

The Dark Side of Compounding

Although the term “Compound Interest” has been used for a long time, we need to address the elephant in the room: compounding at today’s prevailing interest rates will not get you ahead financially in the long run. Investing at 2% or so will not even keep pace with inflation, especially after taxes and is simply a path to “going broke safely.”

For your long term wealth creation, you need to decide right up front if you are an investor or a saver. Investors understand that short term volatility and risk is necessary in order to enjoy the rewards of superior long term returns. Great investors know how to best harness the rewards of investing and also manage the risks. Savers must generally work harder at saving because they do not have the stomach to weather the volatility and must settle on lower guaranteed returns.

Peter Westaway, chief economist and head of investment strategy for Vanguard Europe goes into some basic math on how bad things can get if we remain “savers” rather than “investors” Have a read through his article: “A ‘wonder of the world’ loses some lustre.”

Compounding can also get you into trouble if you spend more than you earn and get too deeply into debt, especially when you’re too busy seizing the day and ignoring your credit card balances!

To play with different investment scenarios, click here for our Savings Growth Calculator.

Stay Disciplined

We all want to see our money grow. We all see what the long term growth of wealth looks like over many years and we envision seeing that same picture with our own wealth as it grows into a fortune.

Easier said than done. One of the biggest obstacles however is emotions and lack of discipline in the pursuit of that picture. When the market goes down, we lose focus on long term objectives and react, causing us to sell when prices are low. When the markets go up, we get caught in the euphoria and invest when prices are high. Our emotional spectrum races between worry and fear to excitement and greed. We continue this illogical behaviour regardless of the endless studies in behavioural finance that call out our bad behaviour.

Thoughts about our money and finances are very emotional in nature. Acting on emotion has the potential to destroy wealth. It is important to learn how to be disciplined as an investor. Warren Buffet is famously quoted saying “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”

The first step to building investor discipline is to understand how the markets work. We wrote a post called “Invest With Confidence.” Click here to read it.

It is important to build your investor discipline, especially as it supports your financial goals and future. Investor discipline is also important to weather the storms and volatility of the market, rather than reacting to it and the financial media. Regardless of your past investment actions, we hope that in understanding these truths of the market, you are able to pursue a better investment experience in pursuit of your dreams.