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Money Management

Money Management

September 02, 2006

This Planner’s Corner will focus on the reasons why people fail financially, on the 5 step financial planning process and will give a few tips on money management.

There are 5 reasons why people fail financially:

  1. Procrastination.
  2. Failure to establish financial goals.
  3. Failure to understand the role of money in meeting those financial goals.
  4. Failure to prepare for the unexpected.
  5. Failure to develop a winning financial attitude.

Here is an example of how a clear goal and an early start can make a difference. Ted and Natalie are the same age. Natalie starts saving for retirement at age 23. She invests $100 a month at 8% until age 31 and then stops for a total contribution of $10,800. Ted waits until age 31 and then invests $100 a month at 8% until age 65 for a total contribution of 40,800. At age 65, Natalie’s investment had grown to $236,800 whereas Ted’s investment had grown to $229,400.

To maximize your growth potential, a 5-step financial planning process is recommended and it includes:

  1. Establishing specific financial goals.
  2. Gathering and analyzing information. (Where am I/are we at today?)
  3. Developing a plan.
  4. Implementing the plan.
  5. Monitoring the plan.

Here are a few tips that can help you stretch your paycheque, make ends meet and put a little aside for rainy days.

  1. Track your expenses for 3 months. That cup of coffee at Tim Horton’s can really add up! ($1.15 x 5 days/week x 52 weeks a year = $299.00 year.)
  2. Prepare a budget that is realistic, comprehensive and flexible. Budgets require a great deal of commitment and time.
  3. Prepare for emergencies - set aside 3 months income via a savings account or redeemable term deposit account.
  4. Just say NO - to "special" or "exclusive" or "bonus" credit card or department store card offers. Department store cards can carry an interest rate as high as 28% - was that knife set really worth it? Low initial interest rate credit cards are usually for an introductory period of 6 months and then the interest rate reverts back to a much higher interest rate. Rule of thumb: if it sounds too good to be true it probably is.
  5. Pay off your credit cards monthly to avoid interest charges. If unable to do so, consider a consolidation loan at a lower interest rate.
  6. Protect your credit rating - make at least the minimum payment. After making minimum payment, prioritize and pay higher interest rates cards and loans first.
  7. If you are unable to curb your impulse to spend on credit, cut up your credit cards and mail them back to the issuer. One of our members told me that, in order to get a handle on their spending, they froze their credit cards in a block of ice. If they felt a sudden impulse to spend, they had to go through a "cooling off" period while they waited for the ice to melt.
  8. Bank smart and save on your service charges - maintain minimum balances to avoid service charges, use automated services, and avoid withdrawals at non-affiliated Automated Banking Machines.
  9. Check your cable and telephone bills for features such as call waiting, call display, and other features that may be unnecessary.
  10. Combine your home/tenants and automobile insurance in order to lower your insurance rates. Take advantage of group home and automobile insurance rates available through Cornerstone Insurance at (780) 489-8080.

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