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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Take control of your personal finances--one bite at a time Getting your financial house in order is a big job. At first, you might even feel like you've bitten off more than you can chew. But don't give up! In How to Eat an Elephant, you'll gain vital understanding of important personal finance basics in just one day a month. Rather than tackle the beast in one bite, you'll master it a little bit at a time. Supported by online resources, tools, and reports, you'll complete fundamental tasks and gain fundamental understanding in an orderly and effective way. With practical, easy-to-understand guidance, this book will show you how to reduce your debt and save on interest; improve your understanding of personal finance basics and gain new confidence; reduce stress and anxiety about your money; and use powerful online tools to organize all your financial information. * Offers a structured, non-intimidating approach to personal finance that can be mastered in four hours a month * Covers vital topics like budgeting, life insurance, investment products, retirement planning, wills and powers of attorney, and much more * Written by Frank Wiginton, one of Canada's best-known personal finance speakers and gurus If it's time to take charge of your financial life, look no further. How to Eat an Elephant offers real solutions that will save you time, money, and headaches.
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Seitenzahl: 406
Veröffentlichungsjahr: 2012
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Table of Contents
Title Page
Copyright
Dedication
Acknowledgements
How to Use this Guide
Introduction: How do you eat an elephant? One bite at a time!
Part One: Understanding Your Finances
Chapter 1: Setting and Achieving Goals
Write It Down
Define It
Setting Your Goals and Yourself Up for Success!
What Is the Financial Cost to Accomplish Your Goals?
Identify What You Need to Succeed
Review Your List Regularly
Share Your Goals with Others
Chapter Summary
Chapter 2: Where Are You Now?
Net Worth Statement
How Do You Figure Out What Assets You Have?
How Do You Figure Out What Debts You Have?
Chapter Summary
Chapter 3: How to Save a Lot of Money!
What Is a Budget?
Why Is a Budget Important?
What about Pocket Money?
Where Have I Spent My Money?
How Do You Get Started?
There Must Be Some Mistake!
Money Is Finite!
Needs vs. Wants
Breaking the Spending Habit
Put Yourself on a Cash Diet!
The 10% Rule for Financial Success
Additional Tips for Reducing Expenses
How I Saved $1,154 After-Tax Dollars with Two Phone Calls
Chapter Summary
Chapter 4: Income and Debt Management
Debt Destruction
Debt Consolidation
Debt Pyramiding
Breaking the Cycle
Credit Counselling
Bankruptcy and Insolvency Act Options
Debt Service Ratios
Good Debt vs. Bad Debt
Mortgages
What to Consider When Getting a Mortgage
Payment Options
Chapter Summary
Part Two: Protecting Your Finances
Chapter 5: Benefits
Group Benefits
How Can You Get the Most from Your Benefits?
Traditional vs. Flex-Benefit vs. Healthcare Spending Accounts
Self-Employed/No Work Benefits Options
Taxable Benefits
Non-Taxable Benefits
Employee Assistance Programs (EAPs)
Leave of Absence
Travel Medical Insurance Coverage
Group or Work Life Insurance
Group Pensions and Retirement Programs
Chapter Summary
Chapter 6: Risk and Living Insurance
Managing the Risk
Living Insurance: Insurance that Pays Out to Help You Live!
Chapter Summary
Chapter 7: Life Insurance
How Much Life Insurance Do You Need?
Life Insurance
Temporary Insurance
Insurable Interest
Different Ways to Set Up a Life Insurance Policy
Insurance Riders or Add-Ons
Buy Term Insurance and Invest the Difference?
Affordability
Additional Uses for Life Insurance
Life Insurance as an Asset Class
Chapter Summary
Part Three: Growing Your Finances
Chapter 8: Retirement and Estate Planning
Retirement Savings Options
Company Pension Plans
Savings
The Forgotten Sources of Retirement Income
Retirement Savings Options You May Not Have Heard Of
Will I Outlive My Money?
Sources of Income in Retirement
How Is It That I Could Earn So Little and End Up with Enough Money for Retirement?
Estate Planning
Probate
Summary
Chapter 9: Investing
Investment Products
Alternative Hybrid Investments
Understanding Investment Risk
The “Stop Losing Big” Principle
Asset Allocation
Diversification
When to Buy and When to Sell
Where to Invest Your Money Based on the Value ofAssets to Be Invested
Chapter Summary
Chapter 10: Tax Planning
How Much Income Tax Do We Pay?
Understanding the Difference between Average Tax Rate and Marginal Tax Rate
Tax Deduction vs. Tax Credit: Which Is Better?
Refundable Tax Credits vs. Non-Refundable Tax Credits
Registered Retirement Savings Plans (RRSPs)
The Home Buyers' Plan and Lifelong Learning Plan
Income-Splitting
Investment Income
Investing in Tax Shelters
Creating Tax-Deductible Interest
Charitable Donations
Retirement Tax Planning
Chapter Summary
Part Four: Ensuring Financial Success
Chapter 11: Wills, Powers of Attorney, and Personal Care Directives
Professional Lawyers vs. Will Kits
The Value of Naming a Contingent Individual
Wills
If You Are Married
Common Disaster Clause
Choosing an Executor/Personal Representative/Trustee
Choosing a Guardian
Distributing Your Estate
Naming Beneficiary Designations
Trusts for Minor Children
Powers of Attorney
Personal Care Directives
Chapter Summary
Chapter 12: Finding the Right Advisors
Types of Financial Advisors
Designations
Choosing an Advisor
Build Your Advisor Team
Frank's Recommendation
Chapter Summary
Conclusion
About the Employee Financial Education Division
Index
About the Author
Copyright © 2012 Frank Wiginton
Published by John Wiley & Sons Canada, Ltd.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Canadian Copyright Licensing Agency (Access Copyright). For an Access Copyright license, visit www.accesscopyright.ca or call toll free 1–800–893–5777. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd., 6045 Freemont Boulevard, Mississauga, Ontario, L5R 4J3, or online at www.wiley.com/go/permissions.
The material in this publication is provided for information purposes only. The stories in this book are fictional. Any resemblance to real persons, living or dead is purely coincidental. Laws, regulations, and procedures are constantly changing, and the examples given are intended to be general guidelines only. This book is sold with the understanding that neither the author nor the publisher is engaged in rendering professional advice. It is strongly recommended that legal, accounting, tax, financial, insurance, and other advice or assistance be obtained before acting on any information contained in this book. If such advice or other assistance is required, the personal services of a competent professional should be sought.
For general information about our other products and services, please contact our Customer Care Department within Canada at (800) 567–4797, outside Canada at (416) 236–4433 or fax (416) 236–8743.
Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.
Library and Archives Canada Cataloguing in Publication Data
Wiginton, Frank, 1975–
How to eat an elephant : achieving financial success one bite at a time/Frank Wiginton.
Issued also in electronic formats
ISBN 978–1–118–45973–7
1. Finance, Personal. I. Title.
HG179.W528 2012 332.024 C2012-906038-0
9781118459805 (ebk); 9781118459799 (ebk); 9781118459782 (ebk)
Production Credits
Managing Editor: Alison Maclean
Executive Editor: Karen Milner
Production Editor: Pauline Ricablanca
Cover Design: Adrian So
Acknowledgements
This book and its online tools would not have been possible without substantial help and support from many people. A very special thank you to my wife and project manager, Diane. Without her expertise, this project may have taken years, if not decades, to complete. To my parents who always encouraged me to try, even if the task was difficult, and for instilling in me the values of wanting to help others and contribute to society. To my friends at TriDelta Financial who have provided guidance and encouragement on many facets of this book and its tools.
How to Use this Guide
THIS BOOK WAS WRITTEN AS a guide to take you through a step-by-step process to get your finances in order. Each chapter can be read on its own but you may find it easier to follow (and achieve greater success) by following the book in sequence, from Chapter 1 to 12.
If you spend just four hours of one day each month reading the chapter and doing the exercises online, you will have the majority of your personal finances in order in one year.
If personal finance is not really your favourite topic, you are in luck! This guide is designed to take you through the process in small, manageable, bite-sized pieces to help you ensure success. Follow these simple steps to get all your personal finances in order:
Once you've completed all 12 chapters and all the exercises online, download a copy of your summary financial report and spend some time reviewing it.
Many events and changes can happen in a year, so you may need to go back and review some of the tools and exercises to update them with the latest information. You may wish to repeat this entire process every couple of years or following a major life change. Take a copy of your summary report to a certified financial planner who will help you prepare a comprehensive financial plan. These documents are required and can save the planner a lot of time and you a lot of money.
This first step will be the beginning of an important partnership that will help you develop solutions and ideas to increase your overall wealth, reduce your financial risk, reduce your taxation, and ultimately provide you with a better quality of life!
Introduction
How do you eat an elephant? One bite at a time!
MANY TIMES IN LIFE WE are faced with a task we don't like, or a task that is difficult to manage because of its size. By learning what needs to be done and then doing it in small, bite-sized pieces, we can complete these tasks successfully and reach our goals.
People make financial planning and management out to be a huge task. They tend to get discouraged and quickly feel overwhelmed. Unfortunately, they believe they don't have the confidence, knowledge, and ability to do it. They have less and less trust in those giving advice because of the constant sales pitches and a lack of real, unbiased advice from so-called “advisors.”
For many years now, when clients have approached me to prepare a financial plan, I have asked them to pull together a variety of documents in order to prepare a comprehensive financial plan. These documents give me important information about their financial situation and what they would like to achieve. Clients often feel that the amount of work they need to do and the quantity of information they need to pull together are overwhelming!
To help them overcome this fear and stress, about 10 years ago I started breaking down the information needed from my clients into much smaller, more manageable, bite-sized pieces. When they came to me and said, “Oh my goodness! That seems like a lot of work!” I would ask them to do one exercise and return that information to me. When I got that back, I would then give them the next exercise to do and ask them to return that to me. Over time, and after a series of exercises, I would eventually accumulate the necessary information to prepare their comprehensive financial plan.
As I work with people and help them with their personal finances, I find that many of them don't have the most basic aspects of their personal finances in order. The number of misconceptions and misunderstandings about some of the fundamental tools and resources, including products, continues to surprise me. But now this book will finally give you, the reader, the information and tools to do it on your own, or at the very least to learn how to get organized and find someone to help you. I have provided step-by-step instructions in plain language with stories about others who have achieved financial and personal milestones, and most importantly, unbiased, independent advice that you can trust, with no sales pitch!
This book and its website (www.howtoeatanelephant.ca>) will take you through a series of simple exercises that will get your finances in order and set you on the path to financial success! The only commitment required of you is to spend four hours or less—one day each month—reading a chapter and doing the exercises online. This adds up to approximately 0.5% of your time each month to achieve financial peace of mind, success, and a better quality of life.
As you complete each chapter, a new exercise with instructions, tips and tricks, and additional guidance from me will help to ensure your success. By the end of the book, I hope you will feel empowered, more knowledgeable, and secure in the fact that you have all your finances in order. My hope is that by making it easy to get the fundamentals of your personal finances in order, you will be able to reduce your anxiety and stress levels about personal finances. My only question to you is:
Are you ready for a better quality of life?
Part One
Understanding Your Finances
Laying the Foundation for Financial Success
Chapter 1
Setting and Achieving Goals
The greatest danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low, and achieving our mark.
—Michelangelo
IF YOU ASKED MOST PEOPLE if they had goals, almost everyone would say they did. So the real question becomes, why is it that most people don't work toward achieving their goals? The main reason is that their goals aren't in front of them on a daily basis. Another reason is that when they set their goals, they don't do so properly. For example, someone might tell you something like, “I want to go to Hawaii.” Although this is a goal, it is not set up properly to be met with success. Let's look at what needs to be done to increase the likelihood that goals will be met.
You may be wondering why a personal finance book has goal-setting as the subject of the first chapter. The reason is to help you identify the things that are most important to you so that, when you are making financial decisions later on, your focus and priorities will be on these goals.
Write It Down
The first step, and the biggest, is to write them down. Studies have shown that those who not only make goals but also write them down dramatically increase their chance of success in achieving their goals.
Define It
The second step in setting a goal is to ensure that you have defined all of the components of a goal. You likely have heard the acronym “SMART,” which stands for Specific, Measurable, Attainable, Realistic, and Timely. So, the SMART version of the goal mentioned above would look like this: I want to take the family to Hawaii for three weeks, at a cost of $8,000, in two years' time.
You could even take it a step further and say: I want to go to the islands of Kauai, Oahu, and Maui for one week each. It will cost me a total of $8,000. I will need to save $333 a month, and I will be there from February 7 to February 28, 2015.
So now you can see the difference between just having a goal in your head and having a goal that is SMART. It's now easy to understand that, when a goal is defined properly, the probability of achieving it goes up tremendously.
Setting Your Goals and Yourself Up for Success!
First, I want you to daydream about all the goals you want to attain and the things you want to do. I don't want you to have any restrictions on what goals you set. I want you to dream big! I want you to think about all the different areas of your life and the goals you want to achieve. I want you to be comfortable and not put any restrictions on yourself, because anything is possible: you just have to figure out how to achieve it. So, the first step when setting goals is to dream big!
Start by making a list of 50 things you want to do right now. Don't worry about making them specific, measurable, attainable, realistic, or time-specific at this stage. I just want you to dream and write! Your list might look something like this:
Take a trip to Hawaii
Buy a new car
Ask for a raise
Start a blog
Spend more time with my family
Go to the gym at least once a week
Take my lunch to work every day
Donate some of my time to my favourite charity
Get my personal financial situation in order
Read two books a month
Get my will done
Learn to speak Spanish
Get my master's degree
Help my children buy a house
Learn to scuba dive
. . .
Continue writing down goals. Write as many as you can. Get to 50? Great! If you write down 100 goals, that's even better!
Think about what you want to have, what you want to be, what you want to do, what you want to see, and with whom. What are you passionate about? What do you want to learn? Ask yourself questions such as: Why do I do what I do? What is my life mission? What is the legacy I want to leave? Write down all the different things you want to accomplish. Think about what you want for your family, for yourself, for your health, for your wealth, and for your overall wellness (nutrition, fitness, mental health, and career). Think about self-improvement. Think about spirituality. Think about your career. Think about your favourite charity. Don't put any restrictions on where your thoughts take you.
Once you have your list (and you can always add to it later), you need to start organizing it. The easiest way to do this is to start by identifying the time frame during which you want to accomplish your goals. Give each goal a specific time frame. It could be within the next month, the next year, or the next five, 10, 15, 20, or 25 years. Write down the period within which you want to accomplish each of your goals.
Your list now might look like this:
Take a trip to Hawaii—2 years
Buy a new car—4 years
Ask for a raise—2 weeks
Start a blog—2 months
Spend more time with my family—daily
Go to the gym at least once a week—weekly
Take my lunch to work—daily
Donate some of my time to my favourite charity—monthly
Get my personal financial situation in order once and for all—1 year
Now you are ready to organize your goals in the order of their time frame.
What Is the Financial Cost to Accomplish Your Goals?
The next step is to figure out what the cost is to achieve these goals. This may require a little bit of research on your part to learn and understand what steps are involved. For example, it's easy to say that you want to go to Hawaii in two years' time, but without understanding what's involved and how much it costs, it's going to be difficult to know what you need to do to achieve your goal. Therefore, you may want to speak with a travel agent or spend some time online researching how much such a trip costs. Your time frame and cost estimate might look like this:
Before you can truly say whether a goal is realistic financially, you need to better understand your financial situation. Keep working through the chapters and exercises in this book, and I promise you will know what is and isn't possible.
Identify What You Need to Succeed
Next you need to identify the major things that need to happen to accomplish each goal. At the same time, it would also be a good idea to try to foresee what obstacles might prevent you from achieving these goals.
Going back to the Hawaii example, if you are not a U.S. citizen, you will need to ensure your passport is up-to-date (or maybe even get a passport).You may want to research the best time of year to travel there and check with your boss that you can get the time off. So, let's look at the Hawaii goal all together:
By now you can see that building a list of goals and writing it down can go a long way toward making your goals become a reality.
Review Your List Regularly
Be sure to keep this list in a handy place where you can review it on a daily or weekly basis. Keeping your goals top of mind helps to motivate you to work toward them continually. Maybe you will keep your list in a journal that you write in each day. Then you could keep it on your nightstand to read over every night or first thing in the morning. Maybe you will stick your list to the fridge door or on the wall beside your desk. One colleague of mine has his as the desktop image on his computer! Wherever you keep it, be sure to update it and add to it on a regular basis.
Share Your Goals with Others
There are three main reasons to do this. First, when you share your goals with family members and friends, the goals become more real. What I mean by this is that you become more accountable because other people now expect you to work toward and accomplish them. The next time you see those people, they may ask what you have learned about your goal. For example, they might ask, “Have you decided which islands in Hawaii you are going to visit?” This kind of community accountability helps you to achieve your goals!
Second, by sharing your goals with others, you can learn from their experience. Many people like to share their thoughts and experiences and offer opinions on how best to achieve goals. Sometimes this can be a deterrent, but many times it can be enlightening and encouraging.
Third, for the most part, when you share your goals with others, they will do one of two things: they will either get on board to help you achieve them or get out of your way. It is highly unlikely that someone will actually try to prevent you from achieving one of your goals. People have their own goals and are too busy to stand in your way. When you share your goals, people may offer useful tips, saying, for example, “Oh, you know who you should talk to?” or “I learned to scuba dive with this company and had a great experience! Call them and talk to Jason. He was wonderful!”
Next thing you know, you are well on your way to accomplishing your goal!
By June 30, 2012, we will have reduced our credit card debt to zero and our overall debt load to $50,000.
Chapter Summary
Dream big and make a list of 50–100 goals you want to achieve.
Identify when you want to achieve your goals.
Organize your goals chronologically.
Do some work to learn the financial implications of those goals.
While researching your goals, identify any obstacles that need to be addressed for you to achieve them.
Chapter 2
Where Are You Now?
A man is lost before he begins if he does not know the ground he stands on.
—Anonymous
NOW THAT YOU KNOW WHERE you are trying to get to, you need to understand where you're starting from, and then you will be able to map your course of action from here to there. To do this properly for a financial plan, you need to prepare a net worth statement. This doesn't require a lot of work, just a little bit of organization, a little bit of patience, and a little bit of thought.
Net Worth Statement
A net worth statement is a document that lists all of the assets you have, all of the debts you have, and then subtracts your debts from your assets:
It is important to divide these items into three categories:
The assets and debts you have
The assets and debts your spouse has
The assets and debts you have jointly
There are many reasons for separating them out by ownership, but the biggest reason is for tax planning.
The Canada Revenue Agency (CRA) taxes each person individually. For this reason, financial planners need to know who owns what to be able to show you how to structure your assets to save you taxes. For example, if you are a high-income earner and your spouse is a low-income earner, it is better for you to pay all the household bills and for your spouse to make the investments. This way, any income that is made on the investments is taxed in the hands of the lower-income spouse. This saves the family more tax dollars and increases its overall wealth—rather than that of the government!
Another reason to do this is because some couples keep all their assets and debts separately and run joint accounts for joint expenses. It is important for both spouses to understand where the other stands financially because this can have a significant effect on a couple's ability to reach and achieve common goals. For example, you and your spouse may have a common goal of retiring in 10 years, at age 50, with $80,000 a year in income. One spouse has $400,000 saved and the other has only $10,000 saved. Unfortunately, your goal may be unattainable! It is important for both individuals to understand the other's financial situation.
Here is a simple example of what a net worth statement might look like:
How Do You Figure Out What Assets You Have?
Start by gathering up your financial statements or log on to your investment accounts. Don't worry if you miss one or two—you can always go back and fill them in later.
If you own stocks on certificate, I highly recommend that you deposit them into a brokerage account. This creates an electronic record of your certificate so that you don't need to worry about the certificate being lost, stolen, damaged, or destroyed in a fire.
Next, I want you to take a look around you and try to determine the value of those assets that you won't find on financial statements. These could include antiques, coins, stamps, comic books, and baseball card collections—anything that could have significant value.
If you're really not sure if something has value or not, one easy trick is to go onto eBay and type in the description of the item to see what a comparable item is selling for online. If you think you have a rare item, chances are one like it is being sold on eBay right now. Remember that just because you think something has value doesn't mean that others will feel the same way. An item is only worth what someone else is willing to pay for it!
Don't worry about ensuring that you have every single one of your possessions listed here. Only the big items are important; many smaller items would sell for a nominal value (if you had to sell them).
How Do You Figure Out What Debts You Have?
It is very important that you list all your debts because they form a very important part of your overall financial plan.
Go through your statements or jump online to get the most recent statements for all of your credit cards. Then get a copy of your most recent mortgage statements showing your mortgage balance, interest rate, and payments. Now gather up any car loan, personal loan, and line of credit information. Do you owe anyone in your family any money? Be sure to list that as well.
Here are the seven pieces of information you need:
Name of the company you owe the money to
Type of credit (credit card, line of credit, mortgage, loan)
Total credit limit on the account
Total amount owing on the account
Interest (as a percentage) charged on outstanding amounts
The minimum monthly payment
How much you are paying toward each debt
It is important for you to know and understand what debts you have, the interest being charged, and how much is needed to service your debts. If the total amount of debt surprises you, you may want to go back to your goal-setting and add debt repayment as one of your goals. In Chapter 4 you will learn how to pay off your debt faster and save hundreds of dollars in interest.
Now you can see what your current net worth is: all your assets minus all your debts. This gives you a clear understanding of where you are today financially and will help you to recognize and focus on which goals are important and which ones might have to wait. For some of you, finding out where you are might make achieving some of your goals even easier than you expected. For the rest of us, let's be sure to carry on to the next chapter to learn how we can identify, prioritize, and reduce our expenses in the hope of reaching all our goals and dreams.
Congratulations! This month you've completed the next step in getting your financial affairs in order. I hope it didn't cause you to sweat too much, and you'll come back and continue with the process next month.
