Pessimists Make Better Financial Planners

Plan like a pessimist, live like an optimist I have lifted from Doug Hoyes’ book (amazon link) (although I have heard it elsewhere as well), and it is an excellent financial life motivational statement. You can’t live every day assuming the worst is going to happen, you will just make yourself miserable (I can assure you this is the case, from personal experience), however pessimism is the best way to view your financial plan.

If you are a pessimist in your investing and financial plans, you should be able to deal with downturns and the interesting “twists of fate” that we call life. Can you plan for all the things that can go wrong? Absolutely not, however you can take a few careful financial steps to  deal with problems that may arise in your financial life.

Pessimist and Optimist

Words to Plan By

The big one to deal with, is what if you lose your income (after the fallacy of infinite income)? So many possible reasons can cause this, but if tomorrow you had no more income, what happens?

  • Can you afford where you are living? For how long can your emergency funds keep you in your current living arrangement? If you have a mortgage, you can try to sell your house, but if you cannot keep up payments on the mortgage, you may not be able to sell it, before the bank forecloses. If you rent can you keep up rent payments for a period while you are without income?
  • Do you have any insurance to combat this lack of income? If it is caused by a catastrophic health issue, do you have disability insurance? Is it enough to keep you financially afloat? Is it through your employer? If you get sick, would your employer lay you off? Remember some companies self-insure, so if your employer goes under, and you are using their disability, you will end up like the Nortel folks on disability, out  in the
  • If you were laid off, is your résumé up to date and ready to use for job hunting? If not, why not? You should be looking for your new job before your old job disappears (ideally).
  • Dying can cause a large problem. Do you have life insurance? What happens if your insurance company decides you died of a pre-existing condition, and they won’t pay? Does your family even know about the insurance? Do they have cash available in accounts that won’t be frozen (when you die)? Lots of things to think about on this one.
  • What if your spouse dies? Do you rely on their skills to take care of your kids, or do you rely on their income to pay for your lifestyle? Partial loss of income can be as destructive as complete income loss, it just takes longer to ruin your

These are such a small slice of the whole picture. This is where your pessimistic side can come into play. Engage it  on this planning (and not  about all that stuff that keeps you awake at 2 AM in the  morning). Work hard on this plan, but  when it is done, enjoy your life you have planned as best you can to  deal with life.

In about a year (and every year) revisit the plan, and adjust it to reflect life changes as well.

My apologies to Doug Hoyes, a lot of these ideas are lifted from his fine book, which I have “read” (listened to the Audio Book), but these are important issues.

{ 4 comments }

Smart Financial Goals for 2017

Actually I borrowed the idea from our friends at LSM, who had a great article in their Facebook page about Lorne King, talking about Smart Goals, however, his SMART is an FLA (Five Letter Acronym), S.M.A.R.T. goals: Specific, Measurable, Attainable, Realistic goals, that have a Time frame so let’s set some S.M.A.R.T. or Smart Financial Goals for 2016.

Smart financial goals

Always be smart with your financial goals

What are S.M.A.R.T. Financial Goals ?

S.M.A.R.T. for financial goals (and health or fitness goals) are exactly what you need:

  • Specific , vague goals never get attained or worse are far to easy to tick off the list. Specificity like, pay of $5000 worth of debt, is a much better goal.
  • Measurable, I have said before if you don’t write it down, how did you know it happened, and being able to measure your goal is in that genre.
  • Attainable, saying you want to retire this year (and you are 25) is a lovely goal, but not likely, but, “Put $5000 in my TFSA this year”, is much more possible
  • Realistic, if you are carrying huge debt, then a realistic plan is to deal with debt before you start looking at saving.
  • Time Frame, set a couple of short-term goals, and then a year-long one, and maybe set up some long-term goals (retiring at 55 for a 25 year old would be a good goal). Don’t create too many, three is usually a good number in these situations.

What Should Your Goals Be?

The important thing to do, is make whatever smart financial goals you might be setting for the new year, that you are comfortable with them, but they challenge you as well. Setting a goal of

“… I don’t want to screw up as bad as last year…”

is not really a smart financial goal, it’s more of a declaration of incompetence. If you are afraid this is your smart financial goal for the year, maybe you need some help.

 

{ 2 comments }

Bad Financial Planners Can Help

I am a mediocre planner (I view my Father as the greatest planner), however, knowing that I am not that good at planning gives me a peculiar talent, in that, I can spot (easily) flaws in other folks plans. I think of myself as a “risk editor” for plans.

Financial Planning

Plan and Then Revise

Let me explain, if a good planner looks at your plan, they will overlay their own fastidiousness onto your plan, and will assume you have “dotted all the I’s and crossed all the T’s”, which is a dangerous assumption for many plans. Most plans I have seen do not get down to most of the gritty details needed to make it an actual plan (e.g. Dates on which you will make deposits, pay bills, what you will do with found money), and that is where most of them fail.

For someone like me, who has failed at planning so many things in my life (not just financial things), I easily see these flaws in other folks’ plans, because I overlay my own shortcomings and just start asking questions about things (in a financial context):

  • Did you think about what would happen if you lost your job?
  • What if you or your wife had a catastrophic illness next week? How would your plan work?
  • Paying off your credit cards is here, but are you going to keep using those credit cards? You don’t seem to mention that in your plan.
  • What if interest rates suddenly jumped to 6% in 6 months? Can your plan withstand that kind of stress?
  • Are you being overly optimistic with your plans? Few of us plan realizing our own shortcomings.

Most folks really hate when I do this, because they answer me the same way my daughters did when I asked questions like, “Did you pack your runners?”, when going to an out-of-town basketball tourney. The answer is “YES, I DID!” (Read that with a snarky sarcastic tone), and then we get to the tourney, and the shoes (in fact) are still at home.

What Are You Saying?

I am not telling you to find a bad financial planner and use their plan, what I am saying is create a financial plan, and then have someone you trust (or a real financial planner) review it to see if there are risks or details that you have overlooked. Different sets of eyes sometimes can see new things.

Once you have a plan, treat it as a living document, review, revise, and update

Image courtesy of Goldy at FreeDigitalPhotos.net

{ 2 comments }

Hippocratic Finances

Hippocratic finances would follow  the Hippocratic Oath (taken by Doctors) is Primum non nicer  or in English:

First, do no harm

Hippocratic Oath

Do No Harm

What does this have to do with your financial planning? Any changes you plan on making financially should follow Primum non nocere, just like for the Doctors.

  • Do not harm savings you have built up.
  • Do not harm your long-term plans (whatever they might be).

The one problem with this is you can end up a little too conservative if you live to this credo, but it is something to keep in mind when you feel like treating yourself, if you find some money.

Do No Harm

I think making sure you can stay sane with your finances would be important as well. If you are harming yourself worrying about your money, you are not doing any good either.

Question: How other ways do folks to harm to their finances?

 

{ 1 comment }

Finance Things To Do On The Last Day of the Year

This being the last day of the year, and it falling on a weekday, means you can try to sneak in one or two financial transactions for the calendar year 2015 (or any other year if you are reading it some other time). Is this a good day to be calling in to your banks call-in centre? Absolutely not! You will be on the phone for a very long time, I would suggest doing anything on-line, and if you cannot do that be very patient with the folks on the phones.

2015 the Year of the RAM

Good Bye 2015, I do so love Geek Humor

Fun things to get done on the last day of the year:

  1. TFSA withdrawal, yup, you can take something out now, and then replace it some time next year (which would be tomorrow). Is this a good idea? No, especially if it is for impulse buying, but if you will need to, then I guess it is an OK idea (but I am not saying it is OK, just that it works).
  2. RESP, TFSA, or RDSP deposit ? Not really, it is never a bad idea to put money in these saving vehicles but the limits tend to roll-over to the next year, so no point in wasting your time, unless, you have some left over cash that you got for Christmas, then maybe today is a good time to put that away in savings.
  3. Withdraw lots of cash for a huge party tonight? C’mon guys, blowing huge wads of cash to celebrate the end of one year or the start of another year is just dumb.
  4. Make your quarterly tax payment? If you are on a payment plan with the CRA, maybe it is time to get that done?
  5. Stop by the Licensing bureau to renew your cars registration? Again, be patient, remember, this is your fault!
  6. Got any old insurance claims you haven’t submitted? Might want to get those done too.
  7. Here is a good one to do, make a charitable donation, this is the spirit of the season and you get a tax break in March.
  8. Make resolutions for the coming year? Nah, that is hokum too.
  9. Start your financial plan for 2016 is the best thing you can do on this last day of the year.

Enjoy the coming year, hope the year that past was OK for you too! Remember the fiscal year typically only ends in March and that Chinese New Year is still a few weeks away.

{ 0 comments }

%d bloggers like this: