Sorting the dirty laundry

When it comes to laundry I’m the first to admit I’m not an expert. Truth be told, I’m not even skilled in this area! But I am aware of the concept of sorting laundry and am somewhat familiar with the reasons why one would make an effort, even if I am happy to leave the task to magically happen without my attention or effort. Fortunately for me, (and the public I meet), dirty laundry quickly becomes clean laundry that is nicely folded and waiting for me in the drawer or cupboard. My ignorance and laziness haven’t had massive negative consequences. But there are other matters that do require attention as they tend to bite hard when left ignored.

This leads me to address a question I was asked via an Internet forum recently and it’s similar to sorting dirty laundry. This person asked me “How do you classify debts in terms of manageable, bad, worse, worst – how can I determine how to prioritise debt repayment?” What I love about this question is how it has the answer woven into it already. Different debts need different attention and specific action in order to remedy the problem. Hey, that’s kind of like the laundry, isn’t it?

Debt that carries an extremely high interest rate must be dealt with as fast as possible by all means available – it is priority one. Apply significant effort to these “stains” and remove them as fast as you can. Extra elbow grease will not be wasted in attending to these dirty items.

A second thought to direct you in prioritising your debt is to look at the term remaining. I personally teach a “Snowball” system that helps people to repay debt quickly. The key to success with this system is to identify the debt you can pay off the fastest and to do so with great haste. Once that debt is repaid apply the payment from the first debt to the next target, thus increasing your payments. This is the snowball growing. When the second debt is gone apply the payments from the first two debts to the third target, the snowball grows again and is giving you substantial momentum in eradicating your debts.

Isn’t it interesting how often the answer we seek is found in the questions we ask. My wise mentor taught me “the quality of the question determines the quality of the outcome”, and it’s so true in this instance.

Attacking our debt successfully requires us to classify each one first, as mentioned in the question. This is sorting the dirty laundry into piles so you know what you are facing and can determine an appropriate course of action for each. Secondly, prioritising the debt will help you to achieve success more effectively and efficiently. Snowballing your payments applies extra elbow grease to the stains meaning they disappear quickly.

Alas, my laundry skills have not improved nor has my motivation. And that is the key, my friends to your financial success. Your motivation.

Posted in Family, Financial Education

Don’t get caught in the crossfire

We’re witnessing a war at the moment and it’s going to get worse as the hype builds and the public rush around the streets in a mad panic to find their safety. It’s not a terrorist attack nor is it a B-52 bomber raid – it’s an interest rate war between the banks. But you are at risk of getting caught in the crossfire.

Banks are competing to get your attention to secure your business. You will pay a significant amount of interest over the term of your home loan (on average three times the amount you borrow) so of course each bank wants you to choose them to pay all that money to.

The banks compete for your attention by distracting you with a sweet looking lolly that will make you feel like you got a good deal. But sweet tasting candy isn’t always good for you .

Here’s a saying you can install into your thinking to keep you on the right track with managing your home loan; “it’s not the rate you pay, it’s the rate you pay it off that counts.”

Make every effort to pay your loan off faster than the traditional, slow path that a normal home loan follows. There are a number of ways to do this, the simplest being to increase your regular payments above the minimum. I spoke with a friend the other day who asked me some questions about his mortgage and he told me they had paid off $23,000 in just over five years. That’s stunning progress!

The buoyant real estate market does not help the frenzied hype either, but you mustn’t let that distract you from your plans. The commentary provided by the real estate companies shouldn’t be seen as advice, but more like marketing messages to woo you into their office (or them into your lounge room!) Your best approach to making wise decisions in this type of market is a slow, well-researched assessment of the market. Remember, statistics tell the facts. Only when you have a solid base of data can you move safely. And yes, at that point you are prepared to move quickly if you need to, but never before. Those who jump before they look often get hurt.

Here’s the best advice I can give you to keep safe in this kind of financial environment. Firstly, don’t rush around in a mad panic like everyone else does. It’s those who rush between firing guns who get shot. The banks are firing shots at each other, not you!

Secondly, make a plan to achieve your goals. That means thinking about what is important to you and what you would like to achieve. Then your plan is driven by your personal motivation and not the silly hype of the market.

Finally, take your time to do your research so that you can take action steps based on facts.

Let’s not get taken out by a bullet intended for someone else!

Posted in Financial Education

Is this the best way to start the year?

I am very grumpy. I’m irritable, light-headed and running with a pretty short fuse. Please forgive me if this column sounds a little insensitive, but I’m in that kind of space today. And I blame my wife. The problem (for me) is that she’s grumpy too!

We agreed at the conclusion of 2014 we would commence 2015 on a strict detox diet together – what a crazy thought to put into action. The consequences are now imminent and the flow-on emotional effects obvious to all around us. The good news is the physical results are also evident. We wanted to use this short, intense space of time to shed a few kilos, but more importantly to snap our behaviour back into line, back into a rhythm that is better for us.

Amidst the noisy grumbling of my stomach I hear myself asking is this the best way to start the year?

We all set patterns for our future to follow by our everyday behaviour. Our “normal” settings create a path we follow. A muffin or sausage roll every morning at 10am (oh, how I wish for just one of those!) quickly becomes normal, but it sets a pattern for your future waistline. These long summer evenings deserve celebrating with a glass of wine, or two, while the dinner grills on the hot plate. But the sugar in the wine accumulates in places that are not flattering when you plunge semi-naked into the pool or surf!

Your financial decisions every day determine your future. Where you are today in terms of money is your own fault! (Oops, sorry!) Sure, circumstances happen. But we are the masters of our destiny and we must take responsibility for how our decisions of the past affect our pathway of the future.

Why not use this as an opportunity to snap yourself out of your unhealthy patterns? Go on a financial detox for a month and develop a new pattern for a new future pathway. What about no credit card for 30 days; could you do it? And maybe avoid Trade Me and 1-day also while you’re at it; would you do it?

I teach people how to make cash their friend. What if you set up a system where you deal only in cash for a week? Then, stretch it to two weeks – the goal is to last a month. When you operate your finances in cash only for a period of time it completely changes the way you think about how you spend your money. Try it; you look like you could do with the help! (Sorry!)

You know, despite the physical discomfort and emotional roller coaster, this is the best way for us to start the year. I’m glad we have suffered through this short, intense space of time to create a new pattern. Suddenly we pay attention to what passes through our mouths, as we know how hard excess is to shed. What’s on the plate or in the glass does matter.

 

What about you – are you ready to shed that muffin?

Posted in Family, Financial Education

Financial Hangover Cures

jolly-seasonTis the season to be jolly, that’s for sure. A heavy schedule of office parties, Christmas catch-ups and end of year celebrations mean there’s plenty of “being jolly” going on. There’s a reason we call this the silly season – people go out and act all silly. What does that even mean? Well, the word silly is defined as “having or showing a lack of common sense or judgment.” Whilst a headache the next morning is a relatively easy fix, there’s a different kind of hangover I want to help you with.

Some of you will suffer from overindulging while others will have a throbbing head from getting on the hard stuff. “It’s Christmas!” I hear you cry, as you rush with reckless abandon toward some kind of carry on you would never normally consider. This will undoubtedly lead to a long-term headache that results from your short-term reckless fun. That’s right, I’m talking about Christmas spending.

The easiest way to cure a hangover is, of course, to avoid the cause of it. Moderation and wise choices go a long way toward avoiding the throbbing head and nausea that can remind you of the poor choices of the night before. So if you haven’t already been sucked in to the gravitational pull of the silly season you can make a conscious choice to avoid it. Pull back; decide on your personal limits and exercise self control to make sure you honour those boundaries. And never let someone else encourage you into something you’ve decided to avoid.

What does that look like with your financial spending this holiday season? Well, setting limits and planning well would be a good start to avoid overindulging. Lack of planning often leads to impulse buying, which almost always leads to overspending. But seriously, who prepares for Christmas? It surprises me how many people get shocked when Christmas appears on the calendar and they realise they need to go gift shopping. Ummm, don’t we remember this happening last year (and the year before, and the year before…?

Hitting the hard stuff with your money is a sure way to end up with a long-term financial headache. I see all kinds of people who shrug their shoulders, resign themselves to the silly season and let go of common sense. They hit the hard stuff they never normally touch and wonder why it hurts the next morning. This hard stuff I refer to is how I describe using credit cards and finance companies to fund your Christmas and summer holiday. The laughter and good times will soon morph into a throbbing bank account, that’s for sure. So don’t do it!

And what will you do if your momentary abandonment of common sense and good judgment lead you to a decision that has massive implications? You may not end up pregnant or needing a dose of penicillin, but that car or house you purchase could be featuring on your list of bills to pay for many, many years.

I guess the best way to cure a hangover is to choose behaviour that avoids it.

Posted in Financial Education

Give your future a free booster shot

When it comes to conquering the world us Kiwi’s are pretty famous. We “knocked the buggar off” when Everest was summited and we won the “game of two halves” to lift the champion’s trophy before the rugby fans of the world. We’ve invented solutions to the world’s problems and we’ve brought creativity to a new dimension with emerging artists and global cinematic accolades.

From here in the Waikato we keep the global farming community charged and the babies of the northern hemisphere well fed. We launch technology innovation before breakfast and catch the world by surprise. It’s fair to say we’re a pretty clever bunch when it comes to making the world a better place. But do we apply the same hard work and diligence to our own futures? The evidence would say we don’t.

Today I share with you a simple piece of information that can be used by everyone. If you feel you’re above or beyond where this is pitched then I charge you with the responsibility of helping someone else with this information.

If I was to tell you the New Zealand Government were offering to give you free money each year to tuck away in your retirement nest egg would you be interested? Remarkably most New Zealand families are not taking advantage of this free booster shot that could increase their financial security in the future.

My son is always finding money on the ground. When he spies twenty bucks lying on the footpath he looks around to see if he can work out who it could belong to. But if there’s no one nearby he picks it up – he’s not stupid enough to leave it on the ground.

So, if the Government is offering us free money for our retirement, why are we leaving it lying on the ground? And I’m not talking about a measly twenty bucks here – the amount they offer is as much as $521.43, and you can pick this up every year if you want to. More than that, they offer to “kick-start” your account with a one-off tax-free contribution of $1000.

I’ve heard some say they won’t participate in any scheme our Government is connected with, citing “it must be a scam”. Please, don’t get me started on ridiculous statements like this. These are usually weak excuses used by people looking to justify their lack of action. These naysayers also like to use puffery to hide their dilapidated financial circumstances and empty nest egg. Please don’t base your financial decisions on what you hear them say, instead meet with a professional who is qualified in this area.

Today I’m urging you to consider the offer of free money as a booster shot for your old age. Building financial security over time will allow you to enjoy a wider range of lifestyle choices later in life. Perhaps this booster shot will give you the strength and energy you need to conquer your next Everest?

Posted in Financial Education

What plans do you have to succeed in 2015?

It’s almost time for that “new year, new me” rubbish. Are you one of “those” people who wait until the beginning of the year to make pointless resolutions that are needlessly aimed at the areas of your life you don’t particularly like? Like all pointless promises those resolutions will become regrets that haunt you for a month – that is, until they are abandoned so your much desired comfort can come rushing back into your world.

Successful people don’t make this mistake. Successful people have a much better approach. This approach is not limited to the elite, it’s not a secret and you can choose to adopt it any time you choose. Imagine aiming to be successful more than once a year?

I spend quite a bit of my time working with successful people. I help them to be successful on purpose and in my business I call this “Success By Design”. This is a pretty simple process that can be adopted by anyone. Instead of immersing yourself in premature Christmas decorating and gift-buying, grab a cuppa, a pencil and a notebook and begin planning your success for 2015 before it arrives.

Ask yourself to identify the things that you haven’t enjoyed in 2014. If you want to be really honest with yourself, look for the results that are not good and try to identify the cause of them. For instance, an unhappy family will be caused by too many distractions and not enough quality time for each family member. Target the cause and you’ll remedy the result.

I like to think ahead in terms of what is truly important to my family and me. We tend to make our goals in line with our values and we find this creates a higher level of commitment and, therefore, success. It’s also more fulfilling to achieve something that’s important to us instead of something that’s important to someone else!

I made a mistake this year of planning my mid-year break too late in the year and we all suffered for it, (a frazzled dad makes for a stressful home!) So we’ve already blocked out a portion of time for a holiday earlier next year and the kids are excited as they discuss the location and various activities.

You may note that I’ve talked about family goals before I’ve mentioned business goals or financial goals. I’m clear on what’s important to me and I base my ambitions and my activity on my priorities. You can be sure I also have goals for clearing debt, growing assets and achieving professional success. But these never take precedence over the family goals.

Don’t wait to plan your success and don’t leave it to someone else. You are the master of your destiny because you hold the steering wheel. When you are intentional about where your life is going and what it stands for you can make clear, progressive decisions that will ensure you have success by design.

Posted in Financial Education

Investing in your family and dreams

My family and I recently returned from a trip to Mexico that was a life changing experience for all of us. We partnered with 3 other Hamilton-based families to form ‘Project Purpose’ and together we built two houses for needy Mexican families. Working in an impoverished community was incredibly rewarding as we helped to lift four generations of one family out of their crumbling, ramshackle residence into a brand spanking new, brightly coloured, two room home with windows, doors, a roof and electricity! Despite our lack of Spanish comprehension the emotion expressed by the new homeowners was sufficient to communicate their heartfelt gratitude. I don’t need any words to make me feel proud of what my family achieved – the memory of tears streaming down those warm, brown faces will always remind me of what we gave them.

You might imagine it’s a costly exercise to achieve this and you’d be right. But Kathy and I prefer to view these projects as an investment in our family, which makes the commitment to our decisions more about long-term family benefits than cost justification.

My point in sharing this personal story is to encourage you to purposely seek opportunities to invest in your family and your dreams.

I meet a lot of people who are hungry for financial advice and support that will make them more financially stable and even wealthy. This is an admirable goal unless it leads down a path that leaves no room for investing in family. If you have no family, consider investing in other people or social causes that bring practical, life changing improvement to other peoples’ problems.

To keep us focused as a family we have a Dream Board in our kitchen that hosts a number of photos and images that represent dreams and goals we have. Some are small and many are large and every member of our family is welcome to add their goals to the Dream Board. What’s been an interesting development over the years is the shift in our efforts from attaining things to sharing experiences. Another emerging theme is our passion to serve others. As a family we are becoming very clear on what motivates us financially. It’s the motivation we have that becomes a driving force to energise and empower us to achieve our lofty ambitions.

Partnering with other families via Project Purpose added a new dimension to the achievement of our goals. Working together as a team in a foreign country with cultural, environmental and physical pressures added to the challenge. But the community aspect of this project added to the enjoyment we were able to experience through shared success and strong friendships forged in the Mexican heat.

This week as we returned home we were excited to remove four photos from the Dream Board as they were successfully completed through this recent trip. It’s time to dream together again as a family and set our sights on new horizons we can explore together.

Posted in Family, Financial Education

A fair weather rider can still have fun

One of the things I love to do is get out on my motorbike on a sunny afternoon and enjoy the freedom of quiet country roads. It’s a purely selfish hobby and one that my family graciously allow me to enjoy. There are months when I leave my bike in the shed because, truth be told, I prefer to be a fair-weather rider. Honestly, I like to avoid the rough stuff because I prefer to manage my risks.

I know there will be hard-core riders out there who call me names and scoff at my low risk tolerance, but that’s okay. What I would really like to highlight today is that risk tolerance is a personal assessment that shouldn’t depend on the opinions of others.

When it comes to investing money

there are personal decisions we make regarding our tolerance of risk that are based on several factors. This decision we make is purely in the interests of safety and self-preservation. Let’s look at a couple of the factors at work here.

Safety. The reason I avoid high speeds on my motorcycle is the same reason I avoid unsafe investments. I like to keep myself within safety parameters. In my personal assessment of situations I purposely avoid those kinds of “deals” that are promoted as easy money if I don’t consider them safe. I’m happy to set this safety parameter based on my personal comfort, as it’s me who is sitting in the driver’s seat.

Safety is also contingent on another factor, skill. The truth is I don’t yet have the competence to manage a high-powered motorcycle at high speeds. I have friends who compete at national and international levels and I marvel at their gifted control of their mechanical steed, but I’m nowhere near as good as them.

When it comes to money there are skill factors that we can develop over time. When we assess opportunities we should factor in our skill as a part of the risk assessment. I’ve seen novice investors lose a bunch of money in circumstances beyond their ability. I’ve also seen highly competent investors take situations that look impossible and transform them into profit for them and others.

Risk versus reward is a trade-off I make that depends on my motivation for reward. Those who compete should do so to win the prize. If you’re in a race, you’re in it to win it therefore some risk is necessary. But if you’re not in a race then you can chose a lower level of risk.

This trade-off assumes you consider what you have to lose, as this is the risk you’re really assessing. On a motorcycle I risk losing life or limb if things go bad, which I’m pretty keen to avoid. With financial decisions I can also risk losing a lot, which makes it vital that I’m careful just what I put at risk. My family do not wish to live in a cardboard box, with or without me.

With my decisions made I’m happy – a fair-weather rider can still have fun.

(This article was originally published in Phil’s regular column in the Waikato Times newspaper.)

Posted in Family, Financial Education, Goal setting

Emotional debt is a form of self-harm

Expensive debt is crippling many people by sucking the life out of their finances and leaving them with nothing. Imagine the devastation left by a plague of locusts and you’ll begin to see this endemic problem for what it truly is. But what if I told you a large percentage of expensive debt is self-inflicted? Would that unsettle you?

What is going on behind the scenes when people get themselves in trouble with expensive debt? Here are a few causes of emotional debt that I call a form of self-harm.

In my experience people use credit cards, hire purchase and high interest loans to fund their decisions that are made in a moment rather than through planning. Lack or foresight usually means lack of preparation. When there’s an amazing special on something you want but you haven’t thought about it until you saw the advert on the TV you react and “charge it to the card”. People who plan ahead are prepared financially whereas those who buy on emotion get themselves in financial trouble.

I’ve seen others use spending as a “make me feel good” form of therapy. I had one friend admit that he used to spend money he didn’t have because the emotional charge he received from shiny new toys made him feel better about himself. The problem with this is twofold: toys are never going to positively affect your self-esteem, and secondly, spending money you don’t have will hurt you financially. Plus, the resulting financial difficulty will only add to the self-esteem issues that exist, thus making the problem worse, not better.

eeyoreA potentially damaging mindset is the “sunny day” mentality that underpins many people and their spending habits. What I mean by this is the belief some have that the rainy day will change into a sunny day sometime soon. We all know we can’t control the weather, but these people put their hope in the sunshine that might come not realising their behaviour is making their circumstances worse. That kind of thinking would have me swimming in my pool in August, something I am definitely not prepared to do! We should prepare ourselves for the weather we have today, not what might come next week or next month.

Finally, there’s the Eeyore mindset. Remember Eeyore from Winnie the Pooh? He decided in advance that his life was not going to be enjoyable and so he self-prophesied doom and gloom. And that is what he got. When we see the negative state of our affairs and accept it as our lot in life we destine ourselves to a life of poverty in the mind and the pocket.

The first step in fixing all causes of self-harm is the difficult step of beginning to think that you are worthy of good things. I recognize this is a sensitive subject but I see it too often and I hate the affect it has on people. You are a good person and you deserve the best in life.

(This article was originally published in Phil’s regular column in the Waikato Times newspaper.)

Posted in Family, Financial Education, Goal setting

Smash Your Debt on Purpose

Wisemoney-financial-seminar

High amounts of expensive debt are crippling too many families. This makes me very uncomfortable as I have seen the negative effects at all extremes. One woman I spoke with recently told me “she was able to pay most of her bills.” Notice her use of words there, it’s implied that some bills remain unpaid. This is simply a case of too many debts and not enough money.

I was speaking at a seminar recently about how to smash your debt and received a high level of interest from the audience. Unfortunately, a large percentage of the audience was struggling under the burden of high interest debt. This includes credit cards, short-term loans and unpaid accounts with the tax department. The good news is you don’t have to stay under this heavy burden. With some planning and discipline you can get out of this burdensome situation.

There are three principles I teach when helping people to smash their debt.

The first one is simply reduce the interest cost immediately. You can do this through any number of offers being made at the moment by the mainstream banks. Many will accept a transfer balance and offer zero interest cost for a year. The reason you accept this offer is because it allows you to pay the debt down faster. All that money that was being gobbled up by high interest costs can now be allocated to reducing the balance. This first step gets you on the right path.

The second principle is called the snowball effect. When you’ve paid off the first debt you allocate the payment towards the second target. When that is clear you add both payments to the third target. By doing this you are “snowballing” the payments so you can eradicate your debt as fast as possible. You can even apply this to your mortgage, no matter how big it is.

The final principle sounds simple but is harder than you might think;

Stop collecting debt!

With disciplined behavior and determined focus on your financial goals you should now avoid debt all together. But there is always temptation to avoid and you will need to master your weakness to achieve this one! (There are some things I just can’t help you with!)

Don’t consider debt a permanent houseguest with your family; this is one you should choose to evict. Think of all the positive benefits you can enjoy from being free from the shackles of debt. Paying all your bills could be one, although not that exciting. What about the ability to save money for goals? What if you could enjoy more family time by having to work fewer hours? What if being debt free meant you could be more generous towards others?

There are many benefits to be discovered and I’d like to conclude by suggesting you first invest some time in discovering what they might be for you. When you have the right motivation in place smashing your debt is much easier.

(This article was originally published in Phil’s regular column in the Waikato Times newspaper.)

Posted in Financial Education, Goal setting