Friday, December 24, 2010

My HUGE Financial Reward

It's not what you think. I didn't win the lottery, win big in Vegas or return someone's lost precious puppy. I took an interest in my financial future, got serious about my budget and in return am reaping the rewards.

I have been unemployed since April of 2010. Thankfully, this wasn't a surprise and I had over a year and a half to prepare for living on a fixed income. I saved my pennies vigilantly since knowing that once my contract ended I would be taking the summer off to train for Ironman, enjoy some downtime and reward myself with some long awaited overseas traveling. In order to have this plan come to fruition I needed to have a plan. More importantly, I needed to have a plan I could stick to. Enter Gail Van-Oxlade.

You know who she is. She's the doctor of debt who makes house calls on Slices' Til Debt Do Us Part. Since I had a lot of time on my hands to watch daytime TV, I decided I would give her famous "money jars" a go. I went to her website and downloaded the super simple Interactive Budget Worksheet. Starting here, I plugged in all my co-ordinates and set out to the bank to fill each of my 5 money jars.

For three months straight I spent only cash, using my credit card only for reservations or purchases only available online (like airline tickets - and I immediately paid for them after buying), I wrote everything down in my "budget binder" and did weekly reconciliation's to see where I was overspending and where I could save.

I STRONGLY recommend anyone looking to get out of debt, save money or get their spending under control do this even if just for one month. It was such a strong tool that my spending habits changed dramatically and immediately. If you have ever done a 'food diary' for the purposes of losing a few pounds, this works exactly the same way. Writing down everything you spend makes you accountable for where your money goes. At the end of a week, when you notice that $35 went to Starbucks latte's, cinnamon sticks and the occasional chocolate chip banana bread, it's a great reality check. Similar to the food diary, you begin to change your habits simply because you don't want the shame of having to write it in your budget binder. When I saw a sale on shoes or (more difficult) another awesome cycling jersey, I knew exactly what I would tell myself in a few days when reviewing the week's spending. "Seriously? You spent $80 on yet another [INSERT VARIOUS ITEMS HERE]. That $80 could buy you three days of travelling in Asia." That was relevant to me at the time, but I'm sure you have something that could relate.

It's not to say I never went over budget or bought things I didn't need. But at least I was VERY aware of how much over budget I was, and was doing so willingly. When you don't know how much money you have to spend to begin with, you don't know when you've spent it all.

I've stopped using the money jars, but the principles and lessons are still with me. I've been debt free and saving money consistently even as I'm unemployed and on a very fixed income.

My curiosity in my finances didn't stop there. I figured that if I could be in this much control of my spending, I must be capable of more. So I continued to be interested in my financial future and made an appointment with my banks financial advisor to talk about my RSP's and some other savings that I had. He was happy to talk to me about all kinds of securities, registered and non-registered accounts, tax deductions and high interest something rathers.... it was all too much for me at the time, I didn't really get much out of it except that now I know that there's a lot I don't know. 

Fast forward a few months and my "living within my means" lifestyle is still keeping me debt free and I no longer miss the expensive take-out sushi and I haven't even noticed that I haven't bought new shoes or pair of jeans in months. I'm much happier not receiving a visa bill. I do however, continue my interest in a financially responsible future by reading books like "Smart Women Finish Rich" and even though it's not as exciting and the last  edition in the Twilight saga ( I read that too), it's been exciting in it's own right. More than ever, I'm confident and feel prepared to ask the right questions when it comes time to address where my money is and what it should be doing to work for me. Half way through the book I made another appointment with that same financial advisor that confused me months ago and after spending two hours talking to him about all the same things that I now understand, I have a sense of independence and empowerment that only came by me taking a genuine interest in myself and my future. 

I've finished the book now and because I found it so valuable, I wanted to skim through it again and highlight some of the key lessons that stood out for me. I figured I would share them here since I'm in also the midst of conducting my own annual review and this might just add to it.

Chapter One: The facts and myths about your money
- You do not need to make more money. You need to better manage the money you have.
- Know WHERE your money is. Debt? Assets? Mutual Funds? RSP's? Cash? Bonds?

Chapter Two: Put your money where your values are
- Ask yourself "What is important about money to you?"
My answers were:
- Money gives me the ability to make my own choices. It gives me options.
- Having my own money gives me control over my life
- Money gives me the ability to fill my live with my own ambitions
- Having money gives me peace of mind

Understanding why money is important to you helps your decisions on where you spend it.

Chapter Three: Figure out where you are and where you want to go
- Find your "stuff" and get organized. Tax returns, retirement account statements, checking and savings accounts, other investments, credit card statements, mortgage material, major liabilities (car loans), insurance documents (home owners, renters, life insurance etc) and will's and life trusts.
- Online banking makes gathering this information very easy, but it's important to at minimum review where all this material (as applies to you) is and keep it organized.

WRITE OUT YOUR FINANCIAL GOALS. And add to that something you can do NOW to take steps toward that goal.

Again and again I see this tool being promoted/suggested and I (too) swear by it. It works. Do it.

*at this point in the book one of my goals that I wrote down was to be more educated in investments (mutual funds, RSP's etc). Before the end of the book, I had re-visited my FA and (as mentioned above) am reaping the rewards of that meeting). Until this review, I had forgotten that it was one of the goals I had written down. It's s powerful tool. Do it. 

Chapter four: Getting real about what you spend. 
- Helpful review of the budgeting lessons I learned earlier this year with the money jars.

Chapter five: Not putting all your eggs in one basket
- The super boring but necessary educating part about preparing for emergencies, retirement and other very grown up stuff. This is where I went back to see my FA and what was previously "pre-tax/ rate-of-return/ moderately aggressive vs conservative"  mumbo-jumbo investment stuff finally made sense. Repetition works well with me.

Chapter six: Following the 12 Commandments to attracting greater wealth
- Getting paid what your worth and knowing what that is.
This book ending with these commandments was the perfect segway into my next read which has been patiently waiting on my nightstand. Linchpin by Seth Godin.

There were so many lessons I learned financially this year, but it all started by TAKING AN INTEREST in myself and my financial responsibility. You can hear the same thing over and over or get advice from the best and brightest advisors on the planet, but if you're not interested in yourself, it's not worth a damn.

It was really helpful for me to re-write some of these lessons, so thanks for taking the time to read them if you made it all the way through.

Stay tuned for my annual review which takes into account lessons learned beyond my finances.

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