I’m a big fan of JD Roth’s site, www.getrichslowly.org. The guy’s been blogging forever and covers a wide range of topics, including what he’s growing in his garden. He’s thoughtful and doesn’t mind admitting when something makes him do a think-again. I also love to check in on www.zenhabits.net. Leo isn’t posting as often as he used to, but there is a huge amount of very interesting stuff about finding balance and simplifying your money and your life. Over at www.marcandangel.com, the posts are thoughtful and extremely well written. This guy should get himself a publisher.  Chaya Cooperberg does a great job on the Home Cents blog at the Globe & Mail. It’s one of the very few nods to personal finance since almost everything else is about investing. And check out www.hiddenabundance.com for a wide range of interesting blogs.

My blog world is much wider than money. Like Robin, below, I’m a fan of www.postsecret.com. I regularly check in at www.psychologytoday.com for the latest on how to be happier and positive psychology.  Gretchen Rubin turned her blog, www.happiness-project.com into a bestselling book, and there’s a good reason why. I’m also a huge fan of Philip DeFranco who video blogs on youtube. The best way to find him is through his Facebook page. (Language warning!)

Robin wrote: Here are a few of my favourite websites and blogs.  I think they’re fabulous.

www.orangekids.com – I found this website recently through ING, it’s for teaching children about money (it’s taught me a few things too).  I love that it’s simple and fun, plus it has a great parent reference section.

www.motherofadeal.com – deal hunting made easy.

www.1000awesomethings.com – a daily reminder that we really have a lot of simple things to be wickedly thankful for.

www.postsecret.com – new secrets are posted each week, something about them is fascinating.

Melanie wrote: I get about 25 finance blogs a day that come through my reader but I find these two consistently have the most relevant and interesting content (besides yours of course!)

www.getrichslowly.org/blog/

www.milliondollarjourney.com/

Lori wrote: thanks Gail, your blog is by far my fav and I read it every day! Here are some sites I like to visit often:

thenonconsumeradvocate.com/

www.getrichslowly.org/blog/

www.thesimpledollar.com/

If you have blogs or websites that you visit regularly, add ‘em in your comments and share the wealth.  I’m always looking for new and interesting sites. And they don’t have to be about money.

And so no one talks, no one listens, no one knows what’s what. And then the fighting begins. Maybe because she forgot that favorite shirt needed to be hung, not dryer’d or because he promised to cut the lawn LAST weekend and it looks like it’s ready for elephants and giraffes just about now. Really, it’s the fact that when she went to pay the hydro bill, the lunch he’d just bought at the sub shop left her without enough to pay the bill in full, even though she’d planned to get caught up THIS month.

If you and your mate are like chalk and cheese when it comes to money, ignoring your differences won’t make the problems you’re having go away. Nor will attacking your partner every time (s)he does something that pushes your buttons. Whether he’s spending money you think he shouldn’t be, or she’s racked up yet another credit card without you knowing about it and is now begging for forgiveness and help, you’ve got to deal with the issue. It’s not just going to go away.

At the top of the list when it comes to talking about money is honesty. If you’re hiding your spending or feel like you have to hide your savings, doesn’t that just feel wrong to you? I mean, this is the person you’re planning to spend the rest of your life with, and you’re hiding stuff?  Are you planning to keep up the deception for-frickin’ ever? And what does that say about your relationship?

If you can’t be honest about your debt, your spending, your goals, and what makes you feel safe and unsafe, why the dickens are you in this relationship? And if your partner throws, “I don’t want to talk about it” at you, stand your ground. You’re going to talk about it because this is a make-it-or-break-it issue. So you’ll get on the same page or you’ll have a crappy life. You get to choose.

While you’re being honest, realize that being upfront comes with taking responsibility. It’s not enough to ‘fess up. You also have to say what you’re going to do to fix the problem, by when, and how. If it’s your partner who needs to take this step and is reluctant, then you need to make sure she understands that while you love her, you’re not letting her irresponsibility wreck your life. And while you know he’s making more than you, if he’s also racking up debt at a wicked clip, all that earning isn’t doing your family one bit of good. It isn’t just about what you make, it’s also about how you manage what you make.

The more you can work together to solve whatever problems you may now be facing, the stronger you will grow as a team. Let the problems divide you and you’re done for. Refuse to take responsibility for your part of the mess, and you’re done for. You might as well just divvy up the dishes and go your separate ways.

Once you start talking about money and making a plan to work together, the past has to stay in the past. It’s kinda like Las Vegas: What happened there stays there.  If you constantly drag up your partner’s crappy history and wave it around, you shouldn’t be surprised when they just go back to their bad behaviour. If they have to take crap from you, they might as well be enjoying the spoils as an offset to the punishment.

As you talk about the money, the issues and the steps you’ll take to make things better, you may not be in your most huggy mood. But you must, at the very least, be polite. Don’t call your partner names or do anything to make her defensive. Don’t yell. Stay on topic: what are we going to do to make this better. And when it feels like the frustration or bitterness is too much, take a break.

Recognize that you have emotional limits and call a time-out so you have some time to breath and re-stabilize yourself emotionally. Ditto your mate; if you see your buddy turning red, suggest you call it a day and pick a time to start again when tempers have cooled and everyone is feeling a little mellower. (Don’t drink while you’re having this conversation, no matter how much you may think it’ll calm you down. Don’t.)

Be realistic about what you can achieve in your first few talks. You may not be ready to make a plan right from the get go. You may have to spend a couple of chat sessions just talking about how you’re feeling, what frustrates you, what makes you angry and what you wish your life looked like. Once you’ve both aired out your feelings and talked about what’s really important to you, you’ll know where you stand so you can see if you stand together.

Relationships take work. Both people have to be committed. And both people have to be willing to pull together and do whatever it takes to keep the union financially stable. As a team, you’re unbeatable.

———–

Our friend, Maureen, is gravely ill. If you’ve been around for a while you know Maureen. Funny as all get out. Sensible. A chatter-box. Maureen went to battle with cancer again. After her chemo and stem-cell treatment, she picked up a really bad infection. Mark, her hubster, has been keeping me in the loop and I’m sending out a call for positive thoughts. Maureen and I have never met, but because she is so open, so loving, I feel like I’ve known her forever. She’s a strong, brave woman who now needs a lot of positive energy, and you’re just the folks to do it. For the next few days, please think of Maureen. Each time you take a sip of water, each time you check to see what time it is, think of Maureen and send her your strongest good wishes. Can you love someone you’ve never met? Maureen makes me think so.

Trying to decide between the thousands of publicly traded companies in just North America? First you have to narrow the field to the 10 or 15 (or 20 or 25) stocks that capture your interest. The easiest way to do that is to “screen” for those companies.

Screening can be as simple as thinking about the products and services you use, and finding out more about those companies, to as complex as determining specific criteria for your investment prospects. On my desk I’ve got my telephone (Bell) and computer (Apple), a Pier One ginger peach candle (Pier 1 Imports), and a package to go to my publishers (Federal Express). Alex’s bank statement (CIBC) is sitting on top of my software manual (Microsoft) and Malcolm’s new chessboard (Mattel) is perched precariously and perilously close to my chair. There, that looks like a nice investment portfolio.

You can also pay close attention to the news. When you hear that Apple is launching a new toy that’s twice as fast as anything currently available, or that your local supermarket has just be bought by a bigger-and-better competitor who has plans to create a new shopping experience, your antennae may quiver. Or if a company makes an announcement that sends it’s stock plummeting, and you believe it is a case of investor over-reaction, which may present a neat opportunity to take advantage of the rebound that typically follows a sell-off.

Of course, screens can also be far more complex and happily there are a ton of tools available on the web, which allow you to quickly see who meets your criteria. Having determined the two or three vectors along which you’ll measure potential picks, you then run the entire world of stocks through those criteria. Magically, your computer spits out the name of the companies that match. You could, for example, screen all stocks for those with a dividend above 4%. Or you could look for companies with revenues of $3 billion or more, or with a price per share of $12, or with earnings growth of 20% or with $1billion or more in sales or a P/E ratio of 20 or… well, you get the idea.

Screens are a great way to narrow your prospects so you can focus in tightly on the ten or twelve that seem to meet most of your criteria.

The first thing you’ll want to do when considering a particular stock for your portfolio is find out the answers to some very important questions relating to the company’s purpose, position, prospects and price.

Let’s start with Purpose. Before you invest you must invest-igate. Read as much as you can about the companies you’re interested in. Call the company, ask for investor relations and request an investor information packet. You’ll get everything from the annual report, to securities filings, to press releases to analysts’ reports.

The idea is to build a feel for the company, to develop at least a general understanding of what the company does for a living. You don’t have to be an expert — there’s an analyst out there who can provide expert opinion for you — but you’ve at least got to get the gist of what the company is all about. What is the primary business of the company? Is the company selling tried-and-true products for which there will always be a demand (think toilet paper and shampoo) or is it offering new products that are expected to capture the imagination of consumers (RIM and Apple)? Does management have a vision for the future or is the firm beset with fleeing employees? Are sales rising or falling? Is management moving forward or too busy cleaning up the mistakes of the past?

Getting to know a company is an art. There are no hard and fast questions to ask or answers that are right or wrong. It’s a little bit intuition and a lot of investigation. And the more you know about a company, the more likely you are to see the potential for the future.

Most companies offer more than one product; a conglomerate might offer hundreds of different products in a range of industries. You want to develop a sense of the forces that will drive the company’s financial results. What percentage of profits does a particular product or division account for? How much of a company’s earnings are tied to a particular product? The annual report is a good source for this kind of information.

If you’re in the position of being a specialist in a particularly industry, use your expertise within that industry to your advantage. Knowing the major players, trends in the industry and a little history will help you bring a deeper level of understanding to the analysis of stocks in your industry.

If you can find someone who is in the industry, offer him or her a burger in exchange for a brain-dump. Then ask one billion questions about what’s happening in the industry, where they see change coming from, who the major players are, what’s new, and what the rumors are in the trenches.

Full service brokerage houses can be a good source of additional research, which is why it’s always a good idea to have a least part of your money there. But weigh what you read carefully if the brokerage house also does business with the company. Houses that underwrite companies are not unbiased in their analysis of those companies’ potential. That being said, analysts know how to evaluate a particular company’s prospects for growth — that’s their job. But not every assertion deserves to be taken to heart. The idea is to read as many takes on the situation as you can find and then form an opinion.

As an aside, don’t pay much attention to the analyst’s ratings on securities. Their judgements have been known to be flawed — sometimes terribly flawed — and I’ve met many a broker who’s given up on buy or sell recommendations provided by their own analysts. Because the language you see doesn’t translate directly. While “Hold” may sound like “hang on to the stock”, it’s really code for “dump this caca.”

Next week: Position, Prospects and Price

Last week: Types of Stocks

—–

Sticky Situation: A friend of ours left her partner and moved in with us.  When she first got here we told her not to worry about paying rent or helping out with the chores.  It’s 5 months later and we wish we’d started off by putting some expectations on her.  What do we do now to get out of this mess?  How much should she be contributing anyway?

Hey, do you have a sticky situation you need help with? Send it to me at getgvo@gmail.com with SS in the subject line and we’ll see what everyone has to say about the best way to handle it.

Let’s take the whole “credit-to-debt ratio” thing as an example. Under the credit scoring rules for having a great score, you should not use more than a certain percentage of your available credit. Optimally, according to “thems that knows” you shouldn’t have a credit-to-debt ratio (also referred to as your credit utilization) of more than 30% to  collect the most points under the credit scoring system.

The credit-to-debt ratio is calculated like this:

Debt Used ÷ by Available Credit x 100 = Debt Load

So if you’re carrying a $600 balance on a credit card with a limit of $2,000

$600 ÷ $2,000 x 100 = 30%

Now here’s the kicker: Just because you pay off your balance in full every month does not mean that the credit scoring system will rank you as a good customer. Ya see, the point – from the lender’s perspective – is for you to carry a balance and pay interest. So despite the fact that you zero your card every month, the credit scoring system will penalize you if when it randomly checks your credit utilization you’re up too high.

No one can predict the exact point when your balance gets checked by the system, so you could be at or close to your limit just before you plan to pay off the balance and you’d lose points big-time.

All this means that if you have a card with a $1000 credit limit, you should never rack up more than $300 in charges in a month.

The credit scoring system looks at your credit utilization in two parts.

It scores the credit utilization for each of your forms of revolving credit separately.

It calculates your overall credit utilization by comparing the total of all your credit balances with your total credit limits.

If you’re over that magic 30% in either category your credit score will drop.

And now for my big question: What purpose do you thing the credit utilization or debt-to-credit ratio serves? Think about it for a minute. Why does this even matter, particularly if you pay your balance off in full every month? What the hell difference does it make what your debt-to-credit number is?

I’ll tell you why. If you have to keep your credit utilization at 30%, you’re going to have to get a higher credit limit. Yup, the credit card companies are laughing all the way to the bank.

And how does this credit score travesty hurt customers? Just ask all the folks who watch their limits arbitrarily cut (yah, they don’t even have to tell you), and their credit utilization sky-rocket. The next thing that happened was their credit scores dropped. And that justified credit card companies hiking their rates because those all-important credit scores had fallen.

The credit scoring system is racket designed by lenders for self-serving reasons. It not only identifies profitable customers, it can be used to make customers more profitable. Wow!

I’m not sure what it’s going to take for The Powers That Be to realize just how damaging the credit scoring system is to people. But until they do and legislate away some of this arbitrary power, lenders have their customers by the short-and-curlies.

Alex and I have been talking a lot lately about the future and what she wants to achieve. We’ve talked about ambition and how it drives you. We’ve talked about following your bliss: doing what makes you happy.

During our conversation I said, “You know, I never really doubted that I’d have everything that I wanted.”

“Really,” she said. “How did you know that?”

“I dunno. I just knew. I believe with all my heart that you can have everything you want.”

“Just not all at the same time,” laughed my girl. Smart. Yup, sometimes you have to prioritize and make choices.

I also believe that the quality of your life is determined by what you think you have or don’t have. If you believe your life sucks and that nothing good will ever come your way, you create that reality for yourself. If you believe that even adversity brings opportunity – one door closes and another opens – then you’ll see the gift and be ready to greet it when it comes a’knocking.

Some people create a bucket list – a list of all the things they want to do before they die. I’m toying with the idea. I know I want to go to Africa – preferably somewhere with loads of animals and no strife. I know I want to teach little kids. And I think I’d like to run a guesthouse in a warm place where people could come and stay with me, tell me their stories, and share my tranquility and joy. But I don’t have one of those bucket lists with hundreds of things to do because when I want to do something I usually just find a way to do it.

Sometimes we want to do things we don’t have the knowledge or the skills to accomplish, or so we think. Hey, get yourself a mentor. I’m a big believer in finding a brain and sucking on it. (Do you have some alien-like picture in your head here. Ha!) You don’t even have to meet the person for them to have a profound impact on your life.  I’d like to have dinner with Stephen Pinker and Howard Gardner one day. I’m not sure how likely that is to happen, but I think about it from time to time and smile just imagining all the smarts at the table. They have both had a profound impact on me through their writing, as have myriad other souls who shared their journeys and opened my eyes to things I never would have imagined.

Perhaps the biggest barrier to having what you really want is not know what that is, or not being able to figure out how important it really is to you.  That might stem from the fact that you don’t really believe in yourself so you don’t see any point in clearly defining what it is you want. Whenever you look up, you can’t see the horizon for all the fences you’ve built around yourself: the good job, the demanding family, the big mortgage, the aging parents.  Getting stuck in the routines we’ve become used to means we stagnate. Even if you just try something new — something small —  you might find some of those fence rails coming down, clearing your way to a new challenge or a fresh perspective.

So back to you: If you could have anything you wanted, what would it be? What have you imagined your life would look like? And what are you doing to make real your pretty pictures?

If you’re financially responsible but have relatives who are not, it can be hard to watch them constantly battling with the consequences of their mistakes. It’s sometimes a case of “the child becoming father to the man.” And it’s sometimes a case of “I ain’t going down that road baby. No way.”

It doesn’t matter how you came to see things so differently, it can be tough to watch the people you love totally screw up their lives. Sadly, that’s all you can do. If  you’ve got the resources to help, no doubt you’ll do your best. But for many people, helping parents or other relatives means doing less in your own life – be it less saving or less enjoyment from your money – and that can be a hard pill to swallow.

If this is something that you’ve been thinking about, the place to start is by asking yourself what it is you fear for you parents. Do you worry about them running out of money? Becoming frail and dependent on you? Asking you for money when they just end up blowing it on dumb stuff? Think about it. Talk to your partner. Face the fear(s) and you’ll find it easier to deal with whatever comes next.

Sometimes parents can be remarkably closed when it comes to their money. That’s fine if they’re planning to remain independent. But if they tap you for money every time they run into trouble, or because they don’t have a plan, then you have the right to know what’s going on.

If your parents have assumed you will take care of them – after all, they brought you into this world and supported you for the first 16+ years of your life – are you on the same page as to how you will do this?  Will you assume full financial responsibility for them? Will they live with you? And how will you balance the need to care for your parents with your children’s needs and your own retirement savings needs?

If one of your parents has had all the control over the money, how will the other deal when the money manager finally kicks the bucket? Your mother won’t be the first woman left high and dry because her husband didn’t have a plan that took into account her longevity. And if your father has left it all up to your mom, will he have clue one when she’s not there to do the detail anymore?

Have your parents made any plans for when they may need help physically or financially? Do they have advisors you trust? Do they have enough and the right kinds of insurance?

It’s not easy to have this conversation with parents, particularly those who are financially private or those who are financial nit-wits. But you must. At the very least you should have a sense of your parents’ expectations, and they yours.  If everyone knows where everyone else stands, there won’t be any surprises down the road. And that should cut down on the whining.

At the very least, make sure your parents have wills and have executed both financial and personal care powers of attorney. If they haven’t, and the worst does happen, you won’t be able to help because they will have tied  your hands behind your back.

Monique  wrote: Hi Gail, Thanks for all the wisdom you share…we so need you!
I want to do the jar thing, but as some jars accumulate lots of money month to month, it concerns me to have that cash in the house!  If it goes into a separate account in the bank, I don’t know from which category it came.  See, I like to pay my house/car insurance in one fell swoop–so to save that part of my transportation cost to the tune of $2500, is way too much cash to have around the house!  What do you suggest?  Thanks!

I’ll tell you what I do Monique. I have an ING Direct savings account set up into which I transfer the money I’m accumulating for a particular category or a special purchase. So, for example, I have a “house maintenance” account along with a “vacation” account. Each month, I move the money to that account and watch it grow there. You could also have a single account that covers a bunch of different “planned spending” things. For example, I have an “overflow account” into which I put my “home insurance, clothing and gifts, and property taxes” amounts. I have a little book where I track these on paper. When I need to spend the money, say to pay my property taxes, I simply transfer the money back to my regular account.

Janice wrote: What savings suggestions do you have for a teenager starting their first part-time job? I have a soon to be 15 yr old daughter who would like to start working to have some ‘mad money’ of her own.  I’ve spoken to her about saving for university in 3 yrs time and I’ve shown her how money can compound with interest to make her a very comfortable adult.  I’m thinking that some money should go into her RESP along with my contributions.  But is it realistic to have her saving for retirement (even a small amount) at this age?  And can she even contribute to an RRSP at 15?.    thanks a bunch!!!!!!

Janice, to answer the technical part of the question first, anyone who has earned income in Canada can contribute to an RRSP. If she decides to put money into the RRSP, she should not claim the deduction, but wait until she’s in a higher tax bracket so it does the most good. But she can accumulate money there.

Hetty wrote: I’ve been helping my youngest daughter and family financially and started by finding out they had no hot water.  Long story short, I caught them up, had my son in law put most of his income into my account so I could get them on a budget, made him get a 2nd job on weekends.  Bless their hearts, they’re terrific parents to their 2 little ones.  My question is, where can I find help to help me to help them.  I’m 72 years old and if it wasn’t for my job, I could not subsidize them monthly over and above the 2 low paying jobs he has.  My daughter is a stay at home mom and has her hands full with their little mentally delayed son.  She and her husband are good people, but not smart.  I need someone I can talk to.

Hetty, my heart goes out to you. I know how it feels to want your children to be safe and comfortable, and I applaud you for stepping in and taking charge. But you won’t be here forever m’love and you’ve got to move the responsibility back to the “children” so they can do what needs to be done. It’s fine to set them up on a budget, using the jars to help them visualize the money and when it’s coming to an end, but you can’t keep control of the money since they need to learn to do this for themselves.

As for where to go for help, I’d start at my local bank or credit union (I like credit unions better because they are more about community). Don’t let anyone talk you into doing anything that puts you at risk, but ask lots of questions. Failing that, send me a post telling your story and I’ll put it up on my site and we’ll see what the community has to say. You can use a pseudonym if you’d like to protect your identity.

P wrote: I have the ultimate challenge for you.  I am in dire need of your assistance.  My brother (50 years old) sold his computer business 13 years ago. My brother is married with two high school aged children one of which will be attending university next year.  His wife does not work.  You probably can see where I’m going with this but please read on.

My brother had approx 1 million dollars that he invested and lived on the proceeds until the last few years.  The market destroyed the bulk of his investments.  I own a business and had given him a salary but I can no longer afford to do so.   I continue to pay his gas bill by giving him a company credit card.   Currently he is living on a line of credit that is drawn close to $200,000.  I ask him about his retirement and children school funds and the answer is “I have money earmarked for that”.  He will not get a job.  In his calculation of wealth he does not include his debt.  The house is paid for but remains unfinished and is cluttered and messy.  He pretends to work each day going to an office (paid for by my other brother) but collects NO INCOME for his efforts.  Just a way of getting out of the house each day.

He is a very likable fellow and is always first to buy the round of drinks for his friends and is generous with his money.  The children have expensive hobbies (horse riding and motorcycling etc.).  He continues to have a membership at the local golf and country club.

My fear is he will loose his house and family if he does not change his spending habits and recognize he must spend less, budget and earn an income.  He is on the edge of disaster. I have tried several times to talk to him about his situation but with no success.  I have found him job opportunities that he refuses to pursue.

I propose you meet with him as your were to do a TV show.  I will provide the customary $5000 reward to you so there is no cost to you.  I will also pay for your expenses so there will be a zero cost to you.  I need someone like yourself with a strong, intelligent review and plan to correct his situation and most of all to realize the mess he is in.

I’m very flattered, however, I’m afraid I’m not as sure as you are that he’d be willing to listen to me. Usually people have to first acknowledge their messes before they’re prepared to clean them up. I understand that your brother has had a tough go and that you want to help, but you can’t. He has to want to be helped.

As for using the TV format, I’m afraid the costs involved would be far higher than you anticipate, and ruse would be pointless since the show has gone out of production.

I receive between 20-40 appeals like this every week from people who are desperate and have no idea what to do next. That’s the reason I created my website and the tools… I can’t possibly do a house call for everyone who need one.

I wish you the very best of luck. You have a tough job ahead. Whether you work at breaking his illusion or you must simply stand by and watch, what you have to do is hard and I’m sorry it will be so tough. Caught early enough, this problem may still be fixable. By reassessing his financial situation, battening down the hatches, and doing whatever it takes to make the situation balance your brother can take control of this. The longer he waits, the deeper the hole. How you make him see that is the really tough next step.

L wrote:  I am a recovering gambler. I have taken a treatment course and am working hard at getting my life back.  Financially we are in trouble and I need help getting out. I have been watching your show for months and am trying to implement your rules. We make about $120000.00 a year and presently about $160000.00 in debt (that is all consumer debt).I am trying to work out paying it back in three years but even with all the shortcuts that seems impossible. I am looking at doing a proposal but I would feel better if I could pay back all the money that I borrowed. I know it may take more time but it is the right thing to do. Can you give me any tips on getting out of this mess. Thanks for your show it has given me hope.

While the three-year rule is one I believe in quite strongly, clearly there are some debts that simply cannot be paid off in three years or less. You have to make a budget and come up with the amount that you can repay every month. Figure out what your interest costs will be a month and subtract that from your debt repayment amount. The difference is how much you’ll actually be paying down your debt by each month. Divide that into the principal you owe. That’s how many months it will take. I will say that if it looks like it’ll take more than seven years, I would definitely discuss it with a bankruptcy trustee.

Natasha  wrote: Hi Gail I love your show and valuable tips, I have been in debt through no fault of my own I leant money and because it came back in dribs and drabs I spent it rather than paying off the loan and it took me and extra 2 years to get out of the hole, I had a car loan £4800 and an overdraft £3,200 that I fortunately had a family member paid off for me interest free, & I am repaying £250 per month towards the capital only no interest which is perfect. However I feel like a fat person who has lost the weight and is now struggling to keep it off, I only just totaled up my income and it is very low, and my outgoings seem to have monthly emergencies like two new tires for the car, and a drive shaft in 1 month. Please I have tried the jars and spent every penny in two days. Is there any help for me, I am in a very fortunate position and do not want to Fail this I am 32 years old and want to have a good night sleep please help.

M’love, it sounds as if your spending is completely out of control. You need to grab hold of yourself and give yourself a good shake. There is no magic solution for what ails you. You need to develop some discipline and PDQ if you’re also responsible for a child. One reason why you may be blowing through the jar money so fast is that your budget may be unrealistic. If you budget too little for food or transportation the money will disappear very quickly. The amounts you set aside have to be amounts you can live with. As for “I only just totaled up my income and it is very low” this is probably at the heart of your problem. Time to Make More Money girl. Whether it’s cleaning bathrooms or scrubbing floors, if you need to make more money to give your daughter a safe and solid foundation for her life, that’s your job as a mother. You’ll do whatever it takes.

There is a classification system that applies to all shares depending on the level of risk they carry. This classification ranges from “blue-chip” referring to well-established companies to “speculative” referring to companies whose performance tends to the volatile. Where a share falls on the “blue chip/speculative” scale depends on the company’s longevity, history, and past performance during different business cycles. Companies that have a good track record with steady performance are referred to as blue-chip. Companies with highly erratic earnings records, or no record of earnings at all, are referred to as speculative. They might be newly established with few tangible assets. Or it could be a company with a product that has not yet been proven but has huge potential. Typically, newly formed mining companies and new companies in the relatively young bio-technical industry are classified as speculative.

Blue-Chip Shares: This is the common stock for well-known national companies with a reputation for earnings growth and dividend increases. The most familiar names fall into this category: IBM, AT & T, GM. (See, I don’t even have to spell out their names and you know who they are.) While it’s been rumored that “blue chip” shares took their moniker from “Big Blue” who is a perfect example of one, that’s not so. The label actually comes from casinos where blue chips are the ones that are typically of greatest value. And we wonder why people keep comparing investing to gambling? Go figure. Of course, time and bad management have a way of bringing even the bluest companies to their knees. So, I’ll repeat the investing mantra once again: Past performance is no indication of future performance.

Income Shares: Shares of companies that have relatively stable growth in terms of sales, earnings and dividends are referred to as income shares because they generate a steady flow of income for investors. Dividend payouts are usually higher than the average current return in the market, though growth prospects may be somewhat lower. These types of stocks — utilities and regulated companies are good examples — used to be seen as less risky because they are less volatile. Deregulation has changed some of that. Alternatives such as Real Estate Investment Trusts (REITs) as the latest innovation in the income category.  Income stocks tend to be interest rate sensitive. Inflation does them in too.

Cyclical Shares: Cyclical companies are those that are particularly sensitive to the general economy and to changes in the price of commodities. The share prices of companies that fall into this category move in and out of favour with their entire industry sector. Buy them at the right time and you can take advantage of enormous growth. Miss the boat and you’ll either have to take the loss or you’ll be stuck until the cycle comes round again. Cyclicals are the first to be affected when consumer spending falls off. They include automobile, machinery and construction industries. (A stock can have more than one moniker, as you’ve now see with a company like GM.) Another good example of a cyclical industry is the forest products industry. When the economy slumps, newspaper advertising drops sharply. Pulp and paper companies sell less newsprint, so their earnings drop. When the economy picks up, so does the demand for newsprint. Eventually, both earnings and share prices recover. Some industries are more sensitive to economic cycles than others. The airline industry has boom-and-bust cycles. Electronics go through big swings because introductions of new-generation chips cause enormous changes in profitability. If you’ve got the guts to buy early when the outlook is still bleak, you can enjoy a nice ride up on a cyclical stock.

Seasonal Shares: Some companies are affected by seasonal factors that create more product demand at certain times of the year. For example, while the brewing industry is a relatively stable one, sales tend to be higher during the summer months than during other periods of the year.

Defensive Shares: Defensive shares are those that are affected very little by down turns in the economy because they provide essential services or products to consumers. Banks are a great example of defensive shares. Regardless of what the economy does, people need a place to keep their money. Food companies, established pharmaceuticals and beverage makers are also defensive because we’ve all got to eat, and you’ll need a Coke to swallow your Aspirin. While these stocks weather downturns well, they tend to be poor performers when the markets heat up.

Micro-cap, Small-cap, Mid-cap, and Large-cap Shares: Market capitalization refers to the market value of a company’s outstanding equity.  It is calculated by multiplying the price of the stock by the number of shares outstanding. The larger a company’s capitalization, the more heft or stability it has. Small-caps, on the other hand, tend to offer greater opportunity for spectacular growth. The classifications themselves may shift over time based on the performance of the markets. Where the categories fall is less important that understanding why the categories exist at all. Companies tend to perform differently as their size changes. The smaller the capitalization of a company, the less liquid that share tends to be. Since stocks move in cycles, there are periods when small caps outperform large caps and vice versa.

Next week: Picking Stocks

Last week: Technical Analysis

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Sticky Situation: Your mother-in-law wants to invite a bunch of your friends to your wedding, but you have a very strict budget. What do you say to her?

Hey, do you have a sticky situation you need help with? Send it to me at getgvo@gmail.com with SS in the subject line and we’ll see what everyone has to say about the best way to handle it.

But just because something isn’t “comfortable” doesn’t mean it isn’t good for us. I still use my sales skills today as I try to get an important message across to someone with whom I’m working. And the media thing… well, that turned into a career on TV. And while I limit my public speaking because of my other commitments, I do it without a minute’s flutter in my tummy.

Learning to take control of your money can be much the same. Initially, as you have to face your past mistakes and the weight of your challenge, you may want to duck and hide. Don’t. Facing up, doing the tough thing, being uncomfortable for a while will bring loads of benefits and, ultimately, peace of mind.

Of course, you have to start with your own definition of success. Don’t let anyone else tell you how much is enough or how easy or complicated to make the process. That’s for you to decide. Even as I give you “instructions” for how to do things on this site, they are meant as starting points. You must take them and make them your own. You must have a sense of what is “good enough” so you can achieve some satisfaction.

I’ve recently received a rash of emails (these things always seem to come in batches) from people telling me that they’ve adapted my interactive budget to work better for them. Some sound almost apologetic. No need, folks. I’m happy that I could provide a starting place and that you’ve taking the initiative to customize. I’m thrilled that you’ve made it “good enough” for you.

Princess will be coming on the air shortly (September 7) and you’ll notice that I’ve introduced a new skill set: goal setting. I believe that you need to not only know where you want to be, but define very clearly the steps you’re going to take if you want to make a change. You’ll see me talk about long- and short-term goals. Long-term goals help you keep perspective, while short-term goals help you sustain your momentum and give yourself a pat on the back a little more regularly. So it’s important to have both.

Goal setting doesn’t start with a piece of paper… that’s where it should go eventually, but it starts in your ability to dream, to imagine your future, to put yourself someplace that feels great. When I started thinking about redoing my backyard, I didn’t just jump on it and head out to buy flagstones and moss. Nope, I imagined it. I’m spending an entire year just watching that back yard, imagining what will go where as the sun moves through it in spring, summer and autumn. Hey, a lot of the fun is in the planning and I’m not about to short-change the dreaming for the sake of having a “perfect” backyard.

Know that the biggest tip that you’re on the right track is when both your head and your gut agree. Remember, this isn’t about comfortable; this is about that little voice that says, “This is it. Keep going.” If you’re not really sure if your head and heart are in the right place, think about what achieving the goal will feel like. That should help put you on the right track.

Growth is hard. Change is hard. And doing something different  – even something that’s good for you – isn’t always comfortable. Accept the discomfort as the first sign that you are thinking (and acting?) differently, and give yourself room to grow. Don’t be too hard on yourself; mistakes happen, just recognize them and move on.  And when you’re successful, look at what you did that worked and incorporate that approach into your next challenge.

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I’ve been asked to open up Gail Clubs for Pennsylvania and Alameda, CA. If you live in these areas and would like to join, go check out what’s happening on the Gail  Club Board.

BTW, for those of you who are interested in starting a Gail Club, a great way to get some momentum is to see if you have friends, co-workers or family who would like to help you get started. Over time your circle will widen as y’all bring other friends, co-workers and family into the club.

Imagine, a home-party about good financial sense instead of about spending money. What a concept!

A friend of mine was complaining that her son was behaving very badly in the store with her. He wanted something, and cried and cried, repeating the name of the thing he wanted over and over. She knew he was tired and hungry so she let him have it to kept he peace. Alex was listening to this retelling and said, “Hey, Mom, you’d never have done that.”

“That’s right, I never would.” She laughed imagining it.

My response to the situation would have been to kneel down before my child and very quietly say, “If you continue to behave like this, I can promise you that you will never again get [the item]. So you decide.” And I would have stuck to it.

When my kids were small, from time to time a fight would break out over a particular toy they both wanted. I negotiated and discussed compromise with them, but that didn’t help a lot. They were just too little to understand the concepts. So then one day I said, “Every time you guys fight over a toy, I’m going to take the toy away and no one will have it.” One demonstration of my commitment was required to prove the point. That did it. No more fighting. Since they both stood to lose the toy regardless of who was “right”, the fighting ended.

People get all warped about what other people – including their kids – think about them. They know what the right thing to do in a circumstance is, but they second-guess themselves on how others will react. There’s the mom who knows her children are not old enough or responsible enough to take care of a pet, but buys them a kitten anyway because she can’t take the disappointment on their faces. There’s the girlfriend who wants to go to a party, but her boy is sick in bed at home, so she resentfully stays home, doing her duty, all the while seething at missing the fun.

In my world, either I’d want the kitty or not want the kitty. But I wouldn’t have an unrealistic expectation (the kids will learn responsibility) and then be disappointed. In my world I’d stay home with my boy because I wanted to or I’d go to the party because I wanted to. I wouldn’t do what was “expected” and then seethe with resentment.

One of the things I’ve witnessed (and gasped at) is the comment some people make to families with one child about how “selfish” those parents are for not providing a sibling. Really? It’s selfish to know you only have enough money to successfully raise one child? It’s selfish to know you only have enough energy to deal with one? It would be better to strain your resources, financial and/or emotional, to satisfy someone else’s sense of how many children are enough? This is a particularly tough thing to hear (that you’re selfish) if it’s coming from your elders: parents, aunties, grands.

If you want to do what’s right for you, then figure out what you really want and make that your reality. A new kitten? Is that what YOU want (for yourself, as well as for your children). No? Then nix-nay on the kit-tay.

Never mind worrying about seeming “mean” when you have to say “no”.  As Billy wrote, “To thine own self be true, and it must follow as night the day, though canst not then be false to any man.”

Ten years ago, before the avalanche of reality TV hit the airwaves, the Joneses were the people next door. Now people are feeling the push to keep up with the likes of movie stars and TV personalities who make gobs of money airing their lives to the nation and shopping as a hobby.

JD Roth, of getrichslowly.org fame and author of Your Money: the Missing Manual, recently wrote about walking home past the gorgeous homes he has always wished he could afford to buy, consumed by envy and the desire to have what the Richy Riches have.  He subsequently notes that he and his wife are very happy with their home, but just looking at those mansions made his mouth water.

And that’s exactly the problem with watching Carrie Bradshaw strut across the screen in $600 shoes or Kim Kardashian head off for a day of sun-bathing in Sassi swimwear, Prada sunglasses and a hat that cost as much as some people’s mortgage payments. What these girls, real and not so real, are spending on clothes and beauty is equivalent to what regular folks earn in a year (or six). So trying to spend like they do, trying to keep up with the New Joneses, is putting a lot of people into a big pile of poop.

We’re in a shopping frenzy. As stores have moved from places you go to buy the things you need, to being nestled in malls that act as communities of their own, we’ve moved from needing a new pair of jeans to wanting Genius Jeans.  When Miley Cyrus struts her 7 For All Mankind Jeans, it’s not surprising that all the Miley wannabes are prepared to shell out over 200 bucks (U.S.) for a pair of jeans.  And retailers know it. Loads of space is given to which stars are wearing what labels as inducement to young fashionistas.

According to April Benson in her book To Buy or Not to Buy, “Compulsive shopping crosses every social and political boundary.”  Popular culture makes fun of our shopping addictions with bumper stickers that declare, “When the going gets tough, the tough go shopping.” Advertisers poke fun with a reference to “shopping” as an after-school activity. And overshoppers have come to think about their lives in terms of what they must buy next and how jealous they can make their friends.

Benson claims that chronic over-shopping is almost always associated with low self-esteem and insecurity. That makes some sense. After all, if you know who you are and have your own style, you don’t feel the need to imitate the Katy Perrys of the world. But if you aren’t sure exactly what makes you happy, you can be tricked into believing that the acquisition of yet one more new thang will do it for ya.

There’s no question that our affluenza is a culturally induced affliction. Having 7000 version of jeans with price tags that range into the thousands means that $200 for a pair of Hudsons looks like peanuts. But if you’re making $15 an hour and having to pay rent, buy food and pay for transportation, you might only have a disposable income of about $2 an hour, and those jeans would represent 100 hours of work… That 13 days… almost 2 and a half weeks of work… just to buy a pair of jeans. Or you could stick ‘em on your credit card and pay interest too.

1. You can contribute up to $5,000 a year to a TFSA and if you miss a year, you lose that contribution room.

2. As with an RRSP, the interest on your TFSA is tax-deferred.

3. If you take money out of your TFSA you can put it back at any time.

4. A TFSA is a better way to save for a downpayment on a home than an RRSP.

5. Contributions to a TFSA are tax deductible.

6. TFSA can only hold investments that generate interest income.

7. You can only have one TFSA at a time.

8. Putting money in a TFSA for your spouse reduces your contribution amount for the year by the same amount.

9. You can transfer money directly from your RRSP to your TFSA.

10. TFSA beat RRSPs hands down as a way to save for the future.

11. Any Canadian with money to save can open up a TFSA.

12. If I borrow to invest in stocks inside my TFSA, I can deduct the interest on the investment loan on my tax return.

Add up your Trues and your Falses and let’s see how you did…

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1. You can contribute up to $5,000 a year to a TFSA and if you miss a year, you lose that contribution room.

FALSE. While the contribution limit is $5,000 currently, you don’t lose your contribution room if you fail to make a contribution.

2. As with an RRSP, the interest on your TFSA is tax-deferred.

FALSE. All income earned in a TFSA is tax free.

3. If you take money out of your TFSA you can put it back at any time.

FALSE. You can’t put the amount withdrawn back until the next calendar year. If you try and you’ve already reached your limit for the year you’ll be hit with an over-contribution penalty. There are loads of people who haven’t figured out this rule who will pay dearly. The government seems willing to allow for first year ignorance, but that won’t last long.

4. A TFSA is a better way to save for a downpayment on a home than an RRSP.

FALSE. Since an RRSP comes with higher contribution limits, depending on your income, you could be able to save more quickly using an RRSP and the Home Buyers’ Plan than you could with a TFSA. Of course, you’d then have to pay the RRSP back, but only at a rate of 1/15 of the amount borrowed each year.

5. Contributions to a TFSA are tax deductible.

FALSE. Nope.

6. TFSA can only hold investments that generate interest income.

FALSE.  A huge range of investment options are available within a TFSA including stocks, bonds, and mutual funds. In fact, a TFSA can hold anything an RRSP can hold.

7. You can only have one TFSA at a time.

FALSE. You can have as many of these puppies as you’d like, but you can’t go over the annual contribution limit.

8. Putting money in a TFSA for your spouse reduces your contribution amount for the year by the same amount.

FALSE. Contributing to a spouse’s TFSA will not affect your own contribution room. Income attribution rules, which currently apply to RRSPs, do not apply to TFSAs.

9. You can transfer money directly from your RRSP to your TFSA.

FALSE. If only. That would let you avoid the tax hit on RRSP withdrawals. Wouldn’t that be sweet?

10. TFSA beat RRSPs hands down as a way to save for the future.

FALSE. Hey, as with everything about money, there are no hard and fast rules about what will work best. If you’re in a low income tax bracket, a TFSA may be better for you. Ditto if you’ve got a great pension plan at work. But if you’re young, earning good money, and looking for a way to build retirement savings, an RRSP may still be your best bet for saving on taxes now, and growing your money for the future.

11. Any Canadian with money to save can open up a TFSA.

FALSE. Unlike an RRSP where you just have to have earned some income, with a TFSA you have to be 18 years old to open up a plan.

12. If I borrow to invest in stocks inside my TFSA, I can deduct the interest on the investment loan on my tax return.

FALSE. Interest expenses related to a loan for investments held in a TFSA are NOT tax-deductible.

Rather than looking at a company’s business, financials and operations, some investors like to focus on the historical performance of a stock, and the patterns created when it’s price and volume are charted over the long term. Referred to in the biz as technical analysis, this is an industry unto itself. There are uptrends and downtrends, support and resistance, breakdowns, breakouts and countertrend retracements. There are daily charts, weekly charts and charts that plot a stock’s history. And if you want to take this approach to investing, you’re going to have to buy a book or six to learn about technical analysis.

One reason why technical analysis is popular is that the charts created offer basic supply and demand information about a stock, eliminating the opinion component of most stock discussions. This form of stock picking is therefore seen as unbiased.

Charting also helps to put a stock’s behaviour in context. Is that big point move a breakout, or simply a continuation of a strong advance? Proponents hold that by keeping your eye on the charts, you can identify stocks that are about to break out big-time. And they are a great signal of when to sell. A stock’s chart will often show early warning signs well before the company actually falls apart. If there is heavy volume selling for several days, you can bet there’s something wrong. (Or was that just more investor over-reaction?)

The detractors of technical analysis will tell you that while it is purported to be unbiased, it is often up to the person doing the analysis to interpret the significance of the ‘fuzzy” information provided on those multitudes of charts. Besides, since the information used by charters is available to anyone who wants it, how can there be any real advantage to this approach?

If you’re a top-down investor, you’ll begin your analysis by first looking at the broad economic picture, narrowing your focus down to industry sectors, and then individual companies. So, if you believe that oil prices will drop, you might look to industry segments that use oil and analyze these segments to see how this economic change will affect their performance. Within the sector, you’ll then analyze other criteria — perhaps labour or competition issues — to see how they might affect individual companies. Finally you’ll look to P/E ratios and the other financial formulae.

If you’re a bottom-up investor, you’ll be less concerned about the overall state of the economy and will focus more on the fundamentals of individual companies. So you’ll start with P/Es and pull back to look at how the whole sector is doing, and what the economic picture as a whole is like.

Next week: Types of Stocks

Last week: Investing for Growth

The financial news has been full of talk about deflation. Almost everyone knows that inflation means the price of stuff is gonna go up.  But the flipside of inflation – deflation – is something most people have far less experience with. Like it or not, you might just have an opportunity to share in this interesting reversal since economic indicators say we may be headed for a period of deflation.

So what is deflation, and how will it affect you?

When an economy experiences a reduction in prices for it’s goods and services, that’s called deflation. Don’t confuse “deflation” with “disinflation” which is simply a slowing of inflation. Deflation is a full on reversal. And for many economists, deflation is a way more serious problem, largely because it’s tougher to control.

People are always bitchin’ about how inflation makes things more expensive, so one would think that a period of reduced prices would a be welcome respite. After all, if stuff becomes cheaper to buy, money will go further, right?

Yes and no. Yes, things will get less expense, and that can be good in the short-run, particularly for people living on fixed incomes. The No comes in when deflation drags on. When prices are falling, consumers are willing to wait for even lower prices before putting down their hard-earned dough. Inventories pile up. Sellers are forced to cut prices further to increase demand. Companies’ profits fall. That leads to production cut-backs, reductions in wages, layoffs and even the closing of facilities. Unemployment increases and since fewer people are working and have less money to spend (and less taxes are being paid) the economy cannot expand. There is no growth. People get even more scared, spend less, and the whole thing just spirals down.

The U.S. fell into a deflationary period during the Great Depression in the ‘30s; deflation hit 10% and unemployment hit 25%.  Japan went into a deflationary period in the ‘90s and that economy still hasn’t really recovered.

The big benefit of deflation is, of course, the fact that stuff gets cheaper. Yes, it’ll cost less to live. But less is relative, since deflation also brings reductions in income.

So what can you do to protect yourself (kinda) if we do fall into a period of deflation.

Reduce your debt. (Gee, Gail, that’s your answer for everything.) As we’ve already seen happening, interest rates go up for riskier borrowers during a period of deflation. Since growth is at a standstill, lenders are less willing to let you spend money you’ve haven’t yet earned.

Get your fixed expenses under control. If you lose your job, you’re going to be working on a bare-bones budget. High fixed expenses are anathema to survival. So those mortgage payments. car payments, loan payments that are gobbling up your paycheque are going to get even harder to stomach.

Build up your emergency fund. Since deflation brings higher unemployment, if you’re one of the newly unemployed, you’ll need an emergency fund (cash not a line of credit!) to survive.

Focus on increasing your personal marketability. Get some new skills. Keep your resume up to date. Look for ways to shore-up your employment prospects.

During periods of deflation, cash is king. Do whatever you can to store up your money. If the deflation thing never comes to fruition, you won’t be any worse off having some extra cash available for investing. If it does, you’ll breath more easily knowing you have some resources to see you through.