Traditionally women have relied heavily on the men in their lives to provide the family’s financial security. And, for a lot of women, that attitude persists even when we know that about one-third of women make more than their mates, and a crap-load are the only breadwinners in their families. Age seems to make no difference. While you might think that younger people are getting it together you’d be wrong. Among my Princesses, for example, there’s a strong belief that you spell “financial plan” M-A-N.

So what’s the problem? Why are we still prepared to hand over control to someone else? And if were prepared to get naked with another body, why are we so hesitant to talk bout money with them?

I’ve gotten more than a few letters from people who are carrying massive amounts of debt that their partners know nothing about. And then there are the better halves who open up their buddies’ bills to find a whopping amount of used-up credit. “He had no business opening my mail,” one woman told me outranged at her husband’s rudeness in prying into her financial affairs and uncovering her debt.

“I had every right,” he responded. “I’d already baled her out twice before by consolidating her debt to the mortgage. She swore she wouldn’t do it again. I didn’t believe her.”

Ouch! So how do people end up together with markedly different attitudes and approaches to money?

Sometimes it happens because people get married without knowing squat about their partners’ financial lives. Sometimes they may not realize that their partners were maintaining their lifestyles on credit. Sometimes they didn’t understand that all that flash had no substance behind it.  (It’s like they say in Texas, “Big hat, no cattle.”) Always it happens because they didn’t talk about money.

While some people may say it’s fine for one person to handle all the money as long as the other persons “knows what’s going on”, I disagree. More than once I’ve worked with people who have handed over control to a financial moron. Letting your shop-a-holic partner or gambling mate assume control of your family’s financial future is tantamount to putting the fox in charge of the hen-house.

Even if you’re married to a financial paragon of virtue, if you don’t have your hands in the money management at least part of the time, you just aren’t as aware of the issues. Sure, your partner has said you’re a little tight this month, but until you sit and try and figure out which bills must be paid and which pleasures must be foregone, it’s all just “air” to you.

The only way for a partnership to work is for communication to be at the centre. And if you’re partnering on money, you need to talk about it.  Before you hooked up you would figure out if you were physically compatible, right? You might also talk about how spiritually compatible you are. So why not talk about your financial compatibility?

With Spring just around the corner, it’s time to get things tidied up. I’m ruthless about getting rid of stuff I am no longer using or that I no longer love around me. I started this when the kids were young and I had to make room for the piles of stuff they’d have to incorporate from the massive deal we made of Christmas. But I find it’s very useful to review what we have, what we need, and what we want so I clean up a couple of times a year now — Spring and Fall — and get refocused.

The same tactic is a good idea when it comes to your money. If you’ve slipped off your budget a little or a lot, now’s the time to right your boat so you can stay afloat through the rest of the year. Maybe you tapped into your emergency fund, fully intending to replenish the pool. It just didn’t happen and your depleted emergency account feels like a slap every time you look at it, so you don’t. Hey that’s not going to solve the problem.

When was the last time you reconciled your bank statement? Have you looked at your insurance recently to see what you’ve got and what you may need to change? How about that investment portfolio? Still chugging along in the direction you like?

While it’s easy to get caught up in the everyday parts of life, sometimes we forget to stop and take a look at the big picture. But it’s the big picture that helps guide us through whatever comes next, and if the picture is a little (or a lot) fuzzy, it’s easy to lose sight of what we’re trying to achieve and go off the rails.

Have you been tracking your spending? If you’re behind entering your numbers, time to get busy. If you’re on the money, time to look at those numbers to see what they say about how your budget has been working for you. Maybe you didn’t set aside enough for the kids’ sports programs and consistently went over budget. Hey, you had the money, but this category seemed to be out of hand. So, will you cut back, or will you acknowledge that you need to spend more and adjust your budget (cutting back elsewhere if necessary) to reflect your reality?

Some people leave off actively planning, setting goals, and tracking when the caca hits the fan and they’re so restricted in what they have to spend that they feel like there’s no money to manage. While things are tight right now, this is the best time to learn about watching the pennies (physically and on paper) so that as things get better and the purse strings loosen up, you don’t end up going overboard. Even if you feel your financial case is hopeless, don’t hide. Push through the panic and take control of what you do have.

If you’re one of those people who holds on to every single piece of paper that passes through your home, time to have a shredding party. Get rid of everything you don’t have to keep.

Keep your tax returns and backup docs for 7 years.

Keep your insurance policies only for as long as each policy is in effect. Dump old policy paperwork if you get a new documentation with your renewal each year.

Review your warranty file and get rid of booklets for anything that’s gone the way of the recycling bin or for which the warranty has expired. Ditto home-repair warranties.

Keep you last two year’s worth of pay stubs and dump the rest.

Keep a year’s worth of bank statements in an accessible place so you can re-vamp your budget from accurate figures and file everything else for five years, particularly if you don’t track monthly on a spread sheet.

Keep the current year’s credit card statements on hand for revamping your budget.

Dump your ATM receipts once you’ve reconciled your bank statement at the end of each month. (Hey, time to get reconciling so you can dump that load of paper you’ve been holding on to.)

If you have stocks, bonds, or mutual funds, keep the statements and dump all the marketing material.

If you’re writing off your utility bills for tax purposes, keep them in your tax file. Otherwise, keep one year’s worth for comparative purposes.

And as for your mortgage documents, keep ‘em until you die, or the mortgage is paid off, whichever comes first.

The families I work with are often in overdraft at some point in their month. Some of them spend virtually the whole month in overdraft. And some have no overdraft protection (or the wrong plan) so they end up paying exorbitant fees for NSF transactions. You’ve no doubt seen me give people the What For because they’ve been racking up $300/month bank fees. What a waste of money!

Being in overdraft is a strong indication that you’re not:

a) living within your means, and

b) keeping track your expenses.

If you want to get out of overdraft and back into the black, it will likely take some belt-tightening for a few months. Here’s how to do it.

1. Make a list of your monthly Fixed Essential Expenses… The bills that you have to cover every month like your mortgage and car payment, your minimums on your debt and your childcare expenses. Total it up.

2. Make a list of your monthly Variable Essential Expenses…The costs that you simply can’t avoid, like food and gas. Be careful now, we’re not talking fancy food and lotsnlotsa gas… we’re talking the bare minimums to get you through the month. There’s no clothing, no movies, no shopping at all on this list.  Total it up.

3. Subtract these two totals from your income. How much do you have left? If you don’t have enough to cover the unessential expenses in your life – the fancy cell phone, the uppity satellite service and the like, you can see your problem. Time to cut back on the nice-to-haves until you’re out of the hole. Change your services to the most basic you can get away with.

4. Commit to living on this very harsh, very tight budget for a month. Just one month. Take all the rest of the money you make and stick it in an envelope, a jar, or a high interest savings account… as long as you don’t spend it.

5. You’re not allowed to use your credit during this process. You are, in essence, having a No Shop Month.

6. When you get to the end of the month, add up how much you’ve got left after all your bills have been paid. Is it enough to cover your overdraft? If it is, then you’ll have to live through this belt-tightening horror for one more month to build up the buffer you need to never go into overdraft again. If it’s not, you may have to feel the pain for a few more months until you’re in the clear.

From here forward, you want that buffer stored in an account that’s linked to your primary transaction account so that if you see your account running a little low, you can transfer some money from your buffer account to keep you afloat.

You are also going to become meticulous at tracking your spending. After all, you don’t want to have to go through this pain again, right?

Some people create a buffer in their transaction account to prevent overdrafts, keeping a couple of hundred dollars in their chequing account that they never allow themselves to spend. If their balance ever falls below that level, they simply stop spending. While they’re not overdrawn as far as the bank is concerned – so there are no fees – they’re overdrawn in their own eyes and go without until the next paycheque hits the bank.

Getting out from under Odious Overdraft is not easy task. But you can do it if you’re determined to stop paying the bank for your lack of self-control. Yes, it’ll hurt for a month or four. But the relief of being back in the black is fabulous. Let me know how it goes.

DeeDee wrote: Hi Gail, My husband and I love your show! We use it as a dose of reality and a check to make sure we are doing ok. My question is about savings. Tons of advice recommend saving 10% of your income. Where I need some clarification is – should we save 10% of our gross income, or 10% of our net? We are currently saving 30% of our net, but that percentage is significantly reduced if we base it on gross. And from that savings, how much should be going into RSP’s? Thanks in advance for your advice!

I know the messages are mixed on how much to save. And it seems to be a moving target. As the pendulum has swung from spending every red cent to saving something, I’ve watched the number ratchet up to 15%, 20%, 25%. And then there’s the whole debate about whether you save based on your gross income or your net.

In my world, since you don’t get your gross in your hot little hands, it’s unrealistic to use that as your benchmark. So I base my savings numbers on net income — income after taxes.

As for how much to put towards retirement savings, it depends on a whole bunch of factors. Usually the save-10%-rule applies to retirement savings. If you and your partner belong to company pension plans, that’s part of the retirement savings so that goes toward your 10%.

If you’ve waited a long time to start saving – you’re in your 40s and you don’t have a nickel set aside for the future – then saving 10% may not be enough, depending on how much you think you’ll need when you retire. But if you aren’t saving squat now, aiming for 10% would be a big step in the right direction, dontcha think?

What you’re saving for also comes into play. If you’re accumulating money for an emergency fund, that’s separate from the 10% for retirement savings. Ditto if you’re setting aside money for your kids’ future schooling.

If you’re putting aside money you know you’ll be spending — let’s say for a vacation or to buy new furniture — that’s not savings at all, that’s planned spending.

So how much should go into an RRSP? As much as you can afford to save, while covering your other bases, and having a life too. If you aren’t saving now, start. As little as $50 a month will get you into the game. Get an emergency fund together and once that’s done, make sure you’re slapping as much into your long-term savings as you can afford without eliminating all the joys of life.

I’m working on a book right now about saving for the future. Never Too Late will be about taking control of your retirement savings and your future and it should be out in 2011. And it will deal with all the things you have to think about, whatever your age and whatever your current level of savings may be. It’ll also help those transitioning into retirement with what they have to think bout.

I was initially resistant to doing a book on retirement. So much has already been written. And how seriously are people taking this anyway? I mean to say, if we’re still spending more money than we make – and all the evidence says Canadians are still on a spending spree – am I just whistling into the wind?

And then I get a letter like this and I know that something fresh, straight-forward and to the point is absolutely needed:

When we are multiplying our monthly income by 100 and dividing by 5 to determine what we should put away for savings – Do we use our gross income or net income??

Where did this chick come up with this calculation?

If you’re trying to figure out how much of your net income is 10%, you divide by 100 and multiply by 10. That’s 10%.

Deciding how much to save for retirement when you have a bunch of competing goals can be tough, particularly when you also want to have a great life. That’s why it is so important to figure out what you really, really want. That can’t be pie-in-the-sky, gee-I-wish stuff. It has to be concrete. It has to be something you can focus on and use to keep you on track.

Erin wrote: Hi Gail! My husband and I earn approx. $46,000 per year. We have NO debt. We have 2 children, a lovely home. Nothing on line of credit, no consumer debt, etc. Bring in approx. $3573.12/month, all expenses approx. 2600.00, that’s food, mortgage, heat, hydro, gifts, clothing, kids allowance, cable, phone/internet, bank fees, etc. We have approx. $3000.00 in mutual funds now. How much on avg. would you recommend putting in RRSP’s or other, per month? We are thinking $100.00, so as to not be socking EVERYTHING away. May I happily add, living on a budget, we have been able to take our two wonderful kids to Disney world for 1 week. And are going to Myrtle Beach with my parents, brother, wife, and us, for March Break! Very Proud of ourselves. Anxiously awaiting your answer. Thanks so much.

So here’s a family that has it’s crap together. They’re living within their means. They’re saving a little something. And they’re accumulating money for big spends like vacations. No debt. I’m ecstatic!

Erin thinks $100 a month may be enough for the future. Based on their net income of $3573, the 10% rule would have them setting aside $357 a month. But if they’re both in company pension plans, she may be right. And if they’re also trying to save for the kids’ educations later, then having competing priorities – and wanting to have a life – may mean the $100 a month will have to do.

Based on her figures, Erin’s family has about $900 a month in extra money (income less expenses) from which they can save and have some fun. Now Erin has to decide how much savings and how much fun.

I’m not about to tell this chick what to do with her money. It’s her money. And it’s her life. So she needs to make the decision. If she thinks $100 a month is enough, then it’s enough. But she can’t turn around later and complain that she wishes she had saved more. She has to do some work now to decide if saving $100 and spending $800 every month is what she wants to do with her money.

It’s a decision we all have to make: weighing todays needs and wants against what we’ll need and want in the future. It isn’t easy. And there are loads of guidelines to make the process feel less complicated. That’s what The Save 10% Rule is: a guideline. You have to decide if you’ll save more or save less based on what’s important to YOU!

“Would you rather eat dog pooh or be stepped on by an elephant?”

Some of the stuff they come up with is really funny. Some of it is just weird. But whenever I listen to them playing this game, the Would You Rather gets stuck in my head and I find myself pondering a bunch of different things.

Here’s one for you today: Would you rather take a 10% cut in pay or watch the company lay off 10% of its employees? How about if you were likely to be in the 10% to get the pink slip?

In today’s economy the one thing you can count on is that someone is going to draw the short straw. If you would rather float than sink, you might want to join in a round of the Would You Rather game.

Would you rather have that hefty car payment on a snappy new car or own your early-model outright?

Would you rather have a snappy new purse to go with your outfit or be able to buy another week’s groceries for your family?

Would you rather knock a year off your amortization or take that vacation to the sunny south?

I’m not judging your answers. You’re the person for that job. But playing the Would You Rather Game can help to set things in perspective.

You can use a model like Stephen Covey’s matrix in his book First Things First to help you decide where your priorities lie.

First, grab a piece a paper, make a big box and then divide the big box into four equal smaller boxes by putting a vertical and horizontal line down the middle.

• Label the top right hand box “Important and Urgent”
• Label the top left hand box “Important and Not Urgent”
• Label the bottom right hand box “Not Important and Urgent”
• Label the bottom left hand box “Not Important and Not Urgent”

Now write the things you must do with your money into the various boxes based on your priorities. Paying the mortgage would be Important and Urgent. If you don’t pay that sucker on time, thems gonna take your house away. Ditto making the minimum payments on your debt and having enough money for food.

Saving for a vacation may fall under Important and Not Urgent. These are the things you really want to do or accomplish. But they aren’t make-it-or-break-it costs you must deal with in the here and now. Satisfying the things in this quadrant means managing the next two really carefully.

Your satellite bill, cell phone bill, and gym membership all fall under the category Not Important and Urgent. You’ve made the commitment to spend the money, so you must keep your commitment or risk losing your good credit name. But these are prime areas where cutting back could leave you more room for your top left quadrant.

Buying new shoes, unless they are your only pair or specific in purpose, would fall into the Not Important and Not Urgent category. So would magazine subscriptions, another drill or buying something at your sister-in-law’s home shopping party.

You might find it a healthy exercise to analyze how you’re currently using your money based on these four quadrants. Are you really achieving what you want? Or would you rather being doing something else with your money?

According to a study done quite some time ago and published in the Journal of Personality and Social Psychology, we are very good at deceiving ourselves.

In 1984, George Quattrone and Amos Tversky recruited 38 students who were told they were going to take part in a study about the “psychological and medical aspects of athletics”. Participants were first asked to plunge their arms into cold water for as long as they could. Most could only manage 30 or 40 seconds. Then they were put on an exercise bike and given a short lecture about life expectancy and how it related to the type of heart you have.

Half the participants were told that people with hearts associated with better health, longer life expectancy and low risk of heart disease have increased tolerance to cold water after exercise. The other half was told that those things decreased tolerance to cold water.

Participants were asked to put their arms into the cold water for as long as they could. People who thought holding their arms underwater for longer showed they had a healthy heart did just that, while those who believed the reverse were unable to last as long as they previously had.

So were these people lying to themselves or the experimenters?

When participants were asked whether they had intentionally changed the amount of time they held their arms underwater 29 denied it and 9 confessed, but not directly. Many of the 9 confessors claimed the water had changed temperature – their way of justifying their behaviour without directly facing their self-deception.

When participants were asked whether they believed they had a healthy heart, of the 29 deniers, 60% believed they had the healthier heart. But only 20% of confessors thought they had the healthier heart, which suggests that the deniers were more likely to be truly deceiving themselves and not just trying to cover up their deception.

It seems people are completely capable of thinking and acting as if an incorrect belief is completely true disregard any incoming information to the contrary. Not only will people lie to themselves if given a reason, they will look for evidence that confirms their self-deception, and completely buy the lies they are telling themselves.

Think of the implications for people who plunge themselves into debt and then lie to themselves about their motivation, their circumstances or their willingness to get themselves out. And what about all the people who can justify seven ways from sideways spending more money than they make: using overdraft, not paying their credit card balances in full, using their lines of credit as an emergency fund, consolidating their debt under their roofs.

The first step is to admit that you’re deceiving yourself. Only then can you become aware of the myriad ways in which you delude yourself and endanger your future.

Time to ‘fess up: What have you caught yourself lying to yourself about, and how long did it take you to wake up and smell the coffee?

Whenever you use someone else’s money to invest, you are “leveraging” your investments. And whenever you leverage, you increase your potential for return. You also increase your exposure to risk. I don’t care who tells you that leveraged investing is a good idea, if you don’t understand the upsides and downsides, you’re a sucker.

Buying on margin is one of the easiest ways to lose your shirt. When you buy on margin, you borrow cash from the investment broker to buy more than you could afford on your own.  Your investment brokerage house gives you a limit and you can borrow as much or as little as you need. So here is how you might use your margin account, and the implications.

Let’s say you had an account at ABC Brokerage, and you had an existing investment portfolio of $100,000. (Hey, round numbers make this easier to understand.) They offer you the option of opening a margin account. You’ll have to invest 50% of your own money for anything you decide to buy but they’ll lend you the other 50%, no questions asked.

You get a tip that The Best Supermarket Ever is bringing out an earnings report to beat the band. The stock price is sure to jump 5% from $30 to $31.50. So if you used your $12,000 you could buy 400 shares and make a profit of $600. However, if you used your leverage account, you could buy 800 shares and make a profit of $1,200. Hey, you’d double your money and your cost would be just the interest on the $12,000 until you sold… pretty cool.

Problem is, the shares don’t go up in value, they go into the tank. Seems that there’s a major lawsuit that’s just been filed against The Best Supermarket Ever and the stock price drops by 20%. Now you’re out $6 a share on 800 shares, which means you’ve lost, at least on paper, $4,800. Ouch! Sure you can hold on to the shares and hope they go back up, or you can hold on to the shares and ride them all the way down, but that’s not really the point. The point is that by leveraging your investment, you increase your potential upside, but you also increased your exposure to risk. Now you not only owe interest on the $12,000 you’ve borrowed to leverage, but you’ll have to cover your margin because the value of your investment has fallen from $24,000 to $19,200. If that forces you to sell, you’ll “crystallize” or “make real” your loss.

Tip: When you buy on margin, the brokerage house holds the investments you purchased as collateral for the loan. If the value of your investment falls below a pre-determined level, you will be asked to make an additional deposit to the account or sell all or part of the investment to make up the shortfall.  This is a margin call.

Leveraging is usually sold on the fact that the interest on investment loans is tax deductible. That’s one reason why things like the Smith Maneuver and home equity lines of credit for investment purposes became such hot topics of conversation. They were presented as a way to grow your money faster because investing a larger amount means compounding has more to work. They were also presented as a way to make your mortgage interest tax deductable, which always has been a carrot for donkeys who will do anything to beat the tax man.

The big question you have to ask yourself is this: Am I prepared to lose more than I have to invest?

If you use your own cash to purchase an investment, any gain or loss will equal the gain or loss of the investment itself.  However, if you use borrowed money to purchase an investment, the gain or loss you experience will be greater.

One of the most deceptive techniques used to demonstrate the benefits of leveraged investing is to use the historical performance of the market as a whole to compare a non-leveraged and a leveraged investment portfolio.  Brochures show graphically how much better you would have done if you’d been “smart” enough to leverage, as opposed to using the tried-and-true “investing what you can afford to lose.” Problem is no one ever “buys the market”… even indexed investing isn’t the whole market…  so the example is a red herring.

Hey, I have nothing against leveraged investing for people who understand the implications and how the markets work.  But often this strategy is sold to people who don’t have Clue One about the risks they are taking. (If you’re writing me to ask if it’s a good idea, you’re exactly the person I’m talking to.) And even people who know what’s what need to be careful that they don’t over-extend themselves. The last thing you want is to be forced to cash out early because of an unforeseen change in your ability to make interest payments or cover your losses.  Make sure you borrow less than you can afford so that you can comfortably absorb whatever bumps the investment world may throw your way.

Here are some more. Do you see yourself in here?

They’re paying off credit card bills. Carrying debt means mortgaging your future income. My number one rule – Don’t spend more money than you make – means tailoring your budget to the cash you have on hand. If you can’t make your budget balance, find a way to make more money.

There’s a designer logo on your handbags, shoes and clothing. If you’re paying a premium to flaunt a famous name and you’re not saving for the future you’re a fool. If you’re defining yourself by the brands that some starlette who makes 100 times what you make wears then you’re a pathetic fool. Dontcha know that many designer items are made in the same factories as less expensive goods? Expensive brands are no substitute for a solid financial future.

You wouldn’t dream of drinking tap water. I live in a part of the country with some of the sweetest water and every week as I exit the supermarket I see loads of people carting out huge packages of bottled water. My neighbour has her water delivered in large bottles. I scratch my head. And don’t get me started on sparkling water in restaurants… we were once presented with a “Water Menu”…OMG! $62 for a bottle of water? Really?

Your refrigerator is empty. You’ve seen me peek into people’s refrigerators. Inevitably when there’s no food in the house, the spending analysis shows gobs of money spent in restaurants and for take-out. If you want to have some money to save make a menu for the week, shop with a grocery list, stock your fridge with fresh food,  and use your freezer to save time on busy night or for when you’re just too tired to cook.

There’s a fancy hood ornament on your car. I’ve always considered a car a means of transportation, not a reflection of my identity or success. I scratch my head at young people starting out who think they should be driving a $50,000 or $60,0000 luxury vehicle. Even if you buy one second hand, they are more expensive to maintain and insure. I guess the big question is this: Is it more important to look rich or be rich?

You rent a public storage unit. I can’t believe the number of people who not only spend money they haven’t made yet, but then rent a separate home to keep all that STUFF.  Sell the stuff, pay down the debt and eliminate the cost of the rental from your budget. Wow, that’s killing three birds with one stone.

You hit the malls because you’re bored. The easiest way to not spend – and therefore to have money to save — is to stay out of stores. If you’re shopping for entertainment find something else to do. Never go into a store without a list. And pay cash, or have the cash ready to pay off the credit card if you’re disciplined enough to use them as a tool and not as a financial bridge.

And my favorite: You think you’re too young, old, rich, poor, or busy to save. Everyone needs to set something aside for emergencies and for when they’re old and gray. It’s never too late to get started. And it’s never too soon. To make it easy, make it automatic. Have a specified amount from each pay cheque transferred to your high interest savings account or retirement savings plan every month.

Hi Gail! I am currently reading a dooms-day type book by an American author that deals with the potential for hyper-inflation in the near future given the ever-mounting US deficit and I would love to see a blog about your thoughts on short and long term inflation in Canada and what this means for retirement savings and emergency funds. I currently have about 75000 in RRSPs and save 600 per month, I am 33 and my financial planner says that if I continue at this rate, when I retire at 5577, my savings will only amount to about $350000 in real terms if we assume an inflation rate of 3%!!!! I don’t think this is something that people really think about, yet is so important in planning what to save. I am also extremely lucky to have an indexed public service pension plan…but if inflation rates of 10%, 20% or more are possible (as suggested by the dooms-dayer)…even that might not be enough! Anyhow, great blog and amazing website! Keep up your good work!

So here’s a chick who has an indexed pension plan AND is saving $600 a month AND is only 33, and her advisor has used the spectre of inflation to scare the crap out of her. It won’t be enough! Really?

At a return of just 5% on average, she’ll have over $900,000 plus a big fat pension plan that is indexed, and it still won’t be enough?

I am sick to death of the industry trying to scare people into saving more money by telling us that no matter what we do we must do more. More, more, more! Or we must take bigger risks with our money by investing in things we aren’t comfortable with, don’t understand, or would be fools to ignore.

Is it any wonder that people don’t save? With failure as the outcome, why would anyone bother? Is this why Canada’s debt continues to climb as our savings rate stagnates? Are we all so sure that we can never have enough that we’re content to live for today and damn the future?

Kelly, don’t let The Spurts scare you with predictions of a supersized inflation rate. There’s no doubt in my mind that we’re going to see a jump in inflation. But if you look at the historic records, taking the super-inflation of the 80’s into account, we still come in with an average of about 3%. And a short period of inflation isn’t anything to sweat. It’s life. Part of the economic cycle. Just know that when it comes it’ll bring higher interest rates (on your debt and on your savings) so if you’re very conservative you can lock up those higher rates for the very long term and benefit hugely when rates once again fall. Go read my blog on Interest Rates & Inflation if you want more info on this.

You also belong to a very sweet pension plan and can likely expect your payout to be 60 – 70% of your working income. Your savings, therefore, will only need to fill that gap.

You’re doing fine. Better than fine, actually. If I were you I’d make sure I was maximizing my TFSA and then maximizing my RRSP (in that order) so you’re growing as much of that money in a tax friendly was as possible. With your great pension plan, the last thing you want is to have is a whopping tax bill come retirement.

And for heaven’s sake, I hope you’re having some fun now too. Sometimes we get so scare about what the future holds that we completely forget that we are Living in The Present. Yes, you have to do the right thing so you’re not destitute later when you’re not working. But if you’re saving everything extra and having no fun right now, you’re not having any kind of life. You must find the balance between today and tomorrow.

People, we all have to save. Some of us, like Kelly, have the wherewithal to save a lot. Some of us, not as much. It doesn’t matter how much you can afford to save, start. Over time, make it one of your goals to grow your savings.

Never mind all the blah-blah-blah about it not being enough. It’s more than you’ll have if you don’t save. And never mind the yada-yada about earning higher returns. Choose investments with which you are comfortable and have some experience/knowledge.

Saving is #2 on Gail’s Golden Rules. To have some money later, we have to save now. And all the dire predictions for the economy or glowing reviews of the market don’t mean squat in light of the fact that as a country we aren’t saving diddly-squat. Perhaps if The Spurts would just shut up we could hear our little voices whispering to our common sense and we would be okay.

You can’t go wrong doing the right thing. And saving is the right thing to do. Do it!

It’s no secret that I hate secrets. They plague our relationships, keep us in the dark about things we should know, and gobble up energy we could be using to create a great life. My family has been riddled with secrets and, perhaps in response, I’ve worn my life on my sleeve. People are sometimes surprised at what I will share.

I’ve worked hard to try and blow the idea of secrets out of the water. I’ve made couples tell each other their secrets while juggling balls as a distractions to remove the barriers, and on mega-phones.  And if there is one thing I am  very, very proud of it is the fact that Til Debt Do Us Part has got people talking about their financial secrets.

The most damaging secrets may not be the ones we keep from others. It may be the ones we are hiding from ourselves. And to help shine a light into the dark recesses of our lives comes a man with a vision and a website that will make you laugh and make you cry.

Have you heard about the PostSecret phenomenon? In 2005, Frank Warren came up with an idea for people to share their secrets by writing them on post cards and mailing them to him. The secrets poured in. Peopled talked about who they have secretly loved, sleeping with their best-friend’s wife, and cutting themselves.  People have come clean on peeing in the shower and on settling for what they could have – as opposed to what they really wanted — and how it has worked out.

What started as a small blog has grown to the largest advertisement-free blog in the world with over 250,000 followers. The only conditions posters have to meet are these: the secrets must be true and must actually be secret. Warren’s point is to simply get the secrets out into the open, and he’s not about to comment on them being amusing, superficial or profoundly disturbing. He just wants them out there. In his words, “free your secrets and become who you are.”

Alex bought me a PostSecret book for Christmas and I fell in love. Since then we have both been looking in to see what’s weighing on people’s minds and on their souls. You can see new secrets revealed every week at http://postsecret.blogspot.com/. Here’s the example of a secret that got me writing this post:

PostSecret is five years old this month. And when it tried to produce a webcast earlier in February, so many people tried to watch the servers crashed. You can watch Frank Warren talk about PostSecret on myspace: http://www.myspace.com/postsecret.

I’m with Frank. I think we should share our secrets with the world. Holding them close and in the dark hurts US. Letting go, even anonymously with a PostSecret card, will allow you to move past the thing that has been anchoring you in a place you may not want to be.

All of us have a secret that would break someone’s heart. I encourage you to free your secrets and become who you are.

The sooner you know you’re running short of cash the better. Having some form of credit available to tide you over means you’ll have the money to stay on track until you can get the money flowing in again. Rather than waiting for the caca to hit the fan, go see your banker when things are good to make provisions for when the road gets a little bumpy.

In the best of worlds, you will have built up enough of a business emergency fund to not have to tap your credit. But if circumstances conspire and your timing is off even slightly, having some credit available can be what it takes to keep the business afloat.

If a line of credit is not an option because you have no credit history or because bankers have gotten tight with their money, you may have to turn to your suppliers. Try to negotiate extended terms, especially true if you’ve been a good customer in the past and kept them informed about your financial situation.

Choose the bills you’ll pay carefully. Staff should be your first priority followed by your most crucial (and unforgiving) suppliers. Ask the rest if you can delay a payment or make a partial payment.

The single best way to monitor your cash flow is with a Cash Flow Projection, which shows how much cash you expect to move in and out of your business over a specific period of time. Some people recommend a year-long projection, which is great if you can swing it. But you can make a three- or six-month rolling projection (meaning it keeps rolling forward so you always have three or six months’ worth of numbers to look at) work for you too.

Bankers love cash flow projections since the offer “evidence” that you’re on top of your stuff and that your business is a good credit risk. Don’t confuse a projection with a Cash Flow Statement. The statement shows how cash actually came and went. The projection is how you anticipate the cash will flow over the period at which you’re looking.

Cash Flow Projections have three parts:

Cash revenues

Cash disbursements

Reconciliation

The Cash Revenues is where you enter your estimated sales figures for each month. These must be sales that are collectible during that month, so you can’t put in guestimates and pray that it works. You must focus on sales that are collectible in cash during the specific month with which you’re dealing.

Cash Disbursements is a list of the cash expenditures you actually expect to pay for each month.

The Reconciliation begins with your opening balance, which is the carryover from the previous month’s operations. Add the current month’s revenues. Subtract the current month’s disbursements. The adjusted cash flow balance is carried over to the next month.

Microsoft office has a template you can use or follow as a guide to create your own Cash Flow Projection.

http://office.microsoft.com/en-ca/templates/TC011132361033.aspx?CategoryID=CT101441951033

Be careful about being too optimistic when you’re doing your cash flow projection. This isn’t supposed to be an exercise that makes you feel good. It’s supposed to be an exercise that helps you see what’s real and figure out how you’ll cope with what you see.

5. Manage your inventory tightly. Every item you have sitting on your shelves represents money that’s tied up. Until you sell that sucker, you can’t get your money out. This applies to parts, tools, and envelopes. Stocking up may feel good, but it’s a cash flow killer. And while you may get a better deal buying in bulk, you must weigh your savings off against the money you will have tied up in inventory. If it’s tied up for more than 90 days, that’s too long.

Keeping a lean inventory means accurately forecasting what you expect to sell weekly and monthly. If you carry multiple items, make sure you know the 20/80 rule – 80% of your sales will come from 20% of your inventory – and ensure you inventory-up to match what you’re selling the most.  Then you can work on minimizing the inventory on items that are selling poorly or infrequently.

Don’t forget to shop around on suppliers. While you may grow comfortable buying from one supplier, not knowing how his price compares to the marketplace is a business sin. Even if you’re paying slightly more to a supplier because you’ve weighed the additional cost against the speed at which he can deliver and speed has won, as long as you’ve made a conscious decision then you can be confident in it. If you’re paying more because you’re ignorant about costs, you’re a dope.

6. Think about Continuity Sales. This is a snappy term for a simple concept that’s best illustrated by an example. Think about magazine subscriptions. You can buy a 12-month, 24-month or 36-month subscription to your favorite magazine, and the longer you take the deal, the better the price you get. The magazine publisher gets more money up front, and your cost per issue goes down. That’s continuity sales, and it can apply to anything. Let’s say, for example, you’re running a landscaping business. You get people to pay for an entire season up front for a reduction in the per visit cost. You’ll trade a discount for getting the business, ensuring a steady cash flow for months to come. (You can chalk that discount up to “marketing” costs.)

While you can structure the payment for continuity sales any way you want, getting the money up front often works best because it guarantees the customer’s commitment.

7. Diversify. Most businesses have times of the year when they do better, and times when things slow down. That seasonality plays hell with cash flow if it’s not managed since you have fluctuating levels of income and expenditure. One of the best ways to overcome seasonal cash flow crises is to diversify the business. Your objective should be to have something you can focus on to bring in money when your primary income producing options have gone quiet. Landscapers can do snow removal. Tea stores can run special promotions focused on auxiliary products. House cleaning services can add “shopping” services for shut-ins to round out their slow periods. The key is to find something that complements your current offering so customers find it easy to continue to use your products and services.

Of course, if you’re going to have a dry spell that you can reasonably predict, you’ll have to store up a stash of cash when times are good to get you through or you’ll end up with a cash flow shortfall. And that’s tomorrow’s final blog on the subject.

If you can, use electronic funds transfer to make payments on the third-to-last day a bill is due – to allow for processing time and avoid late fees — so you remain current with suppliers while retaining use of your funds as long as possible.

If your business involves travel, use a business credit card for lodging. Since most credit cards come with a grace period, it’ll mean you don’t have to make a payment until 15-21 days after receiving the statement.

If you do run into a cash flow problem, communicate with your suppliers so they know your financial situation. If you need to delay a payment, you’ll need their trust and understanding

3. Reconcile every month. Many people neglect to reconcile their monthly business bank statements because they assume that banks never make mistakes. Well they do, and if you don’t reconcile monthly, you won’t catch their mistakes.

To reconcile:

1.  Take a piece of paper and divide it into two columns. Title the left side MY RECORDS. Title the right side BANK.

2. Under MY RECORDS, write the amount you have in your account according to your records as of the date of your last statement.

3. Under BANK, write the final balance that your bank statement shows.

4. Check off all of the items in your records against all of the items on your bank statement that match.

5. Under MY RECORDS list any items from your bank statement that you don’t have in your records. Bank fees and interest are the two most common ones, but there may also be overdraft interest and fees,. Or you may have forgotten to deduct that cheque you wrote for petty cash.

6.  Under BANK, list anything in your records that doesn’t appear on your statement. It is possible that a cheque you wrote has not yet cleared your account. There might be several cheques that have not cleared. Or there might be deposits that you’ve just put into the account that don’t yet show up on the statement.

7. Total the two columns. Remember: If it is a credit (i.e., a deposit), you add it to your balance. If it is a debit (i.e., a cheque you wrote or a debit or credit card transaction), you subtract it from your balance.

8.  If the two amounts are the same, you’ve reconciled, your account is balanced and your job is done. If there is a difference, you know something is wrong. You’ll have to dig a little deeper. You may have miscalculated (if the difference is divisible by 9, you may have reversed your numbers). Or there may be a mistake on the statement or in your records. Verify everything until you balance.

9.  Make any corrections/additions/deletions to your records to bring them up to date.

One of the make-it-or-break-it skills in running a small business is the ability to manage cash flow. The way money flows in and out of your business will not only affect how much you can take home to the family coffers, it’ll affect your need to borrow and your supplier relationships since you have to have money to pay bills.

It’s been estimated that over 60% of business don’t survive five years and that the main reason for failure is bad cash management. Loads of small business managers and self-employed people neglect their cash flow until it is too late to recover.

In it’s simplest form, cash flow management means getting the money customers owe quickly while paying your own bills at the last possible moment without incurring interest or fees. But it involves many components from bank accounts, to accounts payable and receivable, to inventory management. In essence, effective cash flow management means squeezing every penny out of your daily business.

1. Get Your Money. If you got paid for sales the instant you made them, you would never have a receivable. In the real world you likely have to cut an invoice and then wait to be paid. The longer it takes for you to collect the money you are owed, the more strapped your business cash flow will be.

It may seem obvious but the first step in getting the money in the door quickly is letting the customer know what he needs to pay. That means sending out your invoice as soon as you can – not a week or two later when it’s ‘convenient’ to batch process the invoices. Every invoice should indicate when the payment is due, along with the penalty for late payment… and, yes, there should be a penalty.

Track your accounts receivable to highlight — and avoid — slow-paying customers. For clients who are chronically late payers, instituting a COD (cash on delivery) policy is a better alternative to refusing to do business.

Once you receive payment, deposit the cheques immediately. Every day you hold a cheque for deposit, means one day’s lost float. And if you wait until Monday to deposit the cheques you got in Friday, well, there’s three day’s worth of float gone.

One way to get money in the door faster is to ask customers to make deposit payments at the time orders are taken. Another is to incent clients to pay quickly by offering a discount. Careful now, don’t make the discount too big. A 1% or 1.5% discount is more than adequate.  And watch the date. Don’t let clients claim the discount if they do not pay within the grace period offered.

If you are penalizing for slow payment make sure the “late fee” is clearly stated; a 2% per month late fee is pretty standard.

Just because you’re charging a penalty doesn’t negate the need for you to call a client who is late. That call could move your invoice to the top of the pile, especially if it is your third or fourth call and the customer is getting tired of fending you off.  You should have a policy for when you will send a “collection letter” and when you will turn an account over to a collection agency. Do I have to say that you shouldn’t keep shipping/doing more work if the customer isn’t paying? If your COD policy isn’t working because when you or your delivery shows up there’s no cheque, put a hold on everything until the account is paid in full.

Keep in mind that customers may have set dates in the month when they pay invoices. Find out what they are and build those dates into your collection procedures. This goes for people for whom you may be working too. If you don’t you could miss a customer’s cheque run and that might mean waiting another month and that directly affects your cash flow.

I know part one of this statement is true. People seem determined to spend money they haven’t earned. That’s one of the reasons that our economy is in such a mess. The total national household debt in Canada reached an all-time high of $1.3 trillion in 2008. And according to the Certified General Accountants Association of Canada, 21% of Canadians say they can’t manage their debt. And despite the recent financial crisis, Canadians are continuing to spend more money that they make, ramping up our indebtedness and putting our futures at risk. Are we nuts?

Despite the downturn in the economy, outstanding balances on personal lines of credit grew to a new high of $181 billion in April of this year, up 20.4% from a year ago. And personal loans from banks were also up: 8.1% over last year for a total of $48.5 billion. Bank credit-card receivables, too, are up 8.9% to $51.5 billion. That’s a total of $281 BILLION in consumer debt!

Let’s move on to the next part of Will’s quote: “to buy things they don’t want.”   This sounds counter-intuitive, right? I mean who would be crazy enough to lay down good money for stuff they didn’t want?

Good question. Here’s one backatcha: If you really want the car you just bought, then why do you want another one in a year or two? And if you really want those black shoes you had to have, why do you now want another pair of black shoes? Ditto that house you bought just a few years ago that’s just not cutting it anymore because it’s a little worn and just not big enough. It is as if as soon as we acquire something we want, we no longer want it. We want something else.

And our love-affair with consumption starts early. It has been estimated that by the age of six months, the average Canadian consumes the same amount of resources as a person in the developing world does in their entire lives. It doesn’t get any better as we get older. While North America has 8% of the world’s population, we manage to consume 33% of the world’s resources, and we produce 50% of the world’s non-organic garbage.

And then there’s part three of Will’s statement: “to impress people they don’t like.” This is the part I love the most.

If you’re trying to impress anyone you have to stop and ask yourself why. After all, if your children love you and you love them, that’s enough…no impressing necessary. And if you respect your boss and he respects you, that’s enough… no impressing necessary. And if you’ve got your best-friend’s back and she’s got yours, that’s enough… no impressing necessary. So if you’re trying to impress someone it may be because there’s no other basis for your relationship, in which case this could be a person you don’t, in fact, like.

Everything about our culture is focused on impressing. Martha Stewart built an entire industry on her ability to impress us with her remarkable talents. And all the Martha wannabes dutifully follow her lead in impressing others.

You know what impresses me? I’m impressed when I meet someone whose beauty shines from the inside out and who doesn’t much care what anybody else thinks because she’s happy dancing to her own music. I’m impressed when I watch a body give time and effort to help make another body happier. And I’m mightily impressed when I see people reaching out to each other in love and joy.

The next time you rush to clean up the house before someone arrives, think about whether or not you “have to put on make-up” or “a clean shirt”, or fix a meal to blow your SIL’s mind, ask yourself why it’s so darned important to impress.

If you’re spending money you have to buy things you really want, and don’t give a rat’s butt who is or isn’t impressed, I bet you’re a pretty happy camper.  If you’re working overtime to impress,  how happy are you with all that effort?