A Few Tips During Times of Uncerntainty |

3 Feb 2016

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A Few Tips During Times of Uncerntainty

Happy New Year to you all … hopefully the holidays gave you the necessary time to enjoy friends, family and the opportunity to reflect on another year in the books. Throughout the holidays I spent a lot of time thinking about where the economy is headed in Alberta. Of course no one knows the answer to that question, but what we can do is prepare ourselves personally for the road ahead and below are some thoughts I wanted to share. (If you’re not interested in my preaching, best to just hit delete at this point.)

Given my profession, I cross paths with almost every situation that people undertake to manage their personal finances. Given what ‘s going on economically in this province, I thought it might be helpful to offer some advice (unsolicited albeit) for weathering a very difficult Alberta economy. Some of you on this email are clients AND friends … and some of you are just friends. Irrespective of our personal/professional relationship, I’m here to help/ advise if you ever need an opinion on your financial situation (and not just your mortgage).

Professional/Personal tips

There will be more layoffs to come … to insulate from becoming one of those people, perhaps consider proactively approaching your boss and asking what the two or three things you can do over the next 6-12 months to add value to your division/company. I guarantee you every manager has a scorecard right now where they are ranking their employees from best to worst in case further layoffs occur. If you proactively approach your boss for career enhancement opportunities, it will provide further insulation against losing your job.
Take care of yourself … as a wise man once told me, you can only stay in the game if you’re healthy. Don’t lose sight of your diet, sleep and fitness.
If you need help (personally, professionally, financially, etc.), I bet you’ve got friends and family more than willing to help out. Don’t be afraid to ask for it and most importantly don’t let it alter your ability to be a committed partner or parent.

Personal debt levels

Once again there was an article in the Globe and Mail last month on the personal debt levels in Alberta and particularly for the under-45 cohort: http://www.theglobeandmail.com/report-on-business/economy/high-debt-loads-hurt-albertans-amid-increasing-joblessness/article27988988/ – http://www.theglobeandmail.com/report-on-business/economy/high-debt-loads-hurt-albertans-amid-increasing-jobless
- Albertans carry an average of $27,599 in non-mortgage debt (mostly cars, lines of credit and credit cards).
  - If you have non-mortgage debt that is particularly high (and especially on credit cards), you should consolidate this debt onto a line of credit. Credit card interest rates run in the teens and higher (HBC credit card interest = 29%), whereas a line of credit will be in the neighborhood of 3.2% – 9%
Alberta is the province with the highest number of households per capita with debt-to-income levels above 350%. This would primarily be the result of mortgages.
- Some metrics I would consider working towards if your mortgage is large: get your mortgage down to no more than 2.5x gross income (and closer to 2x is more ideal in my opinion)
- Don’ t purchase homes that exceed, at the very most, 5x your gross income … closer to 4x is more appropriate and even lower is better
Some of my favorite quotes on debt
- Use debt wisely because sooner or later, you work for it as opposed to debt working for you
- Gain control of your money or the lack of it will forever control you
- The only reason a great many American families don’t own an elephant is that they never have been offered an elephant for a dollar down and easy weekly payments. – Mad Magazine
- Credit excess is the favored way for people to mask unpleasant financial truths

Large Purchases

Be careful adding incremental large purchases in conditions like this. This particularly refers to cars. A handy metric I was once told is not to exceed 6%of your gross income on car costs (lease payments, financing, insurance). Again, the car seller isn’t entirely concerned about your finances, but rather completing a sale.

Saving/lnvesting

It’s worth building a rainy day fund in case of financial duress. A reasonable amount is in the neighborhood of 3-4 months of salary
Even though I work on the mortgage side of the equation, I would encourage anyone with a debt level that’s making them lose sleep that it’s better to pay down your personal debt levels in lieu of retirement savings
If you’re positioned to still save for retirement, it has been suggested to me that the best strategy that will best position you to retire is focusing on owning a diversified portfolio of dividend paying stocks (predominately high quality).

Have Goals

This is likely the most important item of all I’ve included in this email.
If a team attempts to win the Super Bowl, they have clearly defined goals they wish to achieve in order to get there. If you work in a proper work environment, you should have personal and division/corporate goals you’re chasing. Your personal finances should be no different. Have clearly defined goals and develop/share them with your partner, if you have one. Review them quarterly and become obsessed with reaching them. Without goals, you’re just flailing about. True financial freedom is low overhead and the people that achieve that end-game RELENTLESSLY focus on short and long-term goals.
Find people who are older and wiser than you to look up to. Ask them the two or three things they did at your age to get where they wanted to be for retirement.
“Retirement” can be a dream or a nightmare, but time is on our side to get there. Sometimes you need the carrot and other times you need the stick to reach your desired destination. This email is meant to be a bit of both

Perspective

Irrespective of the doom and gloom in the email above, we live in one of the finest city/country on the planet. There are MANY places globally where the quality of life we have is only a distant dream.
Even if situations get bad here, it could always be worse (Syria, Russia, Iran, Nepal, etc.).
Apparently only 1 in 16 people on the planet will ever have enough income to fly on a plane. I equate this to who can afford to take a vacation. We may think we need a vacation from our problems, but most of the world would die to have our “problems”.
If you know someone who is in need, reach out and help with your time, treasure or talents. “Those who choose not to empathize, enable real monsters. For without ever committing an act of outright evil ourselves, we collude with it through our own apathy. ” – JK Rowling

Thanks for listening if you made it all the way through this email. It’s not an attempt to preach, but given what I do for a living, I’m starting to see more cases of duress. The way to insulate against that outcome is to have a plan and perhaps this gives you the encouragement to further refine yours. Society will always place value on hard work, integrity, humility and a lifelong dedication to learning. Make it happen in 2016 !!!

Whatever it takes is all it takes…