Australian money in jar, over white background.  One hundred dollar bills.

6 Things you need to know about managing your finances through the holiday season and beyond!

It’s no secret that money can affect your health and overall wellness. Yet as humans designed to live in ancient times, managing money properly DOES seem to be a secret – one that eludes most of us, until we learn the right ways to do it. Sometimes that’s the hard way, but it certainly doesn’t have to be.

Throughout my career, many people whom I’ve coached have told me in no uncertain terms that their financial lives are a constant struggle.

This doesn’t surprise me, and I’ve certainly experienced some of my own challenges in this area.

Thankfully, I’ve been able to overcome these hurdles, by learning to understand my own behavior as it relates to money, and through working with an excellent professional financial advisor. So in honor of Financial Literacy Month, this post seems like a great place to tackle the subject and tell you a bit about the path I’ve taken.

The first thing you need to understand is that the way we see and interact with money is largely affected by factors like:

In other words, for most of us, money is an emotionally charged issue – it may represent love, power, control … and our emotional attachments to it strongly influence how we deal with it (see National Center for Women and Retirement Research (NCWRR).

As you may know, I have studied Personality Profiles extensively and incorporate it in all the coaching that I do. So I that is what I will start with, and then we’ll move into the more tactical aspects of managing (including detailed advice from my own financial advisor who has been a tremendous help to me in this area).

Based on the work I do, we identify four personality profiles. You can identify yours now by clicking here. So how do these different personality profiles handle money differently?

Those who have Action as their primary way never have enough financial resources to do all they want to do. They are focused on getting what they want when they want it. They are apt to gamble and take financial risks. They act on impulse when buying and investing. They are optimistic that everything will work out. They could lose a large sum of money and come up with new ideas on how to get it all back. They are often big spenders and are all too happy to flaunt it.

Those who have Organized as their primary way will be most cautious and conservative and will want to save money, not spend foolishly. All investments will be safe investments. They will want a lot of validation and information before investing in any way. Security is always upper most in their mind. These people will be the most stressed when it comes to making financial decisions. They do not want to make a mistake and if they do they will be very harsh on themselves.

Those who have Relationship as their primary way are often generous in helping others in need and will deny themselves if they feel someone else could use the money more. They often lead charities and other such events to raise funds for worthwhile causes. In terms of their personal finances, their “secondary” way will most often determine their financial behavior. If they are organized in their second way, they will behave more like organized individuals and be very conservative with their money. If they are action in their second way, they will behave more like action types, and be more apt to throw caution to the wind. If they are logical in their second way they will tend to make more rational decisions concerning money (see below).

Those who have Logical as their primary way are usually good investors and study the markets and their various investment options very thoroughly. They often seek careers in finance and financial planning. When making personal purchases, logical types will research very thoroughly to be certain the decision they are making is a wise one. They will check Consumer Reports magazine and other objective, third party sources for information; but regardless of the channels they choose, you can be sure that logical types will do all of their “homework” before making any type of financial decision at all.

Could you identify which most applies to you? Keep this in mind now as we delve into the topic deeper and get some expert advice.

I started working with my financial advisor, Sandra Stewart about 3 years ago. It is one of the best decisions I have EVER made and it has made all the difference in my life. Sandra has been helping educate and advise individuals on their finances for over a decade. What I love most about her is her heart-centered approach and her commitment to truly understanding her clients’ experience with money, their needs, and goals – and her ability to design an easy to follow path, to get there. In my recent interview with her, (link) I asked her to share what she felt are some of the critical things we need to do, know and ask when it comes to money management success.

This is what she had to share:

  1. Get educated and open your mind to learning what you need to know about your finances. Start with where you are. Document a snapshot of your income, expenses, assets, liabilities, challenges with money, money behaviors, who and what influences you around money and don’t forget to list the things you do well. Regardless of your current financial position you should be working with a financial advisor. Make sure they willing and able to educate you about how to manage money, not just sell you insurance and/or investments.”
  1. Take control of your finances. Never leave it up to someone else to manage this for you, without you understanding the implications to your life in both the short and long term.”
  1. “As with everything in life, one size does not fit all. What will work for one person may not be right for you.” Here is a perfect example from Sandra to illustrate this point:

“The financial system is generally not designed for our wellbeing. It may come as a surprise to some, that banks; mortgage lenders, creditors, and even the government have designed their business around serving them first. They are not generally dishonest about how their products work, but they may not be completely upfront in explaining the impact to you, in the short and long term. That leaves the onus on us to dig deeper and understand how the various financial services and products serve us.”

“Look at the RRSP system in Canada, for example. It is promoted on the premise that you save taxes. But when one takes a closer look, the truth is that it may simply defer taxes. You see it is a tax deferral (aka – postponement) system. The premise is that you will be in a lower tax bracket in retirement than you are during your working years. The question is – will you really be? Or will you simply be in a lower tax bracket because you didn’t prepare for your retirement? That is a scary place to plan on being!”

“Also, did you know that when you retire, you won’t only be taxed on your contribution, but you will be taxed on all the growth – potentially decades worth of growth! Doesn’t that translate to actually paying more tax than you originally saved in the first place?”

But what if you’re like me, and you simply don’t know what you don’t know?

If that’s the case, Sandra suggests asking the following invaluable questions:

  1. “What tax rate will I be in during my retirement years? The real answer is… we don’t know because we are not in control of the rate or the tax thresholds – the government is. So do you think taxes are going to go up or down? And do you know how your RRSP will be taxed when you die?”
  2. “Do you know what the rules are when it comes to producing an income from your RRSP savings and how this may impact other sources of income?”

Sandra further states:

“I don’t want to imply that the RRSP system is bad or not right for anyone. I am simply trying to express that it is important to breakdown the myths and understand exactly how it works and whether it is the right choice for you, at this time in your life. The RRSP system has some merits, under the right circumstance and for the right time in your life but it is not a blanket good solution for everyone.”

For immediate and practical application for your cash flow, here is a healthy allocation model that Sandra recommends:

o    10% to long term savings/investments

o    10% to short/med term savings/investments

o    5% to education – yours and your kids – education is empowering and lifelong

o    5% to gifting – gifts for friends/family –BD, Holidays etc.

o    5-10% to giving back to your community, a non-profit etc.

o    10% to the fun stuff in life

o    50-55% to necessities

Start where you are and build your knowledge, your plan and resources, to incrementally move towards this general model and balance your current lifestyle with your future desired lifestyle.

And last but not least, here are 2 tips to help you get through the holiday season without overspending and starting 2015 in financial distress:

  1. Make a list of all the holiday expenses you anticipate – who you plan to buy gifts for (list everyone), as well as extra supplies for entertaining and activities. Most holiday spending is done rather mindlessly. Be mindful of your spending intentions – up front.”
  2. Create a cash flow plan to support your intended gifting and   activities. Then check it for reasonableness. Just for fun – determine what percentage of your annual net income does this represent? How does it compare to your savings rate this past year? Is this reasonable to you?”

Create a cash flow plan to support your intended gifting and   activities. Then check it for reasonableness. Just for fun – determine what percentage of your annual net income does this represent? How does it compare to your savings rate this past year? Is this reasonable to you?

If YES, do all your shopping with this list in hand and adhere to or reduce the cost wherever possible. Track your spending as you go along. Then build a savings plan for next year’s holiday expenses.

If NO, this level of spending is completely unreasonable – and you must go back to step one.

Look at each item on your list and ask yourself why you feel compelled to do, spend, or be involved with everything listed.

What would you remove/change? Could you consider reducing the numbers of people to buy for, the amount you spend on each person, or changing the structure of the events (for example, if you are preparing all the food, could it be pot-luck?)

Really challenge yourself to understand why you are making the decisions you’re making, even (and especially) if you’ve always been doing it this way. Ask yourself how much stress this creates and how can you reduce that stress. For instance, you might ask, what is the holiday season really all about for your family – what do you want it to be about? Then start talking to those closest to you about how to reduce the holiday expense and stress.”

I hope this gives you some insights and tangible tools so that you better understand your relationship with money, manage it better and create a sense of peace and prosperity for yourself – that is what I wish for you, that is what I wish for everyone.

Please also note that I absolutely recommend that you seek the guidance of a financial advisor, who can guide you and provide specific advice that meets your needs/desires and are aligned to the regulations of your geographic area.

Until next week – embrace your inner truth, live your purpose and make your contribution in the world.

With gratitude and appreciation,
Lauren

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