Tommy: We all know what you’re supposed to do with your money, you’re supposed to save what you can, don’t spend more than you have, pay down your debt, but i t’s never of course easy. What are you do? What kind of tricks can you use to get your finances in top top shape, we have just the person for you, Lama Farran, a personal finance coach, financial health expert adm she’s fantastic and she’s right here in studio right now. Good morning.
Lama: Good morning Tommy.
Tommy: Lama, what are some of tips that you often give to people when they can’t get their personal finances in good shape? What would you tell them to do, how do you start?
Lama: Well, you have to start, you know I look at financial health as a journey. If you don’t know where you’re going how do you know that you got there in the first place? So let’s say you get in the car,you have a GPS you put an address in there, and the address is your destination. So the GPS is going to tell you how far away you are, and adjust depending on traffic, so it’s the same thing with financial health, you have to put goals for yourself. People just expect life to take them to the prosperous happy ever after place, without ever sitting down, defining it and what am I trying to achieve here.
Tommy: I recall, a number of years ago, many many years ago, when I was in debt and seriously in debt, I didn’t know what to do, where to go, how to start. And somebody suggested to me to take a plain notebook, this was pre internet, take a plain notebook and write down what your debt is. Okay this credit card $700, and the next page the next thing, the next thing. And to have one page for each of your debts, whether it’s personal, credit card etc. And then pay off something, start off with the high interest rate cards first. So, it you have $700 minus 50, is $650. And to keep on doing that. And have each page listed and as soon as one was paid off you crossed that out. Was that goal setting?
Lama: Well, kind of goal setting. This is what I say, it’s the part trat I call the facing your debts, is when you sit down and write all of them, write the interest rate, try to optimize them by moving things down to the lower interest rate and things like that. But when I’m talking about goals, like yeah one of the goals could be debt payment, but what a goal, like pay down debt I find is not a very specific goal. Goals have to be defined in a SMART way, and what I mean by SMART, I don’t mean intelligence, SMART is an acronym, S – M – A – R – T. Now what it stands for is specific, measurable, attainable, relevant and time bound.
Tommy: Okay, so let’s get this again. You’ve got specific, measurable, what’s the A
Lama: Attainable, Relevant and Time bound. So let’s say you have a certain goals, okay so specific, I am going to define it in specific terms, what do I want to accomplish? Why? Who’s involved? Where? How? The measurable, its how much, or how many, ut a measure on it, or how are you going to know that you got there? Attainable is something that can’t be realistically, it has to be realistic.
Tommy: Right, you can’t say I’m going to pay $80 000 if you don’t have it. So you have to say what it was, how much you want to pay over how long a period of time. And what do you mean by relevant.
Lama: Relevant has to be something true to yourself, your situation, your lifestyle everything. So really it’s true to who you are. And the time bound is the deadline. So you know when I hear somebody say my goal is to retire rich, I’m sorry but that’s not a goal. That’s just a wishy washy dream. A goal, like if you want to put it in SMART terms, you would say I want to accumulate 2 million dollars in assets, investments and properties by the time I retire at the age of 60 and be completely debt free, and be living in the Bahamas. You can’t get more specific than that. Versus I just want to retire rich. Now the other things with goals, you’re going to have some short term goals that you want to accomplish in the next year, you’re going to have some that are going to be a bit longer, lie medium term maybe 3 to 5 years, and then you’re going to have some that are longer, like 5 to 10 years for example. So in each of these categories, the short term goal could be, I want to save $1000 in my rainy day fund from now until December 2015. Right, so you know where you’re heading. Medium term is going to be I”m going to pay off $20 000 on my credit card. Long term I’m going to have that much money in my RRSP’s. And when you’re sitting down and going through your goals, you’re going to have multiple goals for each category. So the next question is, what are the priorities, okay because you can’t accomplish everything at the same time, so you have to be clear on this is hih pretty for me right now, this is high minus, this is medium and this is low. And then from there, the important thing okay fine you went through the goal setting exercise, you have them down don’t just put the piece of paper in a drawer and forget about it. You have to have it in your face every day, so what I tell people write it on a post it note and stick it in your wallet. Because, it’s going to be in your face every day that way. And the other important thing about goals is…
Tommy: Can you stick it on a credit card, would that help?
Lama: Actually talking about a credit card, I give this little thing which the audience can’t see unfortunately, it’s like a little sleeve that I tell my client to insert your credit card in it, and on the back the y can write the most important goal for them. So, at any time that they are pulling out the credit card, the i can see that goal in their face. And this is the important thing, is to really align the way you’re spending money wth those goals. If your goal is to pay off your credit card, and then you’re eating out every day then that’s really not aligning your goals with where your money is going.
Tommy: This is unbelievable. It’s a little paper sleeve, this is really, on one side it says “My most important goal now is”, and you write it over there. And inside you would put your credit card, and its sats, before pulling, there’s a stop sign on it, and it says before pulling out this credit card, do I absolutely need this now? Can I postpone my purchase? Can I truly afford it? Can i get it cheaper or for free elsewhere? Will it move me closer to my goal? Will it make me genuinely happier? It’s excellent, let’s say you’re going to Winners, you’re going down the aisle and you see a sweater, and this sweater fits you, get that. And It was $120 and now it’s reduced to $80 and reduced to $60 and reduced to $40. Okay this is wonderful, you take out the credit card. Do I need this? No. Can you postpone it? Absolutely, I’m only buying it because it’s on sale. Can I afford it? Yeah. Can I get it cheaper? Yeah. Will it move me closer to my goal to have this sweater in a colour that I don’t really even like all that much? Will it make me genuinely happier? The answer is no. So what I think would happen is you would put your card back, right back in and put the sweater right back. What a miracle little folder you have here.
Lama: Yeah, it’s a very good tool. And what I say about you know, you buying the sweater because it’s 60% off, well guess what you save 100% when you don’t buy it.
Tommy: She is the best. My guest is Lama Farran, the website, you’ve got to check it out, maxworth.ca. Last time you were here you told me about the minimalist, what’s it called?
Lama: It’s Becoming Minimalist
Tommy: Becoming Minimalist, we interviewed the guy running the blog. It’s excellent really is. These are very pratical, her advice, I really like it because i t’s really really, every day, very practical. Now, what about setting the right financial goals? What about, for people who don’t know how to set those goals, or what goals they should set in the first place.
Lama: Well you look at your finances, what do you want to achieve. Like really is it just becoming debt free, fine maybe that is going to be your first goal. But after that what kind of life do you want to have. The way to define your goals is to look at money as something as if it wasn’t an issue, what would you do in your life if money wasn’t an issue and try to work towards that. That should be your ultimate goal really.
Tommy: If you have any questions for Lama Farran, about your financial health give us a call, text your questions to 514-800. As people try to do this, figure out their finances Lama, what’s the major mistake they make?
Lama: They avoid it. They avoid looking at it really. I’ve been dealing with a lot of couples lately and I ask them how they are dealing with money, and they say they’re like guess what we just don’t talk about it because the minute we talk about it we start fighting. Even if someone who is single, they don’t look at it because its makes them anxious, so the way to deal with your anxiety to not avoid it but to actually look at it. And to dosomething about it because the bills are not going anywhere, the credit card is not going anywhere unless you do something about it, so open your eyes.
Tommy: Your questions, about your financial health for Lama Farran an excellent website, jot it down maxworth.ca. This texter wants some good, strong advice, keep her talking. Lama we will keep you talking. This one says what about consolidating all your debt with a low interest monthly payment loan.
Lama: Yeah that one I get a lot. The thing with consolidation, I yes, I used to do them at the bank when I was working at the bank, it’s a good idea you pay less interest, but you have to understand what got you into that situation to start with, and make sure you’re changing your behavior so in two years from you don’t find yourself needing another consolidation loan and this is where a lot of people get trapped. It feels easy when you get the consolidation loan, your credit cards are empty, you just have one low payment and a couple of years later you’re back to exactly where you were.
Tommy: Now people are responsible for themselves, but things have changed at the bank. I recall a number of years ago, actually decade ago,when you got a consolidation loan they would ask you to come in with the credit cards, and they cut them up. With Scissors in front of you. Now they don’t bother, keep all the cards and they will give you more credit.
Lama: Yes and no, they do cancel some cards, sometimes as a condition to your loan. They will be like okay you have to cancel this this and that. But guess what, two weeks later you’re going to turn around, you’re going to have a new application waiting in your mailbox. So yes, the banks going to cancel some but you just turn around and you can apply for another one. So, it’s really up to you to make sure that you don’t find yourself in the same position again.
Tommy: What can impulse buyers do to curb their bad habits other than getting your wonderful sleeve for their credit card.
Lama: It’s, uh, the number one tool that I find works is applying a cooling off period. Okay it’s an impulse, that means you really don’t want it right now, so you can easily wait two days before you buy it. So go go home, leave it in the store, two days later if you’re still thinking about it.
Tommy: Lama, what if it’s gone? What if somebody else grabs it while I’m not there?
Lama: Then it’s not meant for you. And you know what, the best question to ask yourself when you see something, it’s not how much does it cost, it’s how many hours of my life do I have to work to pay for it. When we look at something as $20 or $20 it’s ah whatever, but if you look at it as I have to work like two hours, I have to spend two hours of my life to work to pay for this thing. Then you look at it differently. Is it worth it? Is it worth me spending that many hours away from my family to buy this thing? So just convert it not in terms of money but hours of work of your life.
Tommy: Last time you were here you were telling us about your son and how he has twenty points, yes cause he’s got money saved. How is he doing? How is the point system doing?
Lama: It’s going great because now he’s really on top of her things because school started. And actually just this morning, I was telling him you know you’ve been saving a lot, are you going to spend it at some point? And he couldn’t come up with one thing to spend it on, and I was like okay we’re going to have to work on that.
Tommy: So he didn’t want to buy a new toy. How old is he?
Lama: He’s 6, and it’s funny because I was having this conversation with him this morning. So where are you going to spend all the money that you have, and he’s like I don’t know.
Tommy: So how much has he put away?
Lama: He has over $200, I owe him some stuff.
Tommy: He has the points, what does he get points for doing?
Lama: Well the homework, the homework has to be done in half an hour and not in 3 hour.
Tommy: Is he eager to do homework because he’s getting the points?
Lama: Well he does, he gets three points for the homework yesterday, and he is practicing his piano, he got one for going into the shower without me asking ten times in a row. You know it’s always different things.
Tommy: She’s brilliant, Lama Farran my guest. The website maxworth.ca. This one says Tommy thi showman is too smart, you need to invite her once a week. Thank you, Lama you are very popular. Financial expert, my guest Lama Farran, website maxworth.ca, By the way if you missed any names or titles, or book titles or addresses, don’t worry just go to my show page at CJAD.com, if you need information on any of our guests. This text is saying I wish my wife was listening right now. Uh, if you have a situation like that texter, the husband wants to save money and the wife wants to spend money, or the other way round, what advice do you have.
Lama: It’s really going back and understanding where they both come from. And funny enough I’m doing now a whole training on helping couples communicate around money. And you know he wants to save because he was brought up that way, and you know she wants to spend because stuff happens, it always go back to your childhood the way she was brought up. So it’s really digging deeper on not just communicating about money, it’s going back and understanding where he comes from and where she comes from, and what kind of feeling does she bring up in him when he’s spending. It might be a sense of fear, we might not have enough, were not going to retire, so it’s communicating beyond the you know, you went and spent $100 on a pair of shoes.
Tommy: You find that sometimes people find it difficult to be specific, is that what they can understand, oh I want to be debt free, I want to have a lot of money and I want to go on lot sof vacation, and they have trouble getting it to be more specific. They don’t know what to say, they don’t know exactly how to set the goal.
Lama: This is one of the things that I do help my clients do, goal setting with them because they never sit down and do it by themselves. Or they can’t think in terms of the SMART acronym and things like that. But the other thing you can ask yourself is what are my values, what do I value the most. And then go back to how can I match the way I spend money and the way I manage my money with those values.
Tommy: So give me some examples of those values.
Lama: Well some examples if one of the values is family, so you want to spend some of your money towards your family, it could be that okay, you know as a family were going to go on a yearly trip, or as a family were going to do this. But try to work your way back from the value to what it really means, and then it will be more meaningful the way you spend your money. And you’ll be okay if you don’t buy the thing because it doesn’t fit the value of family. The shopping for example.
Tommy: This part with your son, points for money, how many points do you get and how much money. Sounds like the only way to get money for him to do anything.
Lama: it’s twenty points for five dollars. He’s six years old and maybe if his daughters are a bit older they might need a bit more, I don’t know. It’s also setting the expectation of what they are going to cover with it. Is it going to be just their toys, their movies, is it going to be their lunches what is it that you want them to cover with that money.
Tommy: Allowance, is it a good idea in exchange for doing nothing?
Lama: Not in exchange for doing nothing.
Tommy: Not at Lama’s house.
Lama: You’re starting to know me now.
Tommy: Lama Farran, my guest she’s a terrific, check it out her website maxworth.ca.