Tommy: Is your wallet feeling a little light these days? Your bank account is it painted red, maybe you’re stuck in debt and you can’t just seem to get your finances in order. Well you’ve come to the right place, whatever the case. Our next guest has you covered, Lama Farran a personal finance expert, founder of the website maxworth.ca, she joins me now, welcome back to the show Lama. Now before we get to the tips you have, what do you mean when you talk about someone’s financial health? Is it the debt they have, how much money they make ,what do you refer to when you say financial health?
Lama: Well, it’s really how well are you doing. You know you go to your doctor once a year to check you, they check your blood pressure, your diabetes, everything. So this is really about checking your money, how are you spending it, are you saving enough, are you saving for your kids educatio, are you saving for your retirement. So it’s really just looking at all these aspects and knowing are you covered in all of them?
Tommy: First of all how is your son doing?
Lama: He’s great, thank you for asking.
Tommy: How are the points?
Lama: Oh yeah, he’s getting a lot of money for those points, he’s doing the calculations.
Tommy: He’s doing very well, he gets points for all the good deeds that he does. No, twenty points and for twenty points he gets $5.
Lama: He’s doing very good, I owe him a lot of money.
Tommy: Tell me about the concept of paying yourself first.
Lama: Yeah, people have a hard time with this concept which is making yourself the most important bill to pay. So people are like, how can I make myself the most important bill to pay when I have so many other bills to pay. But the idea is if you keep being stuck in the short term thinking, you know, you’re never going to get out of this cycle of oh, I’m Going to start saving only when I pay off my debt. A lot of people use that logic, but the thing is you could do both at the same time. So you could start saving today, putting a little portion of your paycheck aside and now wait until all your debts are paid off. Now, I know that some people say well yeah but that doesn’t make sense, my credit card is 20% why am I going to save? Well the thing is, think of somebody let’s say is 40 years old and they have debt and they decide that they aren’t going to start saving until all their debts are finished, and it takes them ten years. So they start at 50. So they are only giving their investments ten or 15 years to grow. Where as if they start at 40, even a small amount that amount is going to have 25 years to grow. So you’re taking advantage of the market growth, the clouding interest. So it’s really looking more long term then oh no I have a credit card to pay I can’t save any money.
Tommy: And also paying yourself first isn’t the only thing that you have to do. As you mentioned you have to find out where you’re spending money, what can you cut as well. Now for people who understand this, it’s such an important concept pay yourself first. It’s the equivalent of, when you make an appointment and you have to see the doctor at 2. You’re thee at 2. If you want to exercise but you don’t do it regularly, but you have an appointment with someone else at 1, you show up. This is the same thing. Youre, you treat everyone you owe money to, you’re worried about them but you’re not worried about the money you owe yourself.
Lama: Exactly, so you have to make yourself committed to yourself. And the best way to do this is to really put your savings on automatic transfer. Every two weeks have an automatic transfer from your paycheck, from the account where your pay gets deposited to another account. So that way you don’t have to think about that. And you don’t have to start big, I’m not telling you to put half of your salary. Put $20, $30, you know $50 and then gradually increase it. And then you know the other comment I hear is yeah,but I can’t even pt those $20 aside. You know I saw a couple recently, and they were in the same issue where everything is expensive, you can’t really pay for anything, and then you start looking where the money is going and they spent $200 at the SAQ in the last three weeks. I understand that maybe you need alcohol to deal with the financial stress but maybe that $200 could have been towards paying yourself first. So it’s really having you know, a look at where you’re spending money and being true to yourself.
Tommy: This texter saying this is a replica of the theory that comes from the book “The Wealthy Barber”, pay yourself first normally 10% of your monthly income. The thing though is where can you invest to get compound interest these days?
Lama: Well if it’s not a GIC, because I agree the rate on GICs is very low, it has to be in the Mutual Funds. Now there was a crash last month, so this is the best time to invest, buy low and look at where it’s going to be in 5 years.
Tommy: Your questions for Lama Farran text your comments to 514-800, her website is maxworth.ca. Uh, what about someone who’s got interest to pay, they got, their bank account is in overdraft, they have to pay down a couple of credit cards, and they also have regular debt, they have got their mortgage to pay, they are putting their kids through school and they don’t know where to start. What would you tell them? How to get started.
Lama: Okay, so one of the things, the first exercise to really see where things are going, there are two things that I do with my own clients. One is to start by calculating your net worth. Start by putting all your assets down minus all of your debts, and see how much you are worth today. What are we dealing with here. And then we look at your debts. How can we optimize them by moving maybe the higher debt, higher interest rate ones to the lower interest rate ones. Then start by tracking your expenses, look at where your money is going today. And from there come up with a plan. If it means that your have to get a second job, or work overtime for a certain period of time, of course like things are expensive these days, I know, so sometimes we have to make sacrifices to find that money to save, or find that money to pay down our debts faster than we want to.
Tommy: My guest Lama Farran, who is a financial expert, her website it maxworth.ca. What would you say to this texter says, one of the problem today is that people buy stuff that they don’t need with money they don’t have.
Lama: Exactly, this is exactly the problem you need to redefine your needs and your ways. And not everything is a need. You know, I think I mentioned it before that advertising makes it sound like you need it, yeah I need the latest iPhone of course. No you don’t. So it’s really re-evaluating what you need out of life and what are your real values.
Tommy: Do you think people put it out, they don’t want to know the reality of it. They rather not compile that list.
Lama: Yeah, cause when you compile it you have to do something about it. So when you don’t compile it you stay in the dark and you don’t feel the responsibility to do something about it.
Tommy: I looked, very distinct questions. This one says, Hi Tommy I have $1000 to invest in a company in particular, what do I do, who do I go see. Investing virgin. They don’t know anything.
Lama: Okay, well I don’t give financial, investment advice per se. I go myself to see my own financial planner. That person I suggest that they start at their own branch, go in there, walk in and see who the financial planner in your branch. And if you don’t connect wit them, go to a second branch of the same bank and see if you connect with that second financial planner.
Tommy: What do you suggest for students that are graduating without debt? What should they be doing with their finances?
Lama: Oh start investing every cent you’re making.
Tommy: They have to spend some money Lama. They’re not going to invest 100%, they have to pay the rent and eat.
Lama: For sure, but again, what are their goals. Let’s go one step backwards. Are they buying a house in five years? Are they taking a sabbatical year to go travel around the world? What is it that they are trying to achieve here.
Tommy: Lots of interesting questions that are coming in for my guest Lama Farran. Her website is maxworth.ca. Well worth the checking out. These are some of the questions that were giving answers to. This texter is saying, we’re going to check my credit and how can I fix my credit really fast? Another texter is saying, I called the credit card company to lower my interest rate and they said no. So what happens next, you’re going to get the answers to those questions. Give us a call if you have any questions for Lama, 514-800, if you want to send us a text. Your questions for our financial expert, her website maxworth.ca. Personal finance expert. A lot of questions coming in for you. This guy called the credit card company to lower the interest rates, he said no.
Lama: Well did he ask why? Is it because he hasn’t paid his bills properly before, you know, look at what is the issue. I remember for example my mom, a few years ago she got refused for a costco card, and she kept getting refused and she didn’t understand why. It happened because a bill got delivered to an old address, and she had a big black point at the credit bureau. He can order his Equifax, you can go to equifax.ca, and order a copy of your credit bureau. See what is it that’s on there that made them say no.
Tommy: A question for Lama, as a new business owner should you be taking a salary to pay yourself even if it’s a start up and won’t be covering costs at the beginning. Consider that there is no other source of income at the time.
Lama: Well, if he needs the money to live by, that salary for sure, how else is he going to cover the personal bills. Because if it’s incorporated the company goes down, it goes down, but how him personally he still has to pay his bills.
Tommy: Lam You’re Going to love this. I finally cut all my credit cards, four, and it wasn’t easy but I’m really happy with myself. I found out yesterday that I have a credit of $109 on my MasterCard, and my first thought was yes, shopping time. I literally dropped everything to do some shopping, and while I was shopping I had this epiphany, this is what for me getting into debt looked like the first time. I forced myself to leave the store and wait until I absolutely need something before I buy it. I think I finally figured it out. What do you say?
Lama: Good I’m happy that he grew up. Um, look it’s were used to certain, to doing things, it’s what I call autopilot, so he’s used to when I have money I go shopping. So it’s really it’s what I call becoming a bit more mindful, you know stopping in the moment and why am I doing this really? And really becoming more aware and more mindful and then changing your patterns and behaviours and moving from this spending on auto pilot.
Tommy: This seems very strange, I work at a financial institution that has offered me the ability to take out a loan three times the value of my house. If i take it this loan and invest it in my mutual funds, and the amount I make would suppressed the monthly payment on the loan, but I’ve taken out, how smart is staying in debt the rest of my life in debt in order to make money. Why would they give him three times the value of his house?
Lama: I seriously don’t know, I don’t understand. I mean usually they give you max 8o%, or maybe if you are insured by the CHMC maybe it’s 95%.
Tommy: But not 300%
Lama: No, I’ve never seen that.
Tommy: That strange. This texter says, is a car lease considered debt.
Lama: It’s not debt but its expenses. It’s not debt because it’s case, it’s going to be on your credit bureau, so if you’re not paying the monthly lease payment it’s going to affect your credit bureau, but it’s not debt per se.
Tommy: This texter saying, you have to be careful with a secon djob. Last year I worked 70 hours a week with the two jobs from October to December, the government took 30% of my paycheck as normal, but when I did my tax i owed the balance of my income from the secondjob. I literally worked for the government trying to get ahead, and just incurred a new interest debt with the CRA. That’s a horrible story.
Lama: Maybe there wasn’t enough income taxes taken at the source, and they had to take it at the end. So, and if he spent all the money that you made already including taxes that you owe, it’s a little bit of an issue.
Tommy: your questions for my guest, personal finance expert. You can check out her website, maxworth.ca, we will get to more of your questions and don’t forget tomorrow we have something very exciting lined up on show. Chris Fera Vos gives you the harsh truth about vaccines that’s tomorrow. Any financial questions right now, text your questions or comments to 514-800. You’re listening to the Tommy Schnurmacher show on CJAD. The founder of the website maxworth.ca, Lama Farran. Interesting questions, what’s the fastest easiest way to improve your credit score with equifax?
Lama: You have to see are you paying, at least pay the minimum on time, if you can’t pay your bills pay the minimum on time. That’s the one thing that is definitely going to help your score.
Tommy: That man we thought was offered three times the value of his house, he sent a text saying yes I meant 50%. So basically his house is paid off, and basically they are offering him of 50%, a line of credit, you can deduct the interest and make investments, what do you think?
Lama: What I think it’s not for everybody. Like he has to see, because here its leverage investment, so there’s the risk of your investments not doing well, and there is the risk, not the risk the fact that you have to pay interest on that mortgage. Take the sleep test, are you going to sleep at night knowing that you have that risk you know imagine something like 2008, or just even the past few weeks and the market that went down, how are you going to feel about your investments going down and you still have to owe that loan?
Tommy: This texter says, my bank called to tell me that they were raising my credit card limit. I received written confirmation that they did. Does the credit agency put a black mark on my credit, I didn’t even ask for the increase?
Lama: What we usually do in the case, if you don’t want it, it’s not going to be a black mark it’s just going to be there. You just call the credit card and tell them to put it back to wherever it was. And you have to specify that you don’t want it increased anymore unless you ask.
Tommy: All kind of people have credit cards and they are saying I don’t have the, I’m not buying anything they are all on 0, or close to 0. But the bank considers that you’ve borrowed the full amount, don’t they?
Lama: Yeah because when they are doing the calculation they take the worse case scenario if you go completely crazy tomorrow and you go fill up your cards. So this is what they use when they are approving you for another loan.
Tommy: This texter want to, you might need to pay for education abroad in the near future, should you avoid buying a house and keep the money available just in case?
Lama: I mean the kid can always take student loan, and they can pay for their own studies. But also you can us, if you have RESP that they accumulated here, you can also use them for studies abroad. So, give them some responsibility as well.
Tommy: Good idea or bad idea to have several bank accounts?
Lama: I think it’s a very good idea, but not any kind, or different bank accounts. First of all I like the new accounts that are for free, they are for saving only , they aren’t meant for paying any bills from them. And you can use them for different purposes. Like I have one for travel, one for the school, one for municipal taxes. January is going to be the perfect time for people to start saving for Christmas. I mean look at, December is here, look at how much Christmas costs you. It costs you $600 let’s say, so in January start transferring $50 to your Christmas account and then you’ll have your money ready for next year.
Tommy: What advice would you have for people who can’t keep track of their money?
Lama: Keep track of your money. Write it down. You can’t keep track because it’s all in your head. Of course you head isn’t going to remember all of the numbers.
Tommy: And also you need to relax a bit too.
Lama: Oh yea, it really gives you a new sense of clarity.
Tommy: As always, Lama Farran a pleasure talking to the website, maxworth.ca.