A Money Coach in Canada

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Warren BuffetLike many Canadians, I muse about the future of the Cdn dollar relative to the USD. Four years ago, Warren Buffet gave his opinion – prescient, per usual. If you haven’t yet read him, this is a wonderful introduction. The reading really gets going when he starts describing Squanderville and Thriftville, as illustrative of economies.

Imagine Thriftville and Squanderville as two islands, he says. They have very simple economies – consuming only exactly what they produce. Each resident works 8 hours a day to produce, and consumes 8 hours/day worth of items.

Years go by, then: innovation! Thriftville residents begins working 16 hours per day, but still consume only8 hours/day worth of the items. What do they do with all the other 8 hours/day worth of goods? They ship it over to Squanderville, in exchange for paper IOUs from Squanderville. Squanderville is ecstatic – they get to stop working altogether, and yet continue to consume the same amount as always!

This carries on swimmingly until both Thriftville and Squanderville get a little uneasy. Thriftville starts to wonder, “will Squanderville pay us back for all our hard work?” and Squanderville, now a couple generations later, starts to think, “Thanks Mom and Dad. Thanks so much — you’re dead and gone, but I’m stuck holding your lousy IOUs! Glad you enjoyed a lifetime of meals on me!”

Tensions rise. Buffet offers a possible solution, but I think the Econ 101 paragraphs are his (more detailed than I gave) descriptions of the two islands.

Talk about learning the lessons I preach!

I had a crash-and-burn with my plans to eat at home this month, and had to connect it to part of how I equip my money-coaching clients to manage change for the long haul.

Many clients discouragedly tell me, “I’ve tried so many times to manage my money effectively, but I always seem to end back in debt, spending my money on crap, fill-in-the-blank”.

That’s the time for a conversation about the Process of Change.

It goes like this.

Stage 1: Precontemplation.

There’s a problem, or something that’s not working favourably for you, but you don’t know it yet, or acknowledge it. Overspending would be an obvious example; or flitting from one job to the next, quitting just before you get your finances stabilized; or always giving away money to family and friends in need, without ensuring your own basic needs are covered.

If an outsider pointed this out as a problem, you would be resistant and resentful. In your mind, there either isn’t a problem, or you feel trapped so that change is impossible.

Stage 2: Contemplation.

You receive direct, relevant feedback pointing out the need for change. It causes you, now, to seriously consider whether you should change your habits. For example, you reach a new threshold of debt, and begin to panic. Or you have a child, and realize you need to get your finances in stronger shape for her sake. Or it starts to sink in that retirement is not that far away, and you have little to show for it.

Stage 3: Determination.

You decide change is required! This is a very precarious and wonderful stage. It’s wonderful because if you pull it off, the change will benefit you. It’s precarious, because many of us go off half-cocked with an overly ambitious plan. “I’m going to stop eating out until this credit card is paid off!” or “I’m going to start putting 30% of my take-home straight into RRSP investments!” or “I’m going to sell my condo and move back in with mom!”. Shameless self promotion: a money coach at this stage will help you create a sane, sustainable strategy that sets you up for success, rather than failure.

Stage 4: Action

You start to move forward on your plan. It feels good. You begin to experience results.

Stage 5: Relapse.

Ah! this is what I was getting at. Relapse – slipping back to a greater or lesser degree is simply part of the process that ultimately leads to lasting change … if you stick with it. So you are back in debt. So you withdrew from your RRSPs to finance something you now regret. So you sold your condo, and discover had you kept it, it would be double in value now, and you feel like an idiot.

Coming to terms with this relapse, this set-back, is part of what will ultimately get you to Lasting Change. How to manage the impact of the relapse and get back on the plan is the topic of a future post. For now, take courage knowing it’s simply a part of the journey.

Lasting Change.

This is what we’re gunning for. With a few back-and-forths eventually we get to a new place, with new habits and new outcomes. Overspending is a thing of the past. The debt is gone, or minimal, for good. We are taking responsibility for our retirement savings and building a nest egg. I’ve seen this happen time and again with my clients, and certainly have experienced it in my own life.

So, how does this connect to menu planning and eating home this month?

Here’s how. Not once, but twice, I experienced the exact same ‘relapse’. It’s not the end of the world, but it puts me out of the running for the $25, that’s for sure! Two weekends in a row, I was rushed for time, hungry-and-not-thinking-clearly, and didn’t have proper provisions (that I could think of) in my home. Two weekends in a row, without even thinking twice, I darted into the neighbourhood deli and grabbed a sandwhich – $8 each time. The first time, I didn’t realize what I’d done until I was out the door. The second time, the penny dropped (ha ha, sorry!) as I was keying in my PIN. Too late to back out.

Here’s what I did that was helpful:

1. I chose right away not to make a big deal of it – not to catastrophize.

2. I chose right away to get myself organized for an eat-in supper.

3. After the 2nd time, I’ve revisited my ‘determination’ stage and am now giving myself permission, once/week when desperate, to grab the chicken sandwich. My lifestyle, somewhat like money relation’s, makes eating home every single meal pretty challenging. Building in a realistic pressure valve will increase my likelihood of overall success.

You know of course, that Citizens Bank of Canada is my bank of choice! They’ve put the “citizen” back into banking, give the profits back to the community, offer great rates and also have a terrific user interface.

But … before there was Citizens Bank, there was a Dutch bank called ING, that turned the Canadian banking system on its head. They’ve done it again. (and if you want to participate, go to SUPERSAVER.)

One of my favourite personal finance bloggers, Money Relations, posted an interesting comment about foodbanks, and poverty. I responded with some of my perspectives, living in gastown (adjacent to downtown eastside, Canada’s poorest neighbourhood) and having done a few money 101 seminars for people on income assistance. Mariam in turn replied with her experience. It’s incredibly inspiring! Here it is:

Hi Nancy,

Thanks for your perspective. I do not have your experience with working with the disadvantaged. Here’s what I know from my experience.

Like I said, I’m an immigrant so I know a lot of other immigrants who worked their way up. A friend of mine as a kid used to live in one small room along with his parents and another brother. I didn’t explore it that much with him as I didn’t want to embarrass him but from what I learned, they had a chamber pot in that room.

After school, he used to go help his mom who was a cleaning lady at a hotel finish up (she was always slow). After that, he used to come home to cook dinner.

Both he and his brother now make over 6 figures.

Compare this to my programmer friend who I had mentioned earlier before. He grew up in the projects of Toronto and he always said his mother had no money management skills. He said that one time after her social assistance cheque came through, she bought curtains instead of buying groceries. Obviously, he was pissed. I don’t know if she had psychological issues but he always described her as an unfit mother.

Then again, he also said that he used to play “Olympics” at home and would use broom handles to throw as a javelin into the wall… so it was just pure chaos.

Another less fortunate friend also said that as a kid, she would break her glasses because she didn’t like them so her parents would have to buy her a new pair.

I am absolutely appalled by this behavior as I would NEVER burden my mom unnecessarily. Instead of helping out, two of my friends chose to be destructive. I can turn this into “when I was young” stories but seriously, with my paper route at 12 (I might have started younger with flyers), I bought my own clothes, bike, glasses, bus passes. My brothers and I did what we could to help out. My mom left early in the morning (6 am and came home late at night 10 pm). No one ever babysat us (my brothers are 4 and 5 years older than me). The first friend I described also had the same self-reliance.

If you ask my mom, I’m positive she will say she can live on $150/mo.

My point is that it takes effort on everyone’s part. If you’re a kid, then you BETTER mature fast. It’s about how much you can endure and what your expectations are. We didn’t expect much. This means no new curtains and air conditioner (as reported by said social worker). Should we have lived that way as a kid? Probably not, but it built character.

Granted, I come from a family with no issues. However, as plonkee mentioned, even with high paid individuals, you get into debt issues. Is it that hard to imagine lower income families won’t have money management issues as well? You describe the extreme cases, I describe the abusers and those are the ones I have fault with.

I swear, Canada is a land of opportunity.

If you are resident in Canada and receive an inheritance, you do not have to include it in your taxable income for the year. Canada has not had an inheritance tax since Mulroney’s government. The rationale behind this exclusion is that tax was paid on the income in the hands of the deceased.

Be aware, though, that the disposition of a deceased person’s assets can give rise to tax consequences for the estate. Death triggers a deemed disposition of all assets at market value (i.e. they are treated as if they have been sold), which is then subject to capital gains tax.

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This accounting nugget brought to you by Mindy Abramowitz.  She’s very smart about all accounting matters, and other stuff too, plus, she’s terrific to work with  (trust me.  I’m a money coach.  You think I’m an easy client for her??)  If you want her contact info, ask me!