Just now I was consulting with Meagan on a situation where some people have found themselves in a jam, and she says, “You know, we need to petition the B.C. government to educate people starting in Grade 7 about how to not screw up your life.”
“Ah ha, that’s the next column,” I said.
There’s that old expression “Money isn’t everything.” That is 100 percent correct. Money isn’t everything. But more often than not, the people who find themselves saying that “money isn’t everything” don’t have any.
That can be perfectly okay. It’s fine to have priorities that go beyond material wealth. It’s commendable even.
Where trouble starts – and it starts fast – is when people say money isn’t everything, but their spending behavior is more consistent with money being the only thing.
If you want to make a decision to focus on other things – maybe work less so that you can spend more time with the kids – that’s great. Not only do I think that’s a phenomenal idea, I am envious. I want to spend more time with my family too.
But – and this is a big but – if you decide to work less then your spending behavior has to reflect your reduced income. I run into lots of people who make $8000 per month, but spend ten. For a lot of people $8000 a month is a lot of money. Having a healthy income will often give a person a false sense of security. Sure making a lot of money means that you get to spend more money, but it doesn’t matter how much you make, you still can’t continually spend beyond your income and expect things to work themselves out.
So the first rule for not screwing up your life is to live within your means. And if your means change – as they have done recently for a lot of people given the economic slowdown – then it is likely that you will have to make adjustments to your spending behavior.
Another rule is to know your priorities. New trucks are shiny, but they don’t stay new for long. Put first things first. A $1200 per month truck payment is going to mean $1200 that can’t be spent on something else – perhaps something more important in the long run. When it comes to priorities, there isn’t one right answer. The point is that you want to work towards what’s important to you, whatever that happens to be. If the most important thing in the world to you is having a brand new truck, well, you are in luck. There are some good deals out there. On the other hand, if you can get by without spending $65,000 on something that starts depreciating as soon as you drive it off the lot, then that’s something to give some thought to before you commit to five years worth of hefty truck payments.
Pay yourself first. Each month people want your money. The taxman wants some. Your bank wants some. Utility companies want some. Your cell phone provider and cable company want some. Restaurants and entertainment providers want some. Everybody wants your money.
And while some or all of these people will get part of your money each month, none of them is more important than you are. Each month take part of your income – 10 percent is a starting spot – and put it away for the future. Living on the remaining 90 percent of your income is not likely to be a noticeable difference in your standard of living today. If you fail to prepare for the future, however, you most certainly will notice a difference in your standard of living down the road.
Be strategic, not impulsive, with your money decisions. Being impulsive with big ticket purchases can lead to poor decisions. We’ve all done it. I’m the first to admit it. I’ve got a $700 wood chipper in my shed that I’ve still only used a couple of times. Heck, I even bought a house on impulse once. Sometimes a person needs to step back and ask themselves if what they think they really, really want is actually something that they need.
Know the difference between good debt and bad debt. Good debt is something that you take on in order to help get something important done. The best debt would be for an asset that appreciates over time, carries a low interest rate, and if its tax deductible that’s even better.
Bad debt is debt for lifestyle expenditures or on a depreciating asset, carries a high rate of interest, and isn’t tax deductible. Most consumer loans are examples of bad debt. If you have bad debt, work hard to pay it off, or see if you can convert it to good debt.
Pay less tax. There are many legitimate ways to pay less tax. Take advantage of them. Appeal your property tax assessment. Accumulate assets in tax-assisted vehicles. Save your medical and charitable donation receipts. Have your taxes prepared by a qualified person so that you don’t miss any opportunities.
Prepare for your kids future education. It’s going to be expensive, and they are going to need it. Down the road people won’t just walk into careers. There will always be jobs, but careers are what provide more satisfaction and better compensation, and careers require training.
Protect your income. Fundamental to almost everything you want to do in life is that you have cash coming in. If your cash flow stops, everything else might too. Make sure that you have good income protection plans in place that mitigate the financial consequences of disability, critical illness, and premature death, and do what you can to protect yourself from unemployment or under-employment.
So far we’ve talked about just money issues. After all, this is a money column. But if I’m writing a primer on how to not screw up your life I’d better mention your health too. Take care of yourself. It’s the only body that you’ll ever have. Abuse it now and you’ll notice it later.
Finally, keep things in balance. Don’t go overboard in one area of your life to the extent that other important things are neglected. You can’t live completely for today and ignore the future, but life is pretty dull if you sacrifice everything today for a day that might never come. If people follow these rules I think they will do a pretty good job of not screwing up their life. Its true money isn’t everything, but you still want to have some cash in the bank when you say that.