I was curious about something recently after talking with a few different financial advisors about how they deal with their individual clients. As much as every situation with every client is unique, my experience has shown me that there were a few common themes that ran through most people’s relationships with their money and their financial advisors. With that in mind I decided to speak with a few advisors at Strata Wealth & Risk Management Inc. to learn about common themes they encounter and the planning advice they frequently offer clients. Here are my key takeaways from those conversations.
In this article:
- Do You Know Where Your Money is going?
- Financial Advice from Jason Robinson
- Financial Advice from Matt Schaap
- Financial Advice from Graham Finch
- How about Some of My Favourite Advice?
Do You Know Where Your Money is going?
Many people don’t have a firm grasp on where their money is going every day, week or month. Don’t get me wrong, we all understand what our living expenses (think mortgage/rent, taxes, utilities) are and how much we are supposed to have in the bank to pay them every month, but it’s the other expenses that people don’t have a grasp on. Do you know how much money you spend at the grocery store every month? How about take-out food? TV streaming services? The list of ‘auxiliary’ expenses is long and it often adds up to the point where most people feel like they live paycheque to paycheque even when, at first glance, this shouldn’t be the case at all. It happens to people at all levels of society though. If you go back to 1998, when there was a labour dispute in the NBA that resulted in the owners locking out the players Patrick Ewing, the famed centre for the New York Knicks said: “People complain that pro athletes make a lot of money; but what they don’t understand is that we need a lot of money because we spend a lot of money”. Think about this fact. This was a man who was making $18,500,000 for the 1998/99 season, the equivalent of making $34,628,935 when inflated to today’s dollars, stating that basically he was living paycheque to paycheque. People spend what they have. It’s a fact of life and we need to understand this and be able to address it when looking at financial planning of any sort. So now let’s look at the advice from the team at Strata and see how this fits in with what they talk to clients about.
Advice from Jason Robinson
When I asked Jason Robinson, a senior financial advisor with Strata Wealth & Risk Management what his most commonly given advice was, he replied that he talks to his clients consistently about making sure that they ‘live within their means’. Jason is an advocate of starting with clients at the ground level and building a cash flow plan to help clients get a handle on where their money goes every month. He says that this process often leaves clients amazed at the difference between what they think they spend every month and what they actually spend. Overwhelmingly the result is that people find out that they are spending significantly more money than they think they are.
A key thing to remember is that Jason is taking his clients through a cash flow planning process, not a budgeting process. It may sound like there isn’t a difference here but it exists and it is important. A cash flow plan looks to create efficient use of your income. It aims to control ‘leaky’ expenses to maximise the efficiency of your current income. A budget allocates your current income towards specific expenses and limits what you can spend on things each month. The big kicker here is that people don’t like living on a budget. There is a feeling of restrictiveness that people don’t like, and as is typical when it comes to human nature, if you don’t like it, you won’t do it long term. Since cash flow planning doesn’t put limits on how you spend your money, it just wants to make sure you are efficient, clients are more likely to follow through on this process, particularly when they see the results of how being efficient with your money can end up with them having the ability to achieve many more of their long term goals.
Advice from Matt Schaap
Matt Schaap, another advisor at Strata Wealth & Risk Management told me that he works with many younger individuals and families and that he will really emphasise that younger people should follow the age-old advice that they should ‘Always pay themselves first’. This is really important advice, particularly when you are dealing with younger individuals and families that are embarking on their financial planning journey. The idea that when you receive a paycheque, before you spend any of that money on other things you should make sure that you invest money for yourself is fundamental to the success of long term financial security. As is always the case, there is some psychology that comes into play here as well though. While the plan to pay yourself first is essential, it also needs to be reasonable and sustainable. It would be awesome if you looked at your monthly income and decided that you were going to pay yourself first by taking 40% (or more even) and using it to support your investment plans and other financial security needs. The reality of that is that in many cases, an amount that high won’t be sustainable. Eventually something will come up where you can’t do it, or worse, you will miss out on something fun and resent the plan that required putting that much money away. And if experience has taught us anything it’s that humans won’t continue on a path where they feel resentment towards what they are doing. Make sure that when you are planning to pay yourself first that it is something that you will be proud that you are doing and in the long run that will help to ensure that you keep doing it for the long term.
Advice from Graham Finch
When I spoke to Graham Finch from Strata Wealth & Risk Management he said that when it comes to investing he likes to try and work with clients so that they understand that they should invest early and often. You will hear terms like ‘dollar cost averaging’ when people talk about this, so I will explain what it means. Dollar cost averaging is when you regularly put money into an investment at set time points, the price at which you buy will vary depending on market values the day you make the purchase, but overall you tend to benefit by paying a lower average price than someone who saves money and then makes a large lump sum deposit into an investment. Another key thing that investing on a schedule does is that it eliminates the emotions of feeling like you ‘missed out’ when you see the value of something going up. If you sit around trying to time the market so you invest at low prices you will inevitably miss out on growth opportunities. By investing on a regular schedule the emotional component is removed and you don’t feel like you missed out when market values change.
The other big advantage to the idea of investing early and often is that the more time you have invested in the markets the better off you have always been. This is due to the magic of compound interest. It really applies to the advice given by both Matt and Graham. The longer you are invested in something, the more growth you get on previous growth. This is compounding, and it is the magic elixir for most successful investors. If the growth you achieved in previous years adds to the growth you are getting now you will see a huge difference at the end of your financial planning road.
How about Some of My Favourite Advice?
The reality is that financial planning is hard for people because of a few things, but one of the biggest is that many people aren’t really interested in it. Back to that same theme again where if you don’t like doing something, you try and avoid doing it. This leads to some of my favourite advice, and I will admit that I stole it. I am not sure if this is reality or not, because many of the ‘quotes’ attributed to him have been modified so much over time, but Benjamin Franklin is believed to have said that ‘If you fail to plan, you are planning to fail’. My advice to every single person that I talk to about their financial security, no matter the situation that they are in, is that they should work with someone to create a financial plan. At its core the idea of no plan still being a plan is true. If you choose not to plan for the future, it’s still coming and you still are going to live it. And while planning doesn’t guarantee that you will be able to handle all that life will throw at you, it definitely increases the chances of making it through. So if you haven’t started your financial planning journey, or if you simply want to talk to an expert and get a second opinion on the path you’re on right now, reach out to the team at Strata Wealth & Risk Management. You’ll be happy you did!
