Gerry and Fiona (we’ve changed their names to protect their privacy) have stock investments valued at $1.27 million and a pair of rental properties. After paying off their debts, their net worth would be well over a million. In fact, Gerry thinks he and Fiona can quit their jobs today and live off the income from their investments for the rest of their lives.

“I just finished a sabbatical from my job and it’s given me a taste for life outside the office,” says Gerry, who spent most of his year off being a stay-at-home dad to his two-year-old daughter, Phoebe. “I’m ready to move on to a new phase of my life.”

There is one wrinkle, however—they have another baby due in September. “Fiona and I have always lived on less than one income,” says Gerry. “But we know kids are expensive. Can we continue living frugally with two kids? We’re not sure.”

Fiona, who is 36, earns $22,000 a year as a part-time social worker, while Gerry earns $60,000. In their spare time, they do
volunteer work with the cancer society, several local charities, and with a girls’ orphanage in Costa Rica. “If we have enough money, why not just quit our jobs and do more of what we love—charitable work?” says Fiona.

Gerry has run the numbers and feels his family can live on $45,000 in after-tax income a year. But he’s not sure their investments will be able to generate enough money to cover their expenses for the rest of their lives. “I don’t mind working part-time a few more years if I have to,” says Fiona. “But I really think we may have enough assets to provide us with a good income to old age.”

Even if they have enough, there’s another problem: the couple’s portfolio is full of risky, volatile stocks. Gerry knows he needs to restructure his portfolio so that it is more conservative and tax-efficient. “I know I’m not the one to do that,” says Gerry. “I know nothing about conservative portfolios. It will be our biggest challenge.”

One of their strengths, on the other hand, is the fact that the Gardas have more than their stock portfolio to depend on in retirement. By the time Gerry turns 55, he expects to have paid off the mortgages on his two properties, which will provide $20,000 a year in rental income. He’ll also start collecting a pension of $1,600 a month, earned during his years with the provincial government. But even with all that, Gerry is apprehensive. “I think we’ll need $45,000 a year, but I could be wrong. We need to be certain we’re really ready to go it alone before we leave our jobs. Can you help us?”

Fiona has always been good with money. She grew up in Vancouver, where her mother was a nurse and her dad a car salesman. “My parents’ biggest investment was their home, which they bought in Vancouver for $60,000 in 1976,” says Fiona. “It’s worth $1.2 million today.”

Fiona worked part-time through high school at the local McDonald’s before enrolling at university in Victoria in 1992. During her four years there, she took part-time jobs while completing a bachelor’s degree in social work. By the time she graduated, she had $20,000 in the bank. “I never had student debt,” says Fiona. “I worked constantly, lived frugally and grew my savings the whole time I was at university.”

Gerry’s early home life wasn’t as comfortable. He was born in Regina, and when he was three his father left, leaving his mother to raise both him and his older brother, Matthew. She remarried when Gerry was 12. “Mom worked as a waitress during the day and attended university at night. When I was 10, she graduated with a teaching degree. She taught us kids to be industrious.”

At nine, Gerry had his own paper route. In high school he worked evenings at the local Woolco store and read investment books voraciously. “I just wanted to make money,” remembers Gerry. “Those were the days when you had to call your broker to buy and sell a stock. I wasn’t old enough, so I had my brother place the trades for me.”

Gerry studied for a couple of years at the University of Regina, but quit before earning his degree. Instead, he went to technical school where he studied resource management. All along, Gerry kept investing and his portfolio grew to about $18,000 in 1994. Then the bottom fell out. “I had all my money in gold stocks,” he says. “When the market turned, I lost everything. Even today, I won’t touch commodity stocks.”

In 1995, Gerry got a job with the Ministry of Transportation in Vernon, and with a small down payment he bought a house. That’s also when he met Fiona at a friend’s barbecue. A year later they moved in together. Gun-shy from his losses, Gerry temporarily gave up stock picking and concentrated on saving instead. “Fiona and I parked every penny we made in mutual funds for six years, and we had $150,000 saved by the time I turned 30. We were cheap. We didn’t own a car, we grew our own vegetables, biked everywhere and bought very little furniture.”

In 1997, the Gardas married and received a cash gift of $45,000 from Gerry’s mom. They invested the money, along with $20,000 of Fiona’s savings, in their home and the two rental properties they still own today.

It wasn’t until 2001 that Gerry decided to sell the $150,000 worth of mutual funds that he and Fiona had accumulated and give stock investing another try. “I’m drawn to small caps—especially when everyone hates them,” says Gerry. “If their price drops, I buy more. As long as the stock’s main narrative hasn’t changed, I’ll hold on.”

Gerry is a focused investor. He only invests in sectors that he understands—communications, technology, and health care—and he never owns more than 10 stocks at a time. Most importantly, he stays engaged. “I spend three hours a day doing research. I ignore what’s happening in the daily news—that’s just noise.”

Right now, Gerry’s portfolio includes Cisco, Intel and RIM, as well as a couple of “cloud computing” companies that Gerry believes are the way of the future. “The new direction for tech stocks is in its infancy,” he says. “Tech stocks are just starting a new cycle of growth.” He’s quite happy to wait out a few ups and downs, as long as he knows he’ll never have to sell in a panic. “If I lost all my stock money tomorrow, I wouldn’t worry, but that’s because I earn a good salary. But I can’t invest this way if I don’t have a regular salary. Now that’s risky.”

In 2006, Gerry and Fiona discovered a new love: giving back to their community. They also have a connection with a special charity. “We were in a bar in a tiny town in Costa Rica,” says Fiona. “We asked what there was to see nearby, and one of the locals took us to a girls’ orphanage. We were hooked.”

The Gardas donate about $2,000 annually to the orphanage—enough to send a couple of girls to university every year. “Do you know how rewarding that is—knowing you can change someone’s life for so little?” says Fiona. “It’s a fantastic feeling.”

If the couple retires now, their big concern will be having enough income to pay expenses for the next 15 years, until they can get by on Gerry’s pension and their rental income. “For the near future, our investments have to do all the heavy lifting,” says Gerry. “That’s crucial for our plan to work.”

The Gardas are carrying some large debts. Their mortgage is structured as a $195,000 line of credit, which they service with the income form their stock portfolio. They also owe $313,000 in a margin account at 3%. Their two rental houses have mortgages totalling $410,000, which will be paid off by the time Gerry turns 55.

The couple has always kept their expenses low. With both of them working, they save more than $14,000 a year, which goes directly into RRSPs and Gerry’s stock portfolio. “We’re big do-it-yourselfers—renovations, cooking and gardening,” says Gerry. “It keeps costs down, savings up and us busy.”

One thing is certain: when the couple does retire, Gerry won’t miss his job one bit. “I’m just going through the motions now,” he says. “I want to do something more meaningful with my life. We’re keeping our fingers crossed, hoping a new life is just waiting for us to grab it.”

What the experts say
Karin Mizgala, CEO of Money Coaches Canada, says the Gardas will be relieved when they crunch the numbers. “Over the long run, their income will cover their expenses.” The key, she says, is the couple’s frugal lifestyle. “The less you spend, the earlier you can retire,” Mizgala says. “But few people ever consider a more frugal life until I walk through the numbers with them. They have become convinced by the media that they need $2 million before they can retire. For most of us, it’s much, much less than that.” Here’s what the Gardas should do.

Calculate what they have now
Once they pay off the margin loan and their line of credit, the Gardas’ investment accounts will be valued at about $920,000. This is the money they will have to depend on, at least until age 55, to fund almost all of their $45,000 in annual after-tax expenses.

Start deleveraging
The couple cannot retire with a leveraged stock portfolio. “They are in danger territory,” says Jim Otar, a Certified Financial Planner and author in Toronto. “Their exposure to risk is highly amplified.” Otar notes that a not-so-unusual 40% correction in their holdings means the couple would lose 62% of their net investments. “They should pay off all their debts before quitting their jobs,” says Otar.

Give the portfolio a makeover
Selling their stocks may take the Gardas up to three years, because it will trigger capital gains or losses. The Gardas need to spread these over two or three years to minimize taxes. They should get help from a tax accountant to do this.

Then the portfolio needs to be rebuilt. Laura Wallace, vice-president and portfolio manager with Scotia Asset Management in Toronto, recommends a mix of 50% equities and 50% fixed income. To ensure regular income, inflation protection and tax-efficiency, the portfolio should include at least 20 dividend-paying stocks, as well as government and corporate bonds with staggered maturities. Most of the dividend stocks should be Canadian, as the dividends get favourable tax treatment. “Such a portfolio can be expected to generate an after-tax return of about 5%—enough to cover their annual expenses,” says Wallace.

Consider working six more years
Although Gerry and Fiona could probably retire today, the experts hesitate to recommend this strategy. That’s because as their kids get older, $45,000 in income may not be enough. “The likelihood that expenses will increase substantially after the kids turn five is high,” says Wallace.

That’s why if Gerry really wants to retire now, Fiona should consider keeping her part-time job for a few more years. “They should take only what income they need from the portfolio while Fiona is still working.” If Fiona is bringing in $20,000 after taxes, they will only have to draw about $25,000 from their investments, says Wallace. “This will provide a good financial cushion.”

Otar is more cautious. He’d like to see both Gerry and Fiona work six more years, until Gerry is 47. “If the couple is unlucky enough to experience a worst-case scenario in the coming years—higher inflation, a steep stock market decline, a crash in the housing market—their investments will take a big hit,” he says.

If the Gardas take Otar’s advice, then at age 55 their investment portfolio should still be worth about $1,000,000—even with $45,000 to $50,000 in annual withdrawals over those eight years. At that time, the couple will also have at least $1,600 in monthly income from Gerry’s government pension (a bit more if he works until 47) as well as $20,000 annually from their then fully paid-off rental houses. With CPP payments at 60, that should be more than enough to last the Gardas well into their 90s.

In 1989, David Chilton published The Wealthy Barber, a seminal book on money, focusing on three people in their 20s who visit Roy, a barber, for lessons on financial planning. It went on to sell more than two million copies, making it one of the bestselling Canadian books of all time. Now, more than 20 years later, and in the wake of the 2008 financial crisis, the 49-year-old has released the long-awaited follow-up: The Wealthy Barber Returns, which hits bookshelves this week.

Q: How old were you when you first published The Wealthy Barber?

A: I was 25 when I started writing it and 27 when it came out. I was very lucky. I really was. Interest rates had just started heading on a steady path downward and that was really important because it made people realize they couldn’t just rely on GICs [guaranteed investment certificates], they had to start looking for other investments. And that meant they needed some knowledge. Also, there was almost no competition. When The Wealthy Barber came out, there were only two other Canadian personal finance books in the marketplace. Now there are hundreds.

Q: Why did you approach the book the way you did?

A: When I was a young stockbroker I liked about three or four of the personal finance books in the United States. They were very well done. And a couple of them, I thought, were quite understandable. So I got copies of the books and gave them to clients, but they still didn’t like them. They still found them boring and intimidating. I thought: there must be a way to make this more fun and more palatable.

Actually, the first [incarnation] of the The Wealthy Barber was called The Wealthy Bartender. I set it in a bar and wrote three or four chapters along that line, but the alcohol got in the way. I’m not saying that to be funny. It’s quite true. Because I was trying to keep it realistic, you have to involve the alcohol and it just got too muddy. So I took it out and put in a barber shop, and I’m glad I did. I think it’s something people could visualize.

Q: So what have you been doing for the last two decades?

A: The first five or 10 years I did an incredible amount of public speaking and not much else. We went down to the U.S., where we put out a U.S. version of The Wealthy Barber and it was converted into a TV series on PBS. So I toured with the TV series and did a lot of speaking down there, as well as in Canada. So the first decade was a little bit crazy. But the last 10 years have been very different. I got involved in everything from home schooling my kids to publishing cookbooks, which kept me very busy because they also ended up being quite successful. For the last two years, I was almost off everything and worked on the new book.

Q: What made you decide, after such a long time, to come back and write another personal finance book?

A: It was really about frustration. In 2007 and 2008, and before the credit crisis by the way, I had been looking at so many people’s personal finances—people email them to me every day—and saw the amount of debt they were taking on. The very low savings rates just drove me crazy. I couldn’t believe how many people were headed toward retirement in not good shape at all, including fairly affluent people. So I said, “You know what? I want to come back at this and try one more time.” And I knew how I was going to do it right away. I knew that the first half of the book was going to concentrate on saving and spending from every angle I could think of, while the second half I was going to put in some random thoughts.

Q: What really struck me about The Wealthy Barber Returns is the focus you put not just on saving more, like in the first book, but on spending less—this idea of living within your means. But that doesn’t seem like the sort of thing that’s going to be popular with people. Most personal finance books tend to come at it from the perspective of telling you how to get what you want.

A: That’s exactly what I’m trying to do. I’m telling people to manage their expectations and get more realistic ones. There’s a line in the book, which, at the time, didn’t seem all that important, but is really an important part of what I’m trying to say. And that’s that we’re not bad savers, it’s that we’re fantastic spenders. And until we get the spending under control, the saving will never take place.

So what I tried to do is look at why we spend so much and then talk about the savings part. But you’re right, I do focus more on the spending part than most writers. And that’s the part of the book that’s so far going over the best. That’s resonating with people because they see themselves in a lot of those stories, making the same mistakes. Most people agree that this drive toward consumption and possessing as much as we possibly can is not translating into better happiness levels. In fact, it may be doing the opposite by creating tremendous stress about people’s futures, financially.

Q: Is this advice that you live by? Because people might look at you and say, “Okay, but it’s not like the guy who wrote a bestselling book is going to be stopping himself from buying a new TV”?

A: I live in a 1,300-sq.-foot house—and that’s including the basement. And I don’t even have a garage. I live in a very tiny house.

Q: No gold fixtures?

A: No. I don’t even know what granite countertops look like. I’m just not into that stuff. So, I guess I’m lucky in that way because I don’t have to fight the spending urges like a lot of people. I just don’t get that much enjoyment out of stuff, period. So maybe it’s a little easier for me. But I think most people will agree that we’ve gone too far on the consumption front, and that possessions are driving too many of our passions now and too much of our spending.

Q: Do you splurge on anything?

A: Oh, for sure. Everybody does. In my case, what I’ve spent a lot on over the years is going to professional sporting events. I’m a Detroit Tigers, Lions, Red Wings and Pistons fanatic. So I’ll go down to a tremendous number of games with my kids, including playoff games. I think even really good savers tend to have areas of weaknesses where they spend a lot, and get a lot of joy from it. But the key is that they cut back elsewhere. And what I see so often now is that’s one thing many people aren’t willing to do. People will spend excessively on travel but won’t make the cuts elsewhere. They use the line of credit instead. And that’s why so many people are so far behind in saving for their retirement. They don’t want to make any compromises or sacrifices.

Q: Okay, so this is a relatively simple strategy: save more and spend less. But what are people supposed to do with the money they do manage to save, because after the financial crisis, a lot of people are wondering: where are those stable, long-term investments that Dave Chilton was talking about in his first book?

A: Well, there’s no such thing as stable. And that’s one of the things people have to get their head around. If you want market returns, you also have to accept market volatility. If you’re going to make a bet on equities, you’ve got to be thinking 10, 15 or 20 years out. And you have to recognize there’s going to be some really ugly times. Major pullbacks. Extended periods of poor performance. And it’s not easy. It’s one thing to say that, but it’s tough to live through it.

Q: I also want to ask you about real estate. For many Canadians, buying a house has become part of their retirement planning.

A: Yes, too much so.

Q: When you see these stories about soaring housing prices in cities like Toronto and Vancouver, do you say, “This is craziness”?

A: In Canada, a lot of real estate markets are at their top limit. You can say that with a fairly strong conviction because you can compare it to incomes. At the very least, real estate is going to start stabilizing at these levels. I don’t think you can continue to post these kinds of performance numbers. But that is very hard to predict.

The bigger picture to all of this, though, is that a lot of people think they’re wealthier than they actually are because they have a fully paid-for $600,000 home. But you can’t spend your kitchen. And if you don’t have any savings or a defined benefit pension plan, you’ll be looking at that home later in life and be thinking it’s such a great asset. Well, is it? Are you going to sell it and move way down? Most people don’t do that, so they’re having trouble harnessing that equity and turning it into a productive retirement asset that spins off an income. A lot of people have this illusion of wealth. I see this over and over again. Frankly, I have friends who are in this situation.

Q: When do you plan to retire?

A: Never. I can honestly say I don’t think I’ll retire even when I’m 75. I really enjoy what I’m doing. That’s never crossed my mind.

Q: Will you write any more personal finance books?

A: I doubt it. This was a lot of work. It took me 26 months. I wouldn’t say definitively no, but it’s unlikely. Truthfully, one day I would really like to write a play.

Q: With a personal finance focus?

A: No. I will spare you that. I’ve always wanted to write a play. So maybe in a few years I will take a year off and at least try that. I have no idea whether I would be any good at it, but I want to give it a shot.

That afternoon, at our kitchen table, he showed me how saving can earn you money through compounded interest, and how owing money can bury you in debt. His message? If you have a financial plan, you have choices—and having choices and setting goals is what leading a successful and satisfying life is all about.

My dad’s personal financial plan was his road map, helping him navigate to his dreams. And the roads to those dreams were built on details. For instance, dad always knew exactly what his take-home pay was, how much the family spent every week on groceries and gas, and how much he needed to save each month to pay off his mortgage in 10 years—his main financial focus when I was growing up.

His plan wasn’t just about counting pennies though, it also allowed him to plan for luxuries—and pay for them in cash. That’s why there was a special column in his plan for $50 in weekly savings towards a family trip to Italy. He had a system he believed in, and made sure the household finances were managed effectively.

These days, most people I know don’t have a financial plan. We spend a lot of time planning for other aspects of our lives, such as our careers, marriages and having kids, but many of us fail to build a plan to achieve our financial goals.

If you would like to stop wondering about whether you’ll ever realize your financial goals, and build a plan to actually reach them, I can help. Read on and I’ll not only show you how to build a proper financial plan, I’ll take you through each step, complete with worksheets and a blank financial plan template that you can fill in at the end. Follow my simple instructions and in no time at all, you’ll have the peace of mind that comes with a professional-quality personal financial plan—without having to pay a financial planner a dime.

1. Talk to your spouse
Most couples never talk to each other about their financial goals. If you’re in a relationship, before you roll up your sleeves and dig into the numbers, talk to your spouse about what you want to accomplish. “Have a brief conversation about goals, values, and what kind of lifestyle you want,” says Karin Mizgala, chief executive officer of Money Coaches Canada, a national network of fee-only financial experts based in Vancouver. “That’s key to a good start.”

Action step #1: Click here to find 10 worksheets in the “MoneySense financial plan kit.” There is a PDF version of each worksheet that you can download and print out if you want to fill in the sheets with a pencil or pen. There is also a Microsoft Word version you can fill out on your computer. Print out “Worksheet 1-Prioritize your goals” for this step. You and your spouse should fill this sheet out separately, then compare the results when you’re done.

2. Figure out where you’re at
Before you start worrying about where you want to go, you first have to figure out where you are now. In this step you’ll create a net worth statement, which is essentially an honest measure of your current wealth. You do this by tallying up the value of what you own (your assets) and what you owe (your liabilities). When you subtract your liabilities from your assets, you get a number that represents your net worth. Your net worth statement is an important tool that charts your financial progress over the years. For instance, if your net worth is going down, you’re eroding your wealth and making it harder to achieve your goals. If it’s increasing, you’re on your way to getting richer and achieving your financial goals.

Action step #2: Determine your net worth. Print out “Worksheet 2-Gather your documents.” It’s a checklist to help you pull together what you’ll need before you start, including bank statements, credit card statements, and life insurance polices.

Once you have all your documents in front of you, you’re ready to fill out “Worksheet 3-Your net worth statement.” First list the values of all of your assets, including your home, your cars, your cash and investments. Then list your liabilities, including credit card debts, your mortgage and any other outstanding loans. Tally both your assets and your liabilities and transfer those amounts to the following section, your simplified net worth statement.

Finally, subtract your liabilities from your assets to discover your true net worth. This shorter net worth statement gives a clear snapshot of exactly where you stand today.

3. Track your spending
The key to building a strong financial plan for the future is to understand how much you spend and save right now. This is called tracking your cash flow, and it can give you a sense of control and confidence that makes it easier to make financial changes in your life.

Personally, I’ve kept a small journal tracking my spending for years because it helps me modify my behaviour if my spending gets out of control. It’s not always easy, but it works.

“The part most people dread is taking a really close look at their expenses,” says Mizgala. “But don’t put it off. Successfully managing cash flow is your key to financial control. It will give you an awareness that has more long-term value than anything you can invest in, buy or sell.”

The point of the exercise is to find out whether you finish each year with a cash surplus or a cash deficit. This number will tell you a lot about your general financial shape. A surplus means you’re living within your means, while a deficit shows you’re spending more than you make. If you have a deficit, you will have to cut your expenses (or increase your income) to achieve any financial goals.

What do most people find after doing this exercise? “They’re shocked,” says Mizgala. “It’s a very revealing exercise, mainly because if you have a family with two spouses with debit and credit cards, it’s hard to really see the complete financial picture unless you write it down. This awareness allows you to set up a system for the household.”

Action step #3: Record your cash flow. Fill out “Worksheet 4-Your spending and savings.” It shows what money is coming in (wages, interest, government benefits) and what’s flowing out (rent, debt payments, utility bills). Fill in all your monthly expenses in column 1 and your annual expenses in column 2. (You can leave column 3, the estimate for your future spending in retirement for a later date.)

Tally up your expenses in both columns and subtract them from total net income on both a monthly and yearly basis. The result is your cash flow deficit or surplus.

A good way to approach this exercise is to start with your regular monthly after-tax income and subtract the bills that don’t change month to month, such as rent or mortgage payments. If you don’t know the exact numbers, put in averages for things like groceries, gas or children’s activities. Then add in expenses that only come up a few times a year, such as travel, car repairs and gym fees. Estimate a total for these and divide it by 12, and put that figure in the monthly column of your worksheet. You may not pay the bills in 12 monthly installments but imagine you are setting money aside each month so that you have the total amount when the bill comes due.

4. Adjust your spending
Look closer. Are your expenses higher than your income? If so, you’re living beyond your means. You’ll need to adjust your expenses accordingly so you don’t go further into debt.

This step is not about punishing yourself or laying blame. If you’d rather eat out four times a week than buy a cottage in 10 years, that’s your choice. But you owe it to yourself to be honest about what you’re doing so you’re not wondering why you can’t reach your financial goals.

If you decide to cut back, there are some less painful ways of doing it. Consider renegotiating your mortgage to a lower rate or cutting out one major expense completely. A close friend of mine cut the $5,000 annual family vacation and substituted a couple of long weekends of camping instead. It saves his family $4,000 annually.

If you have a cash surplus, congratulations. You can start allocating money to meet your goals right away.

Action step #4: Compare your spending to your goals. Take a second look at “Worksheet 1-Prioritize your goals” and “Worksheet 4-Your spending and savings.” The idea here is to look at how well your current spending habits mesh with your goals. If you have a cash flow deficit you won’t be able to meet your goals, so you’ll have to see if you can free up cash by cutting back your spending in areas that are less important to you.

For instance, if you have a $5,000 a year deficit on Worksheet 4 and one of your goals is to go on a $4,000 family vacation to Britain in four years, you need to figure out a way to cut $6,000 a year from your spending. You could try using only one car and taking public transit to work. Such a cut could save you $6,000 a year in vehicle costs, allowing you to both balance your budget and reach your travel goal.

5. Set your life goals
Financial goals don’t just happen. You make them happen. This step requires you to assess where you want to be five, 10 and 20 years from now and answer some big questions, such as where you want to live in retirement and when you want to stop working.

One tip is to visualize what your life will be like 10 years from now if you do everything right. The truth is when they picture their future lives, very few people see themselves in a $10-million house in Hawaii. Most people’s goals are more realistic, such as keeping up their current standard of living in retirement (with maybe a few upgrades), preventing any financial disasters, and having the freedom to do the things they love, such as spending more time with friends and family.

“Think of what type of life you want in the future and how you are going to organize your life right now to get it,” says Mizgala. “Your job is to structure your finances so you can achieve your vision.”

Action step #5: Set your top three goals. Fill in “Worksheet 5-Your life and financial goals” and “Worksheet 6-Your top three goals.” If your are in a relationship, sit down with your partner and examine what your goals are and how they fit in with your spending and saving patterns. On Worksheet 5, list each of your top four or five goals and assign a dollar value to each, as well as a time frame for achieving the goal.

Now, compare how closely your goals align with those of your partner. In Worksheet 6, list the three most important goals that you both agree on, in order of priority, in column 1.

6. Develop a strategy
Once you know where you’re going, you need a plan to get there. The usual route is to spend less than you earn and invest the surplus in such a way that you can get where you want to go.

One word of caution—if you’ve identified your goals but you’re in debt, you probably should address that debt before you start investing for the future. “Even when people are not overspending and have debts that carry reasonable interest rates, I encourage them to work aggressively at paying those debts down,” says Norbert Schlenker, founder of Libra Investment Management in Salt Spring Island, B.C. “Don’t even think about investing before your debts are all gone.”

Action step #6: Chart a path to your goals. Go back to “Worksheet 6-Your top three goals” and in column 2, note any obstacles to achieving each goal. Then, in column 3, write down the action steps that you and your spouse have both agreed on to make that goal a reality. For instance, when you tally up the costs of your top three goals, you may find that you need an extra $65,000 in five years to meet those goals. The main obstacle may be that your household income is low because one partner works only part-time. That partner may decide to work full-time in order to earn extra money. The key is to develop strategies and appropriate timelines to make your goals materialize.

7. Review your insurance
If you work full time, much of your insurance may be provided by your employer’s group plan. But is it enough? If you feel confident enough to do some basic calculations yourself you can find out.

Many workplace benefit plans include disability insurance, but if yours doesn’t, get enough to replace at least 60% of your after-tax income.

Then look at your life insurance needs. The general rule of thumb is to get enough life insurance to cover 10 times your income if you have kids under 10 years old (five times your income if you have kids over 10), plus the amount needed to pay off your debt. So if you make $50,000 a year, you have $250,000 outstanding on your mortgage, and two kids under 10, you will need $750,000 in term life insurance. Go to www.term.ca for quotes.

At this point, it may make sense to have an agent review all your insurance policies—disability, life, auto and home—to make sure your coverage is adequate. But be careful. “Do not be oversold on insurance by an industry that is famous for doing exactly that,” says Schlenker. “Pay attention to fees, especially with life insurance. If you need more life insurance, chances are renewable term is the right product for you. You want plain vanilla coverage for a plain vanilla problem—your kids going hungry because you can’t work.”

Action step #7: Review your coverage. There’s no worksheet for this step, but you should still take some time to carefully review all of your insurance coverage. If you don’t have group coverage through work, you probably have private insurance policies for medical, dental, life and disability insurance. Consult an independent insurance agent for a quick review. If you need extra coverage, make a note of it so you can include that in your final financial plan.

8. Slash your taxes
Most tax planning is relatively simple. You’re probably doing a lot of things right already. For instance, if you own your home and use RRSPs, Registered Education Savings Plans (RESPs), and Tax-Free Savings Accounts (TFSAs), you’re already taking advantage of the best tax shelters out there.

To reduce the taxes you pay on your investment portfolio returns it helps to understand that the income tax system treats the various sources of investment income differently. Interest on bonds and foreign dividends is taxed at your full marginal tax rate, Canadian dividends are taxed at rates about one-third lower, and capital gains at half the full rate. So there are advantages to holding investments that generate capital gains and Canadian dividends outside of your RRSP and TFSA if you’re tight on contribution room.

Action step #8: Consider calling a tax accountant. Again, there’s no worksheet for this step. But a few basic principles apply. For those with low to moderate incomes, paying off debt—including the mortgage—is the best tax-planning you can do. That’s because you don’t pay taxes on the capital gains on your home and there’s no tax on the return you get for getting out of debt. If, however, you’re in a higher tax bracket—earning $85,000 a year or more—it may be worth paying for a couple of hours of an accountant’s time to see what mix of investment options—RRSPs, RESPs and TFSAs—is right for you tax-wise. Have these suggestions handy for your final plan.

9. Create an investing policy
Every professional financial plan includes an Investment Policy Statement (IPS) that recommends how a portfolio should be invested. It puts in writing the rules that will make you a more disciplined investor. Having an IPS helps you to stick with your plan and keeps you from changing course when the market gets volatile.

A typical investment policy might specify that your portfolio should always maintain a ratio of 60% stocks to 40% fixed-income investments. This ratio is determined by your time horizon and risk tolerance. The longer your time horizon and the greater your tolerance for risk, the higher the equity portion of your portfolio. As you near retirement and need the security of more stable income from your investments, the portfolio mix will usually tilt towards bonds.

An IPS also states the expected annual returns for your portfolio—typically 5% to 6% per year—over a very long time period, such as 20 years or more. Your IPS might also note the volatility you should expect for a given portfolio. For instance, it could say that you should expect the portfolio to suffer a 10% drop in the short term at least once a decade.

Action step #9: Determine which investments are right for you. Fill in “Worksheet 7-How are you currently invested?” and “Worksheet 8-Which investments are right for you?” On Worksheet 7, itemize every investment you own today—including cash, fixed-income products and equity holdings.

Worksheet 8 will help you assess how much you need to save monthly, when you’ll need the money, and what your risk tolerance is. The results will allow you to zero in on how you should invest in future to meet your goals.

If you have trouble with this section, you can always leave it for now. Once your financial plan is complete, you can consult a fee-only adviser to help you build an investment strategy that’s right for you.

10. Write up a will
Every adult who owns assets and has a spouse or children should have a will. An accurate and up-to-date will is the only way to ensure your assets will be distributed the way you want them to be. If you don’t have one, you’re letting the laws in the province you live in make those decisions for you. And if you hold the belief that your spouse will automatically inherit everything—you’re wrong. In most parts of Canada children trump partners. Without a will your husband or wife will get a predetermined amount of your assets—the rest goes to the kids.

Action step #10: Create or update your will. If you have an updated will it should be filed with your financial plan. If you don’t have one, hire a lawyer to draw one up for you. Visit www.lawyerlocate.ca and search for lawyers in your area who specialize in wills and estates.

11. Create your final plan
A typical financial plan has five main parts. The first outlines where you stand right now, that’s your current situation. The second contains your top financial goals, or where you want to go. The third is a simple net worth statement. The fourth lists the steps you must take to achieve your goals. It includes your income and expenses, an overview of your insurance, a section on retirement planning, and a section on estate planning. Finally, the fifth section—usually a separate document—is your Investment Policy Statement, which lays out how your portfolio is to be invested.

To get a better feel for what your financial plan might look like, let’s take a look at a plan that has already been created by a fictional couple, Patty and Walter Berglund. The Berglunds are a 34-year-old couple living in Halifax. They have two daughters, Debra and Marie, ages 5 and 2. Their household income is $110,000 and after all expenses have been paid, they have $20,000 in cash left over each year.

Their plan lists their top five goals—to pay down $20,000 in consumer debt, save $5,000 for a family trip to Disney World in two years, pay off their $150,000 mortgage in 15 years, save $60,000 in RESPs for their daughters’ post-secondary education and finally, to retire comfortably at age 60.

This is followed by a basic statement of their assets and liabilities that shows a net worth of $82,000. The couple’s projected income and expenses show a $20,000 annual cash surplus. That money is earmarked for their goals in the following way: In the first year the entire $20,000 surplus will go towards paying down the debt. In year two, $5,000 will go towards the big family Disney World trip, $5,000 towards an extra payment on their mortgage, $5,000 to the RESPs and $5,000 to a spousal RRSP for Patty. The couple agrees to continue using the annual surplus in this way each year until their goals change.

After consulting with an insurance agent, the Berglunds agreed that their group plans with their employer are mostly adequate but they decided to increase Walter’s insurance coverage by $300,000. In the section on retirement planning, the couple made some assumptions: that Walter remains employed as a physiotherapist and stays in the hospital’s defined benefit pension plan until age 60, and that Patty continues working part time earning $30,000 a year as a social worker. Walter will start saving $5,000 annually in a spousal RRSP for Patty once their consumer debt is paid off (excluding the mortgage). If they do this, the couple should have more than enough to cover their retirement expenses adequately. Their wills and power of attorneys are all in order.

The second document, the Investment Policy Statement (IPS), outlines the Berglunds’ investment plan. They have an average tolerance for risk and don’t require regular income from the portfolio right now. So a balanced 60% equity, 40% fixed income mix suits them fine. The couple wants a well-diversified portfolio at minimal expense. Thus, their policy states that low-cost index funds or exchange-traded funds are to be used wherever possible.

Their IPS also states that once a year the Berglunds will review their portfolio and rebalance to bring the asset allocation back to their pre-determined target mix of 60% equity and 40% fixed income. It also states clearly that sudden market price movements are not grounds for revision. This will help stop the Berglunds from making impulsive investment decisions out of fear or greed.

Action step #11: Create your financial plan. Open “Worksheet 9-Your financial plan” and gather together all of the worksheets you have already filled out. Worksheet 9 is a blank financial plan with all the sections already labeled for you. At this point, all you are really doing is taking information from the completed worksheets and putting it all together to form your plan. Before you proceed, it may help to review the sample plan for Patty and Walter Berglund at the end of Worksheet 9.

Now fill out “Worksheet 10-Your investment policy statement.” Again, refer to Patty and Walter Berglund’s Investment Policy Statement at the bottom of this worksheet for guidance. Write a brief summary of your current status, and under Objectives and Constraints write down your risk tolerance, time horizon, any taxation strategies you plan to use, and the amount of time you wish to spend managing your portfolio—in many cases, minimal.

Under Investment Strategy Guidelines, write an outline of how your investments will be allocated, according to asset class. The next three headings—Security Guidelines, Location Guidelines and Risk Control, Monitoring and Review are fairly generic and are already filled in for you.

Phew, it’s done! You now have a financial plan for the rest of your life. From this point on, as your goals change, modifications to your basic plan will be straightforward.

Of course you still have to follow your plan. But you’ll probably find that the process of putting it together has already changed some of your beliefs about how your money should be spent and invested, so changing your financial behaviour may not be as hard as you think.

To make sure you stay on track, you should take the time to review your plan at least once a year, and update it as necessary. It’s also a good idea to pull it out whenever you run into a big financial or life event, such as a market crash, marriage or job change. “It’s a tool to support you through life,” says Mizgala. “Money and household finances won’t be as scary when you break it down into these manageable bits. If you truly commit, it will be a huge boon to your emotional and financial well-being.”

There’s a strong empirical aspect to writing a book about getting rich, of course. When aspiring multi-millionaires buy such a book, they don’t want to spend their seed money—the $30 investment they hope will be rewarded 30 thousandfold—on mere musings. They’re looking for tips and techniques, recipes even, that have stood up to rigorous examination in the test kitchen of life. So it’s hardly a surprise that many of the best-known books employ a distinct methodology: they study millionaires.

Why study millionaires? Well, most millionaires have done some things right, and some have done most things right. Beyond that, their stories are not only interesting but incredibly different. In fact, after studying the books that study millionaires, it’s fair to say that there’s something of a Hegelian dialectic going on—you remember: theses, antithesis, synthesis. One author asserts something, the next one makes a distinctly different and even oppositional argument, and then a third comes along and posits yet another way forward, this one taking into consideration the ideas that have come before. At least that’s what we found when looking at two of the best-known books to study millionaires and a third, due to be published this September, that has its own twist on the millionaire thing, as well as a Canadian connection.

Let’s begin with a classic, a book dating back to another era of social and economic uncertainty, the late 1930s. In 1937, when Napoleon Hill published Think and Grow Rich, he hit the very pay dirt he counselled readers to unrelentingly dig for. So strong was public appetite for the book that first, second and third printings sold out within months; seven decades later BusinessWeek would name it the sixth bestselling paperback business book of all time.

Born in a one-room cabin in southwest Virginia, Hill became a lawyer and writer, and in the latter capacity met famed steel magnate, philanthropist and powerbroker Andrew Carnegie, who gave him the idea of studying successful people to determine The Law of Success (the title of his original book series), as well as an entrée into their circles. Hill interviewed some 500 people, overwhelmingly men (it being the era of Great Men and Helen Keller), and analyzed their stories to produce his Thirteen Steps to Riches, predating A.A.’s catchier 12 Steps by a few years.

In his preface Hill refers to a single secret, passed along to him by Carnegie, but allows that it is never explicitly expressed. Rather, as a college sophomore hopes to find the key to human existence hidden in a Herman Hesse novel, it “will jump from the page and stand before you, if you are ready for it!” Hill does, however, detail the 13 Steps to Riches, which begin with Desire (a transcendent focus on wanting to be rich) and end with what he calls the Sixth Sense, which he defines as a subconscious “creative imagination” that enables ideas, plans and thoughts to flash into the mind. In contemporary terms, we might think of this as akin to the endorphin-influenced state achieved during vigorous exercise.

In between the First and Thirteenth will be found both the expected and some surprises. We spoke with Bill Hartley, the publisher of and a contributor to the most recent edition of Think and Grow Rich, who allows that many of the questions he fields relate to the Tenth, The Mystery of Sex Transmutation. “Every other animal responds to the call of sex only in season,” Hill writes, one of many passages in which a distinctly puritanical point of view is revealed. At the same time, he writes approvingly of a quality termed “sex energy,” which, to oversimplify, involves redirecting all the effort and magnetism wasted on the pursuit of out-of-season sex toward more lucrative goals. Hartley chuckles a little at this, but does not refute the principle, while noting that in The Law of Success, published a decade earlier, sex of any kind was such a delicate subject that Hill could only hint at what he meant.

With its preponderance of sentences like “Many other men had tried to interest Schwab in a steel trust after the pattern of the biscuit, wire and hoop, sugar, rubber, whiskey, oil or chewing gum combinations…,” reading Think and Grow Rich is to understand how much the world has continued to evolve during the subsequent three-quarters of a century. But it is also to understand how much it has stayed the same. Hill relates the story of a man who ran into bad luck during a gold rush by giving up on a stake only to see the next owner strike the mother lode. Rather than lamenting his fate, the man used it as inspiration to become wealthy by another means. “I stopped three feet from gold,” he told himself over and over, illustrating what Hill calls The Power of Thought, “but I will never stop because men say no when I ask them to buy life insurance.”

Well, who has not endured the spiritual descendant of that life insurance agent? Indeed, a skeptic might think that Think and Grow Rich would be of primary use to overly persistent salespeople—the Jack Lemmon character in Glengarry Glen Ross, for example. But, as Bill Hartley says, “This book has stood the test of time. If you follow what Napoleon Hill says, you will become successful.” And you needn’t be in sales. Among the contemporaries he cites as having been inspired by it are Drew Carey, Ted Turner and Mitt Romney.

We’ll add another to the list, though this person has not yet achieved his goals and must remain anonymous. In our copy of the book, borrowed from a public library, we found a slip of paper on which a previous borrower had traced his own version of the commitment that Hill counsels all must make in keeping with the Third Step—Autosuggestion: The medium for influencing the subconscious mind. “By the first day of April 2014,” this person wrote in ballpoint pen, “I will have earned five million dollars, which will come to me in various amounts from time to time during the interim. In return for this I will give the most efficient service of which I am capable, rendering the fullest possible quantity and the best possible quality of legal services.

“I believe I will have this money in my possession. My faith is so strong that I can now see this money before my eyes. I can touch it with my hands. It is now awaiting transfer to me in the proportion to which I deliver the legal service I intend to render in return for it. I will follow my plan to obtain this money.”

We hope the soon-to-be-wealthy lawyer committed the note to memory because Hill’s strict instructions are to fixate on the desired money, with eyes closed, at least once a day, until the bundles of bills can clearly be seen in the mind. If all goes well, in three years’ time, there will be another millionaire, this one very much a multi, to study.

Think and Grow Rich is a work of inspiration and transformation. Its message is straightforward: The way to become wealthy and successful is to reconfigure yourself into someone who is able to make more money.

The message emerging from another large-scale examination of millionaires is distinctly different. In 1983 Thomas J. Stanley was hired by a marketing firm to interview 60 Oklahoma millionaires, and found some unexpected commonalities. In a follow-up survey, he expanded the scope to include more than 700 households across the U.S., which became the basis for the 1996 best-seller, The Millionaire Next Door, co-written with William D. Danko. The picture that emerged was of mostly self-generated wealth and of people living comfortable rather than extravagant lives in clustered upmarket communities, paid for out of earnings rather than with credit.

In the subsequent The Millionaire Mind, Stanley added additional detail to this portrait of America’s affluents. They formed themselves into what Stanley calls economically productive households. Their behaviours included coupon clipping, buying goods in bulk, refinishing instead of replacing furniture and switching phone companies to get a better deal. They did this, Stanley explained, partly because these largely self-made people were naturally practical and frugal, partly as an example to their children—whom they also talked to about financial matters, unlike most parents.

Yet, in many ways Stanley’s millionaires were not so different from Hill’s. Crucial success factors included displaying creative intelligence (the sort that lends itself to pursuing opportunities, as important as the standard version) and having the courage to invest time, energy and money when conditions warranted. The millionaires themselves identified their five most important success factors as being honest with others, being self-disciplined, getting along with people, having a supportive spouse and working harder than others. Making wise investments was only 11th, while living below one’s means registered as 25th.

With 2009’s Stop Acting Rich—published in the wake of the U.S. economic collapse—Stanley further updated his argument that careful spending was at least as important as high earning when it comes to the accumulation of wealth. In the top quartile of the millionaires he studied, more than $11 of net worth had been accumulated for every dollar of household income; in the bottom quartile, only $3. The difference, he theorized, was mostly due to consumption habits.

In his latest book Stanley notes that three times more American millionaires live in homes valued at under $300,000 than over $1 million—and, in fact, says that moving to an enclave of upscale mock tudors is akin to moving to a wealth trap. High-income earners will suddenly increase their spending on home and lifestyle in an effort to fit in, thereby reducing the surplus that would otherwise have gone to savings and investment. Expensive stores, clothes, cars, wines and furniture—indulging in these dooms all but the highest earners to a life of financial insecurity that rarely leads to millionaire status. “We lack the discipline, the guts to become rich,” is Stanley’s overall message.

Thesis and antithesis: Imagination and dreaming big for Hill; discipline and denial for Stanley. A synthesis of sorts is found in The Millionaire Teacher, a new book forthcoming this September from Andrew Hallam, a high school English teacher and writer, now living in Singapore, whose past work has appeared in MoneySense. His message: It’s possible to focus on neither making more money, nor spending less, if you can learn how to manage and invest the money you have more profitably.

Practising what he preaches, Hallam put himself through university and made himself a millionaire on a teacher’s salary. And what he preaches is more than simple denial. “You can save half what your neighbour saves, and still end up ahead,” he says, providing the figures to prove it. Mostly this is due to what he describes as the “silly behaviour” of so many people when it comes to investing.

One example among many: “They will buy actively managed mutual funds, and they will either chase hot-performing funds or fail to keep a regular commitment to their investments when the markets fall.” Those who follow an investment pattern like this will quickly and irreversibly fall behind someone who does nothing more than make regular investments in index funds, which produce higher returns. (He even shows why regular index fund purchasers of this sort will actually rejoice when markets go down.)

In its simplest form, his prescription for successful, low-stress investing is this: forget about trying to pick individual stocks or time the market (neither of which can be reliably accomplished); use index funds and exchange-traded funds (ETFs) with very low management fees; invest small sums monthly (termed dollar-cost averaging, this is a way to ensure you aren’t doing most of your buying when prices are high, as an excited investor might do).

And there you have it: between Hill, Stanley and Hallam, the three essential ingredients to the recipe for wealth. You start with the inspiration and focus required to make more money, as Hill advises. Then, once the coin starts rolling in, you spend much less than you make, as Stanley determined to be the best way forward. And finally, you take the resulting savings and invest them wisely—avoiding overpriced, faddish investments and keeping to sound fundamentals, as Hallam counsels. Balance the three and financial security—perhaps even great riches—will one day be yours.

Looking for a better credit card? You’re in luck. MoneySense is proud to present the results of the most sophisticated credit card ranking system in the country. We know the Canadian credit card marketplace can be overwhelming, with dozens of issuers offering hundreds of cards, each promising cash back rewards, free flights or low rates so you can pay off your debts faster. But which ones are the best? Comparing the different rewards systems takes a PhD in physics. As a result, many of us stick with the same old credit cards year and year out, wondering if there might be a better one for us out there somewhere.

To help you make a more informed decision, we’ve spent the last few months building a giant database of the 100 most popular credit cards in Canada. Then we designed a system to compare the features of each and every one of them. It wasn’t easy. We spent hundreds of hours reading the fine print of cardholder agreements, crunching numbers and researching consumer spending patterns.

To make our ranking as useful as possible, we started by dividing the credit card marketplace into five different card types: cash back cards, travel rewards cards, retail rewards cards, low rate cards and small business cards. Then, for each category, we came up with several different scenarios to capture how you actually use them.

For instance, the best cash back card for you depends on how much you spend each month. If you spend $500 a month, the MBNA card comes out on top. But if you spend $4,000, the Capital One card wins.

Factoring in the juicy sign-up bonus that many cards offer was another challenge. Those bonus points can completely overwhelm the points you get for your regular monthly spending. But we didn’t want to give top place to a card that doesn’t keep giving you a great return year after year. Our solution? We assumed that you’ll hang on to your new card for at least five years, and amortized the bonus points over that five-year period.

Travel rewards cards were even more complicated. Believe it or not, the best travel card for you depends not only on how much you spend, how often you travel and where you go — it actually depends on where you live. Some cards have better travel deals out of Vancouver, for instance, while others fare better out of Toronto.

But yes, we took that into account too. To find the cards that would take you farther, we looked at scenarios for nine different flights on various days from three different urban centres (just pick the one that’s closest to you). For all our scenarios, we were able to break down the nebulous value of the points or miles you earn into a tangible estimated cash value.

To get started, just answer the questions in the credit card tool. It will help you quickly narrow the field and make sure you don’t choose the wrong card category to begin with. For instance, if you carry a balance on your card, you shouldn’t even consider getting a rewards card. Thanks to the 19% interest rates on such cards, you’ll pay much more in interest every year than you get in rewards.
Once you find the category that’s best for you, you’ll find an overall list of the top cards in that category. If you want a perfectly tailored fit, look at the smaller tables that follow, which order the top cards based on specific spending patterns.

Whatever card you get, remember that credit cards are just a tool. If you use them wisely and never carry a balance, you can get valuable rewards to help your dollars go farther. But if you don’t pay them off, you’ll be the guy who’s helping to pay for someone else’s free flight.

See our methodology here.

The current situation
Julie Gregson, a 35-year-old stay-at-home mom, dreams of moving into the Sundance Lake area of Calgary. She wants a bigger house with more room for her four children, Jarom, 6, Hannah, 4, Sam, 3 and Deacon, 6 months. “I love hanging out in Sundance Lake with the kids,” she says. “The beach is amazing.” Her husband Seth, a 34-year-old electrician, adds that he likes the fact that there are three schools in the area.

The Gregsons figure that if they sell their current home, they’ll pocket $125,000. But the four-bedroom houses they’re eyeing cost $525,000, so their goal is to save an additional $75,000 in two years so they can put down a hefty $200,000 down payment in 2013.

To come up with the money, Seth can work overtime or Julie can take on a two-year consulting contract for the oil and gas industry. She could work from home part-time, and nearby family members could help with child care. The couple is also building up $1,000 a month in equity in their home and saving $500 a month. They’re considering suspending their monthly $161 RESP contributions for a while, and maybe skipping their monthly date night too. “We’re open to all suggestions,” says Julie.

The verdict
According to Jason Heath, a financial planner with E.E.S. Financial in Markham, Ont., the couple is on track to reach their goal. They’re already saving $500 a month, and the equity they’re building in their home by paying down the mortgage will net them an added $24,000 when they sell. “Those things alone will give them $36,000 in two years.”

To fund the shortfall, the Gregsons have a number of options. Some generate more income, others result in lower expenses. The way Heath sees it, the best way to come up with the remaining $39,000 would be to put the RESP contributions on hold for two years (a $3,864 savings) while Julie takes on the contract job ($40,959 after taxes). These two strategies will net them $80,823 in two years—more than their goal. The extra $5,000 gives them wiggle room. “Date night is the last thing I would give up,” says Heath. “That’s time they need for themselves.”

Do you want MoneySense to see if you’re on track to meet your own financial goal? If so, drop us a line at letters@moneysense.ca

Financial incest happens when adults force their children to take on an unreasonable, inappropriate role in their finances or relationship. It often happens when a parent doesn’t feel she has a satisfying relationship with her spouse or partner. Examples include using a child as a go-between in arguments about money (common in divorce), putting pressure on a child to work excessively to pay household bills, or expecting a child to keep a financial secret from another family member.

We probably all know children who take a caretaking role in the family. These children often develop a strong sense of financial responsibility for the rest of their lives. Typically, it’s a sign that the family is overwhelmed and doesn’t have an adequate support system. Like other forms of abuse, adults who experienced financial incest when they were young are more likely to reenact it with their own children. It can lead a child to develop a troubled relationship with money that might show up in adulthood as insecurity, overspending, workaholism or another money disorder.

Ramona Reed certainly recognizes herself and her family in that picture. Feeling that she was the most resilient of all her siblings, she has been a caretaker for her parents, brothers and sisters in one way or another for all her adult life. Last year, for instance, she discovered that her 85-year-old parents were eating from the dollar menu at McDonald’s seven days a week, so she drove 1,000 km across the country to stock up their freezer with healthy food. She ended up staying for three months to do repairs and maintenance on the old family farmhouse.

“I know I learned all of this behaviour from my parents,” says Reed. “I remember dad telling us while we were growing up that we had to take care of each other. He even assigned us caretaking tasks. I was No. 6 and had to take care of No. 8, my little brother. I had to feed him, bathe him and make sure he got to school on time. My mother was a manic depressive and hardly ever moved from her chair.”

These days, Reed can’t resist helping others — even when she doesn’t have to. “I think my childhood experiences are at the root of how I view money,” says Reed “I use money to take care of people and then I overspend on myself to fill the loneliness of not having kids of my own. It’s lead to the financial behaviour that’s now destroying my marriage.”

Overcoming financial incest
If you find yourself involving your kids too much in the family finances or relying on them as you would on a spouse, it’s a sign that your marriage is under extreme stress. The solution is to take your anxiety, frustration, and financial stress to a therapist or adviser and avoid involving your children in issues that you need to resolve yourself. You should admit to your child that you were wrong to put so much responsibility on their shoulders at such a young age. Then ask a friend, therapist or planner to keep an eye on your behaviour and have them hold you accountable.

At the Onsite workshop in Nashville, I watched therapeutic exercises designed to help those with severe money issues. I witnessed role-playing, meditation and behind-closed-doors group therapy, all of it designed to uncover the hidden motivations behind the money habits of the participants. One powerful session involved a ‘What if’ exercise that helped clients prioritize their goals. The participants were asked ‘What dream or longing will you leave unfulfilled?’ Melissa Hammel, a certified financial planner and group leader at the workshop, explains the thinking behind the exercise: “Your answer reveals your true passions — and if you can grab a hold of those, then you will follow a financial plan to get there, because that’s what rings true to your heart.”

In another Onsite session, the participants were told that they have only 24 hours to live. They were asked to name their unfulfilled dreams and goals. Ramona Reed’s answer was revealing. “I remembered how I had always wanted to open my own art studio,” she told me. “I’ve written and illustrated dozens of children’s stories, just for myself, of course. And my attic is full of paintings that I did in my 20s. But afraid I had no talent, I just gave it all up. I think now’s the time to take out those paints and easels and get a little gallery of my own.”

As I watched the diverse group of participants, most of them quite wealthy, all of them damaged in some way, I began to realize that most money disorders aren’t really about money at all. They are the symptoms — not the disease. A lot of personal finance advice just addresses those surface symptoms, while leaving the underlying problem untreated.

There are a lot of factors that contribute to financial success: you need a steady source of income, you need to know the personal finance basics, you need to know where you want to be, and you need a plan to get there. But even with all these things in place, you may find that you can’t make any progress. If that’s the case, it could be that some of your most deeply held financial beliefs — your money “truths” — aren’t really true.

To succeed, you need to identify those truths and work your way back to discover where they came from. Sometimes it’s a relatively easy process. Other times it’s brutally difficult. The first step is always identifying the problem, though, and I hope that I’ve been able to help you do that. Because once you understand your motivations, all the other factors — staying out of debt, sticking to a savings plan, spending within your means, enjoying a heathy financial relationship with your spouse — will start to fall into place.

You’ll achieve higher levels of satisfaction in all of your life goals and achievements. It takes time, effort, and yes, sometimes money, to delve into what’s really at the root of your financial beliefs and habits. But trust me. It will be the best investment you’ve ever made.

]]> http://www.moneysense.ca/2011/07/11/seven-deadly-money-disorders-financial-incest/feed/ 5 http://www.moneysense.ca/2011/07/08/seven-deadly-money-disorders-workaholism/ http://www.moneysense.ca/2011/07/08/seven-deadly-money-disorders-workaholism/#comments Fri, 08 Jul 2011 15:55:03 +0000 Julie Cazzin http://www.moneysense.ca/?p=16338 Workaholism is one of the few addictions that society approves of. It’s true that climbing the corporate ladder can make you temporarily happier and you can earn the respect of others. But if you completely depend on your job and the approval of your superiors and co-workers to build self-esteem and to satisfy deep emotional needs, it can lead to unhealthy behaviour.

Jordan McGuire, 39, had always wanted to become a pro hockey player, but he gave up his dream to prove himself to his distant father by getting a job at the family-run manufacturing business. McGuire worked seven days a week, every week, to grow his father’s company. He was the company’s chief executive as well as its top salesman and spent more than 200 days a year on the road.

Still, no matter how hard he worked, McGuire’s father never acknowledged his son’s success. “He just kept saying that without him I’d be nothing,” says McGuire. “So I worked harder and longer to win his approval and became more and more frustrated when it never came. Looking back, I realize I come from a very messed-up family.”

McGuire eventually looked for relief in various addictions—first in drugs and alcohol, and then, eventually, food. After years of struggling to give up drinking he even developed a 10-month addiction to Gummi Bears, causing him to gain 50 lbs. The turning point came three years ago when his daughter Brianna was born. McGuire took a long, hard look at his life and decided he needed to change everything. “I never held Brianna when I was drinking or on drugs,” says McGuire. “And since she arrived, I’ve accomplished a lot of things. I spend as much time as I can with her now.”

McGuire has put his multi-million dollar company up for sale and he is enrolling in a community college course to pursue his new goal of becoming a counsellor for teens. “Don’t get me wrong—it’s a really tough decision to let it all go,” says McGuire. “But to me, money is just evil. I now realize that it was never something I wanted. What I really wanted was for my dad to acknowledge my hard work and to be proud of me.”

Overcoming workaholism
To stop workaholic behaviour, start small. Gradually cut down the number of hours you work each week. Make it a rule not to work weekends. That may mean delegating more tasks to others or being less of a perfectionist. As well, along with the regular meetings you schedule every day, schedule a set period of time daily for a short walk, trip to the gym or simply a half hour at the coffee shop to read a book for pleasure.

Look into a hobby or leisure activity that you enjoy that has nothing to do with work, so that you can talk to family and friends about it. It may be a book club, a weekly cooking class or a new sport like tennis. Most importantly, don’t let yourself feel guilty when you’re not working. It’s hard to do, but until you can, your job will rule your life.