Financial neglect

By Bruce Sellery on June 18, 2012
Estimated reading time: 3 minutes

Everyone makes mistakes, but when you are dealing with money Bruce Sellery says there is one mistake you can't afford to make.

Question What is the most common mistake people make with their money? Answer This is a good question and a particularly sharp one considering it came from an 11 year old. It was one of many questions I fielded as a guest presenter at my nephew Michael’s grade five-career class. And as you might imagine with a group of that age, the questions came fast and furious. Q: “Do you get bothered by the paparazzi?” A: “No. I’m not that famous. Besides, they’re all busy over at Kim Kardashian’s house.” Q: “Do you like wearing make-up on TV?” A: “No. I don’t. It is like covering your face in ketchup—a special kind of ketchup that you can’t even eat.” Q: “This question isn’t a question. It is a comment. Your book is 326-pages-long, which is exactly the length of books I like to read.” A: “I’m so glad that my book is exactly the length of books you like to read. Unintentional on my part, but good news nonetheless.” Now back to the big question: What is the most common mistake people make with their money? My answer? Being oblivious. People are oblivious to their circumstances around money and they are careless with it. They fail to recognize that money is a great tool that can enable them to live the life they want. They spend without thinking, and they save without thinking, too. Wake-up: Moving from oblivious to conscious Instead of making the mistake of being oblivious, we need to become conscious of how we use our money. This doesn’t mean being aware of every little latte we buy, it means being mindful of a few key areas, in this order:

Goals: What do I want in life?
Cash flow: Am I earning more than I’m spending?
Debt: Have I eliminated high interest debt?
Saving: Am I saving 10% of my income?
Tax savings and government vehicles: Am I taking advantage of retirement and education savings vehicles, like the RRSP, TFSA and RESP.
Investment performance: Are my investments at least matching the performance of their respective benchmark index over time?

(See the Priority Pyramid for a further breakdown of these categories) Once you are conscious in each of these areas—or said another way, once you have an answer to each of these questions—you can develop a plan to improve upon them. And then you need to stay conscious of your plan. Not small task I know with 12,000 things already on your to do list, but so important. Being conscious begins when you’re young. An 11 year-old isn’t ready to test drive a credit card, but at that age he or she is old enough to start thinking about some short or long term goals. In order for our children to be conscious about money we need to be conscious ourselves. Are you burying your head in the sand? Ask yourself these key questions: Are you neglecting your money? What questions do you need to answer before you can take control of your finances? And what is your plan to get a handle on it? If you want to set an example for your children then you’ll have to get a handle on these points yourself. A side note about Snooki Oh, and on a side note: I asked these kids what their favourite reality TV shows were to watch. In addition to “Million Dollar Neighborhood” on the Oprah Winfrey Network (of course), they had some surprising answers: such as “Real Housewives of Atlanta” and “Jersey Shore”. Really? Snooki? Did I mention these kids were 11 years old? Seems like TV is another area that their parents need to become conscious about.