The Path to a Successful Financial Future

Fred Ketchen: Welcome to the Scotiabank "Find the Money" Podcasts. I'm Fred Ketchen, Director of Stock Trading for ScotiaMcLeod. These monthly podcasts call in some of Scotiabank knowledgeable experts to help you make the most of your money. Here we'll discuss strategies designed to put you in the financial driver's seat.

For this podcast we're going to talk about how small changes can make a big difference and add up to financial success over the long term. We'll show you how to find the money and to do that I'm joined by Bev Moir, Senior Investment Executive & Financial Planner at ScotiaMcLeod. Bev, we hear lots about money management strategies, what makes the Find the Money strategy unique?

Bev Moir:  Well, Fred, it's a very simple common sense approach. It enables an individual to save more regardless of their circumstances or their income level.

Fred:  Well, you have a number of steps, I understand, to finding the money. Will you please share those with us?

Bev: Well there are four basic steps, Fred. The first is to set short and long-term goals. For example, if someone thinks they're going to be buying a house in five years, they would quantify how much money they need to save over the next five years.

Or a long-term goal could be saving for retirement in twenty years. The next step is to take a closer look at how an individual is spending their money on a day-to-day basis. And what they're trying to do is find out what can they live without. Where are they maybe wasting some money, and they're trying to find those simple small steps where they can save some money.

So for example, rather than buying new books, they can borrow books from the library, or they can take their lunch to work or they can eat in more often and just save a little bit of money. And that saving of that money, we call it "the found money". So the next step is once somebody has identified where they can save a little extra money have it automatically come out of their bank account or deducted from their paycheck. So they can't even get their hands on it and they won't even miss it. And then the last point is to just be smart about borrowing.

Fred: You mentioned long and short-term goals, what would you classify as a long-term goal, would it be more than five years, would it be more than fifteen years, what's long term?

Bev: To my mind, a long-term goal is at least ten years and, you know, longer. Short-term is usually something in a one, two to three year range.

Fred: So you've got short, medium and long.

Bev: Short, medium and long.

Fred: So that's what you're talking about.

Bev: For sure.

Fred: Well, let's start with the initial stage then, Bev. How do people save and how much should we save?

Bev: Well there are a lot of tricks for trying to find money and different levels in terms of how much people should save. Some people think that it's customary for people to save 10% of their gross income. For some people saving $50 a month is what they can manage.

But the most important thing is to start saving something on a regular basis. So whether that's $50 a month, whether its $500 a paycheck, if you don't start saving the money your never going to accomplish your goals.

Fred: Well, Bev, how do you make a plan to save that is realistic, a plan that perhaps you have to live with and you can live with.

Bev: Well, I think it begins with establishing realistic savings goals in the first place. But, I think you've made a really good point, Fred, is that if the savings goals are too ambitious, an individual is just setting themselves up for failure and they are just not going to be able to stick with it.

So if somebody is in danger of that, they should either ease up a little bit on their regular savings strategy or save a little bit of money that they can just blow and spend and enjoy.

Fred: Let's talk about borrowing because that is part of life. I know I have borrowed money and, Bev, I imagined you've borrowed money too. Are there ways to be smarter about borrowing that we should know?

Bev: Well, there sure are. And probably that smartest piece of advice is establish good credit habits early before somebody gets into trouble. So one of the first things people need to think about is don't hold too many credit cards and limit their usage. 

For instance, somebody has one loyalty card use it for big purchases or for travel. And if an individual is in the habit of using a credit card every day for miscellaneous purchases then be sure that they're billing up some reward points and paying that debt down just as fast as they can.

Fred: And when you have debt, I assume, that is probably the best advice to pay down what you owe on your credit card as quickly as you can before you maybe pay off, for instance, things against your mortgage or some other borrowings that would be at a lower rate of interest.

Bev: For sure, because the trick is with credit card debt that's usually expensive debt, that's after-tax dollars and so the goal is to pay the card balance off each month. But at a bare minimum, if an individual pays more than the minimum payment they'll get ahead in terms of reducing the monthly charges.

Fred: Probably a piece of good advice. I've talked to people who said they never borrowed any money in their life until you asked them well, how did you buy your home? Well, I have a mortgage. A mortgage is in fact borrowing money. How can I save money, if I need to have a mortgage?

Bev: Well, the mortgage is, for sure, buying a house is the biggest purchase for an individual's life. So, that's one of the goals if somebody wants to buy a house, they should determine that early in their life and start saving regularly for a down payment. But once they do have a mortgage, one of the best things that they can do is save thousands of dollars on the interest payments by shortening the overall total payment policy, or payment period.

And so there are a number of things that they can do. They can try to take a shorter amortization period. So rather than having a mortgage that's amortized over 25 years, and now we've got 35 year mortgages, to do it over 15 years or 20 years. Another technique is to increase the payments that are being made on the mortgage. 

Ideally weekly, as opposed to monthly, but bi-weekly is better than monthly. And then whenever anybody has some extra money, whether they get a tax refund or they've had a raise, take that extra found money, if you will, and make a pre-payment that goes directly on the principal.

Fred: So just because you found some money from wherever that may come, whether it  may be from a bonus, whether it be come from a tax refund, whether you got a big gift, or found money under a rock, the idea is don't just go out and have a party and spend it on a bunch of items. What you really want to do is pay down part of that loan so that you can save on future interest payments.

Bev: Exactly Fred, but one of the, just going back to what we were saying earlier in terms of "Find the Money" concept, it is meant to be simple and do-able. So, you know blow a little bit of that money and enjoy the bonus if you will. But a good chunk of that should be going down to pay that major debt.

Fred:  I agree with you there about having a little bit to spend because there is always that thing that we talk about, pay yourself first, but be reasonable about what you do pay yourself.

Bev: Sure

Fred: Well, Bev, at times we all have to borrow money. It isn't always an easy task. Have you any other smart borrowing tips for us?

Bev: Well, Fred, one of the rewards for building up equity in a home or cottage or other property is that equity can be used as collateral for a secure line of credit, and that security allows the lender to offer the lowest rate of interest for that borrowing.

And so taking advantage of that low rate it's really important for individuals to look at any high-cost debt that they may have and transfer that high-cost debt to secure lowest rate of interest.

Fred: Well, Bev, we've been talking about "Finding the Money" and when we look at this area, can you give us some examples of some people who have in fact "found the money"?

Bev: Well, I sure can Fred. They're simple steps and they really do work. I think of one of my clients that found some extra money and were able to increase their mortgage payments and were able to pay off the mortgage much sooner.

And then we've heard of other stories of individuals that didn't even think that they could afford a vacation and by finding some money, setting aside that money, within a year they were going on a vacation .

Fred: I like those kinds of success stories and for those we obviously thank you, Bev, for sharing those simple steps. "Finding the Money" sounds like a good route to follow. And we hope you find these "Find the Money" steps useful as well. They're simple straight-forward and easy to follow and they'll help you on your journey to financial success.

I'm Fred Ketchen inviting you to join us for our next podcast as we introduce you to the hottest new investment options "Lifecycle Funds". For more information, please visit your local Scotiabank branch. We'd love to have the opportunity to talk with you.