How to be good: personal finance

Posted by admin on January 12, 2009 in Misc.

This week I begin a 4 part series on how to be good at something (sorry, I am not a branding expert. This is as good as it gets on the branding front). Today’s post is personal experiences in getting control of my personal finances, tomorrow is a summary of what some authors say about the topic and Wednesday’s post is about some practical steps that can be taken based on what “experts” say in the field. Thursday is post about becoming good at being a dividend investor.

If you are a long-time reader of this blog, you know a couple of years ago I decided to take more interest in my personal finances. Today’s blog is really some steps that I did in the initial period. To be clear, I am not fabulously rich. As a matter of fact, I am still cleaning up many of the “sins” from my personal finance past in terms of improper asset allocation etc. etc. but success is really a process and not an end-result.

Thus, this isn’t one of those Rich Dad-esque: “I am a mega million, here’s how you can do it following my method for the low price of $79.99!” posts. Instead, it is more some tips I hope you may glean from what I did (and am doing) on to become more responsible on the personal finance front.

When and why did I take more control over personal finances? There was no Paul walking to Damascus moment for me (and I am not a big believer of looking an epiphany- go to Europe to have fun and not to find yourself). Instead, I started to make some money after a couple of years going sideways and, after working so hard to make it, I wanted to make sure I did not fritter it away. Pretty simple. Pretty undramatic. Pretty much life.

So, I can’t tell you what the start-date was of my financial make-over. I can convey to you that one day I decided that I wanted to be in control of my own life.

Being a lawyer by training, my first realization was that problems take a long time to solve so my mind-set going in was there is no magic bullet solution to solve personal finance issues. It is as much of a process than an end-result. Thus, my mind-set was very much long term. No crash diets, no quick fixes.

Next, I did undertook the following practical steps:

I sought outside advice. I have a good friend who works on the trading floor of a financial institution but he’s not licensed to manage individual money. In other words, he knows money but he has no vested interest in the advice he gave me. I took my portfolio statement to him and he gave me a good idea of what I was doing right and doing wrong. In other words, know where you are at and where you need to go. The key also is to be honest about your situation. It isn’t a beauty contest; people can only help you if you are honest with them about your situation.
I studied what others were doing. I was very fortunate in that at around this time the personal finance blogsphere was really beginning to pop. I read Canadian Capitalist and Million Dollar Journey for months. What I was trying to figure out was their thought process. It was more important to me to figure out how others were thinking than what they were buying and both authors are quite articulate. If you focus in on product, you really put the cart before the horse. Get yourself in a mind-set and thought-pattern then figure out what products fits that mind-set.
Know yourself and make sure you are comfortable with how you intend to control your personal finances. There’s a myraid of ways to control your personal finance: you can be a saver, you can be a real estate investor, you can be a day-trader etc. etc. The key is to know what works best based on your personality. If you are not a saver at heart, then work on the revenue generation side. I do not have a lot of time to tend to real estate or am I a risk taker by nature so my goal of generating dividend income fits with my life-style and personality.
Control your advisers. I am probably one of the few bloggers who still has an investment advisor (most bloggers tend to be in the DIY school). I do not think advisors are inherently good or bad. Its how you interact with them which makes them good or bad. The one big change between my advisor and myself was that I told him what I wanted and laid the ground rules of our relationship. For example, I told him I wanted to be a dividend investor and I did not want to be a mutual fund buyer. Our conversations have also changed from leading with product to having a conversation about my thought process and his though process and then speaking about product after that (in other words, the advice comes before the product- see #2).
Think a series of smaller realistic goals as opposed to a big one. I have a saying: “you eat a watermelon in bite-sized pieces and not as a whole.” My goals are relatively modest but they are deliberately designed that way to keep me motivated so they are realistic and, when they are reached, confidence builders. When the goals are so far-reaching and unrealistic, one tends to be setting themselves up for failure since the expectations are too high (….Obama, are you reading this…).

If you had to boil this down in a nutshell:

Seek outside advise and be open and honest.
Break down successful people’s thought process.
Know yourself.
Control your advisors.
Be realistic in your goal setting.

I cannot state enough that this is a long process. You can’t make a new year’s resolution to be better with money and then measure your results on January 31 to see whether you have achieved it. Be patient and be positive. Best of luck.