November is Financial Literacy Month, and the theme for 2021 has been “make change that counts.” Over the month, the Financial Consumer Agency of Canada maintains a database of events put on by organizations across the country designed to strengthen the financial literacy of individuals and families.

The underlying premise of financial literacy, of course, is that if people just knew better, they’d manage their money and debt wisely to save for the future. They’d have emergency funds and own homes and own insurance and build wealth and start businesses and pass them on to the next generation and give to charity. In the face of adversity their knowledge will give them confidence to make good decisions and the resilience they need to survive and thrive.

It seems like a nice, well-meaning idea, but the concept of knowing your way to financial success is actually nice, well-meaning baloney.

Just knowing more about finance doesn’t help you make good decisions about your own life (or else we could hand everyone a textbook and call it a day)...but knowing more about you does.

Unless you’re a Model Canadian Citizen Robot Mark 1™ fresh off the factory floor, the financial decisions you have to make for yourself, your business, and your family are not the same as the ones your neighbour has to make. The outcomes you’re looking to achieve might be wildly (or just mildly) different from anyone else’s. Applying general financial principles and knowledge of how taxes work is not the way to create a life well spent, unless your life is the same as everyone else’s life.

Nope. You don’t need financial literacy - at least, not on its own.

Rather, you need financial support: the kind of compassionate safety net that creates equitable outcomes for everyone, not just those who are lucky enough to begin running the race a couple of strides ahead of everyone else at the starting line.

You need financial guidance: the applied knowledge of people whose whole job is knowing so they can support you in what you’re doing.

You need financial empowerment: the wisdom that comes from deeply understanding who you are, what you value, and what success looks like for you.

I am all for making change, personally and professionally. I built my planning practice around a unique (at the time) set of values, top of which is identifying what “change that counts” means for each individual and family I work with before developing a plan to make it happen.

This need for financial empowerment over financial literacy is the reason I’ve been encouraging you all year to reflect on your own values and consider how you can live them out everywhere - yes, even in (and especially in) your estate plan.

I are continually amazed when people (including other financial planning practitioners) talk about financial planning as though it is a purely mathematical exercise. Meetings are assumed to be about facts, statements, and rates, to which a tremendous amount of technical and academic expertise is applied. But you and your values? Those hopes and dreams and constraints that make up your WHY and are likely the reason you undertook financial planning in the first place? These seem to enter that conversation only rarely.

I know why this is: values are squishy things that are difficult to quantify. In fact, you might have difficulty even articulating them to your planner in the first place, which is why I’m writing about how to put words around your values so that you can eventually put actions around your words.

Today, I’m examining the many ways you can put your values into action through your cash flow.

Show Me The Money

Cash flow is at once the easiest and hardest way to put your values into action. It’s super easy to support the people and causes which you value with cash out of your own pocket, or to stop spending your dollars on things that do harm - no planning needed. It’s direct and to the point, which is why there are so many axioms about it:

Put your money where your mouth is.

Vote with your wallet.

Show me your calendar and your bank statement, and I’ll show you what you really value.

But money, like time, is so ubiquitous that it’s practically invisible. We use it up every day on necessary things, and then wake up and do it all again the next day. It’s hard to look up from paying the mortgage, buying groceries, and filing your taxes to wrestle with how to keep doing those things but in a way that supports your values. Believe me, I know.

So how, exactly, do you support your value of Safety & Security with your cash flow? Or your values around Family, Freedom, Achievement & Success, or Community?

I thought a lot about this as we were planning for this series of articles, and have dusted off my old friend Design Thinking to help you find the answer for yourself (because of course I did).

Your Values in Action

The first step is always to empathize, the Design Thinking word for “do your homework”. You need to set aside your assumptions about the world and the “normal” way things are done, so you can gain real insight into yourself and what is most important to you.

With a deeper understanding of what it is you value, you need to define how this will manifest in what you do (and don’t) spend your money on.

This will look different for everyone, but here are a few examples to get you started:

• You might value freedom and security, dream of cultivating a vegetable garden and outfitting your home with alternative heat and water sources to reduce your reliance on private utilities and food manufacturing.

• You might value family, which may involve supporting parents from a distance during the pandemic by paying for grocery delivery, and hopping on a plane to see them as soon as it’s safe to do so.

• You might value achievement and success, which could manifest in pursuing an advanced degree (or two, or five).

This is a crucial step, so don’t skip it. One of the questions I always ask my clients is “what does success look like for you?” and the people who spend time really thinking about it are hands down the ones who get the most out of life.

Once you know what success looks like, you can ideate all the many paths you might take to get there. This is always a fun exercise, since it’s literally brainstorming with no limits. I recommend pouring yourself a nice drink, grabbing several sheets of paper and a nice sharp pencil, and writing down every possible way you can spend your money on manifesting your values. Every idea counts, even the ones that start with “buy a lottery ticket and…” or “quit my job and…”

Building a prototype can be as simple as recalculating how much you can spend on eating out and setting up a monthly transfer to your savings account. Or it might be as challenging as finding an alternative to Amazon. Fortunately, prototyping and testing go hand in hand, so if today’s cash flow plan isn’t moving you closer to your values, make a new one! If it’s really not working, speak to a cash flow specialist who can guide you through building a system that works for your unique situation.

Cash flow is simultaneously one of the hardest and easiest financial planning tools to align with your values. It takes hard work to build a values-based cash flow system, but the rewards can be immediate and are always so worthwhile.

(This article is reposted with the permission of the author. It was originally published here.)

I know, I know. Budgets just sound like Remedial Personal Finance, don’t they? Everyone knows you’re supposed to budget, so what’s the point of another 800 words or so on the topic, right?

There’s even a vague feeling that once you reach a certain point – either of knowledge, or income, or net worth – budgeting is kind of beneath you. It’s so remedial that the cool kids don’t do it, and I’m here to look over my librarian glasses and tell you that the cool kids are wrong.

But first, in true librarian fashion, let’s define the terms. When I talk about budgeting, or planned spending, or cash flow, I’m really talking about three separate but related things: tracking your transactions, clarifying your limits, and projecting your trends.

Not to get too timey-wimey on you, but that’s the past, the present, and the future, all rolled up in one neat little concept. Nice.

Budgets

Budgeting is – in this expanded and much more useful definition – not at all about putting limits on yourself, especially not limits that some random stranger on the internet, however wide their readership or juicy their television deal, wagged their finger at you about.

It’s the tool you use to figure out your own limits according to your own values, and – like the proverbial Swiss Army Knife – some people need and use one part of the tool more than the others. (I prefer the corkscrew, but I assume you knew that already.)

Each one of these aspects of budgeting feeds into the next one: tracking your income and expenses helps you clarify your limits, projecting the results of your tracking helps you see where you’re going and what levers you can pull to make the most difference if you don’t like the direction, and knowing where you’re headed gives you the motivation to keep within those agreed-upon limits.

Now, you can live your whole life without ever looking back on how you’ve spent your money, or worrying about how much you have left to spend at any one time, or wondering what all this spending will look like in the future. Plenty of people do, with varying degrees of success.

Those most successful are those who, by dint of much hard work or incredible good luck, have a very wide margin of error and enjoy the relatively rare situation of more income than their natural spending habits can use. Those with very slim margins are incredibly vulnerable and – no surprise here – least likely to thrive without structured spending.

In fact, I’d venture to say that everyone reading this can be split into one of three broad categories: those of you with a very small difference between what comes in every month and what goes right back out, those of you with a very large difference between your income and your expenses, and those of you in the middle. (Hey, I didn’t say it was going to be rocket science.)

For those with very slim margins, it should be readily apparent that the immediate need is to know how much you have available to spend at any one time. Without a good overview of where your money goes over time and what that means for your future, though, you’ll have a tough time making that margin grow, especially if your circumstances also make it difficult to increase your income.

As margins get bigger, the “how much do I have left” part of budgeting starts to fade in importance compared to using your past and current spending in order to forecast (and shape) your future spending. If you have more than enough money to meet your needs every month, what’s it doing for you other than giving you an excuse to Not Budget?

Here’s the over-arching truth, though, and the number one reason why the cool kids who don’t budget are wrong: margins change. Circumstances change. Jobs, dividend cheques, interest rates, your health, the health of your marriage…there are any number of events or combinations thereof that can turn your financial life around pretty quickly, for good or ill.

Budgeting is a skill that you have to practice, a data set that you have to maintain, and a system that you have to adjust so that it fits you and your circumstances as closely as possible. None of these things happen overnight, and the very worst time to start is in the middle of a crisis. Get cracking.

(This article is reposted with the permission of the author. It was originally published here Boomer & Echo.)

Imagine this scenario: you’ve gone into the bank to see about setting up a home equity line of credit, or buying a cottage, or increasing your regular RRSP contributions. You’ve sat down in the banker’s office, gone through the details of your request, and – as you’re talking about how much equity you have, what your income is, or if you have investments held outside the bank, the person across the desk from you gets a little antsy.

She excuses herself politely, and when she comes back she’s not talking about your HELOC, cottage, or RRSP anymore. Instead, she’s talking up the sophistication and general awesomeness of a totally different banker down the hall.

That banker has an office set apart from the usual bankers you see. That banker might even have a different colour on their name tag or office sign. You hear that she has access to better investment products, has fewer clients and therefore more time for you, that she maybe has designations that your banker doesn’t, or might be able to give you better pricing on your banking or borrowing products.

Every one of the six charter banks in Canada has a special offer like this, which on the scale of elitism lands higher than regular (or core, or retail) clients but below actual private banking clients – those folks with enough money that they might not ever need to darken the door of a neighbourhood bank again.

Every one of the banks divides its clients up according to their income, investable assets, and securable net worth, and the ones that are subject to the kind of meeting described above are considered (and referred to, just not in public) as “high value clients.”

It probably feels pretty good to get singled out for it, to get a special card, for your online banking login screen to change colours, and to – sometimes – be treated differently by the tellers. If you ever overhear someone referring to you as a high value client, you might even preen a little bit; you’re valued.

But stop for a minute and think very, very carefully about what actual, quantifiable benefit you’re receiving as a “valued” client. Are you entirely sure that you’re valued? Might you instead be simply valuable?

Is your everyday banking cheaper than you could find elsewhere, or with a different combination of products available to everyone?

Is your lending at a lower interest rate than someone else with a comparable credit score and ability to repay? Demonstrably?

Are you receiving more interest on your GICs? Are you paying lower MERs on your mutual funds? Are you receiving a lower annual price to manage your assets?

Is your ability to have your banker or her assistant complete transactions or make changes for you by virtue of a phone call or email because they’re elite bankers, or because you have a signed agreement on file that anyone could get in order to enjoy the same convenience?

Do the tellers/telephone representatives/bank machines treat you well because they know you/they’re polite/they’re machines, or are they in awe of your elite status and scared of what the loss of your business might do to the bank if you wait in line too long?

Now, it’s entirely possible that the only person worth talking to in a branch is the High Value banker, whatever your particular institution might call her. She (or her assistant) might have been with the bank longer than you’ve been alive. She might know all the procedural ins and outs, she might have the disposition to fight for you to get the best pricing and the best service, and she might have the most level-headed and fee-conscious approach to investing possible.

Or she might not.

I can tell you this: she is not any more or less guaranteed to be in the same position the next time you need to speak to her. Turnover is just as problematic for this position as it is for regular advisors if not more so, since often this pool of staff is targeted for regional management. You might get someone with whom you can build a decade-or-more-long relationship or someone who will stay in the office until next year. It depends entirely on her own personal ambitions.

She is not any more or less guaranteed to have more certification or training. Often, especially in smaller towns, the demand to have someone’s – anyone’s – rear-end in that seat to be present for an existing pool of high value clients is overwhelmingly more important than holding out for the next highly-qualified individual who has the entire alphabet after her name and happens to be jobless.

In fact, this position is almost always much more in tune with the bottom line of their operations than a regular bank representative is.

Think about it this way: to succeed, and – perhaps more importantly – to appear to succeed in a sales-driven industry like banking, you need to know exactly how the sale of each financial product impacts your bottom line. As a lowly banker with ambitions of promotion, you absolutely cannot afford to let anyone waste time in your office without buying something, and preferably something that will impact your performance scorecard as positively as possible. Management would rather promote from within, and the people who get promoted to high value positions are the people who excel at selling.

So if you’re offered the special card – or if you have one languishing in your wallet right now – spend a little bit of time thinking very carefully about how valuable your business is to your bank. They want your money – your lending, your accounts, your investments, and your transactions. They want it badly enough to create a whole other service channel to create the perception of better, more personalized service and elite status, but they don’t have to pay up unless you demand it. They’re beyond delighted if you just take the fancy card and feel good about it.

Don’t settle for being herded into a cordoned off area marked with dollar signs. Understand your value to the institution, and use that as leverage to negotiate a better deal for yourself,

A colleague said something amazing to me a while back that I’ve been mulling over ever since:

Planning for your eventual departure is truly one of the most loving and thoughtful things you can do for your family and friends

If planning for the day when you shuffle off this mortal coil is a gift you can give to the ones who will miss you, isn’t planning for the day when you get sick or lose your job, an equally loving and thoughtful gift...for yourself?

I think it is, so today, I’m carrying on with my 2019 theme by applying design thinking to emergency-preparedness.

For those of you who haven't been with me through the whole series, design thinking is an intentional, methodical, you-focused process of creating solutions that work for your unique circumstances, values and goals, and it starts with:

Empathize

Set aside your own assumptions about the world and gain real insight into alternate perspectives.

Personal Finance 101 says that you protect yourself from risk by establishing an emergency fund and buying proper insurance, and I’m not arguing against either thing. I am, however, arguing that instead of jumping immediately to a solution, we start by fully fleshing out the problem.

The goal of this whole exercise is to be kind and thoughtful to your future self. So: who is that person? What distress are they in? Your life can be upended by a lot of things, but most can be grouped into one of two categories: losing income (think closures, layoffs, illnesses, and injuries) or gaining expenses (think big repairs, essential replacements, medical treatment or drugs your province doesn’t cover, childcare, and housekeeping).

In this first step of the design thinking process, your job is to empathize with how any permutation of these circumstances would affect you and your family. Fire up your imagination and think about:

• How would your house stay clean and safe?

• How would your pantry stay full (and miraculously turn its contents into meals?)

• How much money would hit your bank account? In what circumstances might you be eligible for social assistance, employment insurance, or existing private or group insurance benefits like disability or critical illness?

• How much money would it take to stay safe and happy?

• If you have savings and would need to dip into them, how would you replace the money? If you have to borrow money, how much would you have to repay and for how long?

• Who could you rely on for help?

Remember, at this stage you’re not solving anything, you’re just imagining yourself in these scenarios, What we’re looking for here are observations like:

• I think I’m the only person in my house who knows how to turn ingredients into food so there’s going to have to be a lot more prepared stuff if I’m out of commission

• I just moved to this town and don’t know anyone yet...and there’s no way I could get up the stairs to my apartment by myself if I broke my leg

• That disability benefit looks awful low compared to what I know I need to pay the mortgage and buy groceries

• If I couldn’t look at a screen for longer than ten minutes how on earth could I keep freelancing?

Paint a picture of your future self in distress. What do you need to be safe and happy?

Define

Use the information you gathered in step one to define the core problems you’ve identified.

After imagining yourself fully in catastrophe mode, you might be feeling a little nonplussed at this point. That’s good! We’re going to use the empathy you have for your future self to take really good care of her/him, I promise.

While the last stage was about identifying problems, this one is about - you guessed it - defining them. Turn your observations into defined problems, like so:

• I’m the only person who can turn ingredients into food...so future, distressed me would feel better with an extra $200 a week to spend on prepared food

• I don’t know anyone and can’t get up those stairs...so future, distressed me would feel better with someone or a group of someones to trust

• I won’t be able to pay the mortgage and buy groceries...so future, distressed me would feel better with an extra $1,200 a month to bridge the gap left by insurance

• I rely entirely on my brain + screens to earn income...so future, distressed me would feel better with disability insurance and time to figure out and implement solid, healthy workarounds

Ideate

Brainstorm solutions, without editing or limiting yourself.

You’re probably still in “Oh, sh*t. What am I going to do?” mode at this point in the process, and after two whole steps of telling you not to try and solve anything yet, here’s where you let your solution machine loose.

Throw out all the ideas, whether you think they’re realistic or not. Here, I’ll get you started:

• Easy mode ideas:

• Buy disability insurance

• Buy critical illness insurance

• Save an emergency fund

Boss mode ideas:

• Find a community organization doing something you’re interested in, and start going (bonus points if you show up on your first day like this:

(comic credit)

• Figure out exactly how much money you need to cover your essential expenses + some minimum comforts

• Learn how to cook from low-cost, shelf stable ingredients (like Jack Munro teaches)

• Campaign for a universal basic income (this one’s a long-term play, I grant you)

Prototype

Investigate solutions

Here’s the really practical step: can any of the solutions above work?

Find out how much all that insurance would cost. Check your group benefits at work and what your EI entitlement might be. Calculate how long it would take to save up an emergency fund. Seek out community organizations and investigate what they’re all about and what your commitment would be to them. Check out recipe books from the library and inventory your kitchen to see if cooking at home is going to cost you resources you already don’t have.

This is the point at which you might call in your friendly neighbourhood financial planner to envision how all these solutions might work together (or just to navigate the world of insurance, which isn’t something I sell but definitely something I understand).

Test

Practice those solutions.

Remember step one, when you imagined your future distressed self and tried to understand what would make her feel better? Now you’re going to pretend to be her.

Now, don’t get me wrong, I don’t want you to throw yourself down a set of stairs so you can test how your emergency-preparedness plan works...but I do want you to try and live without all of your current resources to see if it’s possible.

One of the fundamental skills that every person should have (provided that person has enough to be safe and happy already) is the ability to switch to an essentials-only budget on a dime. In a stressful situation, do you want to also be learning a system for imposing boundaries on your spending?

Answer: You do not.

So here’s a challenge for you: now that you know how much you’d receive from a disability insurance policy, for example, could you actually operate your life with only that money within the community of friends and family you already have? Try transferring the excess to a separate account for three months and see how you do (remembering, of course, that since you know this is self-imposed, the effect on your mental health and stress-levels might be very different in a live emergency).

As you observe the results, you may find new worries to add to your empathy list. You might define new problems. You might, in fact, need to go back to the drawing board. But you’ll be better prepared than you were before you started, with applied design-thinking to make it better every time you revisit it.