Jan 202015
 

The Struggle

We can’t get the numbers to work and would appreciate some help,” pleads Eric, a 41 year old physician who lives in Vancouver, B.C. and makes $300,000 a year. His wife is a dentist and together they typically earn a combined household income of $450,000. 😯 Eric regrets “not having bought a house years ago.” He further admits that he has “no pension whatsover.” It’s clear that the couple in this Globe & Mail article has trouble making ends meet.

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Furthermore, Eric and his wife do not have life nor disability insurance, which is a dangerous and unnecessary risk, especially when they have five children. With annual expenses totaling $300,000 a year, this desultory family is basically living paycheque to paycheque. So far they’ve put their lifestyles ahead of their financial matters and now, like a crab in financial difficulty, they are starting to feel the pinch. 😀 Oh woe is them. 🙄

Financial Literacy

Vancouver may not be the cheapest city to raise a family in, but no amount of money can fix the problem of living carelessly beyond one’s means. Money can buy a lot of things, but ironically it cannot buy financial freedom, which is where financial literacy comes in. Having money alone is not enough to be complacent. Financial literacy is also paramount to our financial security, and helps us discover what money truly represents. Because what does $1,000,000 in the bank actually mean if we don’t even understand the value of money. 😐

We can also learn to spend with value in mind, prioritizing what’s important to us over the non-essential expenses. We can use these strategies to experience satisfaction and the raptures of life without spending an arm and a leg. Unfortunately no one ever told Eric and his wife about this because they spend $24,000 a year on family vacations, and send their kids to private schools, yet they can barely afford to keep their heads above water, let alone save for their own retirements.

Many celebrities, professional athletes, and lottery winners who were once wealthy are now facing financial difficulties. All those people, just like Eric, have one thing in common; they lack basic financial management skills like budgeting, investing, and financial planning.

Medical professionals are some of the hardest working, and smartest people I know. And they deserve every dollar they make. But having money alone clearly isn’t enough. We must also be financially literate to survive in today’s economy. Intelligence and talent will only affect our abilities to earn a living, but they DO NOT determine our aptitude to keep any of it. 😕 Hard work leads to money, but financial literacy shows us what to do with the money once we get it. 😉

Create a Financial Identity

Knowledge about money will give us the conviction we need to feel safe about our financial decisions. By becoming more literate in the world of finance we can develop our own financial identities, which will be unique to each of us, and is intended to help us make the best decisions for ourselves. For example a safe withdrawal rate in retirement is 4% but can be slightly different for everyone. But without financial literacy we wouldn’t even understand what this percentage means in the first place. We can always ask adivors for help, but at the end of the day nobody cares more about our money than us. Our financial identities will empower us to manage our money with confidence, so we won’t have to rely on other people’s opinions.

Start Now

Good financial habits have to start early. The longer we ignore our financial planning the harder it’s going to be to break the cycle. Fortunately it’s easy to get started. There are many audio books and podcasts out there. The Motley Fool Podcast is a great resource on investing. The Money Mastermind Show is an informative videocast produced by a group of personal finance bloggers that broadcasts on YouTube.

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Each week they focus on a different financial topic and talk about it, often with a special guest. In episode 20, for example, they discuss various ideas to become a millionaire. Their videos are underrated and definitely deserve more views. 🙂

Another idea is to just spend 10 to 20 minutes everyday reading news feeds from Yahoo Finance, Financial Post, CBC Business, or other financial news sites. You can also join forums and message boards such as money related sub-reddits.

Learning about money doesn’t have to be boring or difficult. You just have to find the right method for you that’s both fun, and productive. 😀

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Random Useless Fact:
The oldest lighthouse still in use today is the Tower of Hercules in western Spain. It was built almost 1,900 years ago by the Romans in the 1st century. ❗

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17 Comments on "Financial Literacy – Why Money Alone is Not Enough"

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Lynx
Guest

I read this piece and honestly felt sorry for this family. They had know financial knowledge and in my opinion I found the planner gave bad advice about financing a deficit lifestyle and building a home. It goes to show without financial literacy, all the income in the world cannot solve these issues.

fromdebttodreams
Guest

Oh wow, I read that article and couldn’t believe it – especially when they said that they were staying in a relatives house?! It’s a shame that they are making so much money still can’t figure it out.

Getting into the habit of saving and spending less is important, because just as it’s hard to break the habit of overspending it’s hard to break a good habit too.

Vivianne
Guest

$24K/year for vacation sounds about right if they have five children – airline tickets are expensive, and they made boat load of money. They do have >$1mil in net worth, due to the lot that they own outright. Although they have to live paycheck to paycheck to afford $800K mortgage. They just choose to have higher standard of living due to their statues, and come from affluent family. They are doing just fine. 😛 They could still retire at 65 like everybody else. They are affluent so it’s nature that they send their kids to private schools. I don’t see anything wrong with that either, it’s their choice. Obviously they don’t want to live the frugal lifestyle. I have a collegiate who each make >$100K/yr, send 2 kids to private school, has 2 timeshares, 1 house, 2 cars payment, they were pay check to pay check until they get a divorce and each one of them married a partner that changed their lifestyle.

Anne @ Money Propeller
Guest

They don’t own the lot outright. They have an $800,000 mortgage on it and one of the problems they were facing was how to finance the $1M they need to build on it.

PC
Guest

First world problems. The article stated they spent over $30k a month at first. They’ve since retracted that saying an error was made. Can’t even get the facts right before publishing. This is reporting at its finest.

YES, they can easily afford their $800k mortgage if they learn how to budget!! ADUH!

Vivianne
Guest

Lifestyle inflation is a very common problem, when you are a broke college student and medical resident, and have been deprived for so long, when you finally “made it”, you think you are entitled. I notice at work and even with myself too, if I work overtime, I’d order out (thinking ordering out would taste better! and I’m making this extra money! I can splurge a little.) but boy am I wrong, each time I work overtime, I spend more, and I get fatter from the stress of working more. Versus, I just work my regular 40 hours, I would go home get proper rest,get creative with my healthy, quality, and yummy food that I can pack the next day. And because I get to rest and feel happy, I don’t need to fill the void, to urge, or entitlement to spend or shop like crazy.

Tawcan
Guest

I think this article is getting a lot of exposure. It’s funny because I just wrote about it on my blog too. I hope this couple get their stuff together and start managing their money properly.

vivien
Guest
vivien

Can u read chinese? I think this article is quite relevant on building wealth in the first 10 years http://wow.qooza.hk/p-2683

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