Earn your black belt in money management

Credit to Author: Canadian Immigrant| Date: Wed, 18 Jan 2023 15:13:15 +0000

Imagine you want to get a black belt in a martial arts. You start from the basics — the white belt, and as you get to the black belt level you put together what you have learned. As a life time martial arts student, who is also a financial planner and an immigrant, I have come up with a system to help people take proper steps in the right direction.

Below are some quick tips that I have covered extensively in my book and online course called, Black Belt Money Management: A practical guide to personal finance for Canadians.

White belt: this is where you need to learn the fundamentals, know where you are standing financially and where you like to go. What are your financial goals and concerns? Those who work out for fun or want to train martial arts or play any sport competitively — not everyone will not have the same work out and diet plan. Same goes for personal finances; there is no cookie cutter plan for everyone. General advice such as saving certain percentages or for retirement is pretty much useless.

Yellow belt: This is where you need to organize your income and expenses. Even the most sophisticated financial plan will fail if you don’t know where the money goes. You need to track all your expenses and allocate a budget for your discretionary expenses. As simple and obvious as it sounds, anyone who carries debt on line of credit or credit card, is not doing it. Your spending habits need to match your income. Think of it as cardiovascular ability. Even if you have all the skills as martial artist, if you lack stamina and endurance, you will not win your match.

Orange belt: there are different types of debt and it is difficult to avoid some of them, including mortgage. Specially if you live in one of the major cities, it would be very difficult to purchase a place without mortgage, considering high real estate prices. This is why it is important to go step by step, just like you can’t skip a belt in martial arts. If you take control of your cash flow and expenses as a yellow belt, you will not occur consumer debt in the first place. Even mortgage, although obtained to buy an asset, can be harmful in some cases.

Blue belt: an important but often neglected area in financial planning is risk management. I compare it with defense in martial arts. Most people like to learn flashy techniques and spectacular kicks but not many focus on defense. You need a back up plan if you get ill or disabled or your spouse passes away prematurely. Fortunately, there have been solutions for decades for these risks. Get familiar with different types of life, disability and critical illness insurance.

Green belt: this is probably the most exciting part of a financial plan. Who does not like to know how to grow their investment? Keep in mind this level is not more important than any other level. This is where people talk about all the flashy kicks and jumping and flying techniques. This is what people signed up for when they enrolled in the martial arts class. This is what they had heard about or seen in martial arts movies. Investment is a very broad term and in reality, not only some investments are not suitable but are also harmful for some people. Your time horizon and risk tolerance determine the type of investment suitable for you. Don’t fall into traps. If it is too good to be true, it probably is.

Brown belt: You have heard about how romantic and peaceful retirement is in Canada right? After all you want to retire like a grandmaster! Nobody can work forever and we are all living longer. I hate to burst your bubble but if you don’t plan ahead, the supposed golden years will be spent in hardship and even poverty. People overstate what they will receive as government pensions and unfortunately sometimes they figure it out when it is too late. It is essential to know what you will get from different sources as pension and have a plan to fill the gap.

Black belt: Black belt is the white belt who never quit. It is now time to create a financial plan to put all you have learned together. You need a simple and practical plan with details to tell you how much you need to save for retirement, when you will be debt free and what coverage you need for a back-up plan. I can’t emphasize enough that there is no cookie cutter plan. Your current financial situation, your life, priorities and personality is different from others. Your financial plan should be different too.

Keep in mind that sticking to a budget and financial plan is like sticking to a diet and exercise plan. Everybody keeps motivated and maintains discipline in a different way. Consistency is the key to success, however there could be setbacks and that is okay. Just don’t let the old negative patterns become the new norm again.

Now go to work, warriors, and never hesitate to ask for help!

For more about author Ali Reza Fadai, click here. 

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