The Greatest Enemy is You !

By Tim Chang

"Understanding obstacles towards financial independence - including yourself"
“ Tax, financial cost and death are certainties in life”- how to minimize the pain on your families!”

• Language: English
• Publisher: Tim Chang
• Release date: Jun 14, 2010
• ISBN: 9780986641404

Tim Chang

Tim ChangAuthor of “The Greatest Enemy is You”, a common sense approach on personal finance, business and investments; tips on how to conquer abuses in the present financial and tax systemProfessional Qualifications:•CPA/CMA•Certified Financial Planner•Certified Payroll Manager•Fellow Chartered Management Accountant (UK)Experience•30 years in Accounting, Taxation Consultancy and Financial Planning•Entrepreneur and owner of numerous businesses, for example, Dial Tax Professional Corporation, an accounting & taxation practice since 1982•6 years in Financial Planning and Financial Services: Formerly a Regional Vice President in Primerica Financial Services; Currently a Financial Consultant with Investors Group, the largest financial services company in CanadaMission:•Help people retire with dignity•Teach people how money works•Empower people to take control of their personal finances from the banks, insurance companies and the tax agenciesPassion:•Coaching clients for better management of their relationship with bankers, insurers and taxmen so they can keep more money for themselves instead of giving it to banks and the tax agencies

Book preview

Introduction

Your Money

- Your Greatest Enemy is You

- My Rule of Thumb

- How Money Works

- Strategic Investment Planning

- Mastering the Bank and the Tax Agency

- Why Paying Down your Mortgage is Not a Sound Decision

- Why Real Estate is Not a Good Investment

- The Potential Canadian Housing Bubble

- How to Avoid a Tax Audit

- Job Loss

Your Future

- The Role of the Financial Planner in Retirement Planning

- Don’t Get Caught Up in the Gold Rush

- Think Purchasing Government Bonds is Risk Free? Think Again.

- Foreign Currency: It isn’t the Stable Investment We Think

- Assess the Risks before Investing in ETFs

- Can Mutual Funds Really Compete with Exchange Traded Funds?

- The Golden Years

- Plan for a Comfortable Retirement

- Top 9 Retirement Savings Tips

- TFSA over RRSP

- Pre-Retirement Process

- Trusts and Estate Planning

Your Business

- The Challenges and Sacrifices of Business Ownership

- Financial Projections and Business Plans

- Feasibility Study

- Budgetary and Financial Planning For Business

- Guide to Setting up a New Businesses

- Thinking of Retail Business? Just Say No!

- Small Business Deduction

- Taxes on Dividends

- Taxable Income and Tax Payable for Corporation

- Maximize Your Tax Deductions

- Management Consultancy

- Partnerships

- Business Valuation and Buying or Selling an Incorporated Business

- Succession Planning

Tim Chang Profile

Your Money

Most North Americans feel some sort of financial strain. As demonstrated in the chart below, an overwhelming majority of Canadians (and Americans) worry that they won’t have enough retirement savings to last the rest of their lives. Though different families’ main concerns might vary, most financial issues are connected. Those who worry that they don’t have enough retirement savings have the same trouble with managing their money and sticking to budgets as those who worry about debt or insufficient savings. Saving money is not made the high priority it ought to be because people haven’t learned to use their money effectively. Many families have trouble paying bills, credit cards, mortgage, and car payments, so managing debt is a major concern. And because so many adults can expect to care for their children as well as their aging parents, money has to be especially well-managed in order for people to secure children’s futures without neglecting themselves or their parents.

Perhaps the reason so many people feel they are falling short is because they often go against conventional wisdom. We are told to Buy low and sell high, but so often do-it-yourself investors are unwilling to wait through the low points and think about their investments as long-term projects.

As a result, people usually end up buying high, panicking, and then selling low. They let their emotions guide their financial decisions rather than good sense and sound advice. Investments require commitment. One has to leave fears and emotions out of finance management.

People also require financial advisors’ expertise. Thanks to the advice available on the Internet it seems almost anyone can successfully manage investments, playing the stock market with ease. But although there is plenty of good advice in Internet articles, it’s important to consult a trusted financial advisor before putting your money at stake. The advice given to the average do-it-yourself investor only skims the surface of all of the intricacies of financial management. There’s simply too much to learn! A financial advisor is trained in all of the details you can easily miss. The proof is in the results. Do-it-yourself investors consistently underperform the markets.

Simple mistakes like these keep people from putting their money to work for them. In this section I’ve included articles that will help you understand how your money is being used, and how you can use it to your advantage. But first, we have to take a look at what so many North Americans are getting wrong.

Additionally, in this section, you will find some articles about how to manage your finances when life burdens you with a heavier load, and also for times when you are financially comfortable and secure. Sometimes you will find that you need financial help, while at other points you might be able to offer financial assistance. Remember that putting your money to work for you means putting it to work for the people and organizations you care about as well.

Your Greatest Enemy is You:

Shelley Duffy Interviews Tim Chang

Sometimes the only thing holding us back from financial security is ourselves. Identifying destructive behaviours now can help you make changes to secure a better financial future. In this interview for the WZPT Star 100.7 morning show, Tim Chang shares some of the most misguided assumptions we make.

Q: Identify the personality types and how they impact a person’s finances.

A: I have identified 5 main personality types:

The procrastinators: A person who has anxiety associated with starting, completing or even making a decision; the procrastinator misses out on the benefits of compounded gains on investments. For example, at an annual rate of return of 8%, a person who starts investing at age 45 will have to contribute 6 times more than a person who starts at age 25 because he delayed for so 20 years.

The know-it-alls: This attitude often stems from a high sense of self-worth due to excellent grades in school. Know-it-alls always believe they are smarter than anybody in whatever field. Financially, know-it-alls often have a lot of knowledge but take no action; instead they spend their time and energy researching various topics but seldom put theory into practice. You need to be a doer to build wealth.

Those who are unable to manage Greed and Fear: Everybody knows the buy low and sell high investment philosophy; unfortunately, probably 95% of people do the opposite and buy high, sell low. Why? Their greed tells them to jump into a high market, believing they will miss out on the rising wave if do not do so. When the market is down, they are the ones who bail out due to their fear - they don’t want to be the last ones out of the market. Regardless, they take a hit financially.

The Misled: These people believe the government will take care of them through social security and retirement homes even if they have no retirement assets. They don’t realize that social security (if it isn’t bankrupt by the time they retire) can’t even provide half of their financial needs. As for government run retirement homes, the waiting period may be a decade or more before they are given a spot, simply because the number of aging baby boomers exceeds the facilities available.

The Dreamers: Dreamers think My next promotion or pay raise or lottery ticket will resolve all financial woes; or, my kids will takes care of me when I am old. What they don’t realize is that in recent years, it has become very common for parents to play host to their adult children due to the competitive job market and high living expenses. And a pay raise, promotion, or lottery win (as unlikely as that is!) will not help you if you don’t change your habits.

Q: Can these traits be changed or modified if they’re not good traits when it comes to money?

A: Yes! All of us can change to overcome our own personality to conform to the realities we are facing. But the greatest hurdle is still yourself.

Understand your own weaknesses and use common sense and determination to overcome them. Most importantly, seek financial planning expertise in your area.

Q: What are the biggest mistakes people make?

A: 1.)Falling into the herd mentality. Our instinct is to follow the advice and recommendations of the people around us. But you must understand that up to 95% of the herd are financially challenged themselves, so how can you trust your financial security with them? Your friends, loved ones, peers, neighbours, and co-workers may mean well, but generally they are financially uneducated; if you ever want to follow herd, then follow the 5% minority who are financially independent.

2.) Not understanding how money works. People are quite happy to place their whole financial futures with banks, insurance companies, and other financial institutions. They forget that these institutions are there to make money for themselves, not for us, the consumers. We know we could not beat Kobe Bryant in a one-on-one basketball match yet we are stupid enough to play the money game with these financial institutions. Our trust in these financial institutions is misplaced and we are always at the receiving end of the abuses rendered by these institutions.

Q: What should everyone know about finances?

A: Our lives revolve around our finances! With financial knowledge, you are empowered to be independent and handle unpredictable events in life.

I believe every student should be taught personal finance in school, as a compulsory course to get their diploma or degree. A financially savvy population will improve productivity and reduce many of the issues affecting society today, such as crime and rising divorce rates.

Q: What would be something that would surprise listeners about this topic?

A: We spend up to 70% of our income on tax and financial costs. Unless, and until, we learn how to manage the taxman and the banker, we shall be destined to either live paycheque to paycheque or be broke regardless of how much we earn.

My Rule of Thumb

Why are you financially challenged?

Rumour has it that Joseph Kennedy Sr. – a prominent businessman and political figure, and the father of U.S. President John F. Kennedy – made his millions from the sale of his stock holdings before the great market crash of the great depression

One day he was having his shoes polished. The shoe polisher was boasting about how easy it was to make money in the stock market. After the encounter, Kennedy decided to sell all of his stock holdings; the market crashed shortly after. What was his reason for selling? He reasoned that if a shoe maker who obviously had no knowledge of stock market is professing his investment expertise, then every Tom, Dick and Harry is probably feeling just as savvy. He concluded that the market must be too hot and too high, so it was time to sell.

After the market crashed, with the cash he garnered from the stocks he sold, he bought a lot of quality stocks at rock-bottom prices; these later accounted for his great fortune.

This story befits the rule of thumb.

Most of us tend to take financial advice from peers, neighbours, co-workers, and family members. But most of these sources (95%) are actually financially challenged. Your friends and loved ones might mean well, but generally they are financially uneducated. If they have not achieved financial success themselves, then you can’t subject your financial security to their advice.

Irrationality seems to be part of our instinct. When we are sick, we seek medical advice from a physician rather than a hospital orderly, but when it comes to financial matters, our immediate instinct is to