Virtues of a Successful Plan

I really enjoy Scott Young's blog . He writes mainly on overall efficiency and tips on how to achieve success in life

He wrote a recent article that I felt had some really wise points that could be coresponded to the concept of financial planning. In my business I often encounter people who have recently become very excited over a particular aspect of their finances and often ramp up too fast. I am often telling people to take things slow and comfortable.

Here are some points to read over and ask yourself if it corresponds to your overall plan. ( I copied this directly from his article).

1. Eliminate Distractions - This may sound obvious, but it is easily forgotten. How often do you supplement boring activities with additional stimulus? Television, music, radio or IM in the background of your tasks. The problem is that although these distractions may help pass the time, they are destructive when trying to engineer a creative flow.

2. Accelerate Slowly - No car can go from 0-100 mph in 2 seconds. Why do you expect your mind to work the same way. Flow implies a certain cognitive motion. I believe this is an apt metaphor. I often spend the first fifteen minutes of an article messing around with the first paragraph and subject. After I build up speed I can write almost as fast as I can type.

3. Switch Gears During Roadblocks - It is hard to build up speed when you keep crashing into roadblocks. The best suggestion I have is to build some tools to smooth them out. Work out problems on paper instead of just your head so you won’t break the flow when you encounter a tough problem.

4. Carve Clear Rules and Goals - Rules and goals form the highway for your cognitive drive. Imprecise goals are like twists and turns in the highway, forcing you to slow down. Poorly defined rules and standards are like gravel on the highway, preventing you from reaching top speeds. Figure out exactly where you want to end up and what needs to be done to get there before you put your mind into drive.

5. Master Your Tools - Know the ins and outs of your vehicle before you start driving. If you use computer based software, schedule out some time to learn minor features that might help you overcome mundane tasks later. If you use physical tools, practice various techniques and motions so you will need less experimenting when you start.

6. Environmental Controls - Modify your environment so it fits your ideal of a productive workspace. If your office doesn’t feel right, make some changes until it suits your image of a productive area.

7. Dissect Your Stop Signs - Everyone has mental stop signs that keep them from a creative focus. This could be insecurity with your topic, lack of experience, fear or distaste. When you consistently have trouble getting to a peak flow, examine what might be stopping you. When you dissect these stop signs, often you can find detours around them.

8. Your Body is an Engine - Don’t draw a firm line between body and mind. If your body is unhealthy, fatigued or toxic, that will influence your brain. Exercising regularly and eating a healthy diet is a must. It is easy to scoff at such a suggestion as being non-essential — until you try it. I was amazed at what a difference a little care for the body can do.

9. Avoid Carrots and Sticks - You aren’t a donkey. Don’t expect external rewards to create intrinsic motivation. You are better of redesigning your environment and your tasks to suit your mind, then try and trick your subconscious to behave.

10. Timebox - Give yourself a deadline. A deadline is the creative equivalent to getting out and pushing your car when it stalls. It won’t help you when you reach top speeds, but it can help you when you are stuck. Timeboxing is the practice of giving yourself a set amount of time to work (say 60-90 minutes) after which you will take a break. This nukes procrastination and pushes you into gear.

11. Patience - It’s a virtue, remember? Moving slowly is uncomfortable. But you need to accept that instant creative acceleration is almost impossible to produce. The first fifteen minutes of writing for me are often frustrating and painful. The last fifteen are effortless. Be patient and you can slowly slip into flow.

Understanding Credit

A common theme for the average Canadian is debt and process of eliminating it. However, many people do not fully understand credit and the process surrounding lending. I talk a lot about the use of good debt and many people are starting to recognize the benefits behind it. Often I see young people who understand the value of time in partnership with a quality leverage program. However, due to their situations they may not be in a position to participate due to their credit situation.

I was able to attend a seminar by a trusted Canadian investment lender this week and his approach was to educate financial advisors on understanding credit. He brought up a good way of understanding credit. He named it 'the 6 C's of credit'. I felt that not only should advisors know this but also the average Canadian investor.

He broke it down like this:

1. Capacity:
or Total Debt Servicing Ratio. This is the number by which lenders decide if you have the capacity to carry a debt or handle more payments based on current income. To arrive at this number you divide your total monthly payments (loans, mortgage, lines of credit, etc) by your gross monthly income. Most lenders are going to look for <40% of monthly income.

An example of where capacity might cause problems is for self employed people that don't show all of their income due to deductible expenses. While they may have the capacity for tax reduction, lenders may look at their earned income as insufficient for the capacity to carry extra credit.

2. Capital
This is your net worth. It is an easy calculation: assets minus liabilities.

Recently I am seeing many young people who may have entered into a mortgage with little down payment. However, many people may have existing debts and few assets. This may put someone in a negative net worth situation. Similarily renters often are in this situation due to the fact that they may not be saving.

Establishing net worth on the positive will always work in your favour even if this means simply establishing an emergency fund or a small investment portfolio through dollar cost averaging http://www.wisebread.com/dollar-cost-averaging-my-path-to-becoming-a-not-so-nervous-investor.

3. Collateral

Collateral is defined as a pledge of property or other assets that the borrower uses as security against borrowed monies. The relationship between the value of these assets and the amount of the loan is called the loan-to-value ratio (LTV). This number is expressed as a percentage (loan amount/collateral value=ltv)

Often the minimum assets pledged must be equal to the original loan amount.

4. Credit History

This is the area which I thought would be the most useful to every type of investor. Many people do not understand the concept of a Beacon Score. This represents an applicant's credit "worthiness" and likelihood of repaying debt based on statistical analysis of behaviour. This relates directly to a collection of information and statistics about past behaviour in meeting credit obligations which contributes to the development of the score.

Some factors that contribute to the development of a beacon score:
-time in file
-number and types of accounts
-residence status
-late payments
-bankruptcies, wage garnishments, liens, collection items
-too many requests for new credit and credit enquiries

TIP: when shopping for a mortgage use a broker rather than shopping around. A broker will have your credit pulled only once and shop around for you.

It is encouraged to take the time to check up on your credit history on a regular basis. Equifax gives you different options to receive your history. Identity theft has become a growing concern. For this reason alone you should check it out.

5. Character

While examining the other C's will help with character lenders are also going to look at things like:
-time at job
-occupation type
-time at residence

6. Comfort

You have to take the time to examine the threshold of debt that you are able to carry comfortably. For some this may be zero. However, taking the time to understand the different types of debt, what is tax preferential debt, and debt that can produce wealth will have a possitive effect on how you use it and carry it. Once you can see debt for what it is your threshold may significantly rise.

TIP: If you haven't read Rich Dad, Poor Dad , you should. It is an excellent story explaining how debt can work for you. Not only that but it will also show how to really get assets working for you as well.