Oct. 31, 2022

Ep.12 Your Money Management System

If you are at a point in life where it feels like you are have no idea where your money is going every paycheck then this episode is for you! Your Money Management System is a deep dive into setting up the components of your financial system including th...


If you are at a point in life where it feels like you are have no idea where your money is going every paycheck then this episode is for you! Your Money Management System is a deep dive into setting up the components of your financial system including the types of bank, savings, and investment accounts that fit your needs. Also, Rey shares her real-life experience in how she established her money management system. Finally, she wraps up the episode with 3 actionable steps for you to set up your money system:

  1. Pick a bank or two to hold your money
  2. Determine how you will spend and keep track of your money
  3. Outline where you will save and invest your money

Hold the Mic: Common Types of Bank Accounts in Canada

Sources:

[1] Money Management Definition

[2] 6 Common Money Management Mistakes College Students Make | Announce | University of Nebraska-Lincoln

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Transcript

Ep.12 Your Management System

[00:00:16] Intro

Hey guys! Welcome to Growth on the Daily, the personal development podcast for athletes. My name is Rey and I'm your host. I'm a former competitive hockey player, I'm passionate about self-growth, and I'm here to support you on your journey to becoming the best version of you. For those of you who are new the show, thank you so much for tuning in and welcome to the Growth on the Daily podcast, so glad to have you here. For those of you who are back at it again for another episode, like always, thank you so much for your continuous support. Before we dive into the episode, I just want to direct you guys to our Instagram. We have all of our posts on there, so you'll be able to stay up to date with the show so you can follow us there @growthonthedaily.

Alright guys, time for the episode. As you can see, the title of this episode is Your Money Management System. So in terms of Specialties for Success, we are focused on the financial category. So it's really about taking control of your finances. So, athletes if you're at a point in life where it feels like you have no idea where your money is going, then this episode is for you.

With that, let's hear from the experts.

[00:01:21] No Cap, All Facts

With the research this week, guys, I really wanted to communicate a few points, and the first is defining what I mean by a money management system. It just sounds like a fancy term for a bunch of complicated language. We want to simplify that. So according to Investopedia they define money management as simply "the process of budgeting, saving, investing, spending, or otherwise overseeing the capital usage of an individual or group". So what that means is where is money coming from and where is it going? How does that system work together for you as an individual? That's what we want to understand. We want to develop a system so that you are aware of where that money comes in and where it's going, and how much you have at all times.

And the reason this is important, I communicated this in a previous episode, Ep.9 Handle Your Bread. So if you haven't listened to that episode yet, go back and then come back to this one. And that's really an episode where I explained that money management is crucial for athletes to understand, especially given the stat that "78% of professional athletes go broke after three years of retirement". That's it. Three years, all the millions accumulated endorsements, sponsorships, doesn't matter. It's gone because of poor money management. So we're here to mitigate that.

So how can we make sure that you're not ending up broke once any amount of money is coming in? It doesn't matter whether that's thousands or millions or more. The point is, no matter how much money you have, you're able to manage it.

So let's keep talking on the subject. Why do people find it so challenging to manage their personal finances? Where does this come from? I actually took a look at an article that was published by the University of Nebraska-Lincoln, and they looked at the mistakes that college students make, and what they discovered were six mistakes: not knowing where your money's going, not having a plan for your money, not determining your wants and needs, succumbing to peer pressure, and abusing credit and credit score. I have to agree with every single point.

The first point, not knowing where your money is going is a big one . You're just spending frivolously, which is fine if you have the means for it, but what happens if you don't? Problem number two not having a plan for your money. Okay, you have money, great. You have an income source or more coming in, which is excellent, but you have no plan to grow that money so your future self is better off.

Problem number three, not determining your wants and needs. You have no plan in place because you don't actually know how you should be spending your money for you. So understanding your wants and needs and putting those wants and needs into your money management system are crucial.

The fifth reason they mentioned was succumbing to peer pressure. And I think the fact that this was looked at from a college student perspective makes a ton of sense. You go out to bars, to restaurants, clubbing, all the things you do when you're young, right? So when your friends are doing that, you really want to do that. It's hard to say no, especially if you don't really have any other obligations. So it's easy to succumb to your peer pressure and just say, You know what? Screw the budget. I just want to have fun. But if you are not financially prepared to have fun, that can be detrimental to your financial status.

And then the last one they mentioned was abusing credit and credit score. And this is a big one, thinking credit is free money and not recognizing it as something that needs to be paid back and that you should have the money already to pay off that credit. That then implicates credit score. If you are abusing credit, obviously that's not going to be good for your credit score, which is going to make future big money decisions, mortgages, cars... that's going to be a lot harder when you have poor credit.

So if you're relating to any of those six, then I would definitely say keep on listening, because I want to share with you my take on how you actually go about creating your money management system.

[00:05:36] Rey's Remedy

Okay, so in Ep.9 Handle Your Bread, I talked about three steps to begin your journey of managing your money. So let me just refresh you guys. The first was committing to becoming financially literate. The second was then educating yourself and understanding your money habits so you understand where you're spending your money. And then the final thing was taking action and creating a sustainable plan to reach your financial goals. So that last step there, that's really what we want to talk about today because in order to take action, once you have that foundation, it's really more about developing the components of your financial system so that you can then create and follow a plan.

So there are five components to building your financial system. The first is, determining who you will bank with. I really want to stress this because people don't realize that picking your bank is kind of a big deal. You are limited to the types of products that they offer and the types of terms and conditions that they have on their financial products. So it's really important to decide who you're going to bank with. And you don't have to pick one bank. You're allowed to have as many bank accounts as you want. I am not loyal to one bank at all. I have several bank accounts, and that's based on my personal needs that I've determined.

So, what are your options? Well, you have your traditional banks. So you have in Canada at least, you have those Big 5 Banks. You have credit unions, you also have fintechs or online banks that also exist. So you have to determine, based on the characteristics of those institutions, what works best for you. For me, for example, I'm a big online banker, so Tangerine, EQ Bank, KOHO. Those are my bank accounts.

That might not be what works for everybody else, but that's what works for me. I love online banks because there's either limited or no fees and you still get the same or more perks. So whether that's higher interest rates on savings and chequing accounts, no annual fees or administration fees, maybe you're getting some sort of loyalty points or cash back. All things to consider.

Ultimately you have to decide who has the products that you want and are willing to pay for. So for example, for me, I'm not willing to pay for my chequing account. So I don't bank with a traditional bank anymore for my chequing account. But on the other hand, I am willing to pay for my credit card because I get other perks that are more important to me.

So I do have a credit card with a traditional bank. So a little bit of research you really have to do and actually determine what sort of accounts work for you, but that's really the first step. After you decided who you will bank with, you need to then decide what types of accounts will you keep your money in.

So are you going to be keeping your money in chequing accounts and savings accounts? Are they registered accounts like a TFSA versus simply a high interest savings account? You have to understand those accounts. And like I said, that depends on who you bank with.

 Do what works for you. Simplicity, in my opinion, is what works best. For me, that is having a dedicated bank for my savings, a dedicated bank for my credit, a dedicated bank for my fun spending, and a dedicated bank for my chequing account.

Now that might sound over complicated for some people and that's fine, but it doesn't matter because it's not their system. It's my system. So really the goal here is to figure out what works for you. If you just want to go, let's go full traditional bank. They have everything I need. Let me put all my accounts in there. So one stop and shop. Cool. Great. Do it. Just pick what works best for you.

The third thing you need to do is then determine how you will spend your money. So are you a credit spender? Are you someone who uses their chequing account? How do you feel about having a VISA versus a MasterCard versus an AMEX?

So understand how you will spend your money. For example, for me, I mentioned I have a fun spending account. That's actually my KOHO account, they used to be VISA, now they switched to MasterCard. So MasterCard on that, but I do have a travel credit card at a traditional bank, and that is a VISA.

So really understand how you want to spend your money. There's advantages to all systems. So for me, I really like using my credit card because one, it builds up my credit and it builds up the responsibility of paying my credit card. And it also allows me to maximize my loyalty points for a product that I'm paying for because I have an annual fee on my credit card. I don't see the same benefits with the chequing account, which is why I don't spend on chequing. That might be different for everybody. So do what works best for you.

I will definitely say a credit card is a lot of responsibility and even more than that, the more accounts and more credit cards that you have, the harder it is to manage. So if you can't even manage that one in the first place, you shouldn't be looking at more credit. You should be figuring out how you manage what you have now. That is my of recommendation because you don't want to find yourself spiraling in debt, especially with the high interest rates that can come with credit cards.

The fourth thing you'll need to do is determine how you invest your money. You know, in one of the six common mistakes mentioned in the No Cap All Facts section of this episode, it was mentioned in the common mistakes article released by the University of Nebraska-Lincoln that not growing your money is a mistake that college students tend to make. And so investing is important and what you invest in is up to you. It can be businesses, it can be stocks, it can be real estate. The possibilities are endless. The point is your money needs to grow for your future self. How do you do that?

One way of doing that is if you're looking the stock market route, I'm a big ETF person and I can dive in later into another episode, into investing. If that's something you guys are interested in, please let me know. Write a review or reach out to us in Instagram @growthonthedaily. Let us know if you're interested in an investing episode. But what I'm referring to are brokerages. I personally use Questrade. But Wealth Simple is another great one that exists out there and there are plenty others as well as fund managers and also portfolio management with traditional banks. So tons of options. We can dive into that in a later episode. But understanding how you'll invest your money, or at least by what means, is extremely important as well.

And then the final step, the fifth step, is how you will keep track of your money. right? You understand, okay, this is who I'm banking with, so where my money is going to be kept. These are the types of accounts that my money's going to be held in. I know how I'm going to spend my money and I know how I'm going to grow my money.

Fifth step is how are you going to track all of this? How are you going to know at all times where your money is? And that's where you get into budgeting. So maybe using budget tracking apps, like things like Mint, or You Need A Budget, and we can dive into actually building this budget and putting this together and managing it in a future episode.

I just wanted to high level bring this up as to how you can actually begin determining those components. So I would say those are the five key components to building that financial system that you then you can build your financial plan on and act. Now that's enough for me. So it's time for a quick shoutout.

[00:12:53] Hold the Mic

For this week's Hold the Mic, I wanted to refer you guys to additional resources to help you guys narrow down your search when it comes to determining what accounts and banks are best for you based on your personal needs. I found a great article on Nerd Wallet and it's really diving into the types of available bank accounts for Canadians beyond the chequing and savings realm, because people tend to understand that already. So it really dives into the advantages, the disadvantages of each, and it helps you determine which ones are best for you. I'll link it in the show notes.

Alright guys, let's wrap up this episode.

[00:13:30] Meaningful Mentions

For this week's Meaningful Mentions I have three key takeaways for you. The first is pick your home base or bases, and by that I mean who are you going to bank with, whether that's one bank, whether that's multiple banks, whatever works for you, just determine where your money's going to be held.

The second is determine how you will spend and keep track of your money. So are you credit? Are you chequing? Are you VISA, MasterCard, Amex? Do you use budgeting apps? How does that work?

And then the final step is outlining where you will save and invest your money. So are you saving and registered accounts like TFSAs and RRSPs, or are you saving in high interest savings account. Or maybe you're investing your money, in a Questrade portfolio or Wealth Simple, or within an investment portfolio or trading account with your traditional bank.

Whatever that looks like for you, you need to determine the accounts that are necessary for you to achieve what you're looking for. And to help you on this journey, guys, I have another quote for you.

[00:14:35] Quality Quote

 Your motivational quote of the week is from Jonathan Swift and reads, "A wise person should have money in their head, not in their heart". And I love this quote because it goes to show that a lot about money is emotionally motivated, and that can take a toll on us when it comes to managing our money. Taking that emotional component out of it in your money management system and really applying simple logic will make the system so much easier and less stressful.

[00:15:04] Outro

 Alright guys that's all I have for you for this week. Thank you so much for taking the time to tune in to this week's episode and committing to Learn, Grow, and Thrive. Follow us on Instagram @GrowthontheDaily to stay up to date with the show and go check out our website growthonthedaily.com for more info, we have blog posts on every episode that come out every week, so check those out as well as the video podcast versions of each episode in case you guys are only listening to the audio version. Alright guys that's it for me. Thank you, and see you next week.