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September/October 2009

Commentary - Hans H. Mathisen

These rainy days aren't about the weather - LIFE LETTER for September brings up a topic all of us know, but some don't follow: "Pay yourself first and set up a "rainy day fund". With a plan in place, those who followed their plan weren't hit as hard by this recession as the folks without a plan.

Lessons learned from the wealthy - October's LIFE LETTER is, in a way, a continuation of the September issue. The phrase "an asset is something that generates an income, or positive cash flow" is well worth remembering.

LIFE LETTER MATURE - deals with what to do when a close family member passes away (What do I do?), and Canada Pension Plan Update.

THE STOCK MARKETS - It's my pleasure to report that all major stock indexes, except Japan's Nikkei, are up since my last report two months ago. These are the year-to-date performance as of the end of the third quarter of 2009: the S&P TSX is up +26.78%; and the Dow Jones gained +10.66%. In Europe, Germany's DAX increased + 17.27%; France's CAC 40 stood at +17.15%; and England's FTSE 100 rose +15.05%. In Asia, Hong Kong's Hang Seng Index grew +45.65%, and Japan's NIKKEI Index is up +12.63%.

Most industrial nations are reporting that an increasing amount of the hundreds of billions of stimulus dollars earmarked for economic recovery have reached their intended targets, and the positive results of "the multiplier effect" are appearing. So, hang in there, many analysts are forecasting even better days to come.

Hans Mathisen





These rainy days aren't about weather

The last year or so has been a very rude awakening for many. Too many people today are so busy living a lifestyle, they forget that emergencies may need to be dealt with. It's all too easy to take one's cash flow for granted and get lulled into the belief that it will go on uninterrupted. Those who are best able to handle the financial rainy days that inevitably come along are in the habit of living well below their means and paying themselves first.

The news these days seems to be filled with stories of massive layoffs, mortgage foreclosures and jumping bankruptcy rates. What can be done to get through these challenging times?

Glenn in in sales. He is still working the same number of hours per week, but his income has dropped by about 35%. Fortunately, Glenn and his wife had financed very little of their lifestyle, so they simply made changes to their discretionary spending habits. For example, instead of going out for restaurant meals three or four times per week, they now only go out once or twice per month.

Jim and Karen, on the other hand, were carrying a large amount of debt on some of their lifestyle spending. When Jim's hours were cut at work, he lost the overtime income they had counted on. This put a serious strain on their monthly budget. They came to realize that it made more sense for Karen to stay home with their two children during the day to avoid day care costs. With Jim's shorter hours, he now looks after the kids while Karen works an evening shift. He also works a part-time job on weekends.

Wayne and Linda had been in the habit of living below their means and setting aside a certain portion of every pay cheque. When Wayne and his coworkers took a temporary pay cut to keep the company going, they used their rainy day savings to get through the income drop.

Brent and Darlene really enjoy their toys, and their lifestyle. Like many, they were carrying a credit card balance from month to month. The credit charges and payments became an even bigger burden when Brent was laid off for a few months. He cashed in $40,000 worth of RRSPs to pay off some of the debt. Brent, age 35, realized too late that by doing this, he gave up almost $244,000 of future RRSP value at age 60 (assumes 7.5% compound annual return) to pay off about $26,000 of debt today.

Many others have over extended themselves to the point that they have had no other choice but to lose vehicles, recreational toys and over-sized houses to get their cash flow under control. As much as we'd like to believe otherwise, business cycles do happen and unprepared people will get hurt financially.

Brent recalled a conversation he'd overheard while waiting in line for an expensive coffee a couple of years ago. The barista, who was serving a regular customer in front of Brent, said that she hadn't seen him in a while. He replied that he and some friends had flown to Hong Kong for a few days of golf.

It's never a bad time to take control of lifestyle expenses and set up a rainy day account.

Want help with your rainy day savings?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright © 2009 Life Letter. All rights reserved

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Lessons learned from the wealthy

Most people want to be wealthy, or at least financially independent. The sad truth is that only about 1% achieve true wealth and some 5% are financially independent when they reach retirement. The rest are dependent to some extent on others or government benefits for their daily money needs.

Far too many people today live a lifestyle that is under a mountain of consumer debt. In many cases, that debt follows them into retirement. There are simple strategies to achieve financial independence; however, they may not necessarily be easy to follow. Here are some examples of how the wealthy do it:

They live well below their means - All too often we spend money we don't really have on things we don't really need to impress people we don't really like. It has been called "keeping up with the Joneses." The wealthy, however, control their lifestyle expenses and invest what is left for their future.

The wealthy are also more inclined to know quite accurately where their monthly cash flow goes. When asked if they know how much is spent each year on food, clothing and shelter, almost two thirds of the wealthy said they did. Only 35% of high income non-milionaires had any idea of where their money went.

They have a different concept of what assets are - When applying for a loan, lenders would have us believe that our home, our car, our furniture, and our motorized toys are assets. The wealthy view these as liabilities. They define an asset as something that generates an income, or positive cash flow.

The argument continues to be made that the home we live in is an asset. The wealthy will generally view it as a liability, but believe owning is still the least expensive way to put a roof over their heads. This goes along with the thinking that anything that has a negative cash flow is a liability. Certainly there is the long-term potential of selling the home in the future for more that its original cost, but it rarely generates an income to that point.

The wealthy still enjoy certain lifestyle items. They are more inclined, though, to avoid the instant gratification that is so prevalent in society today. It makes more sense to them to wait until they have built up an asset to the point where its cash flow covers the cost of the lifestyle expense than to go into debt to get it today.

They pay themselves first - The wealthy are more likely to have clearly defined financial goals, and when they achieve their goals, they usually set new ones. They put aside a certain portion of their income regularly to reach these goals first, then use what is left over to determine their lifestyle. The downfall for many is living a lifestyle based on cash flow and debt, and hoping to save if there is something left over at the end of the month.

The road to financial success is not without the occasional detour or pot hole. When plans are interrupted by unforeseen events, don't give up. Franklin D. Roosevelt said, "It isn't sufficient just to want - you've got to ask yourself what you are going to do to get the things you want."

Want help with your wealth strategies?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright 2009 Life Letter. All rights reserved

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