MONEYIS4U

Real-Life Lessons in Wealth Building

• Jacqueline Divine Correia • Season 1 • Episode 2

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Navigating a lump sum of money after an unexpected event can be overwhelming. This episode discusses the psychological challenges, budgeting strategies, and essential mindset shifts required to manage newfound wealth effectively.
 
 • Discusses the challenges of sudden wealth
 • Highlights the significance of creating a budget
 • Emphasizes the need for an emergency fund
 • Explains the concept of the 90-10 rule for saving
 • Shares personal insights on managing finances post layoff
 • Mentions the importance of taking measured steps before investing
 • Explores the impact of mindset on financial decisions

 To lean more, feel free to contact me 
 www.nwminc.ca
Jacqueline Correia

Visit Amazon to purchase "My Farewell and Final Wishes" planning book to help organize your estate information in one place.

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Speaker 1:

you, you, you Welcome, welcome to the Money Is For you podcast. In collaboration with Notable Wealth Management Inc. I am your host, jacqueline Correa. I will take you through this journey. Last week, we spoke about me being laid off and we talked about the journey that I went through. Today, we're actually going to talk about receiving a lump sum of money. And what do you do? And one of the things I've come to realize being an advisor and a wealth builder is that you know this is a part that we don't talk about, the money part of it.

Speaker 1:

Most of the times, people get a paycheck every two weeks and they know how to manage that money, but then here you have is a lump sum of money that come into you and you're seeing all this money sitting here and you have to now figure out for yourself how are you going to make all of this work until you either figure out what next to do, or you know, or do I spend it all right, and a lot of the times when we see all this money because what happens when you get laid off is that they just dump all that money into your bank account. They don't care that. You know you're going to be clawed back all this taxes or you know. You now have to figure out. You're accustomed to getting, let's say, $5,000 a month or $6,000 a month. Now you have to figure out these things all at once, and a lot of times what happened is that people have a tendency to say, oh, I have a lot of money, and then they go crazy. You know, I remember back in the days when I was working, this one individual. She got packing out, she got a whole year's salary and that money was gone within a matter of two months, right? So these are things that we are not like. We don't realize the difference between getting consistent money that you know how to manage every two weeks or every month. To now, you have to manage this hundred thousand that you may receive in your bank account or they dump in all the money, like for in my situation, one of the things that I wanted was them to dump all the money. Like for. In my situation, one of the things that I wanted was them to dump all that money into my RSPs and then I draw on the money according to how I wanted. Now, that didn't work out, because once you got laid off, they want to just get rid of you and everything that you may have goes to you right away so that they're done with you. So, um, you know.

Speaker 1:

My question is now how do you manage this money? Like, what do you do? And this doesn't. This occurs more than just being laid off. Um, it could be a situation where you've had an accident and you've now you have have a settlement, um, but you have not. You, you have not, you're not working anymore, right? So you have to live on this settlement because you're on disability and maybe the disability that you're getting is only half the money. And now you're thinking, oh well, I got this 200 000, I have a lot of money.

Speaker 1:

And the thing about the problem with it is that your mindset is not programmed to manage all this money. So you're thinking to yourself I can, I can go and just blow all this money or do whatever I want. Um, and sometimes it doesn't work out for that way, because you run out the money and you're right back to where you are. Or the fact that you've run out of money and the disability income is not covering all your expenses, because it's like rainfall and you have a reservoir and this reservoir is all filled up. So, coming back to my situation, the reservoir is now full, but we don't know when we're going back to work. So once that rain is finished, that's the last time it's raining until you actually go back to work.

Speaker 1:

But the bills every month is coming to you consistently and you now have to start pulling from this emergency fund or what they've given you to pay these expenses. And the thing about it is that sometimes we just throw it in a bank. We don't even put it in an investment that can grow, and so again, we'll talk about the Rule of 72. So you're putting it in in a checking account where you can have access to it all the time and you just keep drawing on the money and you know before you know money run out. And then now, what now? Now, what so the now, what part? You run out of the money, and now you start tapping into the credit cards, the line of credit and whatnot, and so the biggest problem that we have is that the mindset does not change, is that we're still operating in the mindset where we're getting that $2,000 every two weeks or that $5,000 every month and we're still spending the way we were. We are not adjusting our finances or we're not adjusting our budgets to come down to the income that we now receive and we're still trying to live like if we're making that 100% working. You know sometimes what happens with people they go on vacation or they start buying a lot of material things because they're thinking that they have a lot of money and don't realize that eventually that money is going to run out is, and you know, and I and I say sometimes to my client it's not how much money you're making, is what you do with that money, right? So one of the things is it comes down to again the mindset, your mindset.

Speaker 1:

When I lost my job, I created myself in an environment that I couldn't have access to the money, meaning that when I needed the money, because the money went into an investment, because for me, when I got my package, I had some money came into my checking account, but my emergency funds were in an investment and I had to contact the investment company to withdraw the funds. So that kind of eliminates some of the quick fixes. So the first thing that I had to do was sit down, create a new budget, because now, remember, the budget I had when I was going to work was a budget of luxury. I knew what was coming in, I knew it could cover my bills and I was going on. Now I had to streamline my investments and streamline my budget because I also had to pay for my son's university. So I had to recalculate my budget. Or I don't like to use. Just look at my cash flow, see the amount of money that I had, see how long this money was going to last me and the reality.

Speaker 1:

When I first looked at my numbers, I told myself I was only going to be off for three months. Right, but I tried. What I did was continue to try to live on that same monthly budget. So at the time I needed $5,000 to live off of. So that was what I would draw every month from the investment company to live off of. So whatever, even if it's $5,000, whatever money had to go to the tax man. So remember, even if I got $200,000 from my company that I was working for well, it wasn't $200,000, let's say it was $100,000. Every time you cash that money in or when they cash out that money to you, 45% went to the government anyway. So that $100,000 was now $60,000. So it's really and truly you're not getting what you think you should be getting. But then when you started tapping, thank God I did have an emergency fund that I could continue to live off of while I was still unemployed.

Speaker 1:

But it did come to a point when I ran out of money and I had to actually contact some of my family members and I had to borrow money from them right to get me through. I mean, I paid everybody's back with interest and everything. But these are times that, you know, if I didn't have the credibility with my family members, I could have lost my house. So these are things that we don't, we do not think about, you know. First of all, we don't think about it when we're working.

Speaker 1:

Some people work and it's like I call it the net zero mindset they make $100,000, they make $100,000. They spend $100,000. So basically, they make $100,000 or they make $5,000 a month or $6,000 or $8,000 a month, and they find a way that everything goes through the door. So it's like and they call that the poor mind mindset so you make $5,000, you spend $5,000. So it's input, output. There's nothing going to anything and the way to avoid that, like in my situation, what was happening.

Speaker 1:

So, in order for me to get through to that two years I was paying myself first. I was paying myself first, so what I was actually doing, I was taking my $5,000 that I was making every month and 5% of that was going towards my emergency funds or my investments. And so when I lost my job and now I had run out of money, I was able to tap into this emergency fund to continue me to go through that time period. But at some point in time, even that two year period, I had run out of money and I, in order to maintain the mortgage, I had to borrow money from a family member until I got back on my feet. But I had to also change the mindset. It was not always easy, but I had to change the mindset. I had to start doing things. And so in that two-year period one of the things that I always said I regretted that I did, but then I realized afterwards, if I never had done it, I would never have known if that's the avenue I wanted to go. So I started my cake company because I always loved baking One of the things that I did wrong now that I look back I went out and I bought everything, everything that was needed before the business was up and running and money was, was coming in and you know, again, I did not want to run out of money, so I said, okay, I'm going to take some of this money.

Speaker 1:

So I took 20,000 and I started the company. You know, I bought all these flyers, I bought all these cake pans, I bought everything, only to realize when I started baking this was hard labor. I was like what was I thinking? But now I am now 20,000 short because what I should have done when, again, when I first got laid off, was spend some time with my higher self, the me person, and just ask the guides where should I go, god, where do you want me to go? You know, and those are things that I've learned now you know it's to be silent and to think things through. But again, you know, sometimes when you first lose a job, you get scared and you're desperate, so you're operating in the survival mode and you're not thinking things through. So you jump and you do the wrong things Right. And one of the things I've learned is that when you're doing something that you're not called to do, trust me, it's not going to work. Eventually it will fail, and that's what happened.

Speaker 1:

I mean, I love baking. I still love doing my stuff, but I love it for family and friends. I don't want to make an income from that. It's not fun. Like today, I don't even bake, but I still have all my cake pans and whatnot. But I have grandkids now. Where can they enjoy it? But that was one thing I regretted. Where could they enjoy it? But that was one thing I regretted. I regretted the fact that I had spent all $20,000 just preparing to start this cake business. That never got off the floor and I think sometimes we all tend to do stuff like that without thinking things through Again.

Speaker 1:

It's what we call wasted money. You know, what I should have done is start my business from home and just, you know, maybe see a few friends, whatnot close people around me, see how that was going and then, if I found that I really liked it, then start investing. But I think sometimes we get excited and I say as I said before, when we get that lump sum of money, we think it's a lot of money. We don't realize that that money can go really quickly. And so it was like, as I said, I was desperate, I did not want to run out of money and so I wanted to try my hands at something, and again, we need to step back a little bit. Even if it's to go on a vacation or a long drive and spend a weekend away and just ask yourself where can I go next?

Speaker 1:

I do believe that we should all start businesses, but it also must be something that you take steps. It's a process, it's a planning, and sometimes we think this is what we want to do, but it's not what we really need to do to bring that income into us. Again, you know, one of the things that I would say is it's not how much money you make, is what you do with it. Because I could have two clients One could have a hundred thousand income and the other could have 50 and that person with 50,000 income could do so much better than the person with making a hundred thousand. Because if you bring home a hundred thousand but you make a hundred thousand, but you spend a hundred thousand, you're still zero, right.

Speaker 1:

And the thing about it is that what we have to do is change the mindset, and that mindset that we have to change is that this is that when we first get paid, we put a little bit into the reserve that create more income, or what we call a passive income, and then over time, when that is built up, that money will start paying off those liabilities. But if all we're doing is making an income and applying it to all expenses because your liabilities also consider an expense then you have nothing building up and so making an income is not building wealth. If you make $200,000 and you spend $200,000, you're not building wealth, you're just living high. You know, building wealth is when you take a little bit from what you have and invest it into something, whether it's a business, whether it's um. You know, as I said, some it could be just investing in a product it can best be invested into another real estate product or investing in putting monthly investment into um, monthly investments that is growing. You're creating a portfolio and you're building on that portfolio. Those are all part of building wealth. That's how you build wealth.

Speaker 1:

So the other thing that um, the psychological part that I want to talk about, the money part because, as I said, you know I've seen not only my client. I've seen, like I've seen people some was my clients where you know there were really good. For instance, I had this one individual, one of my clients passed and her mother had convinced her to um, she had invents convinced her to be um, she had been. She had been convinced her daughter to make her the executor of her will. And you know she had two young children and she got this money and within six months grandma spent all the money. So the grandkids never got the money right. The thing about it is grandma already had financial struggles before this individual passed and so when her daughter passed, now she had this money and again she had the mindset oh my God, this is a lot of money. Grandma's never seen a hundred thousand before and you know she went crazy. So in six months the money was gone. So these are things that we have to be careful about and we will talk about that on another episode, because that is how you prepare your will in case something like that happens.

Speaker 1:

Um, when I talk about paying myself first, one of the things like there's something called a 90-10 rule. You live off and I start with a 90-10 rule. I like the 80-20 rule. But when you are first time starting to invest, first of all, if you work for a corporation or a company that offers you a match program, that's free money on the table. So if a company comes to you and says if you put 6% of your salary, invest, like, invest 6% of your salary, it matches 6%. I'll tell anybody go get that, because you're actually investing 12%. That would be 6% of your salary that you would never receive if you didn't give them 6%. And some of the times I hear people oh well, I only give them 1% or 2%.

Speaker 1:

If they're off and you're 100%, you go for 100%. You find the money. And I'm repeating this to you because I remember when my manager came to me, my VP came to me and he said I know you just bought a house, but you need to get on this program because this is money you're leaving on the table. And I'm paying this forward because that was the wisest decision that he made to me, because who would have thought 10 years later, that same money is what saved me from losing my house. Money is what saved me from losing my house.

Speaker 1:

So what I would say to you, the 10-90 rule, is pay yourself 10%, live off for 90. So it's called living below. You know, you hear this quite often live and below your means. So live on 90%, save 10. That's a start. I don't want to get you to 75%, but that's a start and eventually, when my clients, I work with my clients, we start with the 10% and we see how we could knock off the expenses and bring them up to 20%. But, to start with, take off 10% before you pay anybody and not put it into a checking account to the bank, because that is a liability. Again, that's another conversation. We're talking about putting it in an investment with someone who could invest it in something that can make maybe 20% or 25% or 30%. So that's what we call of.

Speaker 1:

Your money is growing whether you're sleeping, working or playing. That is the passive income. It's the passive income that continues to build when you're not even looking at it. It goes up. It may go up, it may go down, but that's how. When you sit down and you want to borrow from a lender, they're going to take all those assets and put it into a net worth statement to see what your net worth is.

Speaker 1:

So that's how I would start Paying 10% of your salary into the investment, not at a bank, in a checking account or a savings account. It has to be done in order for you to really grow that money. It has to be in some form of an investment away from a bank and if you need to know more about that, you can reach out to me or you can find an advisor that can help you with that. So you know again. At the end of my episode you will see my number. You can reach you with that. So you know. Again, at the end of my episode you will see my number. You can reach out to me.

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Jacqueline Correia

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