Following The Goods - Chapter 1

Following The Goods Financial Management for the Young and Ambitious

Adam Goodman, MBA Illustrated by Allyson Stone

Blue Pig Publishing, Toronto

Copyright © 2009 by Adam Robert Goodman All rights reserved. No part of this publication may be reproduced in any form, or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system, without permission in writing from the publisher. Care has been taken to trace ownership of copyright material contained in this book. The Publishers will gladly receive any information that will enable them to rectify any reference or credit line in subsequent editions. Although the author has exhaustively researched all sources to ensure the accuracy and completeness of the information contained in this book, we assume no responsibility for errors, inaccuracies, omissions, or any inconsistency herein. Any slights of people, places, or organizations are unintentional. This publication contains opinions and ideas of the author. They are not presented to provide a basis of action for any particular circumstances without consideration by a competent professional. The author and publisher expressly disclaim any liability or loss, or risk, personal or otherwise which is incurred as a consequence, direct or indirect of the use or application of the contents of this book. Published in 2009 by Blue Pig Publishing 1210 Sheppard Ave E, Suite 203 Toronto, Canada M2K 1E3 First printing December 2008 Canadian Cataloguing in Publication Data Goodman, Adam Robert, 1979Following the goods : financial management for the young and ambitious / Adam Robert Goodman ; editor, Hailey Eisen ; illustrator, Allyson Stone. Includes index. ISBN 978-0-9811260-0-5 1. Finance, Personal. I. Eisen, Hailey, 1981- II. Title. HG179.G66 2008

332.024

C2008-907996-5

ATTENTION CORPORATIONS, UNIVERSITIES, COLLEGES, AND PROFESSIONAL ORGANIZATIONS: Quantity discounts are available on bulk purchases of this book for educational or gift purposes. Special books or book excerpts can also be created to fit specific needs. For information, please contact Blue Pig Publishing; [email protected] Production Credits: Editor: Hailey Eisen Cover Design: Joe Donnelly Design.com Printed in Canada

Table of Contents 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

28 Years Old and Broke .............................................................. 1 How Much Money Do You Really Make? ................................... 7 Do You Know Where Your Money Goes Each Month?............. 11 What it all Means ..................................................................... 17 The Future Cost of Life .............................................................. 21 What’s the Deal with Credit? ................................................... 31 How Interest Really Works ....................................................... 37 A Glossary of Interest Related Terms ...................................... 49 Is Credit Good or Bad? .............................................................. 51 Debit Cards ................................................................................ 59 What About Investing? ............................................................. 63 How to Invest Wisely................................................................ 67 Professional Designations and How to Tell Them Apart......... 71 How to Stay Current in Investing ............................................. 75 Tax ............................................................................................. 79 Retirement and Tax Free Savings ............................................ 83 Moving Out of the Basement .................................................. 87 Rules to Follow ......................................................................... 91 Now You’re on Your Own! ......................................................103

Appendix A ....................................................................................105 Appendix B ....................................................................................106 Appendix C .....................................................................................107

Order Following The Goods...........................................................109

Chapter 1:

28 Years Old and Broke It has taken me 28 years to realize the value of a dollar. When I think about all the money I’ve wasted in my life, I finally realize that if I had done things differently, I probably wouldn’t be living in my mom’s basement right now, asking my parents to help me lease a car. A sad tale, but it didn’t have to end up this way. My name is Adam, and my book will hopefully help you understand the value of a dollar so you don’t end up 28 and broke like me. This book will not teach you how to calculate the compound annual growth rate (otherwise known as CAGR) of an investment, or how to pick stocks for your investment portfolio. Frankly, there are tons of books out there on these subjects. Instead, this book will teach you, through my life experiences, just how important it is to get a grasp on basic money management principles from a young age. If you are like me, no one has ever sat you down and formally taught you how to manage your money. Likewise, money management was never offered as an elective in high school or university (a true shame). But how can I teach you about money management if you don’t know anything about me? For all you know we could have nothing in common. So, let me begin by telling you a little bit about myself. I grew up in a comfortable home with hard working parents who provided me with whatever I wanted.

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Chapter 1: 28 Years Old and Broke During high school I was never forced to get a job, but being the go-getter eldest child I felt it was something I wanted to do. Unfortunately, no one ever told me what to do with all the money I earned from birthday presents, allowance, and work. My money always seemed to disappear. I guess the problem with growing up in a comfortable environment is that you don’t learn what it is like to be uncomfortable. I never learned the value of a dollar because if I wanted something, my parents would always buy it for me. Sure, there were certain items I couldn’t convince anyone to buy — that Ferrari still eludes me — but for the most part, if I wanted it, I got it. Ironically, my lack of understanding around money management had nothing to do with my parents’ knowledge or profession. My dad is a successful accountant and my mom has been involved in finance for as long as I can remember. My parents just never taught me about the subject of money, nor did I think to ask. I just assumed knowing what to do with money would come naturally; I never thought that money management was a subject that could or should be studied. And so, life went on. I graduated from high school, started my own business and went to university. I was studying computers at the tail end of the dot-com boom, and not only was I making a considerable amount of money through my business, but I also found a co-op job that paid me the equivalent of $100,000 a year. Not too shabby for a baggy-pant wearing 19-year-old. Some of the money I earned went to pay for my university tuition and living expenses. Paying for school was something I chose to do rather than being forced to do, but I’m glad I did it because I learned the value of doing things for myself. The rest of my money just seemed to disappear into thin air. Ironically, even though I Page 2

Chapter 1: 28 Years Old and Broke was independent during my undergrad years, I still never learned anything about money management. By the time I graduated I had no debt from university, but I had already owned six cars, racked up some credit card debt, and didn’t have a single penny to my name. I don’t know how much you know about owning cars, but whenever you sell a car, you seem to lose money on it. Imagine selling six cars and wasting all that money. In fact, I once lost $7,000 on the sale of one car, which I then brilliantly rolled into a new car loan. In hindsight, selling that particular car was probably one of the more stupid things I did. To be honest, the car was in great shape and the only reason why I sold it was because I was bored with it. A lot of my money was wasted on frivolous things and I was probably one of the few university students living like a king. I ate steak three to four times a week, I bought new clothes almost all the time, and I never hesitated before buying anything I wanted, be it a DVD or new furniture. By the time I had graduated from university, I owned in excess of 300 DVDs, which works out to more than $6,000. Again — frivolity 1, Adam 0. At that point in my life, I was still young and naïve. I thought that by the time I graduated from university I would be making close to $200,000 a year; to be fair, I was making a large sum of money while still in university and thought things would only get better once I graduated. I’m not sure about you, but I have never heard of anyone graduating from an undergraduate degree and earning a starting salary of $200,000. I was caught up in the dot-com hype and, like many others around the world, I thought that my salary would continue to blossom. As history shows this was not the case; just Google “dot-com bust” to find out about all of the money lost between the years 2000 and 2002. After I graduated from university I decided to return home to Toronto to find a job while my friends went backpacking across Europe. I was addicted to making money and assumed that I would find a job with ease. Boy was I wrong! It took me almost a year to find employment after I graduated (the economy was still recovering from the dot-com bust) so I made some spare cash by working as a bouncer. After a few months of throwing drunken frat boys out of bars, I finally got my first “real” job and bought myself yet another car. This new job was a contract that lasted for three months. Even though they asked me to stay on, I left for a full-time job with benefits and traded in my three-month-old car for yet another new car. I have this pattern with cars; I don’t seem to keep them long and always seem to lose money. This is a pattern I’m still trying to break. Page 3

Chapter 1: 28 Years Old and Broke While negotiating my salary I realized that I could only get the company to pay me 60 percent of what I had been earning in university. Alarm bells should have been going off in my mind, but sure enough, I went on thinking that my financial situation would magically straighten itself out. I worked at the same company for two years and moved into my dad’s house. Life was good. I had a fancy car, a house where no one was ever around (my dad was single and always out) and I bought whatever I wanted, when I wanted it. For a 20-something, it was like living the dream. But I was stagnating professionally. I was bored with the IT industry and felt my career options were limited. I finally decided to go back to school to get my MBA — something I had always wanted to do. At this point, I had only a few thousand dollars in my bank account, a car loan for over $15,000 and a brand new student loan for $60,000. Hey, no one ever said getting an MBA was cheap. My dad had become fed up with me as a roommate (a single father and son living in a small house doesn’t provide for a lot of privacy) and offered to rent me a condo while I pursued my MBA. After a year and a half of intensive studying I learned a great deal about business and the world; I met some amazing people and forged some life-long relationships. Once again I graduated from school, but this time with serious debt — $60,000 worth. During my MBA I learned that a whole world existed outside of Toronto, Canada that I had yet to explore. Reflecting back on my past I realized that I had lead an extremely sheltered life and my entire world revolved around Toronto. The concept of living outside of my hometown was completely foreign to me. So, I decided I had to see this world I knew so little about. I sold everything I owned and moved to China. I eventually found work there, making about $2,000 a month, and after a year away decided I would never pay off my debt earning what I was abroad.

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Chapter 1: 28 Years Old and Broke Sure enough, I came crawling back to Toronto. I had to move into my mom’s basement because my dad was doing his own thing and I couldn’t afford a place of my own, nor did I want to borrow any more money. I found a job making less money than I did before my MBA and was blessed by an additional $10,000 in consumer debt that I racked up during my year in China.

So there you have it — a glimpse into my debt, my life, my adventures, my crazy decisions and how my lack of understanding the basic concepts of money management escalated into this mess. I’m living at home for the foreseeable future and have a nagging wish that I had taken the time to ask someone what money management was all about. Fortunately, as I sit here writing this book, I can say with confidence that I’ve finally learned my lesson. Personal financial management is something you have to learn, and hopefully this book will be your starting point. Begin planning today so you too don’t end up 28, broke, and living in your moms’ basement — like me!

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