The Money Mindset
5 Road to Financial Independence
Anne Lee
Achieving financial freedom is not only about calculating the numbers and making the right financial choices. It is also grounded in your attitudes, behaviours, and relationship with money. Think back to instances where you may have learned about money or have been exposed to others’ beliefs about affluence. All these past experiences have shaped your attitude towards wealth, influenced your primary spending habits, and changed your assessment of financial well-being.
There are many common limiting principles with money that you may have heard:
- We will never be able to afford that, so why bother trying.
- Only the rich can obtain financial freedom.
- A higher salary will bring more happiness.
- It’s useless to think about savings and investing when I am young.
Personal finance is not a subject traditionally taught in the formal educational system. The road to financial independence starts with the right money mindset. Replacing limiting beliefs with a positive outlook will help to transform your relationship with money. A more empowered approach will assist you in taking consistent and realistic action steps. Financial independence as a skilled trade worker is achievable, but it’s important to shift your beliefs about money to align with your financial goals.
Many people fall into the mindset of being a Consumer or a Borrower, impeding progress towards financial control. Outlined are examples of two trades workers with typical Consumer and Borrower money mentalities.
Example: Consumer
Isabella is a journeyperson who works up in a camp north of Fort McMurray, Alberta. Isabella is scheduled on a rotation basis of 14/7, meaning 14 days working 10 hours a day and then 7 days off. As Isabella is willing to work long hours up at a remote camp location, her remuneration package is approximately twice the salary she would be earning at a similar role in her local city. It’s physically demanding work and Isabella rewards herself every paycheck as she has worked extremely hard each rotation at camp. Every time Isabella gets her pay, it’s quickly spent on lifestyle items such as clothes, lease payments on her newer vehicle, and the latest electronic gadgets. Isabella spends most of her entire paycheck on her comfortable lifestyle at home. It will be difficult for Isabella to become financially independent with her current consumption spending habits. Isabella uses her entire paycheck without any regards to saving for an emergency financial situation or without any long-term financial goals in mind. Isabella has the attitude that one can always make more money, and indulging on the extra material items will bring her happiness now. For Consumers, saving for the future is not a priority.
Example: Borrower
Greg is a trade worker who has lots of work opportunities during the summer construction season. Every autumn, there is a 2-3 month shortage of work for Greg. If Greg has an emergency (eg. car repair) during the off season, a credit card is used to cover the balance owing. Greg has some funds from summer work that will cover the first month of downtime, but Greg usually also takes a vacation and borrows money to meet further expenses during the remaining gap in employment. Greg has to consistently take short term loans until the next pay day. Financial freedom for Greg is more challenging as Greg has a lifestyle beyond his means. Greg is of the belief that one can always borrow more money to cover any personal lifestyle choices. For Borrowers, taking on increased debt is the easiest way to deal with immediate financial shortfalls.
It takes a real long-term shift in mindset for one with either the Consumer or Borrower mentality to change their habits. Another typical employment scenario with skilled trade workers is when an individual has a pension with their employer. Pension Entitled Holders have a great base of future passive income. However, having total trust and reliance on that one income source may not be sufficient to meet their prospective money goals.
Example: Pension Entitled Holders
Janice has been working for a trade union as an industrial mechanic (millwright) for 15 years since becoming a trade apprentice. The trades union provides Janice with a defined contribution pension plan as one of the many benefits. Janice has been making mandatory contributions as part of the plan throughout employment, and the employer has matched some of the contributions up to a prescribed annual amount each year. Janice plans to retire in 10-12 years, with this pension plan as her primary funding of her day-to-day living expenses. Janice believes and trusts that the pension plan assets will provide sufficient perpetual funding for her financial freedom lifestyle. Janice is solely reliant on this employment pension plan. However, with a defined contribution benefit plan, there is no guarantee of the amount that will be available to Janice upon retirement. For Pension Entitled Holders, it is important to understand how your particular pension works to accordingly match your money mindset and expectations. Janice may realize that solely counting on her pension plan to fund lifestyle commitments may not be sufficient. Various types of employment pension plans will be discussed further in Chapter 7 – Saving for the Future.
The journey towards financial freedom is almost always not one of overnight success. It is imperative to note that everyone is at different points in their financial journey. Each individual will put emphasis and importance on different demands. Many people find themselves not knowing where to start when it comes to finances. This resource handbook will help transform your relationship with money as a trades worker, enabling you to make empowered decisions and take action steps that propel you towards your monetary goals.
Throughout the resource, it will be emphasized that on the road to financial independence
“It’s not how much one makes, but how much one is able to keep.”
the state of having enough assets or passive income sources to cover one’s living expenses perpetuity without support from further employment. Also called financial independence
a person’s unique set of core beliefs about money and the attitudes associated with it
the state of having enough assets and/or passive income sources to cover one’s living expenses in perpetuity, without support from further employment.
a retirement plan, where an employee typically remits a fixed amount or percentage of their paycheck to fund their retirement. The employer may make a prescribed matching contribution amount to the plan as an added benefit. The contributions are invested on your behalf, but there is no certainty on how much your pension will be worth upon retirement.
