Financial freedom with a magic number
Breaking free of debt and financial paralysis is steps away, financial expert says
Avraham Byers knows a thing or two about changing lifestyles and habits. The 39-year-old financial trainer converted to orthodox Judaism by becoming a Hasidic Jew in his late 20s.
For more than a decade, he’s been using some of the lessons learned from his spiritual journey and applying them to personal finance, offering clients a simple and practical approach to eliminating debt without becoming tightwads who have stopped having fun in life.
“By nature, I’m not disciplined,” says Byers, whose company Avraham Byers Financial typically works with double-income households earning $150,000 to $175,000 a year, whipping clients’ personal finances into shape with a customized action plan, regular check-ins and updates. “The process of converting to Judaism gave me a discipline boost that helped me take control of my finances too. But you don’t have to go through a major spiritual transformation to get money smart.”
Earlier this year, Byers published an online ebook called Your Magic Number in which he synthesizes his years of professional experience to explain how to break free of debt by following a few steps.
As the title suggests, the starting point of Byers’ free ebook, downloaded by more than1,000 readers so far, is each individual’s magic number. This is calculated by taking annual after-tax income, subtracting fixed expenses (mortgages, rent, insurance, car and cellphone payments) and dividing by 365. The remaining figure is the amount of guiltfree spending allowed each day on discretionary purchases such as a mocha frappuccino from Starbucks or a plate of spicy Hunan beef from your favourite Chinese joint.
Collect daily receipts, and at the end of the each day, take a few minutes to jot them down on a tracking sheet. Whatever portion of your magic number you don’t spend is carried over to the next day, and so on for each day of the year.
“Follow my steps and you’ll have more money at the end of the month,” Byers says. “Keep it up, and you’ll be astounded at the end of the year.”
A household that cuts spending back by $18 a day has an additional $6,570 at the end of the year, without reusing plastic wrap or switching from foamy hot lattes to instant coffee. That money can be used to pay down debt, take a vacation that is fully paid for or create a fund for financial emergencies such as car repairs.
Before writing Your Magic Number, Byers sat himself down at Indigo Books & Music and browsed through every personal finance title he could get his hands on.
“Most just gave general advice like save 10 per cent of your income or pay down debt with the highest interest rates first,” Byers says. “They were all lacking practical advice and the exact steps to take.”
An important piece of practical advice in Your Magic Number is tracking daily spending with pen and paper in a binder that you share with your spouse or partner. “I used to recommend an app option, but I stopped,” Byers says. “My clients who track expenses in a binder keep it up and get great results. Those who insist on an app simply don’t stick with it.”
An added benefit of the paper method is that it allows a couple to discuss their finances over the kitch- en table on a daily basis, without finger pointing or screaming. “That’s powerfully healthy for your relationship,” says Byers, who is married with three young kids.
He also tells couples that their magic number does not always need to be an equal split, but should reflect individual spending habits. If one person always spends more than another, make it a 60/40 or 70/30 split to help keep the peace.
If a spouse is reluctant to get with the program, don’t push too hard. Email them the ebook and ask what they think, or just start doing it yourself and let them watch over your shoulder.
For people who find their magic number just does not work, and they have a daily shortfall of, say, $25, use that as a goal to reduce fixed expenses or increase income. Having an in- come goal can motivate you to ask for that overdue raise or look for a higher-paying job.
Byers coaches households with healthy six figures incomes, but the Canadian economy is mostly creating minimum-wage jobs in the service sector with no benefits or pensions, pushing personal debt to an all-time high in this country. Does his magic number work for lower income households and individuals earning less than $25,000 a year in part-time and precarious employment?
“I’ve seen many people who have a more modest income come out way ahead of those that have a larger one,” Byers says. “Being motivated to take control of your finances is the most important ingredient when it comes to being successful with your budgeting.”