Month: February 2019

Pensions and Portfolios

I still save even though my employer has promised to pay me a pension when I retire. Despite this promise, I ensure that I do the following every two weeks: I siphon a solid chunk of my paycheque out of my checking account and I squirrel it away into my investment portfolio.

Why do I do this even though I’m one of the Fortunate Few who is still promised a pension?

I do it because I’m a person who likes to mitigate risks. I check both ways before crossing the street. I don’t text-and-drive. I use the hand-rail when going down the stairs. There is little, if any, upside to taking unnecessary risks with my future financial well-being!

No Need to Waste Money

I see no need to waste money or to buy stupid stuff just because my budget can accommodate it. I have everything I need and most of what I want. No one has ever convinced me that it’s a good idea to spend money just because I have it. If money’s not going to the basic necessities or to the little luxuries that make me happier, then I’d rather save that money and put it to work in my portfolio.

Money for Extras

There is absolutely nothing wrong with building a nice cash cushion so there’s money for the extras in retirement.

Once I’ve retired, I want to be D-O-N-E! I’m not one of those very lucky people who loves what they do for a living. I’m good at what I do. I’m competent at what I do. I’m efficient at what I do. However, if I wasn’t being paid to do this job, I’d be doing something else. I’ve heard of people who love their jobs so much that they would do them for free. I hope to meet one of these rare creatures someday…

Pensions Can Fail or Disappear

Having a healthy investment portfolio mitigates the financial impact on my life should this nightmare scenario come to pass. I don’t want to be in the position of these unfortunate employees of the company formerly known as Sears Canada. If for some reason I’m no longer receiving my pension, then I need to have some serious cash in place to continue paying for my life’s expenses. Those bills won’t disappear just because my pension has! I won’t take the risk of not having a little something set aside…just in case.

Retiring Earlier Than Originally Planned

Income from my portfolio relieves the pressure to work for a full 35 years in order to receive a penalty-free pension. How so? Well, my particular pension is reduced by 5% for each year that I retire before putting in atleast 30 years. This is lovingly-called the early retirement penalty. (Between years 30 and 35, there’s no penalty.)

If I decide to retire in year 27, then that’s a 15% reduction of my monthly pension payment. However, if my portfolio is paying me the same as or more than the amount of the decrease, then I don’t need to work for those extra 3 years. I will effectively receive a monthly payment amount that’s equivalent to a 30-year tenure. How? My pension payment – based on 27 years of service – plus my portfolio’s monthly dividend payment will be equivalent to a payment based on 30 years of service. Sweet!

Essentially, I’m buying myself the option of retiring early by ensuring that my investment portfolio grows alongside my pension.

Creating a Legacy…Maybe

If I can live off my pension amount, then my portfolio can continue to grow on its own. Strictly speaking, I won’t need to make any further contributions. (Though, knowing myself as I do, there’s a good chance that I will continue to live below my means until I’m pushing daisies.) Let’s say that nothing ever goes wrong with my pension and the monthly payment flows to me until the day I die. Hooray! And let’s say that it’s always enough for me to pay for all my needs and all my desires, no matter what they are. Hip, hip, hooray!

Odds are good that I’ll still contribute a little something to my investments when I retire. One of the things that I love best is investing in my portfolio.

If all goes well, my portfolio can stay intact and be a huge boost to the lives of my beneficiaries once I’m gone. Nothing wrong with that!

Long-Term Care Will Need to Be Funded

Sixthly, should I live long enough to need it, my portfolio will assist me to buy high-quality assisted living and/or end-of-life care once I can no longer live independently. The Baby Boomers are just now, ever-so-slowly starting to move into the realm of needing extended care. I have no doubt that the cost of that care is going to skyrocket before I need it. And I harbour no illusion that the government will have the problem of caring for large numbers of infirm elderly solved by the time I need that sort of care.

While the private system won’t be perfect, I’m confident that it will be expensive. I’m also quite certain that I will need money to ensure that I can buy the kind of care that I’ll want to receive.

So There You Have It…

Many in my life have told me that I should enjoy my money. I think they mean that I should spend my money in a way that they would like to spend my money. And that’s fine.

They can have their opinions and they can make their comments. At the end of the day, I’m sticking to my investment plan. I know that I want to have more options when I retire. I can no more predict the future than you can, but I take comfort knowing that I’m taking steps now to have a financially solid retirement.

Dialing for Dollars

This week, I managed to save myself $250 per year for the next two years simply by sitting on hold for roughly 15-20 minutes. I think the resultant $500 that will stay in my wallet is a good reward for navigating the phone tree, talking to three different people, and asking for what I want. It’s what I like to call “Dialing for Dollars” and it works like a charm.

You see, my Internet provider had decided to increase my monthly bill by $5 starting in April. I have no idea why since they didn’t give any indication of offering more service, more data, or a higher connection speed. I have to assume that they simply wanted more of my money to line their own pockets.

Most of the time, I get a bit a lazy and simply pay the increased costs. I assume that it’s part of involuntary lifestyle inflation. Costs go up every year, right? I mean, that’s where inflation comes from, doesn’t it?

However, something about this hike made me mad! I’d been a loyal customer for years. I’d paid every bill on time. I never asked for anything. Yet here they were jacking my bill again. The last hike was a little over 18 months ago. No, not this time – I was having none of it!

So I went to their website to look at what was on offer. There was a lovely little package of services, including a doubling of speed from 150mbps to 300mbps for the same price. There was even a contract price, which would be lower than what I was already paying. Hurray! I’d found what I wanted at a price I was willing to pay.

So I dialed… The first person I spoke to couldn’t help me so I was transferred. The next person on the line was definitely in the business of signing up new contracts. Great! I happily told him which package of services I wanted. He proceeded to tell me that the deal which had enthralled me so much was only available to new customers.

I’m still proud of myself! Instead of getting upset, I remained calm and politely asked him how long I would have to use his competitor’s services before I would be considered a new customer again. To his credit, that nice young man immediately understood what I was really saying and he promptly transferred me to the Loyalty Department.

So here’s where the rubber hits the road. There’s no online listing for the Loyalty Department so one must have the patience of a statue while waiting on the line for someone to pick up the phone. Thankfully, I had my hand-computer with me so I happily entertained myself by playing numerous games of Juice Jam. (Yes – I’m old enough to have both a landline and a mobile phone. Deal with it!)

I sat on the phone for 15 minutes, waiting for someone to pick up. Eventually, my persistence was rewarded! The first thing I asked the fellow from the Loyalty Department was: What kind of deals are you offering to retain your current customers?

Much like his predecessor, this fellow knew exactly what I was really asking. Within minutes, he had offered me a package that included faster internet and more phone features. Best of all, my new package would be $21 cheaper per month than my old one. In other words, more for less. Who wouldn’t love that?

I know that $21 per month isn’t going to change my life or allow me to add caviar to my daily menu. However, it will assist me to pad my cash-cushion just a little bit more and a little bit faster. It’s also tangible evidence that my service provider is sufficiently interested in keeping my business and is willing to lower its prices.

Odds are good that you might have a subscription or two in your life that you’ve had for a significant period of time. Think cable, newspaper, magazine, phone apps, memberships, internet, phone plan, insurance, gym, etc… The list is almost endless! When was the last time that you reviewed how much you’re paying? If you were to switch to another service provider, what would it cost you? Most importantly, what is your current service provider willing to do for you in order to keep your from switching?


RRSP Season

It’s Registered Retirement Savings Plan season! From now until the last day of February, there will many advertisements all over the place exhorting you to make a contribution to your RRSP.

If you need more detailed information about the rules, then I would suggest that you visit the website for the Canada Revenue Agency. Alternatively, you can talk to your accountant or a financial advisor. This article does not in any way, shape or form constitute comprehensive accounting or legal advice about RRSPs. I am not a professional nor am I giving you any kind of investing advice. This post is a starting point for you to make inquiries, learn the basics, and take responsibility for your future by determining how to use RRSPs to your best advantage.

For my part, I really like RRSPs. I’ve been contributing to mine since I was 21 years old. Every year, I get a tax refund which is promptly re-invested for retirement or put towards an annual vacation. I’m very diligent about automatic transfers to my investment portfolio so I’m quite comfortable with spending my RRSP-generated tax refund on whatever my heart desires.

RRSPs offer tax-deferred growth. You can pick almost any kind of investment to put under the tax-deferred umbrella. On top of that, you might even qualify for a tax refund if you make a contribution. If you’re in a higher tax bracket when you put money in than when you take it out, you’ve saved money on both sides of the transaction.

Remember – it’s tax-deferred savings, not tax-free savings. If you contribute when you’re in the 33% tax bracket, then your tax refund is based on that tax bracket. If you’re in a lower tax bracket when you take the money out, say the 26% tax bracket for instance, then you’ll pay tax on that RRSP withdrawal at 26%. This means you’ll be 7% to the good. Woohoo!

In my humble opinion, RRSPs have many commendable benefits.

However, not every product is perfect. RRSP contribution room can be lost if you make a contribution and then withdraw the money outside of two very specific RRSP programs. Those programs are the Lifelong Learners Plan or the HomeBuyer’s Plan. In short, if you contribute $1000 to your RRSP and then withdraw that money outside of the aforementioned programs, then you cannot put that money back into your RRSP in the future. Unlike the Tax Free Savings Account, which allows for contribution room to be re-captured if a withdrawal is made, your RRSP contribution room is gone forever once you withdraw your money.

Another associated drawback to RRSPs, in certain circumstances, is the creation of a nemesis commonly known as D-E-B-T.

“How can an RRSP result in debt?” you ask.

It’s quite simple. At this time of year, banks love to give people RRSP loans. Customers borrow money, contribute to their RRSP, and then they’re supposed to use the tax refund to pay down the RRSP loan. Whether the tax refund is actually applied to the outstanding balance on the RRSP loan is anyone’s guess. The tax refund goes straight to the borrower who took out the loan and it can be used however the borrower wants it to be used. Concert tickets? Holiday? Extra mortgage payment? Cigarettes? The choice is limited only by the borrower’s imagination and common sense. There’s no requirement for the tax refund to pay down the RRSP loan.

In my humble opinion, failing to pay down the loan with the tax refund is most likely a stupid move because do you know what else belongs to the borrower? The loan payments! If the tax refund is spent on something other than the RRSP loan, the loan payments still have to be made because the borrower put himself into debt by taking out the loan in the first place!

Even if the tax refund is applied towards the RRSP loan, trust me when I say that the refund won’t be enough to cover the principal of the loan which means that the borrower is on the hook for the remaining balance of the loan.

Keep in mind that the banks aren’t lending you money interest-free. They might defer the interest on the first 90-days of the loan, in the expectation that you’ll apply any tax refund towards the debt, but don’t hold your breath. Way back in the Palaeolithic period when I worked for a financial institution, this is what my overlords did for the customers. I have no idea if this is still the practice. However, if you can’t repay the loan in full within the grace period, then you will be paying interest on your RRSP loan until it’s completely repaid.

The other big drawback to the RRSP loan is that it, more often than not, requires more RRSP loans in the future if a person is intent on funding their RRSP each year. A cycle of debt is created – this is bad. See, if you’re required to make loan payments on this year’s loan, then you’re most likely not setting money aside for next year’s RRSP contribution. If you had set aside the money in the first place, then there would not have been any reason for you to have taken out an RRSP loan. Following this logic, when next year’s RRSP season rolls around, then you’ll be more inclined to take out another loan to make your next contribution.

This is an ass-backwards way to set aside money for the future. Yes – make the RRSP contribution. No – do not go into debt to do it!

“So what’s your bright idea, Blue Lobster?” you ask.

It’s simple. Go to any bank’s RRSP loan calculator and enter your numbers. The calculator will spit out a loan payment amount. I want you to set up a transfer from your bank account to your RRSP in the amount of the loan payment. Maybe the calculator spits out a payment amount of $500/mth. If your budget can accommodate this number, great – contribute $500 to your RRSP every month like clockwork. Maybe your budget can only tolerate a monthly hit of $350. That’s fine too – you’ll contribute $350 to your RRSP each month.

The point is that instead of paying money and interest to the bank, I want you to contribute that money to your RRSP. If you were willing to pay the bank some interest for the privilege of borrowing money, then I see no reason why you won’t make interest-free payments to yourself.

Either way, you’ll be setting aside money for your future. Why not do so without going into debt?

Cook Food – Save Money!

One of the reasons why I write this blog is because I have this deep-seated belief that someone out there might learn from my experiences and avoid making the same mistakes that I’ve made on my journey to wealth. I’m narcissistic enough to think that my words will have an impact if I share them on the Internet. So here we go…

Looking back on the choices I’ve made with my money, I can honestly say that one of my biggest mistakes is that I’ve never used my kitchen enough. I eat out – A LOT!!! I have a standing bi-weekly date with one co-worker. I go out with another friend every single week. There are impromptu lunch invitations which appear in my inbox, and I say yes to those far more often than I say no. I can count on one hand the number of times I’ve declined a lunch invitation! On top of those social outings, there are the many, many, many times that I’ve simply not brought a lunch and have gone to one or another of the fast-food outlets or restaurants located near my work.

On the plus side, I always pay cash for my meals. None of my meals has resulted in me staying in debt any longer than I have to. I can still accomplish my goals.

So why do I consider it a money mistake to not use my kitchen more often?

I view it as a money mistake because, most of the time, eating out isn’t the best use of my money. Now, my meals with friends and colleagues do allow me to socialize with people I love and respect. That’s wonderful and I don’t regret those meals.

However, when I have to go get a lunch to eat at my desk, I’m disappointed with myself. Money spent on those meals isn’t bringing me happiness or joy. I could have – should have – spent that money at one of the two wonderful grocery stores that lie between my parked car and my house. Twice a day, every day, I drive past two grocery stores. They’re bright, well-stocked, and very clean. The staff are friendly and helpful. Both stores carry everything I need to make myself healthy dinners, and thereby healthy leftovers for lunch the next day.

Even when I buy something healthy for lunch, I’m irritated with myself. For instance, I enjoy fruit so I occasionally buy fruit cups but this is still not a joyful purchase. I’m essentially paying double or more the cost of the same fruit at the grocery store. I’ve paid for someone’s labour to cut up the fruit, knowing full well that I have cutting boards and knives at home to do the same job. I’m contributing to the demand for plastic and other single-serve packaging, which is bad for the planet. Food from home is transported in reusable containers that are washed and re-washed many, many times before they break or otherwise need to be replaced.

And since this is a personal finance blog, I have to state as explicitly as I can that shopping at the grocery store is cheaper for me than it is to eat out for lunch! If I hit up a fast-food place, my wallet is atleast $9 lighter when I walk out. A sandwich from the grocery store is going to cost a lot less than a sandwich from the coffee shop. And if I want a drink to go with that sandwich, I’m looking at atleast $11. Try doing that 5 times a week – suddenly I’m spending $55 per week! Let’s say I go to a restaurant instead of a fast-food outlet. In my city, you can’t get a lunchtime meal for less than $20 after tip.

For $55-$100 per week spent on food, I’m better off going to the grocery store. A lasagna might cost around $27 to make once all the ingredients are purchased. (Your grocery store prices may be higher or lower. I live in an expensive province.) However, that lasagna will feed me atleast 5 times, bringing the cost per meal down to just over $5. Chain-store coffee in my city costs more than $5 if you go for one of the fancy ones!

And that’s just for lunches. I’m also very bad for mid-morning snacks. I leave my house by 6:30 am, which means I’ve eaten breakfast at 6:10 or so. My tummy starts distracting me around 9:45 or 10:15, so I invariably go down to the coffee shop for a muffin. I’m spending atleast $3.50 for that muffin! Thankfully, I don’t buy a coffee to go with that muffin or else I’d be spending atleast $5 for my mid-morning snack every day.

So what does all of this mean?

Essentially, it means that I’m a dum-dum for not doing some very basic meal-planning in order to cook tasty dinners that will generate enough food for the next day’s lunch. And, yes, I’m also a dum-dum for not baking some snacks for myself every weekend. However, Rome wasn’t built in a day and I know that I won’t kick all of my bad habits in a single blow.

The question I’ve had to ask myself recently is why should the fast-food places get my money instead of the grocery stores when it’s the grocery stores that best meet my need for tasty, healthy lunches & snacks?

Now that I’ve identified my money mistake, my next step is to stop making it in the future.

I’ve committed to reducing how much I spend on eating out. Time with friends over a meal is still very important to me so there will be no changes to that part of my budget.

The big change will happen on the days when I don’t have lunch plans. For those days, I will cook something delicious for dinner so that I have leftovers. Lasagna is a marvellous leftover food! I’ve also got a kick-ass recipe for Shepherd’s Pie. A few weeks ago, I discovered a recipe from www.allrecipes.com for something called Chicken, Sausage, Peppers & Potatoes – a wonderful one pot meal that easily accommodates additional vegetables if desired.

I will stop at the grocery stores two to three times a week so that I have the ingredients on hand to cook for myself. I may never learn to love grocery shopping, but it’s simply something I have to do to live my best life and to maximize the enjoyment that I get from my money. Am I still spending money? Yes, of course. Am I getting more enjoyment out of my money? Hell, yes!!!

It took a long time for me to come to this realization but I’m finally convinced of its truth. Cooking and baking my own food is a highly effective and utterly delicious way to satisfy my hunger and to save money at the same time.