Month: August 2019

SOS! Funding Your Retirement is an Emergency

This week, I heard a very sad story about how seniors in Canada are becoming increasingly impoverished as they age. They don’t have enough funds to support themselves in their dotage. Here’s the link to the article. I’d encourage you to read it for yourself.

Here’s one of the main take-away’s from the article. If you don’t save for your own future, no one is going to do it for you.

Your employer is not looking out for your financial well-being. Pensions are vanishing. If truth be told, your salary is a business expense that is only grudgingly tolerated. If your employer ever figures out a way to eliminate that expense before you’ve figured out a way to live without your salary, then you will be up shit creek without a paddle. When was the last time a gas station employee pumped your gas?

Your parents probably want to help you, but chances are good that they will need their money to pay for their expenses. Maybe they need nursing care. Perhaps they helped fund your education or had a big debts so they didn’t have a chance to save for their own retirement. Maybe your parents didn’t earn a lot during their working years so they still live hand-to-mouth. If your parents are flush and have promised you everything, you should still save for your own retirement. Inheritances are meant to be received, but they should never be the bedrock of your future financial security.

What about your friends? They may love you to death. You may have the kind of friends who would bring the shovels to help you bury a body without asking any questions. Even friends as treasured as these are not going to fund your retirement. They have their own retirements to fund. At best, you and your friends could figure out a way to buy nice, big house and live together as senior citizens – it could all be very Golden Girls!

As a Singleton, you probably don’t have the benefit of a second income coming into your household. In other words, you generate all the income and the paycheques stop when you do. There’s no second earner to help you bring home the bacon. You won’t benefit from survivor’s benefits or a life insurance policy if your partner pre-deceases you. There’s no back-up salary unless you create one by investing your money today so that you have a cashflow for tomorrow.

****** Stop, Blue Lobster – just stop! What is a “back-up salary”? And how do I get one? Simply put, a back-up salary is a cashflow that comes to you without you having to go to work. Think of dividends. Once you’ve bought the stock, you don’t have to do anything else – the dividends will roll in like clockwork unless something very, very bad happens. Another example is royalties from a book or music. You write the book or the song once – it sells – the royalties roll into your wallet every time the book is sold or the song is played. Think of your back-up salary as money you don’t have to sweat for. Pretty sweet, isn’t it? *******

It’s on you to do the heavy lifting. Should you be fortunate enough to have fat in your budget, then you owe it to yourself to trim it away and to put that money to be better use. Set up an automatic savings plan so that a portion of each paycheque gets squirreled away. Invest in an equity-based index fund or exchange-trade fund. Get out and stay out of debt. Save for purchases before you make them.

If you can max out your TFSA and your RRSP each year, great! If you can’t, then contribute as much as you can. These are registered savings vehicles, which means that your money will grow tax-free while inside them. Money that comes out of a TFSA is never taxed. Money inside an RRSP is taxed upon withdrawal. Remember, you can accumulate money faster if you aren’t paying taxes on it every single year.

When it comes to your retirement, saving money is the factor that matters most. Without savings, there can be no investing. You have to save & invest the money now or else you won’t have enough money later. It’s really that simple.

Absolutely clarity is required for this next point: Simple doesn’t mean easy. Not once in my life have I ever said “It’s too damn easy to save money!”

It’s always hard to save money. There are so many things I want. Temptation – aka: advertising – is everywhere. Truth be told, I like love spending money. You know what else I love? Knowing that I’ll be able to buy groceries after I retire.

If you’d rather not be working in your 70s and 80s, then start saving & investing for retirement today. And if you’ve already started, then good on you – don’t stop. You don’t get a pass on taking care of your financial future just because it’s hard.

It’s up to you. Funding your retirement is an emergency.

The days are long but the years are short. This is an old-fashioned way of saying that time passes by very, very quickly. Even if you think retirement is decades away for you, I want you to believe me when I say it will be here before you know it.

Give Yourself Some Credit

I want you to give yourself some credit – literally.

Allow me to back up a little bit, to give you some context. A year ago, my credit card number was stolen when someone booked a hotel with my information. Although it took a few weeks, my bank reversed the charges and life went on as normal.

One of the lessons that I took from this experience was to keep my authorized credit card limit at an amount I could pay off within 30 days. I was lucky. The thief only stole enough credit to book a hotel room. He or she could have racked up way more charges since my limit had been around $5,000. I’m not entirely confident that my bank would have made me whole if the stolen credit amount had been to the max of my credit limit.

Luckily, I’m the kind of person who checks all of my bank and credit balances every few days. That’s how I was able to catch this fraudulent transaction within 24 hours of it being posted to my account.

Protect Yourself with Lower Limits

After this unfortunate event, I lowered my credit card limits. I have two cards, although I use one more often than the other. The first card is for transactions like buying gas, dining with friends, tickets for entertainment, and my monthly bus pass. It’s the card I use for my regular life. The other card is for travel, so it has an even lower credit limit. Should my card be compromised while I’m away from home, the potential damage is much lower. There’s less credit for a thief to steal.

You may want to consider lowering your credit card limits if they’re more than what you could repay in a month. If a Bad Person uses your card fraudulently and you can’t report it right away, then you might have trouble convincing your bank to help you get those charges reversed. Until such time as they freeze those transactions, you might have to pay interest on them. I’m not an expert on how banks operate when people experience credit card fraud. Contact your bank and find out what they will do to help you if you find yourself a victim of credit card theft.

Sometimes, a Higher Limit is Necessary

However, there are circumstances where I need a larger credit limit. In my case, I’m getting some house renovations completed before winter. After 18 months of saving money in a designated account, I pulled the trigger and signed the contract. If I were to run the renovation cost through my credit card, there is no way that my limit would be sufficient. A five-figure renovation is more than my credit cards can handle.

So what’s the solution?

Most people would apply for more credit from their bank. This is a bad solution to this kind of challenge. The smart solution is take matters into my own hands by giving myself some credit.

Again, I already having the savings in place for this home renovation. The money is already in the bank. The solution of how to use my credit card to pay for my renovations is to front-load my credit card with the savings that are already in my bank account.

What are you talking about, Blue Lobster?

It’s really very simple. If it’s possible to make payments to your credit card, then it is similarly possible to front-load your credit card with cash. You essentially turn your credit card into a gift certificate.

  • Step One: The money is loaded onto your card, which gives you a positive credit balance on your card.
  • Step Two: You use your credit card as you normally would.

When you need more credit than is currently available to you, then you need to give yourself some credit by front-loading your credit card with cash.

Can I really do that?

Whether you make payments in person or online, you have the ability to apply cash to your credit card. In fact, this is precisely how you pay off your credit card balance each month. (And if you’re not paying off your credit card balance each month, then stop using your credit card. Make payments until the balance is $0.00. Lower your credit limit to $1,500. At that point, you can start front-loading your card with cash so that you can use your credit cards and simultaneously stay of credit card debt forever.)

There’s no law that limits how big that payment is. Front-loading cash onto your credit card results in a credit limit higher than the one given to you by the bank. The front-loaded money is available for you to spend but there’s no concomitant obligation to a lender.

The credit available to you from your bank via your credit limit results in a debt that you owe to the bank at the end of the billing cycle.

The front-loaded cash on your credit card does not yield any debt whatsoever. It is money that is spent for you to acquire whatever it is that you want without requiring you to pay any interest to anyone.

Do you see how my solution is way, way better than getting an increase to your credit limit?

Benefits of Front-Loading Credit Cards

I’m going to repeat myself – give yourself some credit. The benefits of using your own cash to increase your credit limit are awesome.

  • You don’t pay any interest on the money that you front-load onto your card. This is money from your bank account, which means that it is not money that you are borrowing from the bank.
  • You can eliminate the impact of fradulent transactions on your account. Only front-load your credit card a day or two before you’re planning to buy whatever it is that costs more than your credit limit. Do not carry an artificially-high credit limit at all times. That puts you at the same risk of having a high credit limit when your credit card gets compromised. Credit card thieves will steal your money just as easily as they will steal the bank’s.
  • You’ll be far less tempted to spend your savings on stuff that doesn’t matter. The reason you’ve front-loaded your card in the first place is because you’re spending the money on something that’s very important to you. It could be tuition, a trip, a celebration, a piece of art, jewelry, whatever. The point is that if you were committed enough to save up for that purchase, then it’s very unlikely that you will squander your front-loaded funds on stuff.
  • Your credit score is not impacted by the act of front-loading your credit card with cash.
  • Front-loading your credit card is the same as paying with cash without having to carry cash on your person. You are spending your own money, instead of the bank’s, but you’re doing so via plastic. Imagine if my contractor was actually willing to be paid $10,000 in cash. Neither of us would exactly be comfortable flashing a brick of $100-bills around. However, he has no problem accepting my money via a credit card.
  • Front-loading your credit card eliminates the need to pay a bank fee in order to buy a bank draft or a certified cheque. Even with e-transfers, there is a limit on how much can be transferred electronically.
  • Finally, front-loading your credit card prevents you from going into debt. Banks who lend you money want to make profits off of you. They do so by charging you interest when you can’t pay your credit balance in full. They want you to go into debt so that you’re in a never-ending cycle of paying them interest every month. While this is good for them, it’s very, very bad for you.

When you have a credit limit that can be satisfied by your monthly income, then you won’t go into debt. This is due to the fact that you’re in a position to pay off your balance every single month.

Keeping your credit limit low and front-loading your card with cash means that you’ll stay out of debt while still buying the things that really matter to you.

Don’t rely on the banks to control how much you can spend on your credit cards. Instead, give yourself some credit by front-loading your credit cards with your own money.

“Your relationship with money?” Clarification is required.

Lately, I’ve been seeing the phrase “your relationship with money” all over the place. What is that?

Clarification is required.

How can you have a relationship with money? It will never remember your birthday, tuck you in at night, check on you to see how you’re doing, worry about your health, or care about your feelings. Money is an inanimate object without feelings towards you. The fact that you have feelings for money is not the same as you have having a relationship with it.

If you have feelings for a movie star or sports figure whom you’ve never met, it doesn’t mean you’re in a relationship with that person. You’re in even less than a relationship with money than with a famous person because there’s a teeny, tiny chance that the Fates may smile on you, let you meet your heart’s desire, and that s/he becomes your friend/partner/spouse/boss/mentor.

Believe me when I say that money will never be any of those people to you or for you.

Money is merely a tool – that is all.

Much like a hammer or fire or a fork, money can be used to help you achieve your life’s goals, ambitions, and dreams. Money does not have feelings towards you, and it never ever will.

Take your birthday, for instance. Money allows you to buy candles for the cake. Money is useful if you want to buy yourself a present. Money is spectacularly proficient at assisting you to throw yourself a birthday party. However, money will never take the initiative to plan a birthday party for you or take the care of all the little details that will make your birthday special. The details, the organization, the planning – those all have to be done by a human being in your life.

Your parents, your friends, your boss, your elderly next neighbour down the street, your barista – these are people with whom you can have a relationship. Good or bad, your interactions with these people will create memories for both of you. Your shared experiences will be the foundation of your relationship with other people. You can influence whether those interactions are friendly or forgettable, frosty or fabulous.

No matter how you use money, the fundamental nature of your use of money is that of a human being using a tool to achieve a purpose. It is akin to you using a knife to butter toast. It is not a relationship, no matter how many times you use that particular tool.

Though we imbue it with many attributes and power, never forget that money isn’t a person. It has no loyalty towards you. It will never love you, never care about you, never think about you for one second. When you die, money will neither remember nor mourn your passing. Money is an inanimate object without feelings, reason, or morals.

Make no mistake. I am perfectly aware that money is extremely useful when it comes to buying things. However, money will never – not even in a million years – satisfy your emotional need for connection with another human being.

The high that comes with spending money on stuff never lasts because it doesn’t satisfy what people really want. They want the joy of connecting to someone else, so they buy the golf clubs or the sweater or the car or the house. What they really want is to feel heard, loved, and appreciated by special people in their lives.

You cannot have a relationship with money. This is why I’m so very perplexed by this phrase “your relationship with money.” You don’t have a relationship with money – it’s impossible. You have more of a connection with someone whom you’ve never met on the other side of the world that you do with money. You know what you have in common with the other-side-of-the-world-stranger? You’re both living on planet Earth and you share a common interest in ensuring that climate change doesn’t destroy the planet.

See? Money is not a person. That means it cannot relate to you. It also means that there’s no relationship.

Money can be used to build relationships.

You can use money to build relationships with people. If you want to do something nice for your co-workers, you can use money to buy the ingredients to bake for your colleagues or to bring in a box of pastries for all to enjoy. If you want to spend more time with your friends, you can use money to host potlucks at your house, to attend concerts with them, or to partake in a once-a-month-no-matter-what dinner date. If you want to improve your relationship with your family, you can use money to do those things that you know will bring the most joy and create the best memories for your kin.

Do you understand what I’m trying to say?

Money is useful for assisting you to achieve some of the relationship goals that you may have for relationships with the people in real life. Allow me to be clear. Money won’t solve all relationship problems, but it can certainly facilitate the creation of experiences & memories that you wish to share with those who are close to your heart. Do you want to take a vacation with friends? Attend a concert with a sibling? Try a new restaurant with a fellow foodie? Money can help you do all of those things.

Money is a tool that permits you to create experiences with other human beings. Those shared experiences are the foundation of your relationships, whether positive or negative. Money has no feelings about those interactions one way or another, which means money is not relating to you. It is simply a tool that you can use to achieve what you want.

You can have as many relationships as your energy and time will allow. But I’m here to tell you that you simply cannot have a relationship with money.