February, 2020 - Millionaire on the Prairie

FOMO, YOLO, Priorities & Money

FOMO – Fear of Missing Out. YOLO – You only live once. These are the catchphrases that encapsulate our relentless demand for instant gratification. We want what we want when we want it…ideally sooner. And let’s face facts – it feels really great to have our desires satisfied. Who doesn’t like immediate gratification?

This week, I read something rather thought-provoking, an article about lifespans. The article focused on how our relationships with those most important to us are finite, no matter what we do. Every minutes you’re alive is leading towards the end, whether yours or that of someone you hold near and dear. The article challenges the reader to strive to allocate their time to those relationships and activities that are the priorities. This led me to think about how I spend my own time and whether my time is spent on my priorities.

I understand the twin phenomena of FOMO and YOLO – I really and truly do! No one wants to be left out of fantastic experiences – time with friends, exploring a new place, trying a new restaurant, being one of the Cool Kids Who Do Cool Things. These can be the stuff from which great memories are made. I totally get it.

Yet, I want you to ask yourself if all of those fantastic experiences reflect the priorities that are most important to you. Did you do them because you really wanted to or because you were experiencing FOMO and/or YOLO?

Looking back now, do your past choices still make you happy? Do you wish that you’d put your energy and efforts into something else?

What’s Done is Done!

No one can undo the past. Once spent, time is gone forever. This is why time is way, way, way more precious than money. Money is replaceable but time is finite.

I’m not trying to get you to regret anything that you’ve done up until this point. What I am trying to do is make you think about what it is that you want for your future. Once you’ve nailed that down, you can marshal your resources, focus your attention, and take the necessary steps to get what you want.

Are you trying to save for a house? Maybe you want to finish your degree one day? Is a self-funded sabbatical something that you really, really want? Do you want to start your own business?

Sometimes, priorities cannot be satisfied immediately. Long-term goals, by their very definition, are going to take some time. They will be no less pleasurable due to the time it takes to acquire them. From what I’ve observed, people who achieve what their hearts truly desire rarely ever regret saying no to early options for their time and money.

Hear me now! I am not suggesting that you say no to every invitation. That’s not a good way to live, nor will it improve or sustain the relationships that are most important to you. What I am proposing is that you clearly identify the priorities for your life and that you learn to balance them with all of the other options that are presented to you.

From this moment forward, strive to spend your time and money in ways that move you closer to the life you truly want.

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Weekly Tip: Pay your taxes on time. There’s no sense in borrowing trouble.

RRSP Season is Back!

It’s once again the season to talk about your Registered Retirement Savings Plan – otherwise known as RRSP Season!

Between Christmas and the end of February, there’s generally a plethora of advertising about the importance of funding your RRSP. So I’m putting my $0.02 into the mix too!

An RRSP is a tax-deferred way to grow your money. An RRSP is a registered account. This means that once you’ve opened an RRSP, you can deposit money into it and watch that money grow without taxes until you take it out. The point at which you withdraw your money is the point at which you’ll pay the taxes owing. In other words, your taxes owing on the growth inside your RRSP are deferred until you take that money out.

The deadline for contributing to your RRPS for the 2019 tax year is March 2, 2020. Our dear, sweet government gives you an entire year + 60 days into the following year to contribute to your RRSP. Whatever you don’t contribute in one year will rollover into the following year’s contribution.

In an ideal world, you would contribute your maximum every single year. Your RRSP would be chock-full of the perfect investment earning you a return of 15%, year-in-year-out! It would be a world of sunshine and lollipops, rainbows, puppies and kittens galore! Who wouldn’t want to live in the kind of world?

Most people do not make the maximum contribution to their RRSP every year.

So what to do?

Contribute what you can. If that’s $50 per week, then that’s $2,600 per year. If it’s $50 per month, then that’s $600 more than $0. Find a way to squirrel away as much as you can into your RRSP. The sooner you start contributing your RRSP, the sooner you can start investing your money within this registered account. Consistency is one of the keys to building wealth over time so start as soon as you can.

If you open an account with Canada Revenue Agency, you’ll have access to your personalized RRSP contribution limit. If this amount is more than you can contribute in one year, then figure out how much of a contribution you can make. Take that number, divided it by the number of times that you’ll be paid and set up an automatic transfer so that a portion of your contribution is sent to your RRSP every time you get a paycheque.

Let’s say you can afford to put away $3200 in 1 year and you’re paid bi-weekly. That means you’ll get 26 paycheques in one calendar year. This works out to $123.08 per paycheque, which is equivalent to less than $10 per day. Set up an automatic transfer of $123.08 from each paycheque and you will have found the money for your RRSP contribution.

And if you can afford more, then I would suggest that you contribute more. I’m still of the view that stuffing your RRSP full of money is a far better option than retiring with an empty RRSP. And since I’m not a tax professional, I’m going to recommend that you do your due diligence – which is a fancy way of saying do your own homework – and learn about RRSPs, their benefits, and how they can work to minimize poverty in old age.

How do I invest in my RRSP?

The automatic transfer ensures that you’re saving money so that you can contribute to your RRSP. Once the money is inside your RRSP, you still have a responsibility to yourself to invest it. The money can stay inside your RRSP until your 71 years old so you have may have several decades before you’re forced to withdraw it. An investment period this long is best used by investing in equity products that offer the best likelihood of higher growth.

You can invest in index funds, exchange-traded funds, mutual funds, individual stocks, bonds, guaranteed investment certificates, and high-interest savings accounts. To be very clear, it’s my personal opinion that GICs and HISAs are inappropriate for your RRSP money. The rates of interest offered on those products will not keep up with inflation. By failing to keep up with inflation, your RRSP money will consistently lose purchasing power over the years. This is a very bad thing!

In my opinion, you’re going to want to invest in index funds and exchange-traded funds that are equity based, which means that they invest in the stock market. If you don’t know where to start, check out the Canadian Couch Potato website and the model portfolios that are discussed.

Once the money is in your RRSP, do whatever you can to leave it there. Your RRSP is not a savings account. Do not treat it as an emergency fund! Life has a way of getting the way of plans, but I want you to do whatever you can to leave your RRSP money alone to grow over the years between today and retirement.

What if I get a tax refund?

Remember how I said that RRSP contributions are tax-deferred? That means that you get a tax deduction for contributions that you make to your RRSP. Depending on your tax situation, you might be entitled to a tax refund after you’ve contributed to your RRSP.

This is your money to be spent however you see fit. Yet… if you’re looking for ideas of the best use of this tax refund, here are my suggestions.

Pay off or pay down outstanding credit card balances, student loans, or any other debt you may have.
Put the tax refund right back into your RRSP, so long as doing so won’t take you over your maximum allowable RRSP contribution limit.
Put the money into your TFSA so that you can maximize your contributions to all of your registered accounts.
Contribute the money to non-registered investment account.
Use the money to treat yourself to something nice – a day at the spa, a weekend road trip, travel, whatever you want.

At the end of the day, what you do with your tax refund is entirely up to you. After all, it’s your money and personal finance is indeed quite personal so you get to spend your money in any way that you think is best.

The RRSP is a Gift

Speaking from personal experience, I can tell you that from the tiniest little seed does a mighty oak grow. I started my own RRSP over 25 years ago. Each year, I contributed as much as the CRA would allow. Today, this portion of my retirement kitty is over six figures. My money is invested in a mix of exchange-traded funds – split between bonds and equity. Slowly but surely, the money is growing and I should have a nice little cushion when it’s time for me to hang up my gloves.

Use your RRSP to save for your future. It’s one of the best tools available for growing your money. When you’re old, you’ll be quite happy that you have money set aside for your dotage.

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Weekly Tip: Always re-invest the dividends and capital gains that your portfolio earns. This is where the magic of compound growth makes a huge impact. Use Dividend Re-Investment Plans whenever you can. Relying on a DRIP along with consistently saving and investing a portion of every paycheque is one of the tools I used to build my Army of Money Soldiers.

It’s Okay to Keep Your Money

If you’re not already aware, then let me be the first to say the following: it’s okay to keep your money! You don’t have to spend all of it.

Now, you probably shouldn’t keep all of it either. After all, doing so means you won’t eat, nor have a roof over your heard or clothes on your back. Keeping every single penny of what you earn causes just as many problems as spending it all! A balance should be found as soon as possible.

Today’s post is based on my observation that there’s a goodly number of people out there who appear to operate on the belief that they simply must ensure that their expenses are equal to their income. I’m here to tell that such a belief is simply not true. It’s a formula guaranteed to keep you running in a hamster wheel for your whole life. Without keeping a little bit of your own money, you’ll never have the option of quitting whatever it is you’re paid to do now so that you can do whatever it is that you really want to do with your time.

You’re More than a Conduit

From what I’ve seen on a daily basis, there are many people who are little more than conduits between their paycheques and various retailers. These are people who work hard for their money, possibly at jobs they love and possibly not. They leave the comfort of their homes when they’d rather not. Nearly all are giving up time otherwise spent doing what they truly enjoy so that they can go to work and earn a paycheque. They’re foregoing sleep and health and time with friends & family all so that they can meet work obligations!

And then they turn around and spend every cent they’ve earned with barely a thought about the effort expended to earn it. I find this behaviour utterly baffling!

My comments are directed at those of you whose income don’t keep you on the absolute edge of solvency. I’m targeting those of you who can live well away from the edge yet you choose to put yourselves there. You work so hard for your money and you choose to spend it all.

Has no one told you that you don’t need to spend your money this way?

Again, it’s perfectly okay to keep your money.

Contrary to what the AdMan and the Creditor tell you every waking moment of your day, you’re not obligated to spend everything you earn. I will admit that the advertisements are enticing. Beautiful people are selling me everything from toothpaste to Tesla’s. Their sparkling white teeth and full heads of shiny hair inspire confidence that the products they’re hawking will complete my life. All I have to do is hand over my money and my life will be perfect.

It’s a seductive message.

Sadly, it’s also completely false! If we learned one thing from the Grinch by way of Dr. Seuss, it is this: happiness doesn’t come from the store!

Your Dreams Won’t Fund Themselves

So I say it again – it’s okay to keep your money! Put a portion of it away in an investment account so you can fund those years when your paycheque goes away. Create a few dream accounts! These are the accounts where you save up for those things that make your heart dance with joy. Maybe that’s a fancy cooking class. Perhaps it’s a trip to Greece. It might even be a fancy cooking class in Greece! You alone know what your truest desires are.

Yet, you won’t be able to fund those dreams and desires if you consistently spend every penny as fast as you can. The Hair & Teeth of Marketing aren’t going to help you achieve your goals. Their only objective is to persuade you to open your wallet. You have to believe me when I tell you that it’s okay to save your money for the things that you really want.

To be very clear, I’m not talking about people who have to devote their entire paycheques to rent and food. If you’re keeping it all together on a shoestring, then more power to you! The ones I’m talking about are those who have disposable income. They have some slack. If they had to take a pay-cut at work, they’d be able to stay in their current home and eat what they currently eat. Maybe they’d have to give up a few subscriptions, annual travel, and their plans to replace a 3-year old vehicle. Bottom line is that they would still have enough money to meet the survival expenses of food, shelter, and basic clothing.

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Weekly Tip: The 2019 RRSP contribution deadline is March 2, 2020. Make sure that you contribute something to your RRSP so that you have some cushion for your retirement years. Do not get trapped in analysis-paralysis. Make an RRSP contribution, preferably in an exchange-traded fund. Then leave the money alone for a long-time. While your RRSP-money is growing & compounding, your duty to Future You is to continue learning about investment options by reading books, blogs, magazines, websites, forums, stickies, and post-it’s. Learn as much as you can about this because it’s very, very important. Save-invest-learn-repeat.

What If…

When I talk about financial independence and wanting to retire early, many people look at me as if I’d sprouted a second head right in front of them.

“I love my job!” they say. “I don’t want to retire!”

Great! Wonderful! You’re being paid to do what you love – that makes you one of the Lucky Ones!

Take a moment and consider what it’s like for those of us who aren’t so blessed as to love our livelihoods, those of us who dream of a day when we can do what we want with all of our precious, precious time. Most of us work because we have to, not because we love what we do. And a good number of workers don’t actively hate their jobs. They simply don’t love them and would rather be paid to do something that they enjoyed.

And if you’re wondering why we don’t just find jobs that we love and do those instead, please gently hit yourself in the head with a hammer. Take it on good authority that we have tried to find jobs that we love as much as you love yours. There just aren’t as many of those ideal positions going around so not all of us are going to get one.

Instead, I’m going to ask you Lucky Ones to put yourselves in the shoes of the rest of us. That way, you might gain some insight into why some of us are working so hard to achieve financial independence and, possibly, early retirement.

Lucky Ones, ask yourselves the following: What if you didn’t love your job? And what if the job you love today turns into one that you don’t love tomorrow?

What if any of the following things happen?

The boss you love retires…and the new boss isn’t to your liking.
Your best work buddies move away.
You have to take on duties that make you stressed and irritable.
You’re passed over for a promotion that you know you earned.
Others are laid off, which means your workload goes up.
Harassment, sexual or otherwise, creeps into your daily workday.

There are many, many things that can happen in one hot minute to turn a job-you-love into a job-you-hate. Spend an hour or two at Ask-A-Manager to see what I mean. If half of the people writing to Alison had built up enough money to leave their jobs when they wished, then she’d have so much less to write about!

Or maybe your job never causes you to shed a tear, yet you lose it anyway. For example, your company is bought by another one, or there’s some kind of re-organization. For whatever reason, your job is eliminated. It happens to a lot of people. Those who don’t have a financial cushion are the ones who will be stressed and desperate to find something else. People who’ve been working towards financial independence have the luxury of taking some time to figure out what the next steps are going to be.

What if you had enough money to walk away from your job when it stops making you happy? Or what if you had a great, big cushion of money to land on if you were kicked to the curb due to downsizing or ageism?

That’s the beauty and power of financial independence. When your job stops being one that brings you joy, being financially independent gives you the choice to walk away.

I want to be explicitly clear – you don’t have to retire early just because you’re financially independent. Money = choices. Having money doesn’t remove your choice to keep working. It simply gives you the choice to do something else when your current position stops bringing you happiness.

So make hay while the sun shines! Get in touch with your inner squirrel and start gathering that sweet, sweet cash for the day when you’ve simply had enough. You won’t regret having the options that only money can buy when the time comes.

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Weekly Tip: Pick one day a week to be the day that you don’t spend any money. Most of us spend a little something every single day. Did you know that it only takes $27.40 per day to spend $10,000 in one year? Challenge yourself to keep your money in your pocket atleast one day out of every 7.

In Sickness & In Health

Emergency funds… you need them in sickness and in health.

My workplace has been a hotbed of germs and colds and flu for the past few weeks. Even I had to take a day off to give myself some time to rest and recover from my head cold. And I started thinking about how fortunate I am to have sick leave banked for times like this. Staying home for the day won’t impact my salary. I can focus on feeling better without worrying that my paycheque will be less than normal.

Some people are not so fortunate. For many, many people, a day away from work means losing money. As we all know, bills don’t take a break. Whether you’re sick or healthy, the bills and expenses of life need to be paid. If missing work due to illness would negatively impact your paycheque, then you need to have emergency funds set aside somewhere.

It is absolutely imperative that you have some money stashed away to replace your income. You don’t know when you’re going to get sick. And you don’t want to be thinking about the damage to your monthly income when you’re dealing with a runny nose, body chills, and a hacking cough.

Emergency funds take time to build and, once used, time to replenish. They should be relatively easy to access, so I suggest putting this money into a high interest savings account. When you’re healthy, find a way to squirrel away some cash into this financial necessity. Challenge yourself to set aside a particular per diem until your emergency fund has hit six months worth of expenses. Maybe you’ll pay $5 per day, maybe $10 per day. Even $1 per day is a good goal if your budget is particularly tight. Trust me – you will never regret the small sacrifices that you had to make when you truly need to rely on your emergency funds.

Let’s say that you had a car loan or student loan that you’ve just finished paying off. After congratulating yourself for paying off a debt, re-direct that former payment to the care and feeding of your emergency fund. You were living without the money before so you can continue to live without it for a little while longer.

The last thing you need to do when your income drops is to go into more debt by borrowing money to make up the lost income. Emergency funds can drastically reduce the need for you to go into debt.

Finally, make sure to replenish your emergency funds after you’ve used them. Emergencies can strike at any time. The sooner you get yours back to full strength, the better prepared you will be for the next one.

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Weekly Tip: Cut back on how much TV you watch so you can get rid of cable. The added benefit of less viewing time is less exposure to marketing. You’ll be amazed by how a significant reduction in TV-watching dampens your desire to buy stuff.