Month: October 2020

Use This Time Wisely

Gentle Reader, I’ve been working on staying COVID-free. I’ve been staying home, washing my hands, wearing my mask, and trying not to go down the What-If rabbit hole. While I wait for a vaccine/innoculation/nasal spray, I’ve chosen to use this time wisely. The pandemic will end – we will all be able to breathe around each other like the Before Times. Until then, I’m going to use my time to learn things that will save me some money.

Towards that end, I’ve decided to use YouTube to save money.

Whatever do you mean, Blue Lobster?

It’s this simple, Gentle Reader. Like the public library, YouTube is chock-full of free stuff just waiting to be learned by people such as ourselves. This summer, I learned about gardening – both flowers and vegetables – from the very sweet couple who host Garden Answer. Just this week, I stumbled upon a wonderfully soothing channel called Savor Easy, where I’ve watched videos that consist of two hands baking bread or buns. I find this channel to be the antithesis of most social media. It’s very therapeutic because there are no visual distractions. And you can practically taste the final product through the screen!

Flattening the curve and stemming the spread of COVID-19 requires us to stay home more than usual. Since you’re going to be at home anyway, why not use the time more profitably than binge-watching your favourite show?

Use this time wisely by learning how to do things that will help your finances. Baking your own bread (or cookies, muffins, cakes, pies, tortes, etc…) will save you some money. You’ll probably enjoy the results a lot more than the store-bought stuff too. The same goes for starting your own flower gardens, or growing your own herbs. Up until this year, I was a huge fan of annuals. However, spending so much time in my own backyard has forced me to re-evaluate my stance. Perennials suited for my climate will come back year after year so long as I learn how to properly care for them. And YouTube has multiple videos that will show me how to do just that.

Maybe you’d prefer to channel your energies into something that will last a little bit longer than a sheet of cookies, or a season of sunflowers. Why don’t you learn a craft? There are a ton of videos about learning to crochet or how to knit. For the record, I’m a fan of crochet simply because I never stuck with knitting long enough for my index fingers to stop being sensitive to the pointy ends of knitting needles. The only reason I stopped crocheting is because I’d run out of people to give my blankets too. That said, one of my most challenging patterns was calling my name today… so I might have a new project to tackle this winter. (I’ll figure out who to give it to later.) I’ll be home anyway and having a cozy blanket to snuggle under never gets old.

Perhaps you’d like to get into something even more long lasting. Real estate investing, anyone? You’ve heard me talk about Bigger Pockets before. I still watch the new videos posted on this channel and I learn something new each week. Even though the laws are different between Canada and the US, the math doesn’t change when it crosses the border. You might want to consider whether you can implement the principles discussed on this particular channel. Do you have the interest, desire, and finances to build your own little cadre of real estate properties?

Use this time wisely to learn something that will add a little jingle to your pocket.

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Weekly Tip: When renewing your mortgage, shop the market and ask for a lower rate. If you’re about to renew, you know that 5-year rates are under 2%. I make no predictions about how much lower a bank is willing to go, but you owe it to yourself to ask for a lower rate. Trust me – the bank won’t just give you one so you have nothing to lose by asking!

Free Shipping

Who doesn’t love the word “free”?

This week, I decided to buy myself some new jeans. I went to the website of one of my favourite jeans-buying retailers, and discovered to my delight that everything was 50% off. Hooray! Jeans I want at a price I wanted to pay… how could I possibly ask for anything more?

And then another little banner popped up on my screen. I could get free shipping if my purchase was a minimum of $100.

Great googaly-moogaly! All I had to do was spend more than I’d planned in order to have someone else pay to ship my desired items to me? I could do that! I’d be an idiot not to spend more than I’d planned to spend, wouldn’t I? And I don’t like to think of myself as an idiot so the only logical thing to do was to search for a way to spend another $40.

So I set about reviewing other pages on the website. I looked at tops. Then I looked at the outerwear & accessories. My furious hunt through the pages of the website led me find another item I wanted under the sale-tab. (For the record, it’s a long-sleeved stripped sweater than only cost $9.49+tax after the discount code was applied.)

Yet, no matter how hard I looked, there was nothing else that I really and truly wanted to buy so my order did not meet the $100 minimum purchase. I would have to… <shudder>… pay for my own shipping. At the end of the day, my chosen items, the tax and the $10 shipping fee came to $83.46.

Afterwards, I thought about it and realized that the Ad Man had successfully convinced me to spend more money than I’d planned. Remember how I said that I only wanted jeans? What did I wind up buying? Jeans and a sweater… Sure – it was only an extra $9.49+tax, but I’d been willing to spend an extra $40 to save $10.

How is that a smart financial move? I would’ve been out $30 more than I’d planned to spend had I simply bought any-old-thing just to hit the minimum purchase amount to avoid having to pay my own shipping fees.

This kind of behaviour is less than financially prudent, aka: stupid money choices.

Don’t be a Dum-Dum

One of my very dear friends taught me this simple, useful piece of advice: don’t be a dum-dum. This advice is golden! I strive to follow it every day, and I think you should too.

Never spend more than you planned to spend just to get free shipping. I can’t make it any simpler than that. Chances are, you already have too much stuff and you’re one of those people who wishes they had more storage in their home.

Don’t buy more stuff, which is the only reason storage is needed in the first place, just to meet a minimum purchase.

If your planned purchase doesn’t entitle you to free shipping, then the only “downside” is that you get to keep your money.

Explain to me how keeping more of your own money is a bad thing? So you had to pay for shipping? So what? The only important consideration is that you spent what you’d planned to spend to buy what you’d planned to buy. Everything else is irrelevant. Do not let the Ad Man convince you otherwise.

I love free shipping just as much as the next person. However, you know what I love more? Having an extra $16.54 stay in my bank account because I didn’t meet the $100 minimum purchase. That extra $16.54 will go towards something else – groceries, retirement, post-pandemic travel. Who knows? The important thing is that $16.54 stayed in my wallet, instead of flying out the door on some item of clothing that wouldn’t have made me happy.

So my shipping wasn’t free. Big deal. I’ll survive to fight another day.

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Weekly Tip: Sell what you don’t need anymore. There are so many platforms that can be used to sell the things that might fit someone else’s need. You need not keep things that no longer serve a purpose for you. And while you won’t get the price you paid for whatever it is that you no longer need, you’ll get back some of your initial purchase. That’s far better than getting nothing back and having stuff cluttering up your home. Always, always, always be safe when you’re selling stuff online!

Taking Care of Future You

Quick! Take a look at your current net worth. If you had known 10 years ago that it would be what it is today, would you have been angry if you had been forced to save more money???

The reason I ask is because I’m getting older. And the older I get, the more I notice things. One of the things I’m noticing is that my friends are getting older too. And they’re starting to make worrying noises about not having saved enough for retirement. These disquieting rumblings are leading me to wonder if perhaps people shouldn’t simply be forced to save for their retirement.

It’s Easy to Put Off Saving

Want to know why I’m such a huge fan of automating your savings?

It’s due to the fact that automation removes freedom of choice. I know myself. If I to deliberately choose to siphon money from my paycheque to my future, then I wouldn’t. I’d go through that money like a hot knife through butter! I’d be no further ahead financially but I’m sure I’d have more stuff – clothes, electronics, whatever…

I’ve curbed my ability to spend away my retirement savings by setting up automatic transfers. My paycheque comes in – the automatic transfers are triggered – I spend whatever’s left over.

Yet, I’m realizing that a lot of people don’t use automation to improve their financial futures. To be fair, I’m not talking about people who don’t have any fat to cut. Sadly, lots of people are living by the skin of their teeth and an automated savings plan won’t help those people.

I’m talking about the people who do have fat to cut. The ones who can cut back without eliminating all the little extra in life in order to fund their future financial goals. Many of them don’t do so… a situation that I find perplexing.

There’s Little to No Urgency

Perhaps the Ones-Who-Can simply don’t because retirement is so far away. It’s in the distant future, so why worry about it now when it won’t be here for a very, very, very long time?

Good question.

The answer is that tempus fungit, which is Latin for “time flies”. Yes, I’m old enough that I took a semester of Latin in high school. It still blows my mind that this year was my 30-year anniversary of graduating high school!

Your retirement will be here before you know it. Everyone gets the same 24 hours in a day. And they pass by at the same speed for all of us. No matter how busy you are, no matter how full your life is of other priorities, believes me when I say that you will get old…unless you die. Sorry to be so blunt, but it’s the truth. The only people who aren’t getting any older are the ones who have already passed.

Regardless of how far away it feels, your retirement is on the horizon. Saving up enough money to pay for it is a priority that you should focus on throughout your life.

Money From Others…

Yes, that’s right. It’s up to you to pay for your own retirement. Whether you’ll earn CPP, OAS or GIS (or Social Security and its equivalents), the amount of money you get from the government won’t be enough.

If you’ve been promised a pension, then all you have right now is a promise. The harsh reality is that pensions can fail. Think of a pension as a repository of deferred pay. Your employer pays you less today with the promise that they will pay you after you’ve retired. When a pension fails, it means that the employee who did the work doesn’t get paid as he or she was promised. It sucks and it’s unfair, and it causes a lot of havoc to pensioners who can’t turn back time and go back to work.

You should be saving your own money to supplement whatever you receive from the government and your pension. If the government and/or your pension still has money to pay you in your dotage, then that’s great. If not, then you’ll be very happy that you made the choice to tuck a little something away over the years. Err on the side of caution and start saving for your retirement.

It’s Vitally Important

There’s not much more to say at this point. You know how happy you are when you’re hungry and you eat something? That awful hungry feeling goes away and you can go on about your daily life.

You will continue to be hungry when you’re retired. You’ll still need shelter, a few clothes, access to transportation, some entertainment once in awhile. When you’re retired, I promise you that you will still yearn for your creature comforts – much in the way that you do today. In order to acquire them, your retirement funds will have to take the place of your paycheque.

Gathering sufficient retirement funds is an integral step in taking care of Future You. For the vast majority of us, it’s going to take a very long time. So unless you’re next to destitute, take immediate action. Set up a plan whereby you funnel some of today’s money towards tomorrow’s financial needs. I promise that you won’t regret doing so when the time comes to live off your retirement nest egg.

Yet…

I suspect you’ll read this, think it’s a good idea, and go on about your lives. There might be one or two of you who actually take my suggestion and plant their money tree. The rest of you… not so much.

All of us will need money until we draw our last breath. That’s the world we live in. And that’s why I’m starting to come around to the idea that people must be forced to save for their retirement. It cannot be optional. If it’s optional, then people will choose not to do it and that’s a bad choice. No one is telling you to give up all of the things that make you happy today in order to save for tomorrow. Instead, I’m encouraging you to cut back a little bit. This is so you’ll have the money you’ll need for Future You. Isn’t taking care of Future You worth a little bit of sacrifice today?

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Weekly Tip: Use your tax refund in a way that allows you to pay down some debt (30%), to invest in the future (50%), and to enjoy the present (20%). Life is about balance and enjoying the journey along the way.

Higher Level Math Is Not Required

Let me tell you a little secret about myself… I’m not good at math! Luckily for me, higher level math is not required for success in personal finance.

Oh, I have a firm handle on the basics – addition, subtraction, multiplication, division, fractions & exponents. However, the higher level stuff like algebra, calculus, and trigonometry were challenging for me in high school. And when I got to university, I took my two required math courses and never looked back.

Truth be told, my mastery of mathematical concepts ends around grade 11 mathematics, maybe even grade 10. Since then, I’ve been limping along with the basics… and amassing a sizeable net worth along the way. Luckily for me, I didn’t need the higher level math skills in order to start investing for my future.

If you want the skills, go get them.

For my part, you need not master those skills unless one of the following two things are true:

  • you want to; or
  • you need them for your desired career

Had I wanted to pursue a career in science or finance then I would have had to put my nose to the grindstone in order to acquire higher level math skills. The STEM – science, technology, engineering, math – careers required a mastery of math that I just don’t have.

Thankfully, I didn’t need to master algebra, calculus, and trigonometry to become adept at personal finance. And since I didn’t particularly enjoy high school math, I found a way to build the life I want without having to take many more math courses after leaving secondary school. I’m not saying my decision is the right one for everyone so please do what you think is best for your particular circumstances. If you need higher level math skills to build the life you want for yourself, then go and get them post-haste.

Is it easy to do?

Sometimes I think people are intimidated by personal finance because they weren’t good at math in school either. I’m here to tell you that there are three mandatory ingredients to building wealth over a lifetime: an income, an automatic transfer, and opportunity to invest.

For my part, I pursued investment opportunities offered in the stock exchange. I used to invest in mutual funds, but then I learned about management expense ratios and switched my investments to exchange traded funds. ETFs are much cheaper than mutual funds. Over a very long investment horizon, lower MERs mean that I keep more money in my pocket.

Some people invest in themselves by starting a business. Some people build portfolios of rental real estate. I think those are great options, but they just weren’t ones that I pursued. Neither of those options necessarily require a mastery of higher level math skills. Successfully running a rental property portfolio requires a mastery of ensuring that the money coming in from rents is higher than the money going out for expenses. A Ph.D in calculus isn’t going to be required to be a successful landlord.

In any event, an income, an automatic transfer, and the opportunity to invest are the three main ingredients of the secret sauce of personal finance.

Is the formula simple? You better believe it is! If you have all three, then you’re in a position to increase your wealth.

Most people can master personal finance with the math concepts that they learn before junior high. I’d always felt bad about my high school math achievements. It was the one class where I struggled, and I never felt smart enough. In spite of his, I’m pretty okay with how I’m doing today.

Special Advice to the Young…

If you happen to be a young person reading this post, then I would encourage you to work hard at mastering math and getting those skills under your belt as soon as possible. Remember how I said that an income is part of the secret sauce?

STEM-careers pay higher incomes. It’s a reality. STEM careers are an avenue to increasing your odds that you’ll earn more than the median income. The higher your income, the larger your opportunity to build wealth. You can choose to save a higher percentage of your income when your income is large. When you’re trying to live on the median income, there’s not as much opportunity to save money. Generally, less money invested means slower growth of your money over time.

You might not think that’s fair, but I’m not here to argue about fairness. I want you to keep your options open by getting the highest grades that you can in the area of math. Doctors make more than cashiers. Pharmacists and engineers earn more than maintenance and daycare workers. I’m sure you can think of other examples. I’m not debating the necessity of each type of work to the functioning of society. I’m just pointing out the fact that STEM-careers pay more than non-STEM careers.

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Weekly Tip: Learn to use the word “No” when people ask you for money. You need not be rude, aggressive, or sarcastic. Practice saying “No” in a polite but firm tone. Doing so will ensure that you’re confident and calm when turning down someone’s request for your money.

Charitable Donations

I’ve long held the belief that choosing to donate to worthy causes is a deeply personal thing. Some people donate their time. Others donate their money. Whichever you choose is the right answer for you. At the end of the day, I sincerely believe that donating to charitable causes is a very good use of money.

When I was growing up, door to door solicitations for money were are regular as the rising sun. In the world before call display, charities phoned people at home to ask them for money. Charities have since moved away from these forms of solicitation and have moved to online options. Today, ads are on social media sites and people can donate with their fingertips. It’s a very simple process for making an online donation to the charity of your choice.

Charitable events happen all the time. September 2020 was the 40th anniversary of the Terry Fox School Run. On October 4, 2020, there will be a Run for the Cure nationwide for the purpose of raising money to conquer breast cancer. You might want to give money to support a local animal shelter. Perhaps you want your charitable donations to go towards helping the homeless or towards keeping shelves stocked at the Food Bank. There are many, many worthwhile charitable causes, far too many for me to list in this blog post.

Tax benefits of charitable donations

The government wants to encourage taxpayers to donate money. Toward that end, the Canada Revenue Agency rewards people who make financial donations to registered charities via tax credits. The more money that you donate, the more tax credits you receive. Tax credits are very useful because they are set off against any tax that you owe to CRA.

CRA is willing to give you up to 29% of your charitable donations back as tax credits. On top of this, your province will also give you some tax credits. Talk to your professional tax advisor for the specifics that apply to your particular situation.

*** I am not a tax professional. If you need assistance with your taxes, talk to a qualified tax professional.***

Do some research first

Be smart as you donate. Do your research before you open your wallet. While your heart is in the right place, you want to make sure that your money goes to the right place too. Check out the charity that you want to support and make sure that it’s registered. You don’t want to send your money to a fraudster with an impressive website.

Charitable organizations do not run themselves. They’re required to employ people whose job it is to make sure that your donation dollars get put to their intended use. These employees are paid through administration fees. For every $1 you donate, some portion of it is siphoned away to pay for the daily operation of the charitable organization. The higher the administrative fees, the less money going towards the intended recipient of your charitable donation.

Once you’ve selected your charity, ask yourself if you’re okay with the percentage of your donation that will have to go to the administration fees.

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Weekly Tip: Donate to charity. It builds good karma.