Month: April 2021

Cooking is your secret money-maker!

Last week, someone in the Twittersphere asked people to share their best money-making tip.

Mine was simple – cook at home more.

I’ve never hidden the fact that I consider my kitchen to be a magic money-maker. A few hours each week in the kitchen means that I’m not spending money on over-sized portions of food that might not be as healthy for me as the marketers would like me to believe. I have the benefit of eating whatever I want, and who wouldn’t love that?

At the same time, groceries are cheaper than eating out. Going to the grocery store instead of a restaurant or drive-thru window means that I can put more of my disposable income towards making my dreams a reality. Achieving the goals I’ve set for my finances while still eating well… that’s two birds with one stone, as far as I’m concerned.

So today, I’m sharing some of my favorite recipe sources with you. (Sadly, I can’t share all of them since I don’t want this to be 10,000 word blog post.) Put yourself into the mood to save some money by feeding yourself, then click on the links that follow.

First off, I have to mention Dinner Then Dessert. This is one of my favorite recipe websites. Lots of pictures – many useful tips – suggested recipes that are equally delicious! Most importantly of all, this blogger doesn’t waste your eyeball energy on scrolling through some back-story for her recipes. You can get right to it and start cooking!

If memory serves, Smitten Kitchen was one of the very first websites I started following for recipes. I liked the name because it rhymed a little bit, and because it featured desserts that reminded me of childhood. I’m still looking for one of my very favorite Bavarian apple tart recipes, but this one from SK’s website has very much piqued my interest.

Pinch of Yum is also a familiar favorite that I enjoy going back to time and again. The recipes on this website are packed full of vegetables so the dishes are colorful and drool-worthy. I always feel like these recipes deliver on all my daily mineral and vitamin requirements, which is something that is very, very important.

YouTube is a treasure trove of cooking tutorials. I have spent many an hour watching cooks, chefs, and everyone in between creating some of the most delicious things I’ve ever eaten. One of my newly discovered channels is called Cooking With Claudia. I followed her recipe for creamy garlic butter chicken and potatoes… The extra exercise is well worth the added calories of this dish. It’s divine and makes for very tasty leftovers the next day!

A couple of weeks back, I tried to make some pie dough… It did not go well. And while I managed to flatten it into a disc for the freezer, I’m sure I’ll have to doctor it with some more water and flour when I go to actually make a pie. I wish I’d found this video from Nana’s Cookery before I’d started my Pie Dough Project. Although, truth be told, I’ve lived long enough to realize that either you’re born with pie-hands or you’re not. There isn’t a “no-fail pie crust” in the world that has worked in my kitchen.

Fear not, Gentle Reader! I will continue to try my hand at making pie dough because, although my pie crusts aren’t perfect, they’re still very tasty.

Now another great video channel I absolutely adore is Babish Culinary Universe. This gentleman has in incredibly soothing voice. Watching his video about cinnamon rolls was a treat for the eyes. And I’m not embarrassed to admit that I was drooling as I watched his video about sticky buns. When the pandemic is over, I’m going to get together with several friends so that we can grow larger together while devouring these delicious delights. Not even I can justify eating 12 cinnamon or sticky buns by myself… and I haven’t yet found a recipe for making just one!

Maybe you’re a fan of carbs. (And who isn’t, really?) If so, then check out Savor Easy… where they bake up all kinds of delicious breads. One of my favorite aspects of this channel is that there’s very little talking. It’s all music and visuals…and delicious things for your tummy. Soft and fluffy condensed milk bread, anyone?

You need to eat. I suggest you eat well. It’s something you should be doing several times a day so it’s in your best interest to enjoy it. Get the maximum enjoyment of your food while stretching your dollars as far as possible! Start by cooking and baking for yourself.

We’re still in a pandemic, and it’s not always fun to eat alone as a Single One. I get it. Believe me when I say that I understand. Where I live, dining in restaurants is currently not an option. However, I have access to screens in my house. There’s always the option of a videochat over a nice meal. It’s definitely not the same, but it is way better than the drive-thru.

And look on the bright side. We are so very much closer to the day when the pandemic is in the rearview mirror than we were just a few short months ago. And I’m willing to get that you’ll agree with my prognostication that there will be an extraordinary level of socializing when we finally reach herd immunity. Use your pandemic-time to learn how to cook & bake. I promise that you’re going to love sharing all the recipes you’ve mastered with those nearest and dearest to your heart when the pandemic is finally over.

Emergency Funds – Income vs. Expenses

“Wow! I had way too much money to tide me over when I was unemployed and had bills to pay!”

– said No One Ever

By now, you may heard that it’s best to have 3-6 months of income in your emergency fund. You know your finances better than I ever will, but it seems to me that it’s better to have 6-9 months of expenses socked away for the inevitable rainy day.

Did you see what I did there?

If not, go back and re-read it… there you go! See? In my world, income does not equal expenses when it comes to funding your emergency fund.

The Majority

For a good number of people, the words are interchangeable. It matters not whether they’re saving 6 months of income or 6 months of expenses because the monthly income and monthly outgo are the same number. And who are these good folks? Well, they are the ones who spend every penny that comes into their hot, little hands. They’re people who literally feel money burning holes in their pockets. These ladies and gentlemen will move heaven & earth to spend their money as fast as they can. It matters not if they’re earning a little or a lot – every penny is spent!

These are people who do not live below their means, for whatever reason. For this group, income is equal to expenses.

The Others

However, there is another group of people out there. They are the ones who pay themselves first. Their expenses are less than their income. They’ve managed to create some breathing room in their budget. They have funds that aren’t spent right away. For this second group of good folks, they only need to save 6-9 months of their actual expenses.

There is no point having money sitting idle in an account while waiting for an emergency when it could be sent out to work.

If you’ve been reading my ramblings for any length of time, then you know that I’m an ardent advocate of investing a good portion of your paycheque for long-term growth. This is what I mean when I say that the money not spent on your day-to-day survival should be sent out to work. When your expenses are less than your income, the difference between the two should be invested.

Allow me to be very, very clear. The money that is meant to cover your expenses during an emergency should never be invested for long-term growth. You need not run the risk that the stock market suffers its worst historical drop on the very same day that you lose your job and have to pay the mortgage. Your emergency fund needs to be sitting some place that is both boring and safe, like in a savings account at an online bank. When the emergency happens, you will need to access the funds quickly. You also need to be certain that they will be there. The volatility of the stock market offers no such certainty.

So whatever amount is needed to cover expenses should be in a boring, old savings account.

Money over and above your 6-9 month emergency stash should be sent elsewhere.

Personal Experience

For the sake of transparency, I will confess that what isn’t spent on the Care and Feeding of Blue Lobster is divided into two pots. There’s the long-term pot where I keep my retirement money. That pot is brimming with equity investments that pay me capital gains and dividends every year. Hooray! Then there’s the medium-term pot. This is where I stash the money to pay for things that will happen in the next 1-5 years. This pot pays for the un-sexy necessaries like insurance premiums and taxes. It also covers the fun stuff like vacations, concerts, and gifts.

The bottom line is that these pots are filled with the difference between my income and my expenses. In my case, my emergency fund covers 9 months of expenses. I can now use my money to fund long-term investments and medium term goals, all while knowing that my emergency fund is safely tucked away until I need it.

Why 9 months instead of the minimum of 6? That’s easy. I’ve always believed that it’s better to have more money than needed during an emergency.

A little something else to consider…

Expenses generally include debts. Take your pick – student loans, vehicle loans, mortgage, credit cards, medical, personal loans, veterinary loans, etc… If you’ve used credit, then you have debt. Chances are you’re paying off that debt each month, so your debt payments must be included in your expenses.

Debts don’t disappear just because your job has. That means your emergency fund has to be big enough to cover your debt payments should your income disappear.

But what happens to your emergency fund once your debts disappear?

The necessary minimum size gets smaller!

Excuse me, Blue Lobster? What are you saying?

Let’s say that your monthly expenses are $3500 per month. Part of that is a $1000/mth mortgage (or rent) payment and a $500/mth payment on your vehicle. For the sake of this example, your monthly expenses include $1500 in debt payments.

If you’re building a 6 month emergency fund, you need to have $21,000 set aside to cover your monthly bills in the event of an emergency.

However, once you’ve paid off your debts, then your monthly expenses are only $2000 per month. (This assumes that you don’t replace your former $1500 debt payments with new ones!)

Now, your emergency fund need only be $12,000 to cover six months of your expenses.

Will it take you less time save up an $12,000 emergency fund? Yes – yes, it will.

Getting out of debt means you don’t have to spend as much time building your emergency fund. In this example, the extra $9000 (= $21,000 – $12,000) can be invested for long-term growth that much faster. Ideally, Mystery Person learns to spend cash and doesn’t go back into debt. While Mystery Person goes to work, the $12K sits quietly in an account and the former debt payments are re-directed towards long-term investments.

Saving 6 months will take a long time!

Please go back and re-read the quote at the start of this post. No one promised that saving up an emergency fund would be a quick process. The fact that it takes a long time in no way diminishes the importance of creating one!

Start saving for your emergency fund today. Set up an automatic transfer from your paycheque to an online savings account. Do not get a debit card for this account. Once the money goes in, forget about it. This money is not to be touched unless your livelihood is threatened or gone.

Trust me when I say the following. You won’t want to be worrying about money in the middle of your emergency. Having an emergency fund to pay for things will be a comfort during an emotionally awful time.

Buy Yourself Some “No!”

Every time you get paid, I want you to buy yourself some “No!”

Whatever are you talking about, Blue Lobster?

It’s simple. When you receive your paycheque, endeavour to not spend all of it.

Now, I know that there are those who are barely surviving from one payday to the next due to a low income. It’s very tough to survive when you don’t have enough money. It must be an awful and harrowing way to live. If I had a simple solution to solving the poverty problem, then I would shout it from the rooftops… sadly, I don’t.

For everyone else, there’s enough money to buy the option of saying “No!” to what you don’t want in your life. You may have heard of this concept by its more traditional phrase – pay yourself first. This is incredibly good advice! And I’ve yet to hear of anyone suffering any kind of adverse consequence by ensuring that they feathered their own nest before dispersing the rest of their income to Everybody Else.

When you save some of your paycheque, you’re buying a quantum of power. That power is related to your ability to buy back some of your time. Think about whether you love your job. Are there days where you just don’t want to work, whether “at the office” or from home? When you’d rather garden in your own backyard or spend the day enjoying the fresh spring air?

Or how about that vehicle payment? The financing company has you over the barrel. If you stop sending them several hundred dollars every month, they’ll repossess your vehicle. How nice will it be to stop sending them money every month? What else could you be doing with that payment?

Whatever your monthly payment is for, does the payment bring you joy? Are you excited and thrilled to see the money leave your bank account every month?

No? I didn’t think so.

Cruel Ironies

You can make more choices about how to spend your time when you’re not as dependent on working for an income. The cruel irony is that there’s no incentive for your employer, your creditors, or the Ad Man to explain this to you. As you’re already aware, your employer needs your labour to enrich the corporate bottom line. This means that your employer has little incentive to encourage you to save for the time when you have enough money to re-direct your labour to your own life’s desire.

Your creditors just want you to continue paying them interest, since they make money off the financing and not the doodad on which you spend their money. (And make no mistake – it’s their money. If it had been your money, then you wouldn’t be paying interest on it.)

Finally, the AdMan is paid by the companies that sell you whatever shiny object that has currently caught your attention. The AdMan really doesn’t want you to save any of your paycheque, because then the AdMan hasn’t convinced you to buy stuff…which is how the AdMan gets paid.

Stop Spending All Your Money

I understand how capitalism works. I really do. Yet, the older I get, the more I also understand that unbridled spending and the yoke of debt are impediments to a happy life.

Want a foolproof plan for getting a tax free raise? Stop going into debt.

Once all your payments are done, then more of your paycheque stays in your pocket. No more $700 monthly vehicle payment? Transfer that $700 to your RRSP. No more $400 student loan payment? Invest that $400 in your TFSA. Mortgage payments gone? Awesome! Start contributing the money to your non-registered investment portfolio. Credit cards all paid off? That’s great – save that money in the bank so that you can pay cash for the next thing that you want.

And a funny thing will happen. When you’re finally out of debt, you’ll really, really enjoy the absence of debt payments.

“Wish I was still sending money to my credit cards!” said No One, ever…

All of that money that was being siphoned off to debt payments can be used to buy yourself some “No!”

That Will Take Too Long!!!

I’m not a magician! And I never said it would happen overnight. It’s going to take as long as it takes. The more debt you have, the lower your income, the longer it will take.

The question is how long you want to continue being indebted to Others. You’re the only person who can decide if you’re willing to make the short-term sacrifices necessary to buy back some of your time freedom.

Alternatively, you can keep your current spending patterns yet still buy yourself some “No!” through increasing your income. You could get a side hustle and devote all income earned from that source to saving and investing. (Back in my day, a side hustle was called a part-time job.) You could invest in real estate and start house hacking. You could start buying dividend-producing exchange traded funds, set up a DRIP system, and just watch your dividends compound over time. You could bust your ass at work and get a promotion, whether with your current employer or with a new one. Either way, your promotion should come with a raise. So long as you don’t spend that raise, you’re heading in the right direction.

You Get to Decide.

Yes – that’s right. The choice is yours.

  • When your current vehicle is paid off, are you going to drive a paid-for car or are you going to go back into debt?
  • Do you need all the streaming channels right now? Could you pay for one for a few months, then switch to another one later?
  • When the pandemic is over, is your gym membership really necessary? Maybe you could walk outside instead of on a treadmill?
  • Is being able to live without a paycheque for a few years worth learning how to cook?
  • Is the hamster wheel of living hand-to-mouth bringing you joy? Would you appreciate a lot more wiggle room in your budget?

Money buys you the option to say “No!” to what you don’t want in your life. Harness its power by investing a chunk of your income every time you’re paid. The sooner you start, the sooner you’ll be able to walk away from situations that no longer serve your purpose or no longer make you happy. You’ll have the peace of mind that a financially firm foundation allows. You’ll be able to walk away from employment that no longer aligns with your values…without wondering how to feed/shelter/clothe yourself. You’ll have the comfort of knowing that you’ll be alright even if it takes you a little while to find your next job, if you even want one.

And believe you me… the more “No!” you have, the less often you have to do un-desirable things. I’ve yet to meet anyone who hated having control over how to spend their time and energy. Unless you’re already quite wealthy, the only way to obtain this power for yourself is through carefully investing your own income until your investments allow you to be independent from a paycheque.

My Criticisms of the Baby Steps

Based on my understanding of them, the Baby Steps have two main problems. One, the Baby Steps encourage people to work longer than they might otherwise wish. Two, people will pay higher than necessary management expense ratios (MERs).

One of the more controversial figures in the personal finance section of the Internet is Dave Ramsey. Among other things, he is famous for encouraging people to follow his Baby Steps.

When I was first starting down my own money journey, I happily devoured The Total Money Makeover. Even today, I still think that the Baby Steps are a great path for newbies who are looking for a way to get out of debt and to start building wealth. When I had student loans and car debt, I followed the Baby Steps and paid those off. Once debt-free, it was very nice to have some breathing room in my budget.

However, when I got to the step about investing 15%, I had to pause a little bit.

Criticism #1 – Working Longer than Necessary

My first concern with the Baby Steps is that they implicitly encourage people to spend 85% of their income once all non-mortgage debt has been repaid.

Allow me to exceptionally clear. THERE IS NOTHING WRONG WITH SAVING 15% OF YOUR INCOME! When there is a choice between saving nothing and saving something, always choose to save something. Then invest that money for long-term growth and go about the business of living.

However, I was fortunate enough to have learned about early retirement. I wanted to retire as soon as possible. Investing the recommended amount of 15% of my paycheque wasn’t going to do it for me. In short, investing only 15% of my income while spending the rest wouldn’t allow me to fulfill my goal of early retirement. I was not interested in working 30+ years if there was a viable option for me to still have a financially solid retirement while working for less than 3 decades!

As a result of my independent self-study, I had learned from other sources that a higher savings-and-investing rate meant a quicker path to financial independence. I’m certain that the Baby Steps will help most people get to a comfortable retirement at a traditional retirement age. And if the Baby Steps help someone to start their 15% investment plan in their 20s, I’m sure that they’ll have millions of dollars after 30+ years of work.

My life’s dreams didn’t involve working for 30+ years. My career has a lot of perks, but jumping out of bed each morning in gleeful anticipation of another day at the office is not one of them.

Fortunately for me, I had the ability to save more than 15% of my income once all my non-mortgage debt was eliminated. At this point, I seriously deviated from Dave Ramsey’s plan. Firstly, I paid off my mortgage in my mid-thirties. Then I took my former bi-weekly mortgage payment and started investing it. To be clear, that former mortgage payment was more than 15% of my take-home pay. I first maxed out my RRSP, then I maxed out my TFSA contribution room. Once that was done, I started contributing to my non-registered investment accounts. Over the years, I’ve benefitted from raises. Generally speaking, two-thirds of each raise went to my investments and the remaining third went to improving my present-day life by spending on those little luxuries that make me happy.

I am not encouraging anyone to deviate from the Baby Steps if they want to work for as long as possible. There are people in this world who love their jobs! Saving and investing only 15% of income works beautifully for these people. They get to spend their money today, while enjoying their jobs, and will still retire at traditional retirement age with a nice, fat cash cushion. If this is you, then I congratulate you on having found a way to make money doing something you love.

It just seems to me that the Baby Steps should say “invest 15% or more of your household income in retirement.” Adding those two little words would plant the seed that retirement can come sooner if you so wish. I’ve met more than a few people who’ve expressed the desire to quit working, but cannot yet do so because they need the paycheque. For these folks, saving the recommended 15% doesn’t get them closer to their goal of retiring sooner rather than later.

Criticism #2 – Paying Higher-than-Necessary MERs

My second issue with the Baby Steps is related to Dave Ramsey’s love of mutual funds. I’ve listened to him on YouTube where he consistently exhorts his listeners to invest in mutual funds.

In the interests of transparency, I admit that there was a time when I invested in mutual funds. I was younger and less knowledgeable about the costs of equity products. It’s been years since I divested myself of those products and moved into exchange traded funds with VanguardCanada and iShares. There was one main reason that I exited from mutual funds and went into exchange traded funds.

Mutual funds are consistently more expensive than exchange traded funds and index funds. This is because mutual funds charge higher MERs than their ETF/index fund equivalent. Think of the MER as the cost of the product. The returns on my mutual funds were not twice as good as the returns on my ETFs, even though the MER might be twice as high (or many multiples higher!) on a mutual fund than on an ETF. If the mutual funds’ performance had justified the higher price, then I would have continued paying a higher price. When I realized I could get the same performance for a lower price, I hastily moved out of mutual funds and put my money to work in ETFs. I’ve never regretted my choice.

So when I listen to Dave Ramsey talk about how wonderful mutual funds are, I have to ask myself why wouldn’t he tell his listeners to invest in equivalent yet cheaper ETFs? The same performance for a lower price seems to be a good thing for the people following his advice.

I have never heard a persuasive explanation for why people should pay higher MERs when an equivalent and cheaper product readily available.

Take a look at this MER calculator. It demonstrates that higher MERs result in smaller portfolios over any given period of time, all else being equal. The longer you’re investing your money, the bigger the MER-bite. Whenever possible, invest in an ETF or an index fund instead of a mutual fund. You should not be paying an MER higher than 0.3%.

So that’s it in a nutshell. Though they are a great starting point, I hope that I have articulated my two biggest problems with the Baby Steps. I sincerely hope that this blog post has given you more information about how to influence how much longer you’ll have to work. The secret is to invest more today so you don’t have to work as long tomorrow. Whenever you do invest, pick exchange traded funds instead of mutual funds to keep costs down and to maximize the amount of money working on your behalf. Lower MERs ensure that a higher percentage of every invested dollar works for you as you pursue your investment goals.

At the end of the day, the choice of how much and where to invest is yours. If you want to work for as long possible, while paying more in investment costs, then follow Dave Ramsey’s plan to the letter. If you’d like to have the option of attaining financial independence as soon as you can,then invest more than 15% of your next income and choose ETFs over mutual funds.