Month: August 2021

Pay Off Your Credit Cards Every Month

During my time on this little blue ball we all call home, I’ve learned a few things. This blog is about personal finance so I’ll limit my comments here to that topic. Today, I’d like to take a look at credit cards. Many people attribute negative associations to these little plastic rectangles. It’s easy to understand why. After all, credit cards allow people to dig themselves into very deep debt-holes.

This is truly unfortunate.

There is another perspective worth considering. It’s that credit cards are a tool when the cardholder pays off their debt in full, every single month. Paying the bill in full every month allows cardholders to accumulate rewards for their spending without every paying a penny of interest to the credit card companies. Is it any wonder that the credit card companies call these customers “deadbeats“?

When it comes to credit cards, I’m committed to the belief that you should pay off your credit cards every month. There are a myriad of ways to do this, but the following three methods are the best.

Automatic Transfers on a Set Schedule

I learned about this method from a dear friend. Sam pays a fixed amount towards his credit card every two weeks, when he gets paid. He’s not a stickler for details and is too busy to check every charge on his bill. (I find this astonishing, but whatever.) Sam never misses a payment, though. He has restricted his credit card limit. His credit card company can’t just raise his limit. They need his permission first. Sam keeps his limit around $3,000 per month. Every two weeks, he sends $1500 to his credit card company. This way, he never goes over his limit and his bill is always paid in full by the due date.

Sam charges everything on his credit card, up to $3,000. Every time he gets paid, Sam makes a payment of $1,500 to his credit card company. Easy peasy, lemon squeezy! Sam benefits from accumulating points on his credit card. He’s staying out of debt. He never pays interest on his credit card charges. I’m suspecting that he’s also building a stellar credit history since he always pays his bill on time.

It’s not my way of doing things, but it works for Sam. Who am I to tell him that he’s wrong?

Itemize, Pay & Repeat

My personal method of paying off credit cards is the Nerd’s Way. It’s more intensive but it’s also more informative. Since the pandemic, I’ve been using my credit cards for all purchase both large and small. I record each purchase in a spreadsheet so I know how much it costs to run my life. A couple of days after a purchase, I log into my bank account to see if the charge has been posted. If the answer’s yes, then I make a bill payment to my credit card in the amount of that purchase. Did I spend $74.89 at the grocery store? Why, yes I did! And did I subsequently make a $74.89 bill payment to my credit card a few days later? You can bet your bottom dollar that I did that too!

I’m a stickler for details. Keeping track of my expenditures bring me a measure of comfort. It reassures me that I know where my money is going. Even if it feels like it’s slipping through my fingers, atleast I know that it’s going where I want it to go.

And much like my friend Sam, I’m earning beaucoup points towards free groceries. (Shout out to PC Financial!) As an aside, I do love free groceries. I need to eat and I’m using a credit card to pay for stuff anyway. In my situation, it makes sense to earn points for food.

Just Pay It Off

This is self-explanatory. When the bill comes in, you pay it. No muss, no fuss.

If you have another good way of fully paying off your credit card bill each month, please share with the class.

In my opinion, there’s absolutely nothing wrong with using credit cards so long as you pay off your credit cards every month. Any of the methods outlined above will allow you to accumulate points and build or maintain your credit score. All three of these methods will work so long as they’re put into practice.

Finding the Balance

One of the biggest downfalls of the online personal finance community is the lack of balance. I suppose that’s partly due to the fact that we’re all competing for eyeballs on the screen, and extreme headlines garner more attention. It’s unfortunate though. I think more people would be willing to consider pursuing FIRE if they understood that an important element is finding the balance.

God bless him, but Jacob Fisker’s desire to live on $7,000 per year is not one that holds any appeal to me. That level of frugality makes me a little ill. Even the idea of being “face-punched” – popularized by a grand-daddy of FIRE, Mr. Money Mustache – isn’t particularly enticing. Fret not – I do understand the phrase is a metaphor. It’s meant to remind you that stupid decisions with money are just as painful as being hit in the face.

To each their own, right?

Well… maybe. Personally, I think that pursuing financial independence would benefit many people. In a society that abhors unionized labor, pursuing financial independence is the only way for employees to gain some measure of power in the workforce. At the end of the day, business owners need employees. It’s a power-dynamic that is ripe for abuse and exploitation when one party desperately needs money. You – or any employee – can minimize the risk of experiencing such exploitation by pursuing financial independence. When you have the financial resources to walk away from your job, you’re tilting the power dynamic back in your favour. I think that this is a good thing.

At a bare minimum, financial independence gives you choices. In our capitalistic society, financial independence is as much a status symbol as anything else. It’s a signal that someone has enough resources to spend their time how they wish. And isn’t that one of the biggest draws of being rich? Not having to do what someone else tells us to do?

The reality for all of us is this. We each only get one life and finding the balance is key to living a good one. That’s why it’s important to spend some of your money today.

Look, I know that I spend a lot of time telling you to save and invest your money for the long-term. There’s no denying that I think you owe it to Future You to create a sizeable investment portfolio. At the same time, I don’t ascribe to the belief that investing money should be a goal unto itself. Money is pointless if you’re not going to spend it.

Furthermore, no one is promised tomorrow. You have no guarantee that you will be alive in 5-10-25 years to enjoy all the money that you accumulate in the interim. By finding the balance, you’ll be able to spend some of your dollars today on the things that make you smile.

Of course, you should always invest part of your paycheque for the future. I’ll never change my mind about that. What I also want you to do is shave a little bit from each paycheque to spend today. Make no mistake! I don’t want you spending money needlessly. Rather, I’m suggesting that you spend on things that truly make you happy.

Consider taking the advice of Ramit Sethi – ruthlessly cull expenses from your life that don’t bring you joy and spend freely on the ones that do. To me, finding the balance means diligently adhering to my mother’s advice to spend some, save some.

It’s taken me a long time to learn that there has to be a balance. Like I mentioned above, each of us gets one life. We owe it to ourselves to make it as good as we possibly can. It’s important to find ways to enjoy the journey while planning for the future.

The balance is different for each of us. What brings you joy might generate indifference in someone else. No matter. Do what you must to find the balance in your own life.

*** My comments are not meant for those living on low incomes. Obviously, those on low incomes are doing what they can to survive. I don’t have the answer to the plight of the working poor. Telling low income workers to simply “earn more money” isn’t effective. It’s insulting. If they could, they would.

Go Beyond the Letter “A”

With age comes wisdom…or so they say. Speaking from personal experience, I can say that my wisdom is arriving in dribs and drabs. For their part, the birthdays arrive at a seemingly more frequent pace. I’ve made plenty of money mistakes, but I’ve finally learned to go beyond the letter “A”.

Blue Lobster, what the hell are you talking about?

It’s simple. I’ve finally learned to take my own advice about continuing to learn about personal finance. When I was younger, I would read a book and believe that the author’s words were the definitive way to do one particular thing. It never occurred to me that the author wasn’t a subject matter expert. After all, she or he had written a book! Who was I to doubt their greater experience? Or to even suggest that their advice/steps/insight might not be applicable to my individual circumstances?

Thankfully, the good folks behind the X-Men franchise created a villian who uttered words of wisdom that I’ve since learned to implement in my own life: “Take what we need, gentlemen.”

And later on, I came across a variation of the above: “Take what you need. Leave the rest.”

Looking back, I would’ve made fewer money mistakes if I had come across this wisdom sooner. For example, one of my biggest money mistakes was to focus on eliminating debt while ignoring the need to invest in the stock market at the earliest opportunity. I read The Total Money Makeover many years ago. I followed this book’s instructions diligently and focused extremely hard on getting myself out of debt.

What I regret is that I didn’t consider the possibility of investing my money sooner while paying off my debt slightly less agressively. My money mistake was in pursuing one path without giving adequate consideration to the other options open to me. I read this one book and I assumed that it was the optimal path for my life & my money. Then, I followed its steps without question.

In other words, I did not go beyond the letter “A”… I made the mistake of believing that the starting point represented by the letter “A” was the whole alphabet and that I didn’t need to learn anything more than what was in the pages of this single book. I was young and inexperienced, but also so very, very wrong.

Looking back now, I see that taking advice without considering my own individual goals and priorities is never the smart thing to do. There is more than one way to achieve the ultimate objective. Had I taken the time to consider the option of investing sooner while taking slightly longer to pay off my debt, then I would be in a position to retire now. One of my long-term goals has always been to retire as soon as possible instead of waiting until my 60s. By following the path set in the TTMM book, instead of considering all of my alternatives before choosing a course of action, I’ve delayed my retirement date by atleast 5 years. Ouch!

As I’ve written before, I wholeheartedly accept some of the Baby Steps as set out in TTMM, but I do not accept all of them as the one true path to financial prosperity. For those who are financially fortunate enough to do both, I would suggest investing in stock market while also paying off non-mortgage debt. The debt will eventually be gone, and you’ll be left with an investment portfolio that’s chugging along. At that point, you have the choice of investing your former debt payments in order to meet your financial goals faster. Or you can continue with the same contribution level you’d established while paying off debt and use your former debt payments in other areas of your life. In both options, you have an investment portfolio working hard for your 24/7 while you go about the business of living the life you want to live.

That said, I don’t want you to make the same mistake I did. Keep in mind that I’m not a financial expert nor am I licensed to give financial advice. Rather, I’m just an anonymous voice on the internet that enjoys talking about personal finance and sharing what I know. Consider my words and evaluate the source, then determine whether either proposed course of action gets you closer to fulfilling your life’s dreams and ambitions.

I’ve been working hard to practice taking-what-I-need-while-leaving-the-rest in my life. This new-to-me perspective requires me to broaden my horizons by considering things that I would’ve automatically disregarded. Metaphorically speaking, it’s necessary for me to go beyond the letter “A”. The first piece of knowledge is akin to the first letter of the alphabet. This is not the point at which I should simply stop learning. I need to move to letter “B” if I’m going to maximize my chances of learning how to get what I want.

For me, moving from one lesson to the next involves routinely assessing my habits. Some I’ve kept. Others I’ve discarded. I still read about personal finance every chance I get. I’ve purposefully found people who share my love of this topic. I seek out those who give me insightful feedback on my plans & ideas. No longer do I blindly accept everything that’s posited by someone else. By forcing myself to learn as much as I can, I’ve developed a nuanced approach to new ideas about how to achieve my goals. At the end of the day, I’m much better at assessing when to stick to my chosen path and when to tweak it ever so slightly. No longer do I give the opinions of others more weight than they are properly due.

Today, I ensure that I always go beyond the letter “A”. My dreams and priorities are too important to leave to chance. It’s up to me to do my very best to make them come true. Only time will tell if I’ve minimized my money mistakes. Even after decades of reading and learning about personal finance, my education is still not complete. My knowledge is hard-won, yet there’s still more to learn, more to consider.

You owe it to yourself to pursue your own life’s goals too. You are worthy of having the life you dream of, so make sure that you always go beyond the letter “A”.

Unexpected Expenses & the Beauty of Savings

This week, I celebrated my birthday.

Sadly, no one told my beloved SUV. Instead, I took my vehicle to my trusted mechanic because I needed an oil change and thought that changing an air filter might assist with a little acceleration problem I’d been experiencing. Instead, my SUV walloped me with a $2,900 estimate!

That’s not an inconsiderable amount for a car repair. It turns out that my clutch is slipping. That’s the mechanic’s lingo for my clutch is not working properly and I can’t safely drive my car until this extremely vital part is replaced. Yes – I drive a vehicle with a manual transmission. Unfortunately, a clutch is only good for about 150,000kms.

So I had a decision to make. My SUV is 13 years old. Yet it only has 137,000kms on it, which means there’s 70,000-100,000kms left on the engine. I’ve been with my mechanic for 17 years and I trust him, which means I believed him when he told me that the major components of my SUV are still in good shape. The tires are good – the brakes are fine – everything else on my car is fantastic. Barring a collision, I should be able to drive my car for another 5-7 years. My plan had been to replace my car in 4.5 years.

Still, a $2,900 repair bill is not a drop in the bucket. Despite its low mileage, the Kelley Blue Book value for my SUV is between $5900 – $6100. And a quick review of Auto Trader disclosed that a similarly aged SUV with slightly lower mileage than mine was listed at a price of $7,500. However, I couldn’t in good conscious sell my SUV without disclosing that it needs close to $3,000 of repairs… so no way am I getting $7,500 for this vehicle.

And if I were to sell, then I’d have to buy… I’m not a fan of car shopping. Besides, did I mention that I love my SUV? I’ve kept it for 13 years because it’s a great little vehicle.

So, on one of my favorite days of the year, I had a decision to make. Would I repair the SUV that I loved and drive it another 5 years? Or would I sell it at a discount, let someone else drive it for its remaining life, and proceed to buy something else?

After much deliberation and consultations with trusted friends, I decided to repair my SUV. I can continue to drive it for several more years. Clutches need to be replaced, so this rather large expense is not out of the ordinary.

Some reminded me that conventional wisdom is that a vehicle should be replaced when the repair is 50% or more of its value. On the numbers, my repair bill was just shy of 50% of my SUV’s value. Others reminded me of the global chip shortage, which means that there are fewer new cars available for purchase. Still others focused on the fact that I could drive my car for a few more years once this repair was made. One person reminded me that I “could afford” to buy a new vehicle, without compromising my long-term financial goals.

At the end of the day, I chose to repair my SUV. Why?

Mainly, I couldn’t get past the fact that any buyer would have to repair the clutch. The buyer would then benefit from the additional years of driving my SUV. Whether owned by me or someone else, my SUV needs a $2,900 repair in order to run. Why shouldn’t I be the person to benefit from the remaining years of life in my vehicle?

Besides, I abhor shopping for vehicles. There’s nothing on the road today that is an absolute must-have for me. As I mentioned above, I have loved my SUV from the minute I bought it 10+ years ago. I’m not yet ready to give it up.

With age comes wisdom.

Allow me to assure you of the following bit of financial wisdom. If you own anything with wheels or a motor, there will eventually be a big expensive repair. There is no telling when that day will come. You need to prepare for that day by having cash set aside in a savings account.

When I heard $2,900, I didn’t waste a second wondering how I would pay for the repair. Fortunately, I could jump right into the question of whether to keep or sell my vehicle. Thanks to years of funding my emergency fund and various sinking funds, I have the money on hand to pay for this expense. The only question I seriously pondered was whether I should.

Unexpected expenses are a fact of life. They can be financial zingers that throw your whole budget into disarray. They force you to re-prioritize how you allocate money and whether you allow yourself to go into debt. The first rule of handling unexpected expenses is to have savings. The second rule is to replenish those savings after you’ve used them.

Unless you already have one in place, set up an automatic transfer from your day-to-day chequing account to a savings account that is strictly dedicated to handling the unexpected. I would suggest $10 per day, which is $70 per week, or $3,650 per year. You know your budget better than I do, so maybe you can only do $5 per day ($1,825/yr) or maybe you’re fortunate enough to do $20 per day ($7,300/yr). The higher your per diem, the faster you build up your ability to handle life’s unexpected expenses. Pick a target amount for your savings account, then transfer your per diem amount into this account until that target is met.

The beauty of savings is this – they always curb the impact of unexpected expenses on the rest of your financial priorities. So while a $2,900 car repair bill was not on my birthday wish list, I’m fortunate to be able to take it in stride. Happy birthday to me!