HELOC is an acronym that stands for home equity line of credit. It is a way for homeowners to access the equity in their homes without actually selling the home. Banks love these kinds of loans because they are secured by the property. For this reason, HELOCs are risky – they put your shelter at risk. This is hardly ever a wise move from the personal finance perspective!
In short, if a homeowner doesn’t repay the HELOC, the bank has the right to foreclose on the home in order to recoup its money.
Another way to think of a HELOC is to view it as a line of credit that is tied to your house. An unsecured line of credit carries a higher borrowing rate, since the bank doesn’t have any recourse if you don’t make your LOC payments as required. Banks presume that most people do not want to lose their house and that they’ll do whatever they have to in order to avoid that unfortunate outcome. As a result, the risk of delinquency is also presumed to be lower than lending borrowers money through an unsecured line of credit. Since the HELOC has a lower risk, the bank charges a lower rate of interest.
Those who’ve been reading my blog for a while now already know that I hate debt. Payments to creditors prevent most people from investing for their futures. Debt forces people to put today’s income towards paying for past purchases.
I especially despise the HELOC. Like all loan products, banks benefit from them more than the consumer. If you have a HELOC, you have to make payments on the loan each month. And if you miss enough payments, then you’re considered delinquent on your debt and the bank can take your house away from you. This is why I personally believe that HELOCs are risky.
Remember! A HELOC is a charge registered against your mortgage. When you take out a HELOC, you’re putting your home up as collateral.
If you really must take out a line of credit, then I would urge you to get an unsecured line of credit. This kind of LOC is not tied to your house. If you fail to pay it, you certainly damage your credit rating… but no one is going to take away your home. It might take 7 years to repair your credit, but so what? It’s better that you repair it from the comfort of your own abode, than suffer the double-whammy of repairing your credit and also losing your home through foreclosure.
Another reason I very much dislike the HELOC is that it is a loan that can be called at any time. A HELOC is a demand loan. That means your bank can demand that you repay it whenever they want.
Let’s say you take out $45,000 of debt via a HELOC against your $375,000 house to do… whatever. (Equity withdrawn via a HELOC can be spent however the homeowner sees fit.) You agree to repay the HELCO at a rate of $750 per month. You’re making your payment as agreed, and getting on with the business of living your life. For reasons they need not declare, your bank gets twitchy and demands that you pay off your outstanding HELOC balance. And if you don’t, they’ll proceed with foreclosure proceedings to get their money bank. You’re suddenly in the position of losing your $375,000 house over a $45,000 debt…Not good!
How are you going to repay the debt? If you’d had the money in the first place, you wouldn’t have borrowed from the bank, right?
I’d suggest that you think long and hard before you take out a HELOC against your home. Make sure you understand what you’re risking before you sign on the dotted line. And if you already have a HELOC, then I suggest that you pay it off as soon as you can.
Life is stressful enough. The risk of your home possibly being the subject of a foreclosure is one added stress that you should work very hard to avoid.
At the time of this post, two-thirds of 2021 are in the rearview mirror. We’re heading into the final quarter of the year, so you should have a good handle on your progress. Have you been able to allocate your money towards your most important goals? If not, why not? And if your plans have been derailed, what are you doing to get them back on track before 2022 gets here?
Personally, I’m a big fan of writing things down. I love putting my goals on paper, then referring to that paper throughout the year. Of course, I’m not perfect… and some of my goals don’t get accomplished. It’s not unusual for me to look at my handwritten notes 13 weeks later and say something to myself like: “That’s odd. I don’t remember wanting to do this.”
This is not a good way to accomplish my goals. I’ve learned the following insight about myself – I have the memory of a fruit fly with Alzheimer’s.
And I’m not exaggerating by much. The major money goals are met every single year:
contribute the max to my TFSA in January? Check!
pay annual insurance premiums in one lump sum? Check!
And do you want to know why the major money goals get accomplished every year? It’s mainly due to the fact that I don’t have to think about doing anything. I’ve set up automatic transfers to take care of these goals. My paycheque is deposited to my bank account – my automatic transfers whisk money into various savings & investment accounts – my goals are met without any added effort on my part! It’s a magical, wonderful process.
Getting back to those handwritten goals that are forgotten, moments after I put down my pen…
Yes – those ones deserve a bit more attention. I haven’t come up with a perfect solution for those ones, but I’m working on it.
I’m a fan of Tangerine. This bank allows me to have 5 sub-accounts under one bank number. Each sub-account has a name. Tangerine also allows me to create Money Rules, which are fantastic! This week, I took another step towards meeting my goals. Each sub-account is named after my most important priority.
Every two weeks, a part of my paycheque is transferred into Sub-Account #1. My first sub-account is a slush fund for things that occur each year, but irregularly. Think unexpected car repairs or appliance replacement. These items have to be funded, and I would prefer not to use credit to pay for them. Also, I don’t want to deplete my emergency fund for car repair or a new fridge. My emergency fund is there to replace my income should I lose my job. Anyway, I keep a few thousand dollars in Sub-Account #1. Once I’ve hit my target, the first Money Rule kicks in.
Money Rule #1 says anything over-and-above the target amount for Sub-Account #1 is to be automatically transferred to Sub-Account #2. I use this second sub-account to accumulate money for my annual RRSP contribution, annual insurance premiums, and property taxes.
Once the target amount for Sub-Account #2 is met, Money Rule #2 kicks in. Anything over-and-above the second target amount is transferred to the sub-account of my next highest priority, until all 5 sub-accounts have been fully funded.
It’s a pretty good system. Its biggest drawback is that I didn’t put it into action until last year. Ah, well… no sense crying over spilled milk. The fact remains that I’m using it now and my handwritten goals are still being funded. Tangerine allows its customers to change the names of the sub-accounts. As one goal is met, i.e. renovating the bathroom, I usually change the sub-account’s name to the next thing I want to get done. This is why one of my sub-accounts is currently named “New Blinds”. It’s not a particularly sexy name, but it effectively reminds me of how the money will eventually be spent!
Pursue your best life!
Is anything stopping you from meeting your money goals?
Maybe your memory is like mine. If so, you have my sympathy! You have goals, but you’ve forgotten what they are. It happens. Protect yourself from your faulty memory by using automatic transfers to fund your goals.
It’s also possible that other priorities popped up and derailed your goals. You know your life better than I do, so I’m not here to judge the choices that you made. I’m simply going to nudge you towards reviewing your goals and what you need to do to meet them. And if you can’t meet them this year, that’s fine too. What isn’t fine is giving up on your goals. You’ll never meet them if you quit pursuing them. That’s just how life works.
Personal finance is personal for a reason. Everyone’s circumstances are different. If unexpected events knocked your money of the path you’d set at the start of the year, then so be it. I’m simply here to give you a nudge about not abandoning your goals, even if events of this year went in a direction you hadn’t expected. No – I can’t promise that it will be easy. All I can do is encourage you to not give up on the goals you set for yourself, since I believe that they will get closer to living the life you want to live. And if they won’t bring you closer to your dream life, then ask yourself why you created them in the first place?
Your money goals should be helping you build your very best life. At the end of the day, money is a tool. When spent in a way that brings your dreams to life, that maximizes your joy & happiness, you are putting your money to its very best use. Give me one good reason why you shouldn’t be putting your money to good use.
So if your goals have gone sideways, figure out what you most important next step needs to be. Evaluate your money goals and determine if they’re still important to you. If yes, then figure out what you need to do in the next 13 weeks to get closer to achieving them. And if the money goals of early 2021 are no longer important, then define new ones and create a plan for achieving them. You’re the only person who knows your heart’s deepest desire. The responsibility lies with you to determine the most effective way to make your dreams come true. Start right now because your best life awaits!
I’m going to take a leap of faith and assume that, if you’re reading this, then you also wish that you made more money. You work hard – you’ve got bills – there are things you want to do with your money. However, it seems like there’s never enough money to go around. You’ve applied for promotions but they always seem to go to someone else.
What if I were to tell you that there is a way to boost your income without a promotion?
It’s called investing your money!
Speaking from experience, I can tell you that I’ve applied for promotions and not gotten them. While being passed over was a bruise to my ego, those missed promotions were never a blow to my finances. And you know why? It’s because my investment account does the heavy lifting of increasing my income each and every year.
What?!?!!
Yes – it’s true. While it wasn’t a fast process, investing a portion of my disposable income every single month has been very beneficial for me. I’m not a particularly savvy investor, so I invested the lion’s share of my money into two exchange traded funds that focus on dividends – VDY and XDV. I also took advantage of the dividend re-investment plan – aka: DRIP – to ensure that all of the dividends I earned were automatically re-invested.
I used to earn a few dividends each month. Now, I earn a few thousand. Yes – you read that right. My decades-long habit of investing a portion of my paycheque each month continues to reward me handsomely. Diligent investing has resulted in a situation where my annual income goes up every year… without me ever having to rely on my boss for a promotion. I won’t lie to you – it’s a pretty sweet situation!
Now, go back to where I said that I’m not a particularly savvy investor. If I were as smart then as I am now (or atleast as smart as I think I am now), then I would’ve invested in equity-based exchange traded funds. As you may or may not know, the stock market was on a complete tear from 2009 to March of 2020. People who had invested in equities made buckets & buckets of money so long as they stayed invested. My dividend ETFs have been good to me, but equity-based ETFs would’ve been so much better!
There’s atleast one investor out there who has absolutely no qualms about sticking to dividends throughout his career. I can certainly understand why – he and his spouse now earn $360,000 in dividends each year. (Part 1 and Part 2 – thank you to Tawcan for sharing this interview with the world!)
Can you imagine? You’re busily going about the daily business of living and your portfolio is kicking off $30,000 in dividends per month! Even before his retirement, I’m sure this couple was making a solid six-figure income off their dividend portfolio every year. And I’m equally sure that they didn’t worry about whether they got the next promotion in the pipeline.
The Career Funnel
Most organizations with employees have what I like to call a career funnel. There’s many people at the lowest levels, but fewer and fewer position for people as you move up the organizational chart. Managers have a set number of people reporting to them – so it goes, all the way up to the top. Naturally, as an employee moves up the career funnel, it gets harder and harder to obtain a coveted promotion. While many may try, only a very few will succeed. This is the way of the hiring pyramid.
It would behoove you to not be too, too dependent on getting a promotion in order to live the life you want. I’m certainly not discouraging you from pursuing promotional opportunities! Of course not! What I am suggesting is that you work on a Plan B, while you’re building your career.
And that Plan B is to ensure that you’re investing some portion of your paycheque for your future. I’ll tell you the same thing I would tell 18-year old Blue Lobster if I could travel back in time. Invest no less than 15% of your net income into an equity-based exchange traded fund every single time that you are paid. Leave the money alone for 30 years and let it do its things. At the 30 year mark, start adding some bonds to your portfolio to temper the volatility.
Again, I’m no expert in the area of investing so do your own research. Save as much as you can – invest it in ETFs – leave it alone to grow – ignore the talking heads on the media. Equities are volatile, but they’ve always gone up over the long-term. They will boost your income if given enough time. If you can’t stay invested for the long-term, then you’ll have to find some other way to increase your annual income. Maybe that means killing yourself at work so that you improve your odds of getting that promotion.
The Unappreciated Benefit of Boosting Your Income Through Investing
First off, I want to say that I’m very fortunate to work with smart, pleasant people who are helpful and considerate. My team has each other’s back. We share knowledge and insights with each other. And when we disagree on issues, the discussions are respectful and all parties try to see the other perspective. My work is challenging and my colleagues all contribute to an extremely good working environment. If I ever have any regrets about retiring from my current position, they will be that I will no longer have as much contact with these people as I do now.
That said…
I’ve heard from many in my circle that their work environments are what can only be described as toxic. Some of my dear friends work with or for horrible human beings. They’ve tried to find other positions but haven’t yet found better working conditions that will pay similar amounts of money. Like many people who have no choice about staying in their job for the foreseeable future, they have to eat sh*t and they can’t really complain about it.
If you’re able to boost your income via your investment portfolio, then you can drastically cut back on the amount of crap that you have to take from colleagues and bosses. Think about it. If your investment account could churn off enough for you to meet your survival needs, then wouldn’t it be possible for you to supplement that with a lower-paying job?
And you wouldn’t have to keep that lower-paying job forever. I’m not suggesting that in the least! What I’m trying to say is that your investment account could help you preserve your mental health. You could avoid very bad things like depression and burnout. Your investment account gives you a path out of a toxic work environment, without trying to get a promotion. And once you find a job that doesn’t make you feel dead inside, then you can go back to living on your salary, re-instating your DRIP, and continuing to contribute to your investment account.
If you’ve been reading my blog for a while, then you know that I harp on diligent investing & saving, month-in-month-out. This is an ideal to which everyone should aspire. However, I’ve been alive long enough to know that very few are able to do this. There are some things in life that are more important than saving and investing. In my view, preserving and protecting your joie de vivre is one of those things.
Next Steps…
So if you have the disposable income to do so, start investing today.
And if you’re one of the ones who’s already started, then pat yourself on the back and keep going.
It will take some time, but your investment account will eventually allow you to wean yourself off the need to get promotions to maintain your lifestyle. By all means, continue to apply for those promotions if you wish. If you get them, great. A higher salary means you have that much more to invest. After all, whatever increase you see in your take-home pay should be properly allocated between today and tomorrow.
If you don’t get the promise, then you need not fret. You can still be content in the knowledge that your investments are building your income without any influence from your employer. Even without the promotion, you’re increasing the likelihood that, financially, you’ll still be just fine.
have you forgiven yourself for making mistakes with your money?
In other words, is your money moving you closer to or further from your life’s goals?
Maybe dealing with your money is just one-more-thing, and you’re dealing with enough. I get it, really! The pandemic is lasting way longer than we’d expected. The climate change consequences are no longer something to worry about later. The impacts are being seen and felt right now, every single day, all over the world. There’s a lot going on and it’s not all good, so that might make it harder to focus on mastering money.
Be that as it may, there have always been lots of significant events going on in the world. Gues what? There always will be. However, while we’re striving to make the world a better place, you still need to put your money to work. The state of the world doesn’t absolve you of the responsibility you have to Future You.
There is a straight-forward way for amateur investors such as ourselves to invest. It’s our best bet to improve the odds that we’ll be able to live comfortably when we’re no longer sending our bodies and minds to work every day.
Allow me to share my secret with you, again. Put your money on auto-pilot! You’ve got enough to worry about and investing money for your future need not be on that list. Set it up once then let the magic of computers do the rest.
Set up an automatic transfer of a set amount of money from your chequing account to your emergency fund.
Set up a second automatic transfer to your investment account. This can also be your retirement account.
Buy units in equity-based exchange traded funds or index funds with management expense ratios below 0.25%.
Don’t withdraw money from your investment account.
Live on whatever’s leftover after these transfers have gone through.
Doing these few things will save your bacon when the time comes. You might feel that you want to spend all of your money right now. After all, tomorrow is promised to no one and you only live once, right? There’s a certain seductive allure to that perspective. Resist! You’re going to need money for all of the tomorrow’s headed your way. You might not know how many of them you’ll get, but the odds are very good that you’re going to need money for most of them.
The bottom line is that you should be doing what you want with your money. If you’re not, figure out why and do what needs to be done to change that situation.
