August, 2022 - Millionaire on the Prairie

Life Gets in the Way

I’ve enough life experience to know that life gets in the way of the best laid plans. And since this is a personal finance blog, I’m going to try and expound on this idea as it impacts your money decisions.

It’s easy to tell people to invest consistently. Showing others how to set up automatic transfers to a brokerage account is a matter of a few graphs and maybe some one-on-one coaching. Reminding people of the importance of always living below their means is a simple task. Wanting to do those things is as easy as falling off a log!

The reality is that doing those things is NOT EASY. Ideally, everyone would be able to invest money from every single paycheque, without fail. Being able to do so for years and years requires that a lot of things go very right for a very long time.

First of all, you need to earn an income that has room for saving. If every penny you earn is spent on shelter, food, transportation and utilities, then where is the “investing-money” going to come from? Are you willing to cut back to only eating twice a day? Maybe you won’t bother paying for electricity during the summer months? Maybe you wouldn’t mind only showering once a week to save on water?

My point is that there is an income level at which it is unrealistic to expect someone to save. They would be living a life of deprivation, such that their basic needs are not being met. It would be cruel and perverse to expect that they would deprive themselves even more.

So let’s say someone is making enough to cover all of their needs and most of their wants. They might even have enough for a luxury or two. These are the people with “investing-money”. They can live below their means and still live a comfortable life.

However, life can get in the way of their investing plans too. What if a family member needs financial help? Or what if a vehicle needed to commute to work is totaled and the insurance payout isn’t enough to buy a replacement in cash? Maybe the parents’ retirement income isn’t enough to keep the lights on so they need a few hundred dollars every month to keep from being hungry? What if an employer goes bankrupt and another position isn’t to be found for another 8 months? What if illness prevents one from ever working again?

My point is that you can only invest month-in-month-out if everything goes well all the time.

This isn’t the reality for most. For the majority of us, there are always expenses that crop up and demand that we make a choice. You can personally make all the right personal finance moves then have your life upended by a motor vehicle or workplace accident that requires months, maybe years of rehabilitation. No one chooses to be hurt in this fashion. Being a great employee won’t save you if your employer goes bankrupt during a recession and no one else is hiring. Similarly, that status won’t help you if the only jobs you can find are minimum wage or just above that level. Let’s be honest. You cannot invest what you don’t have.

Even if you have an emergency fund, there’s no universal law stating that your emergency will cost as much as or less than what you’ve socked away. Similarly, there’s no prohibition against you experiencing more than one serious emergency at a time. And if you are “lucky enough” to have an emergency that falls within the capacity of your fund to handle, then you’re in the position of having to replenish your emergency fund.

So unless you’re income has increased, you’re faced with the choice of using your money to invest or to replenish your emergency fund. After all, you only have a finite amount of money. You owe it to yourself to make the best use of it. Having an emergency fund is a cornerstone to taking care of your financial needs. Yet, investing for the Care and Comfort of Future You is also extremely important.

It’s called personal finance because it’s personal. There is no one right answer for everyone. With each passing day, I am convinced that it’s a rare few who can invest without fail over a lifetime. While many have the intention, the vagaries of life can sometimes impede the implementation of such a plan.

Do me a quick, free favor. If you’re doing your best to save for your future, then pat yourself on the back. You still have to survive today. And if that means lowering your investment contribution to $10 per month, then so be it. I am not going to suggest that you starve today so that you can eat tomorrow. If you’ve used your emergency fund, replenish it. If you don’t have an emergency fund, start one. If you’ve lost your income, then preserve your money until you’ve secured another source of income. If your family needs help to avoid ending up on the street, then make the decision that lets you sleep well at night.

Life gets in the ways of the best laid plans. That doesn’t mean you stop planning. It means that you adjust and tweak your investment plan as necessary, without abandoning it completely.

Money Mistake #1027 – Finding My Community

As I’ve mentioned a time or two, I’ve made many mistakes with my money. One of my biggest money mistakes involved how I went about finding my community. When I first started to learn about financial independence, early retirement and investing, I made two mistakes based on arrogance. First, I mistakenly assumed that everyone was as interested in it as I was. Second, I believed that I was right.

So I would talk about money with everybody and give them unsolicited advice about how they should save and invest. I cringe when I think back on how I interacted with friends and family over this topic. While I still believe my intentions were good, the truth is that I had no business giving anyone unsolicited advice. I should not have been telling anyone what to do with their money!

As hard as this may be to believe, I failed to contemplate the extremely faint possibility that other people’s priorities and dreams weren’t exactly the same as mine!!!

If you’re here reading my ramblings, then I assume that you have some interest in personal finance. After all, I’m constantly talking about using money as a tool to build the life you want. Money should be allocated in a way that allows you to obtain your heart’s truest desires, atleast the ones that can be obtained with cold, hard cash. I exhort you to only spend your hard-earned money in ways that get you closer to your highest priorities, your most important goals.

In the real world, my family and friends were not willing to talk about money with me. They viewed my discussion of the topic crass, impolite, and – probably – judgmental. Save for one or two people, they were not my money community.

It took me a long time to accept that I couldn’t discuss a topic near and dear to my heart with those I was closest to. Truthfully, I felt hurt because I thought I was offering them help. Again, arrogance played a part in my hurt feelings. I have to admit that I thought my example of how to structure money was worth emulating. After all, that was one of the main reasons why I was sharing my thoughts about money. Despite the arrogance, my hurt feelings were also rooted in the belief that I couldn’t be my true self around those I loved best. I had to hide this side of my life, this part of my personality if I wanted to be with them.

I couldn’t be real with them. That sucked.

I set about finding my community, the ones who would allow me to be authentic in this area of my life.

Time has passed, and I like to think I’m a little bit wiser. Unless specifically asked for advice, I hold my tongue when other people bring up the topic of money. One of the fastest ways to alienate others is to make them feel judged. Sadly, I admit my guilt. I did judge people’s actions with money. I had too little respect for financial viewpoints that differed from my own. Now, I keep my mouth shut unless someone asks me what I think.

And when I am asked for my thoughts, I strive to be supportive when I share. Just because I don’t share someone else’s priorities and goals doesn’t mean that they aren’t entitled to pursue them just as ardently as I pursue mine. Racing in the Indiana 500, climbing Mount Everest, or becoming the world’s best potter might not be my dream, but I will help you figure out ways to fund it if that’s what you need from me.

Thankfully, I have learned. For some people, money is to be spent on the Now because it will create joy today. For them, spontaneity demands that one be willing to spend. Other people simply view life as completely unpredictable and that tomorrow will take care of itself. Everyone brings their own history to every money decision that they have ever made. I’ve known people whose illnesses were never disclosed to me, but they have lived far longer than they’d been told they ever would. For them, planning for retirement was not in the cards because they weren’t expected to live past age 35. What would be the point of saving for a future that they would never see?

Looking back now, it is easy to see why my exhortations to save fell on deaf ears. Everyone was coming at money from their own perspective, one built on their own goals and priorities. It wasn’t for me to change their mind. However, the onus rested on me to change my own viewpoint and to find the space where I could discuss these things.

Enter the internet. I’m old enough to remember chat rooms, so that’s where I started. Then I moved on to blogs, and stumbled upon the grand-daddy of them all – Mr. Money Mustache. And down the rabbit hole I went. Though there have been many wonderful blogs over the years, I don’t remember them all but here’s a quick list of the ones that stick with me:

Finally, I had found a place where others were talking about one of my favorite topics – money. The anonymous posters of the world wide web didn’t want me to shut up when I asked questions about how they invested. I didn’t feel that they were judging me for being curious about this part of life. If anything, I felt like I’d found my tribe, such as one can on this particular platform.

So I read more and more, learning a lot about so many things related to money: CoastFI, real estate investing, the housing bubble, geoarbitrage, early retirement, investment styles, crypto, income inequality, etc… I even found blogs that spoke to high income earners and opened my eyes to how their concerns differed from mine. The blogs that really got me thinking were the ones looking at the intersection of money and social justice. Once your personal needs are met, aren’t we ethically obliged to make the world a better place instead of engaging in further consumerism?

These were things that I could never have discussed with 98.5% of the people in my real life. It felt good to have found my community, even if it was online.

If it had to do with personal finance, I probably spent a fair amount of time reading about it and figuring out if it would work for me.

Finding my community online also helped my relationships in real life. I knew there were others I could talk to about money. That meant I could talk about everything else with family and friends. There was space for me to wonder why they weren’t interested in early retirement, automatic savings plans, the management expense ratios of mutual funds vs. exchange-traded funds. I was able to unload my thoughts about money elsewhere, with people who shared my financial point of view. That meant I didn’t have to work so hard to persuade my inner circle to share it too. I listened to them instead, and learned how they wanted to approach their finances.

And you know what? It was good for me, for our relationships. Their viewpoints helped me to improve my money-choices. I loosened the reins a tiny bit. An impromptu ice cream cone at the park wasn’t going to result in an impoverished dotage. However, it would create a great memory about a summer afternoon with loved ones. Watching how my family and friends spent their money, and the joy it brought them, forced me to question my own choices. Slowly, I realized that I had to find a balance between today and tomorrow.

Finding my community has been fantastic! I need not agree with everything every person posts online, but I have found like-minded people with whom to have discussions. As I’ve gotten older, I’ve also found people in real life who share my interest in money. I no longer need to change the hearts and minds of my family and friends on the topic of money. Finding my community has allowed me to be my authentic money-self without alienating those whom I love best.

Money Should Work Harder Than You Do

One of things that I’ve always understood about investing is that money works harder than people are able to. Money never gets tired, sick, distracted, or unmotivated. It literally works around the clock once it has been invested. People can’t do that. People need food, rejuvenation, sleep and time with loved ones. Those items are vitally important to being a healthy person and to living a good life. They also take people away from doing their jobs.

The trick to being healthy, living a good life and earning lots of money is to send your money out to work. Go back to the title of this post and believe what it says. Money should work harder than you do.

There are a few ways around this particular fact, but most of us have to do the initial work to get money. We exchange our labour (aka: life energy) for a paycheque. The paycheque may be from an employer, from our clients, or from our own business. It doesn’t really matter. We give away our life energy and receive money for our efforts.

The purpose of this post is to remind you that you can work towards a situation where you still earn an income to support your lifestyle without having to earn a paycheque. I’ve written before about how your income and your salary are not the same thing. Your salary is part of your income, but it’s not the only element. There are ways to fund your lifestyle without having to earn a paycheque. One of the ways to do this is by increasing your dividend and capital gains income. Dividend income and capital gains income are what I like to call passive income. As far as I’m concerned, passive income is wonderful.

Dividends and capital gains are monies paid to shareholders when companies make a profit. Your goal, should you wish to increase your income, is to invest in companies that pay dividends and capital gains. There are a number of ways to do so, but I strongly recommend exchange-traded funds and index funds. If you want to do individual stock-picking, then more power to you. That’s not my cup of tea because I don’t know how to do it.

Sadly, there is no way around the fact that you likely won’t earn life-changing amounts of dividends and capital gains at the start of your investment journey. Let me be clear. Your invested money will earn passive income. However, it will take some time before your passive income is enough for you to live on. This is one of the reasons why it’s important that you consistently invest each and every time you get paid. Secondly, you should aim to increase the amount you invest. Start with whatever amount you can commit and increase that amount over time.

You have to invest your money in order for it to work for you. The simple idea of investing has never generated a single nickel for anyone. Ask me how I know this. One of my biggest money mistakes was to not start investing my former mortgage payments as soon as that particular debt was gone. Instead, I spent years thinking about starting a dividend-heavy portfolio. I earned nothing while I was, in effect, procrastinating. The month after I stopped thinking and actually started doing, I earned my first dividend. I haven’t looked back since.

Remember how I said that your money should work around the clock? I wasn’t kidding. I set up a dividend re-investment plan, often called a DRIP. This way, my dividends are automatically re-invested into more units of my chosen ETFs and index funds. The dividends don’t sit in my bank account, and I’m not tempted to spend them. They are immediately put to work for the sole purpose of making even more passive income for me. It’s a highly lucrative feedback loop.

If you wanted, you could do the same thing.

Now, even though I’m a big fan of the Financial Independence Retire Early (F.I.R.E.) movement, I’m a super-huge fan of the FI part. I firmly believe that everyone who earns a paycheque should be working towards financial independence. If you part ways from your employer, or are otherwise unable to earn your keep, having a cushion of cash that’s funded by passive income is your safety net. The passive income can replace your earned income, if you choose to go back to work, or it can fund your retirement if you decide that working for a living no longer turns your crank.

Early retirement is not everyone’s goal. Some people love their jobs. There is no reason why they should stop doing what they love. The same cannot be said for financial independence. The best of both worlds is loving what you do and having financial independence. Most of us won’t have the former but all of us can work towards achieving the latter.

However, the money won’t start working for you, nor be there when you need it, unless you start investing part of your paycheque today. So start today – stay consistent – increase the amount you invest as you’re able to – achieve financial independence – live life & be happy!

Taking Stock & Making Tweaks As Necessary

One of the ways to ensure that you meet your goals is to review your progress along the way. Doing so involves taking stock and making tweaks as necessary. No journey is perfect for all people in all circumstances. That’s simply not possible. As a matter of fact, there is no such thing as a perfect journey for anyone. There will always be challenges along the way.

That said, I’m equally convinced that there are some universal mistakes. These mistakes have the power to derail everyone’s path for a very long time if not rectified as soon as possible.

Atleast once a year, you should be assessing your progress. The gyrations of the stock market are out of your control so don’t worry about them. Continue to invest into the market through dollar-cost averaging (my personal preference) or through lump-sum investing. However, you should be taking stock of the things that are in your control and tweaking them as necessary.

Have you increased the amount you’re investing from your paycheque?
Did you set up an automatic transfer from your paycheque to your investment account?
Are you eliminating subscriptions that you never use so that you stop wasting money?
Do you track your expenses so that you know exactly where all your money is going?
Have you ensured that the MERs you’re paying are all under 0.5%?
Are you using a no-fee online bank account so that you don’t have to pay service charges?

In addition to controlling what you can, you should also assess whether you are making any of the following mistakes. And if you are making them, then take the necessary steps to stop. Eliminating these mistakes from your life will allow your money to grow faster so that you can live the life you want.

Again, this is a personal finance space so I try to stick to personal finance topics. Here we go.

Mistake #1 – Never Getting Started

It’s hard to build wealth if every nickel is spent. In order to invest, you need to live below your means and send a portion of your paycheque to your investment account. You can start low and work your way up.

When I was still living in the bosom of the family home, I was able to send $50 to my savings account every 2 weeks. My parents were paying for the big stuff, so I had a leg up on that front. Once I moved out and started working, it was far harder to save that $50 every two weeks. However, I was used to it so I kept doing it even though all of my expenses were on my shoulders at that point. The savings habit had been ingrained.

Start today, where you are. If you can only set aside $5 for investing, that’s better than $0. You’ll increase the amount as you’re able. When a debt payment is finally gone, direct 80% of it to your remaining debts and send the other 20% to your investment accounts. There will come a day when all your debts are gone. Those former debt payments are yours to invest and spend as you see fit.

Mistake #2 – Paying Higher MERs Than You Should

Should is one of those words that invokes judgment. Good. You should be ashamed of yourself for paying more then necessary for your financial products. If there’s a mutual fund that charges a 2% MER and an ETF that charges 0.35%, and they’re both invested in the same things, then use the ETF to build your investment portfolio. Paying an extra 1.65% seems unimportant but it’s a serious blow to your ability to build wealth for Future You. Higher MERs compounded over long periods of time result in the eventual loss of hundreds of thousands of dollars from your portfolio. Money that could have been left to compound over decades was instead paid to someone else via MERs.

Mistake 3# – Failing to Master Your Credit

This one is tricky. Everyone needs credit at some point, but staying out of debt is extremely important if you want to build wealth. It’s extremely hard to invest money if those same dollars have to be sent to a creditor for a past purchase. Maybe you have student loans, credit card debt, veterinary debt, car loans, personal loans to family & friends. It doesn’t matter.

You need to get rid of it. Credit is a tool. It’s also the only way to go into serious, crippling debt if it’s not used properly. Always be very, very cautious about using credit. Pay the bill in full every month. If you can’t do that, then don’t use credit. Get a promotion to increase your income. Find a second job. Start a side hustle. Sell your stuff. Eliminate the fat from your budget and only spend on needs. Do what you have to do to pay cash.

Getting into serious debt is very easy. Getting out of it is very, very hard.

Mistake #4 – Ignoring Your Priorities

Just like the rest of us, you have one precious life. How do you want to spend it? Is there something that’s very important to you? What do you want to accomplish, experience, see & do before you shuffle off this mortal coil? How do you want to spend your time?

Once you have answers to these questions, you’re better able to plan how to spend your money.

Here’s the thing. It won’t always be easy to stick to your plan due to the influence of others. You have family and friends. They love you and they want to spend time with you. So they invite you to do stuff with them – concerts, travel, sporting events, poker night, whatever. And you love your family and friends so you want to be there with them too.

I’m not suggesting that you always say no to invitations, but I am warning you that it won’t always be easy to stick to your priorities. If you’re trying to get out of debt, others in your life might not understand why that’s important to you. Maybe you’re saving to pay cash for a used car. Others might try to persuade you that “everyone” has a car loan so why are you trying to be different?

Now You Know

When you know better, you do better. If you see yourself making mistakes, stop making them. They’re only harmful or fatal to your financial goals if you allow them to continue. Once you’ve rectified them, then you’re moving closer and closer to the life you want for yourself.

You’ve got nothing to lose by spending a few minutes each year taking stock and making tweaks as necessary.