Month: October 2022

Some Random Thoughts About Money

Never let it be said that I’ve ever held myself out as a money expert. Truth be told, I have no formal training in financial planning. I’ve read lot of books and lots of blogs, but I’ve never been certified to give financial advice to anyone.

With that said, I’d like to share some random thoughts I’ve had about money over the years. It’s been my observation that there are general principles about money that will work for most people. Here are the ones that I want to share with you. And if you don’t agree with me, that’s fine. I’m not arrogant enough to think I know all the answers or that my way is the only one that works. Take what you need and leave leave the rest.

Take care of your emergency fund

First of all, it’s always a good idea to have an emergency fund. Larger is better, but any amount is better than nothing when the emergency hits. There will be an emergency at some point – it’s not a matter of “if”. It’s a matter of “when”. Do yourself a favor. If you haven’t started an emergency fund, start one today. And if you do have an emergency fund, try to bump it up by 10%. Inflation has been on a tear so whatever emergency you have in your future, it’s going to cost you 6%-8% more due to inflation.

By its very definition, an emergency will not give you a heads-up. It’s on you to prepare for its arrival by setting some money aside for the financial aspects of whatever emergency is headed your way.

No new debt

The next thing you’re going to want to do is avoid going into more debt. If you’re not in debt, then great. Keep it that way. However, if you have debt, then seriously consider working your way out of it. Cook at home more to save money. Eliminate a streaming service or two for a few months and re-direct that money to your creditors. The fact is we’re heading into – or are already in – a recession. Not everyone is going to keep their job, or have an easy time finding one should the need arise. If that might be you, it would be very, very smart of you to minimize the strain that debt payments put on your paycheque.

After all, any money that doesn’t have to go to your creditors is money that stays in your pocket.

Invest for the long-term

Third thing – don’t stop your investment program. If you’ve been here for awhile, you know that I strongly suggest that everyone invest in the stock market. My non-expert recommendation is that you invest for the long-term in a diversified, equity-based exchange traded fund. For the past year, the stock market has been trending down and it’s been extremely volatile. Big deal! The long-term trajectory of the stock market is up and to the right. Over time, the stock market make money for investors. You need not concern yourself with daily movements.

If you’re investing in diversified, equity-based ETFs, don’t stop. Keep investing! However, if you’re investing in individual stocks, then God be with you. I have no idea how to pick winners and wish you the best of luck in your efforts to do so! If you’re not investing in anything, it’s time to start. You cannot participate in the stock market’s recovery if you’re not investing in the first place.

Use your tax shelters first. This means, put your ETFs in your TFSA first then into your RRSPs. Once you’ve filled up those tax shelters, you can invest in a brokerage account. Since TFSA and RRSPs are tax-shelters, the money will grown inside them tax-free. When the money comes out of your RRSP, you’ll pay taxes on the withdrawal. When money comes out of your TFSA, you will not pay any taxes on the withdrawal. Got it? Good. Don’t believe me? Talk to an accountant.

Once your tax shelters are maxed out, then continue to invest via ETFs in a brokerage account. The capital gains and dividends earned will be taxed each yet, but at a preferential rate. This means that they will be taxed at a lower rate than that tax rate you’ll pay on your earned income.

Again, talk to an accountant for professional tax advice.

Quick review:

  • Emergency fund? Check!
  • Debt paydown? Check!
  • Investing for the future? Check!

Now what?

Well, if you’re fortunate enough to still have money leftover, you’ve got many good options.

Might I suggest some sinking funds? The new year is less than 10 weeks away. If there are any particular dreams you want to realize in 2023, then now is as good a time as any to start planning on how to pay for them.

  • Do you want to travel in 2023?
  • Will you be taking some new course(s)?
  • Is it time for that home renovation you want?
  • Do you want to make more or bigger donations next year?
  • Are there any big celebrations or anniversaries that will happen in 2023?
  • Is there a chance you’ll be taking a sabbatical?
  • Will you need to purchase or replace any equipment for your business or side hustle?

Creating sinking funds and filling them up via automatic transfers is a good way to ensure that your priorities are funded. It’s been my experience that my money is frittered away when I don’t have a plan for it. Sinking funds have been a godsend for me since they ensure that money is in place when I need it. Chances are, they’ll serve the same purpose for you if you decided to use them.

And finally…

Remember to enjoy today. So much of financial planning and money management is about the future. While it’s good to take care of Future You, it’s just as important to live in the present. Wishing away your life is no way to live it. Count your blessings and enjoy them while you can. Today won’t ever come again, and tomorrow is promised to no one.

Money Habits Ought Not to Be Underestimated

When I first delved into the world of personal finance, I came across the idea that savers have trouble spending their money. Basically, the belief is that those who have saved all their lives are incapable of reversing their behaviour and spending their savings once they retire. I pooh-poohed that point-of-view. After all, how could being fiscally prudent be a bad thing? Or result in a bad outcome?

I promptly dismissed a perspective that I considered nonsense and happily continued along my own path of saving and investing. Save some, spend some seemed to be a far more intelligent way to use money IMHO. I worked my way up to saving a third of my paycheque for retirement. The rest of my take-home pay was spent on travel, concerts, home renovations, the daily Care-&-Feeding-of-Blue-Lobster, gifts for & celebrations with family & friends, and various other things. Surely I had it all figured out in my 30s didn’t I? Why should I even considered another way of seeing things when it came to how to spend money?

As they say, with age comes wisdom. It’s been many years since I discarded the notion that I would have trouble spending money when the time comes. Lately, I’ve been reviewing my own beliefs and taking another look at my own money habits. For more than 20 years, my method has been to rely on automatic transfers to fund my investment account. Rightly or wrongly, I picked out several mutuals funds then moved on to exchange-traded funds and invested my money into those investment products every single month.*** Every dividend earned has been re-invested through a dividend re-investment plan (DRIP). When I received raises, my contribution amount was increased too. A portion of each raise was invested for the future and the rest went into increasing my day-to-day comfort.

I’d thought I was doing most things right. Earn – invest – spend the rest. Looking back, I know that I didn’t pick the perfect investment products for my goals. (I’d been investing in dividend ETFs instead of equity ETFs. That “little mistake” was corrected in October of 2020.) With the benefit of hindsight, I see that I could have made better choices earlier in my investment journey but c’est la vie!

Today, I’m quickly approaching my anticipated retirement date. I’m quite happy about getting 100% of my time back. My work is mentally challenging and my colleagues are fantastic. I’ve been very fortunate in many aspects of my career. In spite of all of that, working at my current job until I take my last breath has never been a goal that’s made it onto my Bucket List. I’m very much looking forward to retirement. However…

I must confess that I’m feeling much more than slight trepidation about the idea of spending my money. The paycheques will stop and I will have to turn to other cash flows in order to continue paying for my life. And after a lifetime of money habits to save-save-save, it’s going to be a challenge to spend instead. My youthful self’s pooh-poohing is coming back to bite me in the butt.

Two years ago, I finally attended a meeting with a fee-only financial advisor. He told me that I was doing very well, and that I would have plenty for my retirement. He even told me that I could retire 2 years earlier than I’d planned! My financial advisor set up a withdrawal system for me… and that’s when it hit me. I would have to spend my money. Not all of it, and not all at once, of course – but I would have to spend some of it every year until my death.

Truthfully, the realization left me more than a little shaken.

Since then, I’ve also started listening to Ramit Sethi and his view on how to create a rich life. According to Mr. Sethi, who I do admire, I am not living a rich life because I haven’t yet defined what that would look like for me. In his estimation, I’m not using my money in the best way possible. While I’ve never been dissatisfied with my money choices, it would appear that I might not have been asking myself the right questions.

In addition to Ramit Sethi, I’ve started following Bridget Casey. She is another proponent of living a rich life. Now, she’s a few years younger than me so her life circumstances are very different than mine. However, she’s asking herself the questions now that I should have been asking myself when I was her age. Ms. Casey is also a fan of Ramit Sethi, so she’s building her rich life today. There’s a small part of me that wishes I had learned about this concept earlier.

So the question is the following: do I regret my money habits?

I wish I had a simple answer to that question. My money habits are going to allow me to retire 2 years earlier than planned. I will never regret that! At the same time, my money habits – particularly the one about never borrowing money to travel – prevented me from attending a wedding in Paris. I had just gotten home from Italy (or Spain?) when I received the invite to head back to Europe in a few months for a cousin’s wedding. My sinking fund for travel was empty and I didn’t have the funds to pay for the wedding trip in cash. So I declined the invitation. Do I regret that decision? Yes, but only a little bit.

Abiding by my money habits for so long has crippled my ability to make most decisions without considering the financial implications. Now, one of the biggest financial goals of my life is going to force me to amend my money habits. Firstly, I don’t need to save and invest anymore. I’m still not certain that I will stop completely or that I’ll ever feel comfortable turning off my DRIP. (My financial advisor said I should stop the DRIP when I retire.) Life without an automatic transfer into my savings/investing account is unimaginable to me, although I’m well aware that the vast majority of people do not save and invest regularly. That’s their choice and their choices aren’t my business, but if I’m not doing it – saving and investing – for myself then I start to feel rather anxious.

I’m very glad that I’m learning this about myself today, instead of after I retire. There’s time for me to start making some changes. One of those changes has been to decrease the amount of money that goes into my various sinking funds. I’ve redirected a few hundred dollars towards another goal, but I still need to get some advice from my accountant. Once I’ve spoken to her, then those few hundred dollars will probably go towards little day-to-day luxuries like a 4-6 hot-stone massages every year and a monthly housekeeper. My “rich life” might not be as grand as those of Mr. Sethi and Ms. Casey but that’s okay. Their priorities aren’t mine.

So I take it from me. Money habits should not be underestimated. Once you’re in a particular groove with your money, it’s going to be challenging to change them. While I’m still a fierce proponent of saving and investing, I’m going focus the next few years on figuring out how to spend my money too. I want my spending to bring me just as much comfort, joy and happiness in the next phase of my life as my saving-and-investing has brought me up to now. There’s a way to ensure I’m living my own rich life in retirement and I’m determined to find it.

*** There was an unfortunate 4-month hiatus during the most severe period in the 2008 recession. I could’ve been buying equities when the stock market was at its lowest, but I got scared and stopped my contributions. Trust me – I have since learned my lesson. We’re in another stock market downturn right now (2022) and I’m turning over the seat cushions to find money to invest in the stock market before this recession is declared over.

A Few Basic Tips for an Era of Rising Interest Rates

According to the Talking Heads of Financial Media, the central banks will continue to raise interest rates. This means that credit will continue to get more expensive. In other words, it’s going to cost you more if you need to borrow money for a house or if you have a line of credit. I’ve yet to see anyone talk about whether credit card interest rates will go up as a result of central banks’ increases. Let’s just say that I wouldn’t be surprised if credit card rates increased too.

So what are you going to do about it?

You do you. Take my words with a grain of salt. You know your numbers better than I do. Take what you need from this blog post and leave the rest. It won’t make any difference to me.

Invest

First, don’t stop investing. The stock market is down. In my opinion, which is both very inexpert and completely amateur, the stock market will continue to be extremely volatile for the next 12 months. This means that you should be buying and holding for the long-term. The stock market will recover, but absolutely no one knows when. Buying now means buying low. You want to buy low.

When you do buy, don’t sell. Stock markets are volatile right now. That means the value of your investment will go down on some days, then creep up a few days, then go down again. If you’re buying diversified exchange traded funds and mutual funds, you’re in it for the long haul. The price will gyrate, sometimes wildly. Do not check the price everyday. Invest regularly and believer that, over decades, the stock market’s trajectory is up. When you are investing for the long term, day-to-day price movements are inconsequential to your overall investing plan.

If you’re buying individual stocks, then you’d better know what you’re doing. I don’t invest in individual stocks because I don’t have sufficient knowledge to make wise choices.

No New Debt

Second, don’t borrow any money. This one might be tricky. Again, you know your situation better than I do so do with this suggestion what you want. Don’t borrow any money. If you’re bored with your vehicle and want another one, keep driving your vehicle. Being bored is way less expensive than paying 7.99% to a dealership. (Keep in mind that’s the rate they offer to people with good-to-great credit. I can only imagine the rates offered to those with less-than-stellar credit scores.) Do not finance another vehicle since interest rates on car loans are also increasing. If you simply must replace whatever you’re currently driving, then pay cash.

Maybe you’re ready for a vacation. Great! Pay cash. Perhaps a little self-care is in order? Do what you need to do. Pay cash. The new Bright-and-Shiny has finally been released and you’ve been waiting for it for a very long time. Fantastic and congratulations – go & get it! Pay cash.

It is not a good thing to go into debt when interest rates are going up. And they are going to keep going up for the next little while. Do yourself a favour and pay cash so that you don’t have to worry about them.

Eliminate Current Debt

Third, work on paying off any debt that you’re already carrying. I have no tips on how to change the past. If you’re in debt, then there are precious few ways to get out.

One method has two parts. First, don’t acquire more debt. In other words, start paying for things with cash or debit. Two, pay off the remaining balances on the debt you already have.

Have the money come out of your account as you pay for your purchases. Believe me when I say that you will naturally decrease the number of purchases you make. Fewer purchases results in having money available to make extra payments on your outstanding debt. Sending extra money to your outstanding debts results in those debts being paid off sooner rather than later. Once the debts are eliminated, creditors no longer have a claim on your money. This is a very good thing.

That’s it. That the 2-step method for getting out of debt. While this is a simple plan, it is not easy to implement. Never confuse simple with easy.

The other method to eliminate debt is bankruptcy. If you need to go that route, then talk to a bankruptcy trustee for expert advice. Bankruptcy trustees know the process and can offer you expert advice on how to deal with your situation.

Emergency Fund

Keep your emergency fund as full as possible. If you had to use it, then focus on replenishing it. Now is not the time to be on the high-wire without a safety net, financially-speaking. While you have a paycheque, ensure that a portion of it is diverted to your emergency fund until you have 9 months of expenses in there.

In my inexpert view, the recession is here although it might be nascent. People’s jobs aren’t as secure as they might like. When paycheques disappear, the emergency fund has to be there to take its place. (In an ideal world, everyone could live off the dividends and capital gains from their investments. We do not live in an ideal world.) If there’s a chance your job could disappear, then you need an emergency fund.

If you have an emergency fund, and you haven’t had to use it, then you’re in a great position! You should still consider padding it a little bit more though. Maybe adding another 10% to what you already have in there. No one has every complained about having too much money during an emergency.

Breathe

You’re doing your best. No one is perfect with money. Everyone’s situation is different, and you’re the only person who has to live with your financial decisions. Your money isn’t limitless and you’re making the best choices available to you with the funds you have. The fact that you’re even reading personal finance blogs is evidence that you care about making good choices with your money. You want to live your best life with the money you have.

Good on you! Take things one day at a time. Save-invest-learn-repeat. As you know better, you’ll do better. You can do this!

It’s Time to Start Thinking about 2023 Goals

Wow! The first week of October 2022 is in the history books. That happened quickly, didn’t it? This is a good time to start thinking about what you’d like to achieve in 2023, which will be here in two shakes of a lamb’s tail.

For us Canadians, this weekend is Thanksgiving. If you can, find a few minutes to start thinking about what you want from 2023. Have your priorities changed? Are you on track to meet the goals you’d set for 2022? What do you need to make your goals a reality? Do you have new goals for 2023? \

You need not hammer out a complete financial outline for 2023, but you should definitely start thinking about it. The Talking Heads predict that central banks will continue to raise interest rates in order to stifle inflation. The fact remains that rates will not go up forever. At some point they will level out and then start to drop. Central banks might stop raising rates in late 2023, or early 2024. Who knows? They certainly don’t.

Bottom line – you still have to plan your spending so that you can obtain the life you really want, so that your heart’s truest desires are achieved, so that you can maximize the joy you experience in your life. Start thinking about it now.

For my part, I’d like to start travelling some more. Those of you who’ve been around for a while know that I’ve visited Italy, Spain & Ireland. I’d like to make a few more trips to Europe, then get to Africa and Asia at some point too. If time permits, I’ll also go to Australia & New Zealand. While the travel deals flung my way via email are certainly tempting, I haven’t yet saved the money for my next big trip.

I’m still a save-now-buy-later kind of person. There’s not a chance in hell that I will ever start to love debt. It’s simply not part of my DNA. But for a few unexpected large expenses during the pandemic, I would’ve had the money in the bank to take advantage of the travel deals I’m receiving. Sadly, those unexpected expenses involved the CRA and my house. My travel-priority plummeted down the list of priorities. I’d rather stay home a little bit longer than have to replace the foundation of my house, or to have the CRA take an excessive interest in me.

One of my financial goals for next year is to re-build my travel account. I’m vaccinated and I’m ready to head back to the airport. While I love my home, it’s time to see a bit more of the world while I have the health to do so. And since I haven’t yet won a lottery jackpot, I have to save up some money before I can indulge my wanderlust.

Another goal for next year is to upgrade my wardrobe. I’ve been fortunate enough to work from home since April 2020. My employer has changed its mind about my work location. Accordingly, I am hearing into the office for part of the week. Thankfully, my pre-pandemic clothes still fit. However, I think it would be wise to add a few new pieces to my wardrobe for those days when I’m working with others.

Not every financial goal for the upcoming year is going to be a fun one. In my case, some of my goals for next year are most decidedly not-fun.

I’ve also had to start thinking about replacing expensive things in my house when the time comes. I’ve nicknamed those things “Household Appliances”, “Furnace” and “Hot Water Tank”. They won’t last forever. I’m happy with what I’ve got right now so I won’t be replacing them before they give up the ghost. Instead, I’m going to start squirreling away money into a sinking fund for their replacement.

Remember what I said about not having debt?

Well, even I know it’s not always possible to avoid it. Where I live, a furnace isn’t optional. If mine should happen to die in the middle of winter, then I will be forced to take on some debt. However, if I start building that sinking fund now, then I’ll have a big down payment on that furnace loan. A bigger down payment always minimizes the amount borrowed. And if the Furnace Gods smile on me, mine will last until I’ve completely funded its replacement. Fingers crossed!

Obviously, you know your own goals better than I do. Since you’re on this website, you care about learning how to achieve as many of them as possible. At the time of this post, there are 12 weeks left in 2022. Find the time to review your priorities and goals. Confirm that they haven’t changed due to other changes in your life. Then take a look at your money. Ideally, you’re spending your money in ways that get you closer to the life you really and truly want rather than further away from it. Should you discover that tweaks need to be made, then make them now. Get yourself on track to entering 2023 with a firm plan in place so that you can create the life that you truly want.

Happy Thanksgiving!

We’re in the Final Quarter!

As hard as it may be to believe, there are roughly 90 days left in 2022. Does anyone else feel that life resembles a roll of toilet paper? In that the closer it gets to the end, the faster it goes? Honestly! It seems to me that we were just starting summer about 3 or 4 days ago .

Yet, here we are in the final quarter of 2022. We’re heading into Halloween, Thanksgiving, Eid, Hanukkah, Kwanza, Christmas & New Year. And for some segment of you, there are various birthdays and anniversary celebrations thrown in there too. It’s the time of year that I’ve taken to calling the Shopping Season.

You may call it something else. No matter. My only question for you is: how are you going to pay for it?

I’m hoping that your upcoming celebrations and festivities will be funded by your money pots, aka: sinking funds, rather than by your credit cards. And if you do use your credit cards, please have the money already set aside to pay the bill in full. As you know, I love my credit cards and gleefully collect points each month. However, I would shred my cards in an instant if I didn’t already have the cash on hand to pay the bill in full each and every month.

Create a plan of attack for the Money Vultures coming for your cold, hard cash … I mean, draft a strategy that allows you to enjoy the Spending Season as you want to. Retailers are still trying to make up for those sales that were lost during the pandemic’s lockdowns. They will be particularly inventive and persuasive as they try to convince you that spending is the only way to show your love. I’m not telling you that you can’t spend your money. What I’m telling you is that you should be smart about how you do so. What things are most important to you? Who are the people who deserve to stay on your gift-list? Is there anyone who should be removed from your list? Are charitable donations important to you? If so, how much do you want to donate this year?

These are the questions that you should answering as we start the final quarter of the year. If you’re paid bi-weekly, there are only 6 or 7 paycheques left in the year. Take the time to figure out how much of each will be spent on the various events that you know will be coming up before 2022 rolls into 2023.

I know people who are absolutely enthralled by Halloween and acquire the most amazing costumes every year. Other people put lots of time into decorating their homes for Christmas. There are those who have to do a significant amount of travel in order to be with their loved ones over the holidays. The Spending Season is chock-full of opportunities to spend-spend-spend on everything for everyone!

It can be a financial disaster that derails all of your other money goals. You don’t have to let that happen. Nope! You have the power to decide how you want to spend your money during the next 90 days. Do not let the AdMan and the Creditor convince you that the only way to appreciate your loved ones is to bankrupt yourself. It’s not true. The people who really and truly love you do so because of who you are, not what you buy them.