November, 2022 - Millionaire on the Prairie

Go for Growth – Maximize Your TFSA

Starting on January 1, 2023, the contribution room to the Tax Free Savings Account will increase from $6,000 to $6,500. If you’re fortunate enough to have any money to invest, take advantage of tax-free growth and invest it under the TFSA umbrella. It should be obvious but I’ll say it anyway. Investments grow faster when Canada Revenue Agency doesn’t tax them.

And if you can’t afford to contribute the full $6,500 in 2023, don’t sweat it! Starting today, invest what you can. That might be $10/day or $25/week. The amount doesn’t matter so much as the actual fact of contributing your money. Set up an automatic transfer so that the money goes into your TFSA. The sooner it’s invested, the sooner you reap the benefits of tax-free compound growth.

Once the money is in your TFSA, invest it in well-diversified, equity-based securities like index funds, exchange-traded funds, or mutual funds. If you like real estate, you can buy REITS. And if you’re into picking individual stocks, you can do that too. When you hold your income-generating investments within your TFSA, the CRA will not tax them. You can reap the dividends, capitals gains, and interest without having to share any of it with the TaxMan.

I wish this account had been called the Tax Free Investment Account. Too many people think that it can only be home to a savings account. This is completely and utterly wrong! You can open a TFSA account at your preferred brokerage, and you should. Ideally, you’re investing for the long-term. Over the long-term, the stock market’s average returns are way higher than the interest paid of your saving account. It’s better to earn higher returns and benefit from tax-free compound growth.

If you were 18 or older in 2009, then your lifetime contribution to the TFSA will be $88,000 starting in 2023. Don’t fret too, too much if you haven’t been able to maximize your contributions each year. Start where you are and do what you can. Inflation is taking an added bite out of everyone’s wallets, so finding the money to fund the Care and Feeding of Future You might not be easy. Regardless of whether it’s easy or hard, you have to do it. When you’re ready to quit working, you’re going to need money to replace your current income. Without solid investments, it’s unlikely that you’ll be able to maintain or improve the lifestyle that you already enjoy.

If you invest wisely and your investments perform very well, you can withdraw each year’s earnings and live off the cashflow. The principal can remain within the TFSA to generate even more tax-free money the following year. Your TFSA has the potential to become a money-making machine for you. The tax-free earnings could supplement your other retirement income if you wanted. Of course, this machine won’t exist if you don’t start investing today.

Take Action Today – Don’t Wait for New Year’s Eve!

As you may know, I’m not a fan of New Year’s resolutions. To my mind, if something is good for me, I should start doing it today if it’s in my power to do so. Waiting for some arbitrary date on which to implement something beneficial seems a little… stupid. Delaying means that I’m continuing with something not-good instead of making my life better as soon as possible.

But that’s just me. You do you as you see fit.

There are exactly 6 weeks left in 2022. You might to cast a thought or two towards the status of your money and how it’s done in the past 10.5 months. Are you happy with how you handle money? Do you think that there are areas where your habits & choices could be tweaked? If you could go back in time, would you make the same choices?

Most importantly, what have you learned about yourself from the way you use your money?

Emergency Fund

How’s your emergency fund? You really should be plumping it up. Inflation is still a bear and interest rates are going up. When the emergency lands, you’ll be grateful that your emergency fund is on the larger side. Make sure you’re adding a few dollars to your emergency fund every time you’re paid. It takes quite a while to get it to a five-figure size. Even if it’s only $5, start there and work your way up. More is usually better when it comes to having money in your emergency fund.

I have yet to hear anyone complain about having “too much money” when they’ve lost their job, or had to repair the vehicle they need for work, or had to wait for their sick leave benefits to kick in. An emergency fund is supposed to replace your income for a short-term period until you’re working again. No one really ever knows how long they’ll be out of work, so more is better when it comes to having money set aside.

And since no one ever knows when something will happen that will threaten their income, it’s best that you take action today. Do not wait for the next calamity to arrive before you start funding your emergency fund. Think of the people who lost their jobs when COVID-19 arrived in 2020. Want to bet that many of them wished they’d had an emergency fund in place to cover their bills while they were unable to earn their income?

Funding your retirement – TFSA and RRSP accounts

Maybe you’ve got a pension. Maybe you don’t. Either way, you should be saving for your own retirement. After all, a pension is simply a promise. Sadly, promises get broken. Just ask the pensioners who worked for Sears and Nortel. Those retirees did not get the money that they were promised. In short, these workers held up their end of the bargain by working for their employers for decades with the understanding that they would be paid a pension amount every month. To put it mildly, the employer did not come through on that promise.

Don’t let this happen to you! Start saving money for your own retirement, over and above whatever your employer has promised you. Every time you’re paid, shuffle a little bit of money into your personal retirement account. If you’re fortunate enough to have money for both, start with your Tax Free Savings Account and fill it up before you move on to contributing to your Registered Retirement Savings Plan. Despite their names, do not leave money in your TFSA and your RRSP in savings accounts. Invest your money in the stock market by using exchange-traded funds or index funds that are equity-based.

The sooner you invest, the sooner your money can start to grow. Take action today.

Once you’ve invested your money, leave it alone. If you’re more than 5 years away from retirement, then you’re investing for the long-term and you can safely ignore the Talking Heads of the Financial Media. The THFM are there to generate ratings for their media platform, not to give you a personalized assessment of your current financial situation. If you want that kind of attention, then hire a fee-only financial planner. You’ll pay the bill and you’ll have the assurance that her or his opinion is about your money circumstances. Again, hire a fee-only financial planner. Anyone else is probably just a salesperson who get a commission when you buy a recommended product.

Track Your Expenses

Where does your money go? How many automatic expenses go through your bank account or your credit card? How much do you spend with cash?

It’s my belief that knowledge is power. In order for you to be powerful with your money, you need to know how you spend it. Start tracking your money. Use an app. Fill out a spreadsheet. Pick up a pen and put it to paper. I don’t care what method you choose. The bottom line is that you need to know where all of your money is going.

Armed with that information, you’ll be able to figure out if your spending choices align with your life’s priorities. In other words, are you spending your money in the best way possible to get what’s most important to you?

Right now, we’re in an inflationary period. Everything is more expensive!!! The same dollar buys less today than it did last year. Given that reality, it’s vitally important that you’re satisfied that you’re spending choices reflect your goals. Unless you get a raise, it’s not like you have more money available for daily life. Winning the lottery, inheriting lots of money, and getting an insurance payout are not reliable or predictable ways to obtain more money. For most of us, we work – we get paid – we spend-and-invest our paycheques. Unless our paycheques increase, there’s precious little flexibility to get more money.

You give up time doing whatever-you’d-rather-be-doing to work and earn money. Respect your efforts enough to know where that money is going. Take action today and become intimately familiar with how, when and why you’re parting with your hard-earned money.

Slay the Debt Monster

We all know that it’s incredibly easy to get in to debt. Credit is everywhere! A few clicks on your phone, tablet, or computer and some creditor will be sending you a credit card in moments. Credit and debt are two sides of the same coin. You cannot go into debt unless someone has extended you credit. Alternatively, you can’t be in debt if you don’t use credit. See how that works?

If you have debt, then do what you can to get out. Maybe you take a second job and the paycheque from that job goes straight to your debts. Perhaps you start selling things that you don’t need or use anymore. Money from those sales goes straight to your debt. Do some batch cooking so you can cut back on eating out. There’s always the option of giving up subscriptions for a few months. Do you need all of your streaming services right now? Could you live with one of them for 2-3 months, then switch to a different one later? While they’re still only less than $20 each, if you have more than 5 streaming services then you’re spending close to $100 per month.

Take that $100 per month and throw it at your debts. Pick the smallest debt – pay it off first by adding the $100 to your minimum payment on that debt. Take that former payment and add it to the $100. Apply that payment amount to the minimum payment on the next smallest debt and pay it off. Now two debts are gone. Take those two former minimum payments and add them to the $100. Apply that amount to the minimum payment on the third smallest debt and pay it off.

This method works. You’re making minimum payments on all of your debts, except for the one that’s getting the extra money.

That’s it – that’s the post.

Hopefully, you’re doing okay. No one can predict the future, but I can promise you that tomorrow’s challenges will be easier to handle with money in the bank. Take action today and make the money moves that will help you to make your dreams come true.

Easy money… Why You Should Give a Hoot about Organic Dividends.

Save. Invest. Learn. Repeat.
Blue Lobster

So this blog post will fall under the “Learn” category. It’s just a tidbit of information about organic dividends to add to your investing armamentarium. Do with it what you will.

Long-time readers know that I’m a huge fan of dividend ETFs (exchange-traded funds). Since the start of my investment journey, I’ve relied on DRIPs (dividend re-investment plans) to re-invest all of my dividends automatically. I time my investment purchases to take advantage of each ETF’s ex-dividend date. I felt very smart about dividends. As always, the universe has much more to teach me.

Lately, I’ve been coming across the term “organic dividends” more frequently. Every time I see this term, I ask myself questions: What are these? Do I need them? If so, how do I get them?

First question – what are organic dividends?

From what I’ve gathered, organic dividends are the dividends that are generated when the dividend-issuing company raises the dividend-payout per unit. If I have 1000 units that pay me $0.10/unit in dividends, then I earn $100 in dividends. Fantastic! Those aren’t the organic dividends though.

When the company raises the dividend payout to $0.15/unit, then I get to benefit from organic growth in my dividends… My dividend increase directly as a result of the increased dividend payout. That $0.05 increase in the payment – from $0.10 to $0.15 – results on my dividend payment increasing to $150, without any effort on my part.

Instead of buying 500 more units to get that $150 dividend payment (=1500 units x $0.10/unit), I earned more dividends per unit simply because I own the units. Yay, me! In other words, I didn’t have to invest any money increase the amount of my dividend payment. Instead, my dividend grew organically because the dividend-payout increased. Essentially, I earned more money without doing any more work.

Mind blown! Organic dividends are as wonderful as my DRIP for increasing my dividend cash flow.

Second question – do I need organic dividends?

The short answer is “Hell, yes!”

My portfolio benefits anytime one of my dividend-paying companies raises its dividend payout. I can’t imagine a situation where organic dividend growth would be bad for me. Again, I earn more money without doing more work. Obviously, I’m going to like this fantastic feature of organic dividend growth.

Even if my taxes go up, so what? Dividends are taxed so much less than earned income. Getting an increase in my dividend payments, via organic growth, is similar to getting a raise at work. The organic dividends are way, way better than the raise, because the raise is taxed much more than the dividends are. The tax treatment of dividends is much better. If you want more details, talk to a tax professional.

If you’re fortunate enough to benefit from both organic dividends and a raise at work, then count your blessings, pay your taxes, and go on about your day.

Third question – how does one get their hands on organic dividends?

Well, my sweet… we have to go back to first principles to answer that question.

First, you live below your means. If your spend every nickel you earn, then you won’t have any money to invest. You need to have some disposable income to direct towards wealth creation.

Second, you automatically transfer a portion of your paycheque to your investment account every single time you are paid. Start where you’re at and increase that amount over time. I started with $50 every two weeks from my first part-time job. Now, I’m investing twice that much every day… on top of the monthly dividends that are automatically re-invested.

Third, you buy dividend-paying investments. I like to buy dividend ETFs, but there are also dividend-paying mutual funds and dividend-paying index funds out there. (Never forget that mutual funds are far more expensive than ETFs and index funds so you’re paying more to own them. You should probably stick to ETFs and index funds.) You can even buy stock in companies directly, if you think that’s best.

Four, set up a dividend re-investment plan so that your dividends are automatically re-invested for you every time you are paid.

You continue to live below your means so that you always have money to invest. The dividends will start as a trickle, then compound over time. Eventually, they’re a virtual waterfall showering you with money every year. The more you invest, the faster your dividend payouts will grow. When the dividend-issuing companies increase their dividend payout amounts, each of your ETF units (or stock) will pay you more money.

You cannot benefit from organic dividends without first having dividend-paying products in your portfolio. Never, ever forget this.

That’s it. That’s the post. Organic dividends are a great way to increase your passive cash flow. You cannot control when they’ll show up, but you can definitely control whether you’re positioned to receive them. Do with this information what you will.

You Need Not Spend It All – Leftover Money

The third wave of personal finance is about living your best life. New books and blogs are coming out that encourage people to figure out how they want to spend their time once they have achieved financial independence. The personal finance realm is no longer solely about working super-hard for a fixed number of years in order to retire as soon as possible. This new era is focused on determining how you want to live your life once your time is your own.

Recently, a new perspective has emerged. It’s about spending your money, all of it, in order to live your best life. There’s a book called Die With Zero that encourages people to spend all their money before they shuffle off the collective mortal coil. I’ve read the book. I’ve thought about the book. My conclusion is that it’s not for me.

I fully expect that this blog post will appeal to a very slim margin of people who read it. And that’s fine. I’m okay with the fact that I’m not everyone’s cup of tea. I’m sharing my thoughts because I can’t be the only one who believes that you need not spend it all to be happy.

Am I an advocate of saving every nickel? Squirreling away every dime for an uncertain future? Hoarding currency with the sole goal of acquiring “more”?

The answer is “No”. Life is meant to be enjoyed. So many people don’t have any option other than living paycheque-to-paycheque, or by depending on charity. Not everyone has the disposable income to live life the way they would prefer. However, there are many others who do have the funds to craft the life that they truly desire. I’ve always encouraged those people to prioritize their spending in a fashion that allows them to achieve their heart’s desire and fulfill their lifelong dreams. We each only get one life, so we should do what we can to make that life as good as it can possibly be.

My position is that I don’t believe that spending all of your money is always necessary. Let’s say you’re fortunate enough to earn enough money to pay for all your needs, you’ve paid off your debts, and you can easily purchase all of your wants too. After you’re done paying for that, you’ve still got money leftover at the end of the month.

Leftover Money

Do you really need to spend the leftover money in order to acquire more happiness & joy? After all, you’re already acquiring everything you need and want. Your creditors are distant memories. You’re already living the life you want. Will spending even more money bring your more joy and happiness?

What are you supposed to do with the “leftover” money? According to DWZ, you’re supposed to just spend it on something. The premise of the book is that dying with leftover money means that you did not maximize your joy when you were alive.

That’s where I take issue with the book. In my view, you shouldn’t spend your money simply because you can. That’s wasteful. I’m also not convinced that spending money just because it’s there will bring you any greater amount of joy. There are many awesome and incredible experiences in the world. You should only pursue those that appeal to you, and you’re already smart enough to figure out what those are. Once you’ve done everything you want to do, then I’m certainly not going to tell you how to spend your remaining money.

If you’re already spending your money = on everything that you need and want, and you’re out of debt, then why do you need to spend more? Once you’ve reached the very desirable goal of living your life as you wish, then what will you achieve by spending more?

Money buys options. Of this, there is no doubt. With money, you can pay for your food, shelter, clothing, transportation, communication, entertainment, medical care, travel and various other miscellaneous things. There is no doubt that having money can make your life much, much easier. Yet, I’m still not convinced that spending money when you don’t particularly want to is a good thing.

You’re allowed to keep it.

One of the lesser-discussed aspects of money is that you don’t have to spend it. It’s true. You can have it and just keep it wherever you want – in a savings account, an investment portfolio, or in your sock drawer. Allow me to repeat it more loudly for the people at the back. You don’t have to spend your money if you don’t want to!

This is where I take issue with DWZ’s premise. I don’t think that people need to spend every penny before they die in order to have lived a great life. Once you’re out of debt, and you can spend freely on both your needs and your wants, then anything that’s leftover shouldn’t be viewed as a problem to be solved. Your fortunate financial position will still have allowed you to spend money during your lifetime pursuing your dreams and having the life you wanted. So what if there’s some money leftover?

Bottom line is this. You need not spend it all. You shouldn’t be pressured into spending money if you’re already living your dream life. It’s okay to not spend even if you have the money to do so. Live your best life and spend your money doing so in the way that makes you happiest. If you decide to increase your spending, that’s fine. And if you decide not to increase your spending, that’s fine too. The ultimate decision lies with you.