Month: December 2022

If you only do one thing in 2023…

Those of you who’ve been around here for a little while know how much I hate paying bank fees. However, if you’re new around here, then welcome! Here’s my free advice to you – use it as you see fit. If you only do one thing in 2023 to make your financial life better, consider moving to online banking.

Paying a bank to use your own money makes little, if any, sense to me. It’s a great move for shareholders since it’s a continuous revenue stream which boost bank profits. Most people don’t hold shares in banks, so they’re not reaping those particular rewards. As a consumer, bank fees are an easily avoidable financial nuisance. They’ll run you atleast $100 per year. Ask yourself if there’s anything else in the entire world that you would rather pay for than bank fees. And if bank fees are still at the top of your list, then please continue to pay them and come back next week for more of my bon mots.

The Expensive Banks are plucking you.

I don’t much like being the bearer of bad news, but here I go. You are the golden goose. The Expensive Banks are plucking your money feathers, every single month. Money goes into your chequing account and they reach in, with your permission & consent, to take some out every single month. These were the terms when you opened the account. Good for the Expensive Banks, not so good for you.

At the time of this blog post, the major banks in Canada all offer unlimited banking for various monthly fees:

I’m forced to acknowledge that some of these banks will waive their monthly fee if you’re willing to leave $4000 sitting in your chequing account, earning no interest. In short, you have to leave several thousand dollars in your chequing account in order to avoid paying the monthly fee. I’ve always hated this requirement. In my personal opinion, I don’t think you should have to ransom several thousand dollars in order to keep your money.

Also, the monthly fees go down so long as you don’t go over a pre-determined numbers of transactions per month. For most of these banks, that number is 25 transactions per month. If you do more than 25 transactions, then you’ll pay a fee for each additional transaction.

To recap, the Expensive Banks allow you to pay them a couple of hundred dollars per year. For the low price of a couple of tanks of gas, you can have 25 debits, utility payments, e-transfers and/or ATM withdrawals. Should you need more than 25 transactions per month, you can pay for a more expensive bank account or you can get dinged atleast $1.25 for each transaction over the limit.

What if I were to tell you that there is a way for you to have unlimited debits, utility payments, e-transfer and ATM withdrawals without depriving yourself of access to several thousand dollars?

You have options, and you should choose to use them.

If you only do one thing in 2023 to make your personal finances better, please let it be doing some investigation into the following online bank accounts.

At the time of this post, two banks offer chequing accounts with unlimited transactions with no minimum balances required to have monthly fees waived. You can set up direct deposit with these accounts, just like you can with the expensive banks. These are great products! Why pay fees if you don’t need to? Unless it is your dream to pay bank fees, why not put that money towards making your actual dreams come true?

I’ll admit that online banks don’t have great interest rates. So what? None of the banks offer great rates on their chequing accounts! Besides, the truth of the matter is that your emergency funds should be in EQ Bank, where they will earn atleast 2.5%. Money for your retirement should be invested in well-diversified equity exchange traded funds (ETFs) so that they can benefit from the stock market’s long-term average growth, which is well above whatever rate your bank is giving you.

In case no one has ever told you this, you should not be keeping your emergency funds or your retirement money in your chequing account. Your chequing account is for daily transactions: debit payments, utility payments, debt payments and rent/mortgage payments. Money that is not needed for daily living should be in your emergency fund and in your retirement accounts, never in your chequing account.

Cease paying bank fees, unless you really enjoy doing so.

There’s no getting around the fact that you probably need a bank account. However, I’ve yet to hear a good, persuasive reason for why you should be paying several hundred dollars each year for the privilege of having one. There are equally good options available to you and they are free. Why do you want to pay for something when you can get the same thing for free?

Setting up a new online bank account is not hard. It doesn’t take an exceedingly long time either. You can probably do it on your phone. There are 365 days in 2023. If you only do one thing in 2023 to save money, find some time to save yourself a couple of hundred dollars.

And if you’re absolutely 100% committed to paying bank fees, then atleast buy yourself some shares in the banks so that you can recoup some of your fees in the form of dividends!

Full disclosure: I bank with both Simplii Financial and Tangerine. My accounts have been open for years, and they’ve served me well. If you open an account at Simplii Financial, please use my referral code: https://mbsy.co/6qqBSr We will both get paid money if you do.

HAPPY NEW YEAR!!!

I’m not an expert but….

I am not certified by any governing body to tell you how to spend your money. My words of advice were earned at the School of Life, a place where all of us are students. I’m telling you this so that you realize that I’m not an expert, but I’ve still learned a thing or two. If you do what I did, you’ll do fairly well with your money over a lifetime. Here are my tips to acquiring a heavy wallet.

Don’t spend every penny you earn.

First off, I’ve yet to meet anyone who’s been harmed by living below their means. Spending less than your take-home income has no downsides, as far as I can tell. The difference between your net income and your expenses is called “savings” and savings can always be stashed away for various things.

Emergency Funds are not optional.

Secondly, life without an emergency fund is an invitation for financial trouble. There’s an emergency in your future. You simply have no way of knowing when it will show up. I promise you this though. No one in the history of the world has ever lamented about having too much money set aside to deal with the inevitable emergency. If you don’t have an emergency fund, start one immediately and set up an automatic transfer from your paycheque to fund it.

It’s going to take a bit of time to build up a decent emergency fund. That doesn’t matter – just start building it. When the emergency hits you smack in the face, you’ll be quite grateful that you won’t have to worry about the financial side of dealing with it.

Investing for Tomorrow You isn’t optional either.

Thirdly, start investing your savings. Yes – some of your saving will go to building an emergency fund. The rest of your savings should be split between your short-term, medium-term, and long-term goals.

One your most important long-term goals is how to feed, shelter, clothe, and entertain yourself when you’re too old to work. Tomorrow You still needs money to survive until the very last day of your life. The steps you take today to invest your savings will increase Tomorrow You’s chances of having a financially comfortable life once employment is over.

You need to start funding your retirement accounts – namely the Tax Free Savings Account and the Registered Retirement Savings Plan.

If you have to choose between filling the TFSA or the RRSP, my recommendation is to fill up the TFSA first. The TFSA contributions do not generate a tax refund, but the money invested inside the TFSA will grow tax-free and can be withdrawn tax-free.

Should you be so fortunate as to have sufficient money to fill both your TFSA and your RRSP, then do so.

If you still have savings After you’ve filled your retirement accounts, then open a non-registered account with an online brokerage. Invest your remaining savings to earn capital gains and dividends. The money earned in your non-registered account will be taxed every year. The upside is that the taxable rate on your capital gains and dividends will be less than the taxable rate on your earned income.

Inflation isn’t going away anytime soon.

Fourthly, inflation is running high. No one knows when it’s going to go down, so assume that things will be increasingly expensive for the foreseeable future. There are no simply answers to this problem, so my advice to you is to cook more of your own food. I love socializing over food as much as the next person. And I do sometimes yield to the incessant call of the fast food window or the food delivery app. However, inflation running at 7%-8% has forced me to be a lot more disciplined. I’m heading to the grocery store instead of tapping out an order on an app. I’m slicing and dicing, mincing and sautéing, frying and baking in my own kitchen. One of these days, I’ll even master the art of meal planning for the week instead of simply for the next 3-4 days.

My advice to you is learn to grocery shop then spend more time in the kitchen. If there’s something you want to learn to make, there’s someone on the Internet who has a recipe and a video to show you how. I can promise you that $60-$80 spent at the grocery store will yield you a ton more food than the same amount spent at a restaurant, fast food outlet, or food delivery service.

Stay out of debt

For whatever reason, our society has decided that it’s a good idea to put people into debt. The scope and manner in which any one person is able to go into debt is truly breathtaking: student loans, vehicle loans, mortgages, credit card debt, etc…

There’s no legal limit either. It’s not like there’s a law which says “No person is permitted to carry more than $650,000 of debt at any one time.”

So long as there is a creditor who is willing to extend you credit, you can dig a deep a hole as you choose. Even after a creditor stops extending you new credit, the hole still gets deeper thanks to the power of compound interest and the piling on of fees.

Do yourself a favor. Don’t go into debt. If you’re already in debt, then work very hard to get out of it.

You know those savings that I was talking about at the start of this post? Take 25% of them and throw them at your debt. You can use the snowball method or the avalanche method to make extra debt payments over and above your minimum payment.

I really don’t care, which method you choose. Just start making those extra debt payments and get yourself out of debt as soon as possible.

Again, I’m not an expert.

I’m just a person who has learned a few things about money from my own experience. I’ve also observed the financial choices and outcomes of others. Getting out and staying out of debt has done wonder for my financial life. Spending less than my net income has allowed me to set aside money for my retirement while also fulfilling most of my short-term and medium-term goals. Cooking at home has definitely contributed to a heavy wallet. My emergency fund helps me sleep well at night.

Even though I’m not an expert, some of these tips might help you too. Take what you need – leave the rest.

Sinking Funds – Making the Most of Your Money

I’ve written about sinking funds before. They’re pools of money that are meant to be filled then emptied, as many times as you want, for as many goals as you have. You prioritize what you want to accomplish then you decide how much money goes into each one. Sinking funds are to be held separately from your emergency fund, your investment account, your retirement account, and your daily chequing account. These funds are where you hold money for your short-term goals:

  • annual premium payments & subscriptions;
  • holiday spending, birthdays & celebrations;
  • travel;
  • tuition and annual fees;
  • house down payments;
  • renovations;
  • vehicle purchases & maintenance;
  • furniture purchases;
  • annual taxes;
  • RRSP & TFSA contributions.

Sinking funds allow you to save first, then spend your money. In case you were unaware, they are highly effective at keeping you out of debt while allowing you to still earn points/cash for using your credit cards. Let’s imagine that you’re planning to take a culinary tour in 2024. Dedicate a sinking fund to that expense and start saving for that trip today. When the time comes to book it, you use your credit card, collect your points, and pay off the credit card bill in full. You can enjoy your trip without wondering how you’re going to pay for it. Sinking funds are simply fantastic!

I have to confess that it took me years to set up all of my sinking funds. The truth is that you can’t save what you don’t earn. Early on in my career, I had a lot more debt and ridding myself of loan payments was top priority. The only sinking fund I could manage to fill was the one for my annual vehicle insurance and annual property taxes.

Monthly Payments Aren’t For Me!

I’ve always hated the idea of someone being able to withdraw money from my bank account every single month. I want to be the one in charge of when money leaves my bank account. The idea of a business accidentally withdrawing a payment twice and then having to fight with that organization to get my money back makes me furious and queasy. As a result, I’ve always chosen annual payments for my insurance premiums and tax payments. My first sinking funds were for those two expenses. Any other goals were funded from my bi-weekly paycheque via automatic transfers.

Once my student loans and vehicle loan were eliminated, I re-directed those payments to other sinking funds. My next big priority was travel! Every two weeks, a chunk of money went into my travel account up to a pre-determined amount. When it was time to book a trip, the money was there. It was awesome!

Did I stop setting aside that chunk of money once it was no longer going to the travel sinking fund? No! Instead, that money was re-directed towards my next highest priority until that pre-determined amount was met. In this way, my sinking funds were funded every year and I had the money set aside to pay for what I wanted.

Homeowners Need Sinking Funds.

Eventually, I moved from my first condo to a house. Woah!!! Anyone who owns a home will agree that it’s a money-pit. There’s always something to be fixed, replaced, maintained, or updated. As soon as I moved into my house, I realized that it was definitely time for a few more sinking funds dedicated to renovations and maintenance. Since being in my house, my sinking funds helped me to do the following:

  • renovated the basement and downstairs bathroom,
  • pour a new driveway, garage floor and walking paths,
  • have trees removed,
  • have landscaping work done,
  • change my main bathroom,
  • install carpet,
  • replace windows, eavestroughs & siding,
  • pour insulation;
  • buy new furniture & electronics;
  • install a new water heater & furnace;
  • remove a shed;
  • install a sprinkler system.

Believe it or not, there are still many other things that I want to do around here. If I hadn’t created my sinking funds when I first moved in, I would be neck deep in debt and stuck on a payment treadmill. Planning out my purchases in advance allowed me to plan out my money too.

It Can Take a Few Years.

For as much as I love my sinking funds, I was never able to fill all of them at the same time. I simply didn’t have enough money. There was no way my paycheque could have paid for everything all at once when I first started. As my income grew, so did the amount that I could allocate to my sinking funds.

Some funds had to be replenished every year, so they went into a dedicated account. Insurance and property taxes come to mind. They need to be paid every 365 days so I group them together in one sinking fund. It has been filled then emptied on a regular basis for the past 30 years. Once that sinking fund is filled, my money goes towards filling my other ones.

Other sinking funds have been for one-time purchases. Trust me – it’s highly doubtful that I will be cutting down the same trees more than once. The monies for one-time purchases goes into an account where the nickname could be changed as needed. “Tree Removal” would become “New Tire Fund” or “BAC Subscription” or whatever else happened to be next on the priority list.

Finally, there are the sinking funds that were put aside due to global events. During the pandemic, I discovered a love of my own backyard. Literally! The summer of 2020 and 2021 were spent in my own yard, tending to my annuals and watering my lawn. International travel fell to the bottom of my priority list. It still kind of blows my mind that it’s been over 3.5 years since I’ve been inside an airport!!!

My point is this. You may have more priorities than money. So what? Use sinking funds to maximize the enjoyment of your money. Ensure that it’s dispersed in ways that will allow you to live your best life. Like I said before, I didn’t start out with enough money to do everything that I wanted. International travel took backseat while I fixed up my house. Fixing up my house took backseat until I was out of debt. Getting out of debt was secondary to stuffing my RRSP as best I could on my entry level salary.

The bottom line is that I had to get a few pay increases under my belt before I could increase the amount of money going to my sinking funds.

If it takes you a few years to set up all of your sinking funds, then so be it. That’s completely normal. Only the privileged can do it all at once. The rest of us have to do more strategizing. The time will pass anyway so you might as well be using your time and your money in ways that get you what you want most.

Know Your Own Numbers

You need not be obsessed with personal finance but you do need to understand it.

Wisdom from the Internet

It’s long been said that information is power. This maxim is just as applicable to your money as it is to anything else. The more you know about your own finances, the better decisions you can make to create the life you want.

In the past few months, I’ve started following a channel on YouTube where people are interviewed about their money. They all have debt, which they say that they want to eradicate. Each of them says they want to live on their own, or start a business, or buy a house. Invariably, all of the interviewees reveal that they don’t know how much money they earn each month. Of the interviews I’ve watched to date, nearly all of the interviewees are paid hourly. Most of them have received a paycheque yet none of them know how much they bring home in a month. None of them!

It’s astonishing to me that they don’t know the most basic information about their financial lives. And it’s not an age thing. The interviewees I’ve seen have ranged in age from 19-32. These aren’t all fresh-faced high school graduates who’ve just left the nest. Most of them live with roommates, so they’ve had a taste of the adult responsibility of paying rent & making sure the lights stay on while putting a bit of food in the fridge.

If you’ve stumbled upon my blog for the first time, welcome! I hope you like it here and I hope you come back. Most importantly, I want you to know your own numbers. This is foundational knowledge. You need to have to this information when setting financial goals for yourself.

*** If you’re already a person who tracks their income, then the rest of this post might not be for you. ***

In order to build the life you want, you need to know your own numbers. I’ve written about the importance of tracking your expenses. The same importance should be placed on tracking your paycheques.

At the very least, know how much money you’re bringing home in your paycheque. This is your net income, aka: money you keep after taxes and deductions. When you spend less than your net income, then you have money to build an emergency fund and to invest for your goals. If you spend more than your net income, then you’re living in debt. This is a bad situation and it needs to be curtailed immediately. If your expenses are exactly equal to your net income, then you’re living paycheque-to-paycheque. Just like being in debt, this is a bad situation because you have no wiggle room. Any unexpected expense will push you into debt because you don’t have an emergency fund. You also don’t have any extra cash flow coming in from your investment portfolio in the form of dividends, capital gains, and interest.

I’m always baffled when people say they don’t know their net income. How can you make financial plans for yourself when you don’t know how much you have to work with?

Nearly everyone has a cell phone. They all come with calendars. Go into your phone, set up alerts to tell you when you’re getting paid. When you get your paycheque, track that amount. You can use a pen and paper, a spreadsheet, or an app. It doesn’t matter. You just need to know how much money will be in your pocket until your next paycheque.

Once you have that number, you can start subtracting your expenses from it. I would suggest that you always allocate money to your needs first. After that, every other expenses is a want. You’re human, therefore food and shelter are your top priorities. Given that you’re working for a paycheque, you’re probably not independently wealthy. So that means your next priority is paying for transportation so you can get to work. Life offers no guarantees. You need to put some money aside in your emergency fund.

Do you still have money leftover after paying for these four critical items? Great! Get busy figuring out which one of your many, many wants is the next most important to you. Cell phone or clothing? Gym membership or gifts for loved one? Pet care or charitable donation?

When your expenses have exhausted your paycheque on paper, then you stop spending. Wait! Are there still things that you want but can’t be covered by your net income?

Then you’ve learned something! You’ve discovered your shortfall amount, aka: the amount of money that you need to earn to pay for all the things you want to buy. Your next step is to figure out how to make more money to cover the shortfall. Maybe you get a promotion. Perhaps you sell some things that you no longer need or use. You could find a better-paying job or get a promotion with your current employer. Maybe you pick up a part-time job or offer your services to people who need them.

Again, information is power. It’s up to you to know your own numbers so that you can figure out what it will take to build the life you want. If you start today, then you’re one day closer to making your dreams come true.