Month: November 2023

The Secret to Wealth? Invest the Difference.

Three little words. These three small words have the power to change your financial destiny if you make the choice to implement them in your life.

Invest the difference. What does that mean?

In a nutshell, it means you should be living below your means. The LBYM-lifestyle translates into always having a gap between what you earn and what you spend. Your goal is to make the difference between your earnings and you spending as big as possible while still enjoying your life from day to day. Then you’ll take that amount, ie. the difference, and you’ll invest it for the long-term. The bigger that amount, the sooner you’ll reap your investment gains. Then you’ll let those gains compound for a couple of decades. At some point, your investment gains will able to support Future You, whether wholly or in part, when you’re no longer able to send your body out to make money.

Kindly keep in mind that staying out of debt is a key part of living below your means. If you’re constantly paying money to creditors month after month after month, then you won’t have those dollars going into your investment portfolio. Also, paying creditors 29.99% when you can only reasonably expect an average return of 8%-10% over the long-term is a losing proposition for you.

Pay off your debts then start investing.

If you have debts, focus on paying them off first.

Unless you’re over 35. If you’ve hit your mid-30s, then you need to invest while you’re simultaneously paying down your debts. Yes – you’ll pay a little more interest this way, since your debts will stick around longer. In my humble opinion, that’s not your biggest concern. Once you’re solidly into your adult years, then you need to start making adult decisions. And one of those decisions is to take care of Future You by investing money for your care and feeding 30 years from today. Once you’ve hit your mid-30s, then you need your money to be working for you as soon as possible. In your case, ASAP = immediately. It doesn’t not mean “tomorrow”.

The trick will be to not go into anymore debt. Make a plan and stick to it. As your debts get whittled away, re-direct 50%-75% of your former loan payments to your investment. The rest of the former payment can be spent bulking up your emergency fund. If your emergency fund already holds 9-12 months expenses, then spend that money on the little luxuries that make your life more comfortable.

Maybe you want to enjoy a nice bottle of wine once a month? Or would you rather travel somewhere? Perhaps you finally have the money to comfortably handle the long-term financial commitment of a pet? You know what you want better than I do. My point is that you should use some of that money to add what you really want into your life.

If you need a plan for how to pay down your debts, I would suggest using the Debt Snowball method. Despite the controversies that are always swirling around the man who made them famous, this method of paying off debt is an effective and straightforward way to rid your life of creditors. Do not go into further debt while paying off your current ones. I cannot stress this enough. Staying out of debt is incredibly important to Future You’s survival and comfort.

Where should you invest your money?

In my humble and inexpert opinion, your money should first go into your Tax Free Savings Account. Then it should go into your Registered Retirement Savings Plan. Finally, you should be investing in your non-registered investment account, aka: your brokerage account.

Don’t feel bad if you can’t max out your TFSA and your RRSP right away. It literally took me years to max out my contributions. (And I treated myself to something nice when I finally accomplished this goal!) Invest as much as you can, as soon as you can. Eventually, your debts will be gone and you’ll have the funds to contribute. Stick to your knitting and you’ll accomplish this goal. Remind yourself as often as you need to that it likely won’t happen overnight.

So those are the broad strokes. Think of them as the first principles of wealth. You simply have to live below your means, stay out debt, and invest the difference. If you do that consistently for a very long time, the odds of you becoming wealthy increase dramatically.

Making the Best Moves to Get Your Dream Life

Before you get too far into the craziness of the Spending Season, take a few minutes to reflect back on the past year.

The next 6 weeks will be filled with the AdMan’s best efforts to get you to part with your hard-earned money. His one and only goal is to make you spend. Cash or credit – either one will do so long as you’re opening your wallet as often and as fast as you possibly can.

Here’s a little tip from me to you. Don’t spend money on things that don’t matter to you. Seriously. It’s okay to say “No” and to keep your money in your wallet.

And this is why now is such a good time to assess if you’re moving closer towards your dream life and your heart’s desires. Only you know what your dream life looks like. And your best shot of getting it is to be laser-focused on the choices you make with your time, energy, and money.

My blog is about personal finance so I’ll focus on the money-stuff. There’s are a lot of other inputs and factors that go into our money choices. I realize this. The truth is that I can only speak about my personal experiences and my own observations of the world. I don’t claim to be an expert in psychology. What I do know is that the first step to getting what you want is knowing what it is that you really want. Without that information, you’re kind of flailing in the wind.

If not now, when?

This question should be the one you ask yourself every time you think about going after what you really want. Tomorrow is promised to no one. There are no guarantees about the future. An amazing opportunity might come around again…or it might not. You have to be prepared to pursue your dreams every single day. And that starts by knowing exactly what they are.

The next step is to start saving & investing for your dream life. Maybe you want to run a cafe in Paris one day. If that’s what you want, then that’s what you’ll start working towards. First things first, you open a dedicated bank account for that dream. And you set up an automatic transfer to start filling that bank account. It might take you a few years to save up a sizeable sum, but so what?

The time will pass anyway.

Read that again. The time will pass anyway.

So start your automatic transfer today, and stick with it. While you’re working and saving and investing, you’re also going to start researching the steps you’ll need to take to make your dream come true. You’ll go online and search “How to own a business in Paris”. Maybe you’ll plan a trip to Paris and see it with your own eyes for a week or two. You’ll take French lessons or figure out if there’s an ex-pat community where they speak your language already.

And while you’re fleshing out your dreams, your money will quietly and consistently accumulating. It will be working for you 24/7. Keep adding to the pot. Don’t make withdrawals – just leave it alone. When the time comes for you to bring your dream to life, the money will be waiting for you.

Make smart choices in the interim.

I’m not telling you to save every nickel. What I am telling you is to stop spending money on things that don’t matter to you. Is eating out for lunch every day more important that your dreams? Would you rather buy your 27th sweater or take a course that gets you closer to the life you really want? Is it better to impress family, friends, and strangers today instead of being proud of and satisfied with the accomplishments of Future You?

You’re the only one who can answer these questions for yourself. After all, you’re the one who is going to live with the consequences of your choices.

As I said earlier, we’re heading into the full court press of Spending Season. You will be subject to advertisements on every single platform and they will all be exhorting you to your spend money. The unspoken promise is that spending all of your money is the secret sauce to having a “perfect life”. Believe me when I tell you, there’s no such thing as a “perfect life”. And even if such a thing existed, I highly doubt that it could be purchased at the mall. Oodles of gifts ensconced in reams of wrapping paper beneath a beautifully-decorated tree make for a lovely advertisement. The harsh trust is that they don’t give you what you really want, which is more than likely connection and community with the people whom you love best. Strong relationships built on trust, love, respect, and admiration aren’t bought with cash or credit.

Keep that in mind as the Spending Season moves into full swing. Don’t let the endless encouragement to spend detract from pursuing your dream life.

Back to my original point… It’s time to figure out whether you’re any closer to the dream life that you really and truly want for yourself. If the answer is not to your liking, then figure out what you need to change to get what you really want. Then go make it happen.

If You Don’t Need It, Then Don’t Buy It!

A very popular shopping day will be arriving near the end of November. How do I know this? Rest assured – the Marketing Machine will not allow me to forget about it for one single instant! Everywhere I go online, there’s an ad about the “low, low prices!” I’m encouraged to “act now” so that I don’t miss out.

Look… I get it. Retailers want to make money. To do so, they need us to give our money to them. That’s how the game is played.

I want you to win the game. So here are my rules for surviving the Spending Season financially intact.

  1. If you don’t need it, then don’t buy it.
  2. If you do need it, then it’s okay to buy it.
  3. If you do buy it, pay cash.
  4. If you pay off your credit card bills in full every single month, then you can use your credit card.

Those are the 4 rules to getting through the upcoming Spending Season. If you follow them, then the odds are very good that you will not suffer from a debt-hangover come January of 2024… which is only 6 weeks away.

Rule 1: If you don’t need it, then don’t buy it.

This rule applies to everything on offer. Clothes. Televisions. Place settings. Bedding. Electronics. Subscriptions. Furniture. Large appliances. Liquor. Home decor. Gaming systems. Computers. Vehicles.***

If you don’t need the bright-and-shiny whatever-it-is that is being advertised to you, then keep your wallet closed. Retailers hire marketing teams that are extremely skilled at convincing you to buy things that you don’t necessarily need. Think about it… Until you saw the ad appear on your screen, you probably hadn’t even thought about getting the next whatever-it-is. You were perfectly content going about the business of living your life and enjoying your day, when the ad popped up and suddenly you were thinking…

“Maybe I do need <insert bright & shiny whatever-it-is> now that this marketer has put this ad in front of my face.”

Do yourself a favor. If you didn’t need it before you saw the ad, then you probably don’t need it after seeing the ad. Scroll past the ad. Choose the text-only option for your reading pleasure. Don’t buy something if you don’t need it.

Rule 2: If you do need it, then buy it.

Obviously, there are those of you who do need to buy certain items. And getting you needs met at 60% off is a very sweet deal. Let’s say your winter boots are 5 years old and basically held together with tape and prayer. It’s time to replace them. This is probably a very good time to do so since clothing retailers are putting things on sale.

You know your situation better than I do. If you truly need to buy whatever-it-is, then go ahead and do so. After all, getting a discount is always nice when you have to buy something that you need. Discounts help your money go just a bit farther.

Just make sure that you’re following rule 3 when you make that purchase.

Rule 3: If you buy it, then pay cash.

Yes. You read that right. If you have to buy something, that’s no reason to go into debt for it. Pay cash. I’m hoping that you had the good sense to save up for your desired item first before making a purchase, i.e. the money is sitting safe and sound in your sinking fund. After all, this very special shopping day isn’t a surprise. Everyone knows that it comes up at the same time every year.

If you’ve been waiting for the discount, then surely you were wise enough to create a sinking fund for this particular purchase. Ideally, you’ve been squirrelling a little bit from every paycheque into a dedicated sinking fund to pay for the things you want this Spending Season.

Again, do not go into debt to make this purchase. The next six weeks are going to be a blur of opportunities to spend money. Many celebrations are going to be taking place. If you’re the one hosting, you’re going to be paying a tad bit more to feed your guests. And if you’re lucky enough to be one those said guests, then I’m assuming that you’re gracious enough to bring some kind of gift for the host/hostess of the event you’re attending. As for all of the various celebrations, there’s a good chance that some of them will involve gifting of some sort.

I call this the Spending Season for a reason. Do not go into debt trying to make everyone’s memories perfect. Buy if you must but spend cash when doing so. The beauty of cash is this – once it’s gone, it’s gone. There’s no lingering debt for you to worry about or on which you will be charged interest.

Rule 4: If you’re have the cash to pay off your credit card bill in full, then you can use your credit card.

This rule is only for those who pay off their credit card bill in full every single month.

You alone know if you’re one of these people or not. Be completely honest with yourself. Failing to pay off your credit card bill every single month means that you’ll be paying up to 29.99% more for every single one of your purchase. That’s 30% more! After a couple of months of compounding at 29.99%, that 60%-discount on your bright-and-shiny whatever-it-is will have been re-directed towards the accruing interest on your credit card.

So, if your sinking funds are stuffed to the brim with sufficient cash to cover your credit card bill, then buy your whatever-it-is with your credit card. Then pay your balance in full when the bill comes due.

That’s it.

Those are the rules for getting through the Spending Season without doing too much financial damage to yourself. Despite what the Ad Man and trusty sidekick, the Creditor, will tell you, there’s absolutely no impediment to your happiness if you resist the urge to spend money on things you don’t need.

Again, if you truly need something, then this is probably a good time to buy it since the discounts are flowing hot and heavy. Just don’t go into debt to buy whatever-it-is. Things are tough enough with inflation still ravaging your dollar. You don’t need inflation working in tandem with sky-high credit card interest charges. That’s like sticking two forks in your own eye! Ouch!

Don’t spend if you don’t have to. If you must spend, pay cash. And if you always pay your credit card balance in full every month, then it just might be okay to use your credit card.

That’s it – those are the rules. Wishing a very joyous, merry, happy Spending Season to All!

*** Yes – that’s right… vehicles. Today, I received an email offering me a “loyalty discount” on a brand-new luxury SUV if I bought it before Black Friday. For those who are curious, my “loyalty” is worth up to 1.5%. I laughed and laughed and laughed, then sighed,… and then I deleted the email.