September, 2024 - Millionaire on the Prairie

Do One Percent Better Whenever You Can

Start where you are, and go from there. This is the basic rule for anyone who’s beginning something new. There’s no way around it and investing is no different. If you want to achieve your financial dreams, then the onus is on you to take the steps to make those dreams a reality.

No one is saying that it will be easy. What I will say is that sticking to the plan puts the odds in your favor that you’ll achieve your goals.

This past week, I heard someone say that they achieved financial independence by always striving to do one percent better each month. That struck a chord with me. It’s an achievable goal for many people. Once you know what you want your money to do for you, your subconscious mind focuses on ways to make it happen.

If you’re ready to ensure that Tomorrow You is financially secure, then start today. Set up an automatic transfer from your paycheque in the amount of 10% (or 5% or 2%) of your net salary. If your budget allows, you’re always free to invest more than 10%. Just make sure it’s an amount that you’re able to stick with over the long-term.

Ensure that amount is sent to your brokerage so it can be invested in a diversified, equity-based exchange traded fund. Set a reminder on your phone to increase your contribution amount by 1% at the start of each new month, or every 90 days. Pick the interval you’re most comfortable with, but commit to increasing that percentage. The sooner you invest your money, the sooner it can compound and grow.

“That’s a a nice idea, Blue Lobster, but exactly how am I supposed to find the money to do this?”

Here’s a list of a few suggestions that come to mind. Not everyone can do these, but it’s a starting point. I have a feeling that if you really want to invest for your future, you’ll figure out where find money from your current spending. In no particular order, here are some ways to get the money for your investments.

As you pay off your debts, use a significant portion of your former debt payment to increase the amount you’re contributing to your investments. If you were paying $700 for your vehicle, re-direct atleast $350 of that to your investments and use the other $350 however you want.
Once your emergency fund is holding 9 months of expenses, stop funding it and re-direct that money to your investment account.
Track your expenses and see which ones can be eliminated. Use your kitchen more often so that you’re feeding yourself instead of paying someone else to do it.
Rotate your streaming services instead of paying for all of them all the time.
Go to the library more often than the book store.
When you get a raise, make sure that you re-direct atleast third of it to your investment account. Spend the remaining two thirds however you want.

By following any one of these suggestions, you will be able to increase your contribution amount by atleast 1% with ease. Some of these options might allow you to increase your target amount by 5% or more. You don’t even have to do all of them! Maybe your goal is to save only 20% of your net income, so you’ll hit that target faster than someone who wants to save 50% of her income.

Whatever amount you want to invest, you won’t hit your target unless you start. Today. As in, right now. Once you start, don’t stop. Keep paying off debt, padding your emergency fund, and investing for the future. When you’re finally out of debt, do your very best to stay out of it. Start sinking funds so you can save for your short-term and medium-term goals, then pay cash. Along the way, never stop investing and always re-invest your dividends. Do one percent better every month, every quarter, every year! At some point, you’ll look up and realize that you’re investing 25% or more of your income.

And you’ll be damn proud of yourself or having do so.

Investing Money? Never Pay More Than Necessary.

I’ve learned about a mutual fund that, in my mind, is specifically designed to extract money from naive and uninformed investors. It made me very mad. There have always been snake oil salesmen, and that’s unfortunate.

Writing this post is my way of helping you to avoid being a victim of such tomfoolery. I want you to be smarter about the financial products you buy, by knowing a little bit about how they’re priced. Learning never stops. It’s up to you to continue reading about money and ensuring that you do better once your know better. If you can commit to learning about personal finance, then you can take steps to avoid ever being fleeced by buying this kind of product. And if you still choose to buy this product, then atleast you’ll be aware that you’re paying more than necessary.

The product I’m referring to is a mutual fund that holds 10 exchange-traded funds (ETFs). For ease of reference, I will call this product “RIPOFF” because it boldly rips off investors under the guise of offering something valuable. RIPOFF charges you way more in fees than you need to pay. No one has provided any indication that RIPOFF generates better returns than the ETFS that it holds. In short, investors would be better off just buying the ETFs instead of buying RIPOFF. As far as I’m concerned, RIPOFF is simply a trap for the unwary. You need not count yourself among the unwary after reading this post.

First things first. ETFs have lower management expense ratios (MERs) than mutual funds. The MER is the fee that you pay to the financial institution for owning the investment product. It is a percentage of every dollar invested. Never forget this!

As an investor, you want to hold securities that have lower MERs because you will keep more money in your pocket. Over time, a higher MER permits the financial institutions to siphon more money out of your portfolio. In other words, less money stays with you because more money is going to them. Check out this MER calculator and play with the numbers. Change the expense ratio number and see for yourself how a higher MER over a long period of time means a lower portfolio balance for you. A higher MER can mean that over $100,000 is paid out in fees for no good reason.

RIPOFF charges an MER of 1.72%. This is a very high MER. Ideally, you will never pay more than 0.50% for your ETFs. (Some people say never pay an MER that’s higher than 0.10%, but I think that applies more to the US market.)

In doing my research, which consisted of a simple Google search, I learned that RIPOFF holds 10 ETFs. After another 10 minutes of research, I learned that none of those ETFs charges an MER as high as 1.72%. One of the 10 ETFs held within RIPOFF charges an MER of as low as 0.06% while he highest MER charged is 0.55%. You’ve no doubt noted that the individual MERs are far, far smaller than the 1.72% charged simply for bundling them together under the name RIPOFF.

Instead of buying RIPOFF and paying 1.72%, you should simply buy the underlying ETFs. Doing so means far less money paid out in fees. Even if you invested your money into the most expensive ETF at the MER of 0.55%, you’d be saving 1.17% on every dollar invested. That’s a difference that should not be ignored.

Assuming that your portfolio is $100,000, RIPOFF would charge you an MER of $1,720 every year! For those not good with math, you simply multiply the balance of your portfolio by the amount of the MER, i.e. $100,00 x 1.72% = $1,720. If you owned $100,000 of the most expensive ETF within RIPOFF, then you would only pay an MER of $550 (= $100,000 x 0.55%). In other words, owning the “expensive” ETF would cost you less than 1/3 of the cost of RIPOFF.

Now, look what happens if you owned $100,000 of the least expensive ETF contained within RIPOFF. You would only have to pay an MER of $60 every year, because $100,000 x 0.06% = $60. Buying RIPOFF is 28 times more expensive than the least expensive ETF!!!

Do yourself a favor. Go back to the calculator and calculate the difference in your future portfolio’s balance between paying an MER of 1.72% and paying an MER of 0.06% over a long period of time. The amount is staggering, and I’m quite certain that you would rather keep that amount in your pocket.

Again, I’m not telling you not to buy the more expensive product. Instead, I hope that I’m educating you. I want you to be aware of what you’re buying and how much it’s going to cost you. Maybe you have your own reasons for paying 28 times more than you have to in order to achieve your financial goals. I simply want you to be aware that you’re doing so. It’s your money to spend as you see fit. That said, you should always know when you’re paying more than necessary.

As you’ve no doubt surmised, my position is that no one should be investing in RIPOFF. There is no evidence that RIPOFF will earn you a return on investment that is 28x better – or even 3x better! – than buying the underlying ETFs. This is another reason why you should just buy the ETFs themselves. Make wise decisions with your hard-earned money. Invest in the ETF instead of the mutual fund. Future You will be very glad you did.

It’s Time to Assess Your Financial Progress.

Well, we’re already weeks into the final third of the year. Tempus fungit, which is why you should take 20 minutes or so to assess your financial progress. Is your debt decreasing or increasing? Have you added more money to your emergency fund? Did you set up an automatic transfer? Are your sinking funds in place for your short-term goals?

You’re the only person who can honestly say whether you’ve taken the actions needed to get you where you want to be. After all, you’re responsible for doing what’s necessary to make your dreams come true.

How many of the following actions have you taken so far this year?

tracked your expenditures each month
directed some portion of your paycheque to your emergency fund every month
created sinking funds for your short term goals
eliminated recurring subscriptions that no longer make your happy
ensured that your credit card is paid-in-full every single month
paid off your debt by making extra payments over and above the minimum payment amount
funded your RRSP and TFSA as much as you can
set up an automatic transfer from your chequing account to your investment account
opened a brokerage account so you can invest your money into ETFs
ensured that your securities in your investment account are set up on a dividend re-investment plan
started making financial plans for 2025

Ideally, you will have completed all of these tasks. It’s okay if you’ve only done a few or even only one of them. Getting good with your money takes time and practice. It’s about building habits, which will eventually become financial reflexes if given enough time. The sooner you start, the better for you.

If you haven’t done anything to progress financially, then chastise yourself for no more than 10 minutes then move forward to the next step. In case you had any doubt, the next step is to start. Yes – that’s right. Start by doing one thing. If you can find time to mindlessly scroll various apps on your phone, then you have time to start taking the steps to improve your financial future.

I promise that if you continue to do nothing about your money situation, then your financial circumstances will never improve. Believe me when I say that you’ll be in the same position tomorrow as you are today if you don’t make any moves to earn, save, and invest your money.

Start where you are today and go from there. Do not assume that you have to know everything about money before you begin. There is no perfect way to do money. Good money moves are unique to each person. That said, spending every penny you earn, going into debt, and living without an emergency fund is a recipe for financial strife. That particular course of action benefits no one. You have to start today. As you learn better, you will do better.

When I started my own financial journey, it was with $50 every two weeks for my part-time job in a grocery store. I would go to the automated teller to transfer $50 from my chequing account to my savings account. Eventually, I had $8,000 in my savings account. Like an idiot, I used half of it to buy my first car. Sigh…

The good news is that I learned from my mistake. As I earned more money, I started saving a bigger amount from my paycheque. Reading about personal finance became my hobby. That lead to me opening my RRSP at age 21. I managed to fully fund my RRSP every year that I had contribution room. In 2009, the TFSA was born and I started to fill that up too. Over time, I learned about exchange traded funds so I switched my investments from mutual funds with high MERs to ETFs with low MERs. As a result, more of my investment returns stayed in my pocket instead of going to the fund manager. (Check out this calculator to see the impact of MERs on a portfolio’s returns over time.)

It took a while but, I eventually paid off my student loans, a car loan for my second vehicle, my mortgage, and a car loan for my third vehicle. When I was finally out of debt, I made much better use of my investment account by using my former debt payments to buy more investment securities. Without debt, I finally had some extra money over and above what was required to fully fund my RRSP and my TFSA each year. Once I was investing a third of my take-home income, I established sinking funds for travel and renovations to my home. Future Blue Lobster would be provided for by my long-term investments so it was time for me to focus on some short-term and mid-term goals that would make my life’s journey a little more comfortable. In short, I wanted to add a few little luxuries to my life so I did.

For me, being debt free was a key element of making substantial financial progress towards achieving the things that I wanted from my life. One of the biggest things I’ve always wanted is financial independence. I desire to be in a position where my investment income can replace my entire salary if necessary. That day is very nearly here as I’ve finally reached what is called Lean FIRE. Personally, I’ve never been a huge fan of Lean FIRE, but I do see its utility for some folks who want to do something else with their time.

I don’t know how much debt you have, yet I’m pretty sure you’ll be better able to fund your heart’s desires when you aren’t sending so much of your money to your creditors. Figure out a way to eradicate your debts sooner rather than later. Avalanche method or snowball method isn’t terribly important. The most salient factor is getting rid of your debt. If you do nothing else financially for the rest of 2024, please work on eradicating your debt. The sooner it’s in your past, the sooner you will have the money to make your dreams come true.

While you’re paying off debt, don’t forget to invest some of your money. It can be $5 per week or $50 per month, or whatever amount above $0 that you choose. Just start investing! The more time your money has to compound, the bigger it will grow. You really can’t afford to wait until your debt is completely gone before you start investing for Tomorrow You.

No one is saying this will be easy, but it’s not impossible either. Depending on the size of your income, it may take a few months to achieve all of these goals or it may take several years. I can promise that none of these goals will be achieved if you’re not willing to take the steps to make them your reality. No one is perfect at money, and there is always more to learn. That shouldn’t impede you from trying. Start today, from where you are right now. If you invest nothing today, then you will have nothing tomorrow. It’s as simple as that. You and I both know that you want to be more financially secure tomorrow than you are today. What’s stopping you from moving towards that goal?

Let’s say that you’ve reached the point of being debt-free with a fully-funded TFSA and RRSP. You’ve also got atleast 6 months of income stashed away in your emergency fund and a nice chunk of each paycheque is being invested into ETFs. Your sinking funds are replenished every year so that you can pay for those large, irregular expenses that show up every year. Now what?

First, congratulate yourself on being very, very good with your money! So many people will read blog posts like these without taking any steps to implement the suggestions therein. By following these steps, you’ve set yourself up to be financially secure. Second, keep doing what you’re doing right now and continue to learn more. Stick to your knitting and watch the financial wins multiply in your favor.

And if you’re not yet at the top of your money game, then it’s time for you to start. Tomorrow You will be thankful that you did. Again, if you invest $0 today, then you will have $0 tomorrow. You need money until the end of this journey call life. Today is a great day to begin targeting some of your time and energy towards building a solid financial future for yourself.

Assess your financial progress and take the necessary steps to get yourself where you want to be with your money.

I Want You To Start Investing For Tomorrow’s Dreams.

Invest… even if you have no current plans for your money. I know that sounds a little crazy but please bear with me. At some point, you will know what you want from your life. The AdMan and his trusty sidekick, the Creditor, are working day and night to separate from your money. They will never stop working to pry all of your money – both current money and the money you haven’t yet earned – away from you.

If you let them do this, then there won’t be enough money to make your dreams come true.

Those of you who have been reading my words for a little while know that I’m always telling you to focus on your priorities and to spend in ways that turn your dreams into your reality. I encourage everyone to know what they want from their lives. It’s easier to give up the mindless spending when you’re focused on a goal that will bring you closer to what you want to have in your life.

However, I recognize that there are always some people who won’t know what their priorities are. This post is targeted at them. To put it bluntly, invest your money even if you don’t yet know your “why”. There is no time like the present to start investing for tomorrow’s dreams.

If you don’t know where you want to be in 5-15-25 years, then I want you to invest your money anyway. That’s right. You owe it to Future You to set up an automatic transfer and to invest in a broadly diversified equity-based exchange traded fund every single time you’re paid. I don’t care if you start with $5 from each paycheque, or if you’re able to invest 75% of your take-home pay. The only thing that really matters is that you’re invest part of every dollar that you earn. Invest and don’t stop.

Why is this so important?

Excellent question! It’s important because, at some point in the future, you’re going to face a very large expense to make your dream come true and you will need the money on hand to pay for it. To be very clear, I’m not talking about insurance premiums or property taxes, nor even emergency flights home to attend a funeral. Those kinds of expenses that can be easily handled setting up sinking funds.

No, I’m talking about expenses with six-digits after the dollar sign. Do you want to start your own bakery? Maybe you want to take an extended sabbatical after having spent decades working? Perhaps there’s a piece of land that you’ve had your eyes on for a little while?

These are the kinds of dreams that cost Big Bucks. You might not have fleshed out all the details just yet, or maybe the hasn’t yet been planted. It doesn’t matter. Today is the day that you start investing for tomorrow’s dreams.

About 4 weeks ago, I received some correspondence that made my heart drop. In order for me to realize one of my lifelong dreams, I need to come up with an amount that’s just shy of $300,000. That’s a huge amount of money for me! While I do well for a single person, I’m not ever going to be on the cover of a magazine due to any vast fortune in my possession. I’m a person who started with $0 and worked my way up. It took me quite a long time to get to where I am now. I followed my own advice and it worked. Save – invest – learn – repeat.

Yet that correspondence was a gut-punch. Where on earth was I going to come up with $300,000 to make my dream a reality?

And that’s when I looked to my investments. Guess what? I was able to find the money.

Thirty one years ago, I started my investment journey by opening an RRSP. In 2009, the TFSA came into existence and I started using that too. Once I’d maxed out my contributions to my RRSP and my TFSA, I opened a non-registered brokerage account and started investing there too. Along the way, I made extra payments on my mortgage to pay it off super early. I also paid off vehicle loans and student loans. Throughout all the debt payments, I consistently saved money from every paycheque and invested it for long-term growth. When one debt was paid off, that payment was rolled into another one. Eventually, all of my debts were gone. I increased my investment amounts until I was able to save $100 per day. Along the way, I made plenty of mistakes – some of which I regret to this day. It took a very long time, but the end result is completely worth it.

Even when I didn’t know exactly what my long-term dream would be, I made the smart decision to start investing. I lived below my means for years. There were many people in my life who told me that I should be spending my money and that I had plenty of time to invest. Had I listened to those people, I wouldn’t have the money to do what I want most. By saying no to the stuff that didn’t matter to me along the way, I saved a good chunk of money while investing for the future and doing the things that meant the most to me. The result is that I’m now in a spot where I can handle this highly unexpected expense so that my dream remains intact.

I want you to be able to do the same. So even if you don’t know exactly what you want from your life in the future, please start saving for Future You. Right now is the very best time for you to start investing for tomorrow’s dreams. When the moment comes wherein you know what you really and truly want, I promise that you will not regret having chosen to invest your money. The money will be waiting there for you but only if you chose to start today.