January, 2025 - Millionaire on the Prairie

Roughly 11 months ago, someone asked me to share my best tip for success with money. It took me less than a minute to say “automatic transfers”. Honestly, I really think that automating your finances is the cornerstone of mastering your personal finances.

Automation is beautiful because it removes the decision from your hands. More importantly, an automatic transfer removes the temptation to spend the money. If you’re paid bi-weekly like I am, you don’t have to waste time every fortnight asking yourself if you should set aside money, how much money should be set aside, whether to send that money to your emergency fund, etc… Each of those questions is an opportunity for you to spend instead of save, or to save less than you should, or to neglect one of the most important tools in your personal finance arsenal.

The automatic transfer saves you from yourself. Once it’s in place, you don’t have to think about it again.

I spend a lot of time here telling you to pursue your dreams and to determine your priorities so you can make those dreams come true.

Some of you might not know what your dreams are just yet, or you’re still trying to figure out your priorities. That’s fine. As a matter of fact, that’s more than fine. It’s completely normal. Life changes, so your priorities will change too.

Those changes don’t really matter when it comes to whether or not to automate your money. See, when you do figure out what you want from your life, you’re going to be very happy that there’s already some money set aside somewhere. Set up your automatic transfer today and just let the money accumulate while you’re figuring out what you want.

If you can, start with 20% of your take-home pay. That’s a decent chunk. If it’s just being wasted on frivolities and feckidoos, then it’ll serve you better in an emergency account, a sinking fund, an investment account, or a retirement account. I would suggest dividing your chosen amount into thirds:

one third to your emergency fund until you have 6 months of income set aside;
one third to your retirement account until you’ve maxed out your TFSA and your RRSP; and
one third to short-term goals like a course you want to take, or some travel, or a hobby that you love.

Portion #1 – Your Emergency Fund

It’s going to take a minute or two to build up your emergency fund. That’s okay. Just start! When the emergency comes, whatever amount you have will help. Trust me when I say that no one in the history of the world has ever regretted having money set aside during an emergency.

Remember what the emergency fund is for. It’s money meant for your survival. If you lose your job, then the emergency fund has to pay for your shelter, your food, your medications, and your other necessities until you get another source of income. If you have debt, your emergency fund should also be able to cover those payments. After all, one does not need to have a vehicle repossessed nor dings to one’s credit rating while one is hunting for a job. (Some jobs care about your credit rating.)

It should be obvious but I’ll say it anyway. The fewer things that your emergency fund has to cover, the smaller it can be. Get out of debt and you won’t have to worry about how your creditors will be paid should you become temporarily parted from an income.

When money goes into your emergency fund, leave it alone. This is the money that is meant to replace your income should you lose your job. It’s not meant to pay for anything else.

While this blog is targeted at single people, I know that there’s more than a slim chance some of you will find partners and enter relationships. Relationships are another reason why everyone should have a big, juicy emergency fund. Not every relationship is meant to last. By having your own emergency fund, money will never be the reason that you stay in a relationship that is no longer good for you. Having your own money is insurance against financial abuse.

Portion #2 – The Care & Feeding of Future You

Next, you’re going to get old unless you die first. That means, there will come a point when you can’t work anymore. Before that day comes, you’ll probably reach a point where you won’t want to work anymore. You will want to have a nice, ginormous pile of retirement cash waiting for you. And if you can’t have a ginormous pile, then I’m pretty certain you’ll settle for a comfortable pile. Whatever amount you wind up with is up to you. If you save and invest $0 towards retirement, then that’s how much you’ll have at the end of your working life.

Start today. Fill your TFSA first, then your RRSP. Once those are filled, start investing in a non-registered investment account. As with your emergency fund, it’s going to take some time to maximize your contribution room unless you come into a lottery win, an insurance payout, an inheritance, or some other kind of windfall that you don’t spend on something else.

Always remember that the money in your TFSA, your RRSP, and your investment accounts must be invested for long-term growth. Yes – they’re called a Tax Free Savings Plan and a Registered Retirement Savings Plan. I get it, but I don’t care what they’re called. These accounts protect your money from being taxed, so go for growth. Invest in broadly-diversified, equity-based exchange traded funds so your money can grow exponentially through the magic of compounding.

Mutual funds are more expensive than exchange-traded funds, so try to invest in ETFs. Once you buy your ETF, don’t fiddle with it. Equity-based investments are meant to be held for a long period of time. If you think you’ll need money in the next 3 years, then set up a sinking fund to pay for whatever-it-is-you-plan-to-buy.

Portion #3 – Enjoying the Journey

Finally, you’re going to use sinking funds to pay for the things that bring you joy along your journey. Whatever extracurricular activity floats your boat probably comes with a price tag. Have a sinking fund so that you can indulge yourself. I worked with a woman who was very frugal in most areas of her life. However, she and her partner loved concerts. You better believe they had a sinking fund to pay for front row seats of their favourite performers. A young family member of mine discovered a love of travel. He just got back from his first cruise and is already saving up for his second trip to Japan. Another friend of mine attends writing retreats – money is needed for accommodation, travel, food, supplies, instructors’ fees, etc…

Life goes by very, very fast. And we spend so much of it at work, doing stuff for someone else that we probably don’t care about very much. The reality is that our society is designed to keep up endlessly stimulated. There’s very little encouragement to sit quietly and to contemplate what it is that you want, to plan for that, to save money towards making it a reality. Instead, we’re fed an endless stream of advertisements which exhort us to spend and spend and spend some more on the doodads and feckidoos that don’t exactly bring us long-lasting joy.

Part of every paycheque you earn should be spent on those things that make you happiest. Even if you don’t know what that is just yet, start saving for it. One day, you’re going to figure out what speaks to your soul and you’ll be so very happy that you have the money in place to acquire it. Maybe you want to take a culinary tour in Italy? Perhaps you like to make pottery? Maybe your sports club competes internationally and you need the funds to travel?

Whatever it is that satisfies your soul, make sure that you’re setting some money aside to do some of the things that make your life what you want it to be.

So that’s it. Even if you think that you have no reason to save and invest right now, I want you to know that you’re wrong. The fact is that you simply haven’t figure out the reason. You might not know what your priorities are, but you will one day. The fact that you haven’t fully fleshed out your dreams shouldn’t mean that you delay accumulating the money needed to make them come true. Set up your automatic transfer today then work on getting everything else sorted out.

Future You will thank you.

You need not make every mistake yourself. It’s perfectly find to learn from the mistakes of others. Here are some things that I’ve learned after investing for 30+ years. This is wisdom borne from real life experience. As my father used to say, hindsight is 20/20. Had I come across a blog post like this when I was younger, I probably would’ve made a few different choices. Maybe you can benefit from my wisdom, or you know someone who can. Either way, here we go…

You can be fired.

At the end of the day, you can be fired from your job even if you’re good at it. Your salary is an expense to your employer and if your employer believes that expending money to pay your salary is no longer a good idea, then you will be let go. It’s nothing personal. It’s math on a spreadsheet.

What can you do to protect yourself from this?

Firstly, you always pad your emergency account and investment account with the first 15% of your paycheque. On payday, that first portion gets whisked away for the inevitable rainy day. This money is not to be spent unless you lose your job. Get atleast $1000 into your emergency fund, then work your way up to a month’s worth of income. Keep socking money away into your emergency fund until you have atleast 6 months of income set aside. This goal is probably going to take a long time to complete, but that’s okay. When you lose your job, you will not regret having money set aside to pay for your expenses.

As for your investment accounts, fund those too. This is the money that will be there for Future You. It’s going to take the place of your paycheque when you finally retire. Follow these guidelines to maximize the size of your portfolio.

Invest for long-term growth.
Set up an automatic transfer so that your money goes from your paycheque to your investment account without having to remember to manually make the transfer.
Aim to keep the management expense ratios below 0.5% for all of your exchange-traded funds.
Never forget that mutual funds are always more expensive than ETFs, and there’s no sense paying more to own mutual funds when you can but a near-identical ETF for less money.
Use a dividend re-investment plan so that all dividends and capitals gains that you earn are automatically re-invested to boost the compound growth of your portfolio.

Secondly, you never stop learning. Should the day come that your employer lets you go, you need to have the skills to find another job. Maybe you want to continue working in your same industry. That’s fine. Know what skills and education requirement your industry demands of people in your current role. If there’s a new role that you want to try, investigate what knowledge and skills you need to secure in order to have a good chance of obtaining the next position you want.

Thirdly, always keep your resume up to date so that you can leave before you’re fired. Sometimes, you’ll know that “budget cuts” or layoffs are coming down the pike. That gives you a dram of power because you can start looking for your next position before you’re fired. If you’re successful, so much the better as you’ll be leaving on your terms.

This advice also applies to those of you who work for yourselves. Customers can disappear and events outside of your control have a way of derailing your very well-crafted business plan. If that happens, then you’re in the same boat as employees who’ve been fired. Entrepreneurs also need to keep a little something in the kitty for those days when the profits are non-existent / insufficient to pay the bills.

No one cares about you money as much as you do.

You have to be the one who is responsible for your money. There is no one coming to save you if you spend every nickel and remain mired in debt. Google the maximum CPP amounts that are available to retirees at age 60. If that amount seems like too little for you to live on when you’re retired, then you need to save.

Track your expenses. Know how much you spend. Armed with this knowledge, you’ll know how much money you’ll need to bring in to cover your costs when you’re retired. Where that money comes from is mostly up to you. After all, you can get a job with a pension and work for 25+ years to climb the ladder and maximize your pension payment when you hit 60.

Another alternative is to do real estate investing and let someone else pay down your mortgages so that you have rental income when you decide to retire. This is a complex area, and there are several good sources of people who have already done this. Check our Bigger Pockets, Coach Carson, and One Rental at a Time. It’s not my cup of tea, but it might be yours. Personally, I do not recommend this route but I do understand how the numbers are supposed to work.

The third and most widely available route is to live below your means and invest for the future. This is what I did. My mistake was investing in dividend paying ETFs instead of equity-based ETFs. This was a huge mistake as I did not benefit from the run-up in the stock market between 2009-2020. My financial situation would be so much different now had I not fallen in love with dividend ETFs.

That said, I do earn a nice passive income from my dividends every year. Not all is lost. I do enjoy watching the Dividend Dream and the GenX Dividend Investor on YouTube. I wish I’d had access to them 20+years ago when I’d started investing. However, they’re both younger than me and their channels are only a couple of years old. For those who are just starting out, I think these two YouTubers have some interesting things to say about how to make dividend investing very profitable.

Investing for Future You should be one of your goals this year. Again, track your expenses. Get rid of the ones that aren’t making your life better. Whatever money isn’t spent on the expenses you’ve eliminated should be split between investing for Future You and paying off debt.

Get out of debt ASAP.

Debt sucks. There’s no way around it. When you take on debt, you’re agreeing to pay some of tomorrow’s money to your creditor. You haven’t even earned the money yet, and you’ve already agreed to give it away. I hate that. Re-read the first section of this post. When you have debt, you’re still under the very real risk that you can be fired.

Some people say that some debts are better than others. I’m ambivalent about this position. I liken debt to cancer. You don’t want it. And if you have to get it, you want the form that’s curable. In other words, if you must take on debt, then keep it as small as possible and get rid of it as fast as you can.

Once you’re out of debt, don’t go back into it. Save up for your future purchases by using sinking funds, then spend that money to buy what you want. Alternatively, save money to rent whatever it is that you want to buy.

Are you itching to travel overseas? Then start a sinking fund and re-direct some of your paycheque to this goal. Once the money is in place, then start booking your flights, hotels, excursions, etc…
Need to replace your car? Start a sinking fund today and drive your current vehicle until the wheels fall off. When they do, use the cash to buy your next vehicle then start saving again. Do this as many time as you need to until you’re buying the vehicle that you really want with the funds that are in your sinking account.
Maybe you’ve been thinking it would be nice to have a vacation home? Rent one, or seven before you buy. Figure out if you want the headache of worrying about another property or if you would rather have the freedom that comes with enjoying your vacation destination and leaving the headaches to someone else.
How about your own boat for the lake or an RV for roadtrips? Again, rent these. Rent them as many times as you need to so that you have a solid appreciation of what it means to own one. If you still want one of your very own, then start a sinking fund and pay cash for it.

No more debt.

Credit cards are a tool.

That’s it. Those little rectangles of plastic can make your life better if you pay them of every single month and if you never carry a balance. If you’re unable to meet these two conditions, then credit cards will keep your mired in debt for a very long time and you should not use them.

Personally, I love my credit card. It gives me free groceries several times a year. I love this feature during the holidays because I have more expenses at that time of the year. Using points for groceries frees up money for gifts and entertainment costs.

I have friends who love their travel cards. They put every expenditure on a card so that their families of six are able to fly all over the world while paying as little as possible for flights. There are lots of credit cards out there and a dazzling array of rewards. I don’t know the in’s and out’s of every card.

All I know is that the rewards are a trap if you don’t pay off your credit card balance every month. Paying interest on credit cards is always more costly than whatever rewards is being offered.

Another thing you should know about credit cards is that carrying a small balance from month to month does not increase your credit score. If you believe that it does, then you should change that point of view because it is not benefiting you. Carrying a balance is good for the credit card company because they will earn interest off of you. Having a balance is not good for you because you’re spending money on interest for no good reason. I have had my credit card for over three decades. I’ve never paid interest and my credit score is very, very high.

Never believe that carrying a balance is good for your credit score.

If you buy it, then you should own shares in it.

Full disclosure: I invest in ETFs and I have a few shares in banks, telecoms, and energy companies. That’s it. That’s my portfolio.

Now, what I’m telling you is that you should own atleast 1-5 shares in companies that make the things you buy. I’m always amazed when I see the never-ending drive-thru line at Starbucks and Tim Horton’s. People love coffee. I do too, and I drink it every day. I wish there was a way to find out if the people buying at the drive-thru are also buying stock in Starbucks and Tim Horton’s. If not, they should be. They can see with their own eyes that these companies are making something that people are willing to pay for. That sounds like a profitable company to me.

The same principle applies to the things that you have in your home. Do you use streaming services? Do you know if other people do? Maybe 1-5 stocks in a streaming service would be a good idea. Maybe you know of a company that makes the hand-computer that you rely on every single day? I’ve noticed that more than one person has one and they seem to be quite popular.

Do you use a bank? Cash a paycheque? Get a credit card? Have a loan? Trust me. The banks are notorious for making money hand-over-fist, year after year. You won’t go too terribly wrong by owning 1-5 shares in one of the big 6 banks.

There’s a lot more research to be done, but I honestly think that investing in the companies that make the products and services that you and millions of others use and/or purchase every single day is a good financial move.

Now you know.

Do with this wisdom what you will. You can make choices that will get you closer to your financial goals, or you can do things that move you further away from them. The power is in your hands so wield it wisely.

Month: January 2025

No Good Reason to Save & Invest? Do It Anyway!