Author: Blue Lobster

Some Random Thoughts About Money

Never let it be said that I’ve ever held myself out as a money expert. Truth be told, I have no formal training in financial planning. I’ve read lot of books and lots of blogs, but I’ve never been certified to give financial advice to anyone.

With that said, I’d like to share some random thoughts I’ve had about money over the years. It’s been my observation that there are general principles about money that will work for most people. Here are the ones that I want to share with you. And if you don’t agree with me, that’s fine. I’m not arrogant enough to think I know all the answers or that my way is the only one that works. Take what you need and leave leave the rest.

Take care of your emergency fund

First of all, it’s always a good idea to have an emergency fund. Larger is better, but any amount is better than nothing when the emergency hits. There will be an emergency at some point – it’s not a matter of “if”. It’s a matter of “when”. Do yourself a favor. If you haven’t started an emergency fund, start one today. And if you do have an emergency fund, try to bump it up by 10%. Inflation has been on a tear so whatever emergency you have in your future, it’s going to cost you 6%-8% more due to inflation.

By its very definition, an emergency will not give you a heads-up. It’s on you to prepare for its arrival by setting some money aside for the financial aspects of whatever emergency is headed your way.

No new debt

The next thing you’re going to want to do is avoid going into more debt. If you’re not in debt, then great. Keep it that way. However, if you have debt, then seriously consider working your way out of it. Cook at home more to save money. Eliminate a streaming service or two for a few months and re-direct that money to your creditors. The fact is we’re heading into – or are already in – a recession. Not everyone is going to keep their job, or have an easy time finding one should the need arise. If that might be you, it would be very, very smart of you to minimize the strain that debt payments put on your paycheque.

After all, any money that doesn’t have to go to your creditors is money that stays in your pocket.

Invest for the long-term

Third thing – don’t stop your investment program. If you’ve been here for awhile, you know that I strongly suggest that everyone invest in the stock market. My non-expert recommendation is that you invest for the long-term in a diversified, equity-based exchange traded fund. For the past year, the stock market has been trending down and it’s been extremely volatile. Big deal! The long-term trajectory of the stock market is up and to the right. Over time, the stock market make money for investors. You need not concern yourself with daily movements.

If you’re investing in diversified, equity-based ETFs, don’t stop. Keep investing! However, if you’re investing in individual stocks, then God be with you. I have no idea how to pick winners and wish you the best of luck in your efforts to do so! If you’re not investing in anything, it’s time to start. You cannot participate in the stock market’s recovery if you’re not investing in the first place.

Use your tax shelters first. This means, put your ETFs in your TFSA first then into your RRSPs. Once you’ve filled up those tax shelters, you can invest in a brokerage account. Since TFSA and RRSPs are tax-shelters, the money will grown inside them tax-free. When the money comes out of your RRSP, you’ll pay taxes on the withdrawal. When money comes out of your TFSA, you will not pay any taxes on the withdrawal. Got it? Good. Don’t believe me? Talk to an accountant.

Once your tax shelters are maxed out, then continue to invest via ETFs in a brokerage account. The capital gains and dividends earned will be taxed each yet, but at a preferential rate. This means that they will be taxed at a lower rate than that tax rate you’ll pay on your earned income.

Again, talk to an accountant for professional tax advice.

Quick review:

  • Emergency fund? Check!
  • Debt paydown? Check!
  • Investing for the future? Check!

Now what?

Well, if you’re fortunate enough to still have money leftover, you’ve got many good options.

Might I suggest some sinking funds? The new year is less than 10 weeks away. If there are any particular dreams you want to realize in 2023, then now is as good a time as any to start planning on how to pay for them.

  • Do you want to travel in 2023?
  • Will you be taking some new course(s)?
  • Is it time for that home renovation you want?
  • Do you want to make more or bigger donations next year?
  • Are there any big celebrations or anniversaries that will happen in 2023?
  • Is there a chance you’ll be taking a sabbatical?
  • Will you need to purchase or replace any equipment for your business or side hustle?

Creating sinking funds and filling them up via automatic transfers is a good way to ensure that your priorities are funded. It’s been my experience that my money is frittered away when I don’t have a plan for it. Sinking funds have been a godsend for me since they ensure that money is in place when I need it. Chances are, they’ll serve the same purpose for you if you decided to use them.

And finally…

Remember to enjoy today. So much of financial planning and money management is about the future. While it’s good to take care of Future You, it’s just as important to live in the present. Wishing away your life is no way to live it. Count your blessings and enjoy them while you can. Today won’t ever come again, and tomorrow is promised to no one.

Money Habits Ought Not to Be Underestimated

When I first delved into the world of personal finance, I came across the idea that savers have trouble spending their money. Basically, the belief is that those who have saved all their lives are incapable of reversing their behaviour and spending their savings once they retire. I pooh-poohed that point-of-view. After all, how could being fiscally prudent be a bad thing? Or result in a bad outcome?

I promptly dismissed a perspective that I considered nonsense and happily continued along my own path of saving and investing. Save some, spend some seemed to be a far more intelligent way to use money IMHO. I worked my way up to saving a third of my paycheque for retirement. The rest of my take-home pay was spent on travel, concerts, home renovations, the daily Care-&-Feeding-of-Blue-Lobster, gifts for & celebrations with family & friends, and various other things. Surely I had it all figured out in my 30s didn’t I? Why should I even considered another way of seeing things when it came to how to spend money?

As they say, with age comes wisdom. It’s been many years since I discarded the notion that I would have trouble spending money when the time comes. Lately, I’ve been reviewing my own beliefs and taking another look at my own money habits. For more than 20 years, my method has been to rely on automatic transfers to fund my investment account. Rightly or wrongly, I picked out several mutuals funds then moved on to exchange-traded funds and invested my money into those investment products every single month.*** Every dividend earned has been re-invested through a dividend re-investment plan (DRIP). When I received raises, my contribution amount was increased too. A portion of each raise was invested for the future and the rest went into increasing my day-to-day comfort.

I’d thought I was doing most things right. Earn – invest – spend the rest. Looking back, I know that I didn’t pick the perfect investment products for my goals. (I’d been investing in dividend ETFs instead of equity ETFs. That “little mistake” was corrected in October of 2020.) With the benefit of hindsight, I see that I could have made better choices earlier in my investment journey but c’est la vie!

Today, I’m quickly approaching my anticipated retirement date. I’m quite happy about getting 100% of my time back. My work is mentally challenging and my colleagues are fantastic. I’ve been very fortunate in many aspects of my career. In spite of all of that, working at my current job until I take my last breath has never been a goal that’s made it onto my Bucket List. I’m very much looking forward to retirement. However…

I must confess that I’m feeling much more than slight trepidation about the idea of spending my money. The paycheques will stop and I will have to turn to other cash flows in order to continue paying for my life. And after a lifetime of money habits to save-save-save, it’s going to be a challenge to spend instead. My youthful self’s pooh-poohing is coming back to bite me in the butt.

Two years ago, I finally attended a meeting with a fee-only financial advisor. He told me that I was doing very well, and that I would have plenty for my retirement. He even told me that I could retire 2 years earlier than I’d planned! My financial advisor set up a withdrawal system for me… and that’s when it hit me. I would have to spend my money. Not all of it, and not all at once, of course – but I would have to spend some of it every year until my death.

Truthfully, the realization left me more than a little shaken.

Since then, I’ve also started listening to Ramit Sethi and his view on how to create a rich life. According to Mr. Sethi, who I do admire, I am not living a rich life because I haven’t yet defined what that would look like for me. In his estimation, I’m not using my money in the best way possible. While I’ve never been dissatisfied with my money choices, it would appear that I might not have been asking myself the right questions.

In addition to Ramit Sethi, I’ve started following Bridget Casey. She is another proponent of living a rich life. Now, she’s a few years younger than me so her life circumstances are very different than mine. However, she’s asking herself the questions now that I should have been asking myself when I was her age. Ms. Casey is also a fan of Ramit Sethi, so she’s building her rich life today. There’s a small part of me that wishes I had learned about this concept earlier.

So the question is the following: do I regret my money habits?

I wish I had a simple answer to that question. My money habits are going to allow me to retire 2 years earlier than planned. I will never regret that! At the same time, my money habits – particularly the one about never borrowing money to travel – prevented me from attending a wedding in Paris. I had just gotten home from Italy (or Spain?) when I received the invite to head back to Europe in a few months for a cousin’s wedding. My sinking fund for travel was empty and I didn’t have the funds to pay for the wedding trip in cash. So I declined the invitation. Do I regret that decision? Yes, but only a little bit.

Abiding by my money habits for so long has crippled my ability to make most decisions without considering the financial implications. Now, one of the biggest financial goals of my life is going to force me to amend my money habits. Firstly, I don’t need to save and invest anymore. I’m still not certain that I will stop completely or that I’ll ever feel comfortable turning off my DRIP. (My financial advisor said I should stop the DRIP when I retire.) Life without an automatic transfer into my savings/investing account is unimaginable to me, although I’m well aware that the vast majority of people do not save and invest regularly. That’s their choice and their choices aren’t my business, but if I’m not doing it – saving and investing – for myself then I start to feel rather anxious.

I’m very glad that I’m learning this about myself today, instead of after I retire. There’s time for me to start making some changes. One of those changes has been to decrease the amount of money that goes into my various sinking funds. I’ve redirected a few hundred dollars towards another goal, but I still need to get some advice from my accountant. Once I’ve spoken to her, then those few hundred dollars will probably go towards little day-to-day luxuries like a 4-6 hot-stone massages every year and a monthly housekeeper. My “rich life” might not be as grand as those of Mr. Sethi and Ms. Casey but that’s okay. Their priorities aren’t mine.

So I take it from me. Money habits should not be underestimated. Once you’re in a particular groove with your money, it’s going to be challenging to change them. While I’m still a fierce proponent of saving and investing, I’m going focus the next few years on figuring out how to spend my money too. I want my spending to bring me just as much comfort, joy and happiness in the next phase of my life as my saving-and-investing has brought me up to now. There’s a way to ensure I’m living my own rich life in retirement and I’m determined to find it.

*** There was an unfortunate 4-month hiatus during the most severe period in the 2008 recession. I could’ve been buying equities when the stock market was at its lowest, but I got scared and stopped my contributions. Trust me – I have since learned my lesson. We’re in another stock market downturn right now (2022) and I’m turning over the seat cushions to find money to invest in the stock market before this recession is declared over.

A Few Basic Tips for an Era of Rising Interest Rates

According to the Talking Heads of Financial Media, the central banks will continue to raise interest rates. This means that credit will continue to get more expensive. In other words, it’s going to cost you more if you need to borrow money for a house or if you have a line of credit. I’ve yet to see anyone talk about whether credit card interest rates will go up as a result of central banks’ increases. Let’s just say that I wouldn’t be surprised if credit card rates increased too.

So what are you going to do about it?

You do you. Take my words with a grain of salt. You know your numbers better than I do. Take what you need from this blog post and leave the rest. It won’t make any difference to me.

Invest

First, don’t stop investing. The stock market is down. In my opinion, which is both very inexpert and completely amateur, the stock market will continue to be extremely volatile for the next 12 months. This means that you should be buying and holding for the long-term. The stock market will recover, but absolutely no one knows when. Buying now means buying low. You want to buy low.

When you do buy, don’t sell. Stock markets are volatile right now. That means the value of your investment will go down on some days, then creep up a few days, then go down again. If you’re buying diversified exchange traded funds and mutual funds, you’re in it for the long haul. The price will gyrate, sometimes wildly. Do not check the price everyday. Invest regularly and believer that, over decades, the stock market’s trajectory is up. When you are investing for the long term, day-to-day price movements are inconsequential to your overall investing plan.

If you’re buying individual stocks, then you’d better know what you’re doing. I don’t invest in individual stocks because I don’t have sufficient knowledge to make wise choices.

No New Debt

Second, don’t borrow any money. This one might be tricky. Again, you know your situation better than I do so do with this suggestion what you want. Don’t borrow any money. If you’re bored with your vehicle and want another one, keep driving your vehicle. Being bored is way less expensive than paying 7.99% to a dealership. (Keep in mind that’s the rate they offer to people with good-to-great credit. I can only imagine the rates offered to those with less-than-stellar credit scores.) Do not finance another vehicle since interest rates on car loans are also increasing. If you simply must replace whatever you’re currently driving, then pay cash.

Maybe you’re ready for a vacation. Great! Pay cash. Perhaps a little self-care is in order? Do what you need to do. Pay cash. The new Bright-and-Shiny has finally been released and you’ve been waiting for it for a very long time. Fantastic and congratulations – go & get it! Pay cash.

It is not a good thing to go into debt when interest rates are going up. And they are going to keep going up for the next little while. Do yourself a favour and pay cash so that you don’t have to worry about them.

Eliminate Current Debt

Third, work on paying off any debt that you’re already carrying. I have no tips on how to change the past. If you’re in debt, then there are precious few ways to get out.

One method has two parts. First, don’t acquire more debt. In other words, start paying for things with cash or debit. Two, pay off the remaining balances on the debt you already have.

Have the money come out of your account as you pay for your purchases. Believe me when I say that you will naturally decrease the number of purchases you make. Fewer purchases results in having money available to make extra payments on your outstanding debt. Sending extra money to your outstanding debts results in those debts being paid off sooner rather than later. Once the debts are eliminated, creditors no longer have a claim on your money. This is a very good thing.

That’s it. That the 2-step method for getting out of debt. While this is a simple plan, it is not easy to implement. Never confuse simple with easy.

The other method to eliminate debt is bankruptcy. If you need to go that route, then talk to a bankruptcy trustee for expert advice. Bankruptcy trustees know the process and can offer you expert advice on how to deal with your situation.

Emergency Fund

Keep your emergency fund as full as possible. If you had to use it, then focus on replenishing it. Now is not the time to be on the high-wire without a safety net, financially-speaking. While you have a paycheque, ensure that a portion of it is diverted to your emergency fund until you have 9 months of expenses in there.

In my inexpert view, the recession is here although it might be nascent. People’s jobs aren’t as secure as they might like. When paycheques disappear, the emergency fund has to be there to take its place. (In an ideal world, everyone could live off the dividends and capital gains from their investments. We do not live in an ideal world.) If there’s a chance your job could disappear, then you need an emergency fund.

If you have an emergency fund, and you haven’t had to use it, then you’re in a great position! You should still consider padding it a little bit more though. Maybe adding another 10% to what you already have in there. No one has every complained about having too much money during an emergency.

Breathe

You’re doing your best. No one is perfect with money. Everyone’s situation is different, and you’re the only person who has to live with your financial decisions. Your money isn’t limitless and you’re making the best choices available to you with the funds you have. The fact that you’re even reading personal finance blogs is evidence that you care about making good choices with your money. You want to live your best life with the money you have.

Good on you! Take things one day at a time. Save-invest-learn-repeat. As you know better, you’ll do better. You can do this!

It’s Time to Start Thinking about 2023 Goals

Wow! The first week of October 2022 is in the history books. That happened quickly, didn’t it? This is a good time to start thinking about what you’d like to achieve in 2023, which will be here in two shakes of a lamb’s tail.

For us Canadians, this weekend is Thanksgiving. If you can, find a few minutes to start thinking about what you want from 2023. Have your priorities changed? Are you on track to meet the goals you’d set for 2022? What do you need to make your goals a reality? Do you have new goals for 2023? \

You need not hammer out a complete financial outline for 2023, but you should definitely start thinking about it. The Talking Heads predict that central banks will continue to raise interest rates in order to stifle inflation. The fact remains that rates will not go up forever. At some point they will level out and then start to drop. Central banks might stop raising rates in late 2023, or early 2024. Who knows? They certainly don’t.

Bottom line – you still have to plan your spending so that you can obtain the life you really want, so that your heart’s truest desires are achieved, so that you can maximize the joy you experience in your life. Start thinking about it now.

For my part, I’d like to start travelling some more. Those of you who’ve been around for a while know that I’ve visited Italy, Spain & Ireland. I’d like to make a few more trips to Europe, then get to Africa and Asia at some point too. If time permits, I’ll also go to Australia & New Zealand. While the travel deals flung my way via email are certainly tempting, I haven’t yet saved the money for my next big trip.

I’m still a save-now-buy-later kind of person. There’s not a chance in hell that I will ever start to love debt. It’s simply not part of my DNA. But for a few unexpected large expenses during the pandemic, I would’ve had the money in the bank to take advantage of the travel deals I’m receiving. Sadly, those unexpected expenses involved the CRA and my house. My travel-priority plummeted down the list of priorities. I’d rather stay home a little bit longer than have to replace the foundation of my house, or to have the CRA take an excessive interest in me.

One of my financial goals for next year is to re-build my travel account. I’m vaccinated and I’m ready to head back to the airport. While I love my home, it’s time to see a bit more of the world while I have the health to do so. And since I haven’t yet won a lottery jackpot, I have to save up some money before I can indulge my wanderlust.

Another goal for next year is to upgrade my wardrobe. I’ve been fortunate enough to work from home since April 2020. My employer has changed its mind about my work location. Accordingly, I am hearing into the office for part of the week. Thankfully, my pre-pandemic clothes still fit. However, I think it would be wise to add a few new pieces to my wardrobe for those days when I’m working with others.

Not every financial goal for the upcoming year is going to be a fun one. In my case, some of my goals for next year are most decidedly not-fun.

I’ve also had to start thinking about replacing expensive things in my house when the time comes. I’ve nicknamed those things “Household Appliances”, “Furnace” and “Hot Water Tank”. They won’t last forever. I’m happy with what I’ve got right now so I won’t be replacing them before they give up the ghost. Instead, I’m going to start squirreling away money into a sinking fund for their replacement.

Remember what I said about not having debt?

Well, even I know it’s not always possible to avoid it. Where I live, a furnace isn’t optional. If mine should happen to die in the middle of winter, then I will be forced to take on some debt. However, if I start building that sinking fund now, then I’ll have a big down payment on that furnace loan. A bigger down payment always minimizes the amount borrowed. And if the Furnace Gods smile on me, mine will last until I’ve completely funded its replacement. Fingers crossed!

Obviously, you know your own goals better than I do. Since you’re on this website, you care about learning how to achieve as many of them as possible. At the time of this post, there are 12 weeks left in 2022. Find the time to review your priorities and goals. Confirm that they haven’t changed due to other changes in your life. Then take a look at your money. Ideally, you’re spending your money in ways that get you closer to the life you really and truly want rather than further away from it. Should you discover that tweaks need to be made, then make them now. Get yourself on track to entering 2023 with a firm plan in place so that you can create the life that you truly want.

Happy Thanksgiving!

We’re in the Final Quarter!

As hard as it may be to believe, there are roughly 90 days left in 2022. Does anyone else feel that life resembles a roll of toilet paper? In that the closer it gets to the end, the faster it goes? Honestly! It seems to me that we were just starting summer about 3 or 4 days ago .

Yet, here we are in the final quarter of 2022. We’re heading into Halloween, Thanksgiving, Eid, Hanukkah, Kwanza, Christmas & New Year. And for some segment of you, there are various birthdays and anniversary celebrations thrown in there too. It’s the time of year that I’ve taken to calling the Shopping Season.

You may call it something else. No matter. My only question for you is: how are you going to pay for it?

I’m hoping that your upcoming celebrations and festivities will be funded by your money pots, aka: sinking funds, rather than by your credit cards. And if you do use your credit cards, please have the money already set aside to pay the bill in full. As you know, I love my credit cards and gleefully collect points each month. However, I would shred my cards in an instant if I didn’t already have the cash on hand to pay the bill in full each and every month.

Create a plan of attack for the Money Vultures coming for your cold, hard cash … I mean, draft a strategy that allows you to enjoy the Spending Season as you want to. Retailers are still trying to make up for those sales that were lost during the pandemic’s lockdowns. They will be particularly inventive and persuasive as they try to convince you that spending is the only way to show your love. I’m not telling you that you can’t spend your money. What I’m telling you is that you should be smart about how you do so. What things are most important to you? Who are the people who deserve to stay on your gift-list? Is there anyone who should be removed from your list? Are charitable donations important to you? If so, how much do you want to donate this year?

These are the questions that you should answering as we start the final quarter of the year. If you’re paid bi-weekly, there are only 6 or 7 paycheques left in the year. Take the time to figure out how much of each will be spent on the various events that you know will be coming up before 2022 rolls into 2023.

I know people who are absolutely enthralled by Halloween and acquire the most amazing costumes every year. Other people put lots of time into decorating their homes for Christmas. There are those who have to do a significant amount of travel in order to be with their loved ones over the holidays. The Spending Season is chock-full of opportunities to spend-spend-spend on everything for everyone!

It can be a financial disaster that derails all of your other money goals. You don’t have to let that happen. Nope! You have the power to decide how you want to spend your money during the next 90 days. Do not let the AdMan and the Creditor convince you that the only way to appreciate your loved ones is to bankrupt yourself. It’s not true. The people who really and truly love you do so because of who you are, not what you buy them.

Can You Save Too Much Money?

This question recently came up, and I’ve been noodling on it ever since. My whole adult life, I’ve been following the habit of maxing out my RRSP, my TFSA, and saving another chunk of my paycheque in my non-registered investment account. However, yesterday, someone asked me what I was saving it all for and whether I would still be able to achieve my retirement goals if I saved slightly less and spent more money in my day-to-day.

Mind blown!

In all honesty, I have never seriously considered that possibility. When it comes to my own money, I’m very rigid and allow for little, if any, deviation from my money rules. I wanted to hit certain savings targets in my life, and I’m pleased to say that I’ve hit them. It simply never occurred to me that doing so would mean that I would be saving too much money.

Bridget Casey, Ramit Sethi, and Bill Perkins are three people whom I’ve started following online in the past few years. Each of them, in their own way, discusses the importance of operating from an abundance mindset instead of a scarcity mindset. All of them encourage their readers/followers to live a rich life today and to avoid putting off today’s happiness to save for tomorrow’s.

It was brought to my attention that, though I read those books, there’s a very, very, very teensy-weensy, itty-bitty, little chance that I might not be putting their advice into practice. It’s quite possible that I’m operating from a scarcity mindset. Maybe I’m operating out of a place of fear that I won’t have enough, despite all the evidence to the contrary? A very wise and very good friend has suggested to me that I’m in a position where I have enough invested for the future. (Truth be told, I’ve heard that same message or a variation thereof from other people who love me.) The suggestion was made that continuing to save for tomorrow will prevent me from having what I want today. My friend’s words threw me for a loop and I’ve been thinking about them ever since she uttered them.

So again, my question is can you save too much money?

This question leads me to more questions. According to calculations I trust, I will die with several million dollars in the bank if I stick to my current Rigid Rules. I’m a Single. No spouse, no kids. Strictly speaking, I have no natural heirs of my own issue. Does it make sense for me to die with that much money when I don’t have my own children? Isn’t there the slightest possibility that I could cut back on my saving right now and let my current investments ride? After all, I would still die with a nice fat cash-cushion, but I could have a little more fun along the way if I spent more of my money day-to-day.

Yet that viewpoint leads me to the next question that I think is important. Am I unhappy with how I currently spend my money?

My honest answer is that I’m not. In all honesty, when I want something, I buy it. Do I save for it first? Generally, yes – saving comes before spending. Do I stop or reduce my investment and retirement contributions to spend money? No, never. Is this a bad choice?

Until yesterday, I would have emphatically said “No – it’s not a bad choice.”

Today, I’m not so sure. If my retirement will still be quite comfortable, even if I spend a little bit more today, then does it make sense to continue with the same savings habit? Alternatively, should I be forcing myself to spend more money today just because I can?

The goal of life isn’t to simply die with a whole lot of money. Even I can appreciate that such a life is a wasted one. I don’t feel that I’m wasting my life by following my Rigid Rules. Right now, I go out with my friends. I travelled a lot before the pandemic. I spend a lot of time with my family. Buying what I want, when I want isn’t an issue. Could I spend more money on stuff for the sake of doing so? Sure, but I don’t want to fill my house with stuff that I don’t need or won’t use.

My whole life, I’ve been a money planner. I’ve been saving since I was a small child. My parents started us on an allowance. When I started working, I kept up the habit. Never once did I question whether I was doing the right thing by saving something from every paycheque. As my paycheques grew, so did the percentage that I saved and invested. Lifestyle inflation was never a problem for me. Living below my means has always be my guiding financial principle. I created a very large buffer between myself and the financial edge.

Now, I’m entering the second half of my life. The lessons that got me here might not be exactly the right ones to get me where I really want to be. It’s time for me to consider the possibility that I’ve moved into the “and” stage of my life. Up until now, I’ve always believed that I have to choose between various options. However, it’s starting to come to my attention that maybe there are situations where I don’t have to choose. Maybe I’ve reached a point where I can have both.

I can spend money today and still retire comfortably. It might be time for me to force myself to spend, in just the same way that I forced myself to save. Maybe I can cut my daily saving amount and still reach my financial goals. I get one life, and I want it to be as good as I can possibly make it. This means that I need to get back to assessing if what I’m still doing will continue to be the right choice. The strategies that I employed when I was younger may not be the strategies that will benefit me going forward.

Can you save too much money? The question will stick with me for a good while. I’m happy with how I live my life, but I have to consider the possibility that I could be happier. There’s a chance that I could be spending my money in a way that brings me more joy today while still ensuring that I’ll be taken care of tomorrow. And that’s the goal that I should be striving to fulfill.

Fixed Rate Mortgages Offer a Measure of Safety

Last week, I wrote about the challenges of having a variable rate mortgage when mortgage rates are increasing. This week, I’d like to discuss how fixed rate mortgages (FRM) offer a measure of safety. Depending on when your FRM is up for renewal, you have some breathing room to figure out how to handle the increased mortgage payments that are coming your way.

The generational low mortgages, i.e. rates below 3%, are pretty much gone for good. For very brief blip of time, you could get a discounted 5-year rate for 1.39% in 2021! That’s an incredibly low mortgage rate for a 5-year term, one I doubt that I will see again in my lifetime.

Even if you were able to snag a 5-year rate lower than 3% in early 2022, I can pretty much guarantee that you’ll be paying atleast 2% more when you renew in 2027. For my money, I think you should take the following steps to prepare yourself.

Gather information

First of all, start playing around with mortgage calculators. Plug in your own numbers so you can see the difference that a higher rate is going to have on your mortgage payment. It should be obvious that a higher rate on your FRM means that the payment is going to go up. The mortgage calculator’s job is to inform you of the size of that increase.

Armed with that knowledge, you can start making a plan on how to pay for your property when your mortgage costs go up. The last thing you want is to be surprised by a $500 increase in your mortgage payment, or to face a future foreclosure because you can’t pay your mortgage debt.

Build a lumpsum payment

Secondly, start saving the difference between what you’re currently paying on your FRM and what you anticipate paying at renewal. How you save the money is up to you. Here are a few suggestions:

  • Get a part-time job.
  • Bring in a roommate.
  • Cut your expenses.
  • Obtain a promotion or raise at work.
  • Start a cash-flowing side-hustle.
  • Use an insurance payout or inheritance.
  • Sell things you no longer use.
  • Take transit to save on parking fees.
  • Cook at home most days of the week.
  • Save your tax refunds and work bonuses.

Open a separate bank account for this money. Set up an automatic transfer so the money goes into the new mortgage account without any further decision-making on your part. Remove the temptation to spend this money – do not get a bank card for this account! If it’s your priority to be in a position to handle your increased mortgage payments, then you should not be touching whatever’s in this account.

This money is meant to be in place so that you can make a lumpsum payment against your mortgage at renewal time. Lumpsum payments decrease the amount of money being borrowed. Applying a lumpsum to your outstanding mortgage balance will lessen the impact of the higher interest rate’s impact on your mortgage payment. The more of the principal that you pay down, the less money you have to borrow from the bank to pay off your remaining mortgage debt.

Increase your mortgage payments

Thirdly, you can increase your mortgage payment. When I had a mortgage, my bank allowed me to increase my mortgage payment by up to 20% every year. It was a fantastic feature, and I used it religiously. Of course, my initial mortgage payment was something like $300 bi-weekly, so it wasn’t a hardship to find an extra $60 every two weeks. A friend of mine took a different path. Every two weeks, she determined whether to make a lump sum payment against her mortgage. Since her expenses were far more variable than mine, she needed that flexibility. However, the both of us managed to pay off our mortgages way earlier than the 25 years that our lenders had allotted to us.

Your mortgage payment might be over $1500-$2000-$2500, so a 20% increase will pinch a bit harder. However, if you can increase it by any percentage, then do so. The sooner you repay the principal balance owing, the lower the balance that you have to renew. A lower renewal balance results in less of an increase in your future mortgage payments.

Renew now instead of later

Finally, determine if you can lock in a mortgage renewal rate today. This step is for people whose FRMs are coming up for renewal in the next 90-days. Most lenders allow people to renew their mortgages early, usually within 90-120 days from the expiry of the mortgage term.

While it’s not a 100% guarantee, you can confidently assume that the Bank of Canada will be raising the prime interest rate again on October 26, 2022 then again on December 7, 2022. When they do, lenders will take the opportunity to increase their mortgage rates. If you lock in a renewal rate before these dates, you should definitely do so.

A Measure of Safety

I’ve always relied on fixed rate mortgages. I think they’re great for allowing borrowers to know the fixed costs of their shelter for a defined period of time. Having a fixed mortgage payment goes a very long way towards understanding where your hard-earned money must be allocated. My father once told me that, when you know the cost of your shelter, you can build the rest of your budget around it. He was right. Having a place to lay your head is a fundamental necessity so paying for it must always be top of mind.

Assuming that you do not want to sell your property or lose it to foreclosure, it would behoove you to start thinking about how much your mortgage payment is going to be upon renewal. Knowledge is power so use knowledge to your advantage. In this post, I’ve shared a few tips with you on that steps you can take to minimize the impact of increase rates that are headed our way. You will need shelter until the day you die, so please do not procrastinate. Take steps today to ensure that you can shelter yourself tomorrow.

You Need to Know About Trigger Rates

As I understand things, people with variable-rate mortgages should be very worried about their minimum mortgage payments increasing. They are facing trigger rates on their mortgages. These rates force people to make higher minimum mortgage payments.

A variable rate mortgage (VRM) payment covers interest and principal. However, when the mortgage rates increase on VRMs, the portion of each payment going to interest increases too. This leaves a smaller portion of the payment going to the principal on the mortgage loan. Let’s say your payment is $500 at X-interest rate, and $300 goes to interest while $200 goes to principal. When the interest rates goes to X+Y%, then your payment stays at $500 but now $375 goes to interest and only $125 goes to principal. If Y is high enough, then you’re in deep doo-doo because all of your $500 payment will be going to interest.

I’ll say it louder for the people at the back. If the mortgage rate on a VRM gets high enough, then the entire mortgage payment is going towards interest on the debt. None of the payment is going towards mortgage principle. This is a very bad situation because it means that the mortgage balance is not being paid down at all.

Enter trigger rates. These are the mortgage rates on VRMs which trigger an increase in the mortgage payment on a VRM. The increased mortgage payment ensures that atleast some of the new, higher mortgage payment goes towards the principal. In other words, the borrower will be paying down the mortgage balance instead of seeing their entire payment going to interest. Once the trigger rate has taken effect, borrowers are now legally required to pay the higher mortgage rate. If borrowers fail to pay the new, higher mortgage payment, they face the prospect of foreclosure.

If you have a variable rate mortgagee, talk to your lender about trigger rates. Find out if you’re close to yours. The lower your variable-rate mortgage is, the more likely you are to see an increase in your minimum required mortgage payment. You need to do two things at this point. First, find out from your lender what you new mortgage payment will likely be. Second, ensure that your budget can handle the increased payment.

Should your mortgage payment be on track to increase, then there are a few things you can do to stave off foreclosure. The first one is to start making extra payments on your mortgage to bring down the principal balance. Do not deplete your emergency fund to do this! Instead, pick up a part-time job or start a side hustle. Put all of that money towards your mortgage. If you earn a promotion at work, apply your additional take-home pay to your mortgage balance. Should you receive a lump sum of money, put it against your mortgage balance.

A second good option is to cut the extra fat from your budget. Eating at home more often will reduce costs since the food you make for yourself is generally less expensive than restaurant & take-out. Maybe you give up some monthly subscriptions. Perhaps you start hosting more potlucks. If possible, perhaps you switch to transit for your commute to work if working from home is no longer an option. Assuming that keeping your home is a priority, the money to pay the higher mortgage payment has to come from somewhere.

Your third option is to get a roommate & apply their rent to your mortgage. When it’s time to renew your mortgage, carefully consider the option of a fixed rate mortgage. (In the interest of transparency, I will tell you that I’ve always had fixed rate mortgages on my properties. I paid a little more in interest but the peace of mind was worth it to me. You may make a different choice.)

Fourthly, get rid of your mortgage completely. Pay off your mortgage, if you can.

Finally, sell your house before you’re underwater on your mortgage. If you don’t think you can pay the new, higher mortgage payment, then you can always sell your home before the bank does. A foreclosure will do significant damage to your credit rating. It stays on your credit report for seven years. If you sell your home, then there’s no foreclosure and you can preserve your credit. I’m not suggesting that you do this if you don’t want to but I want you to know that it’s an option.

The impact of trigger rates are just slowly seeping into the collective consciousness of those with mortgages. For the past 20 years, mortgage rates have simply been falling. No one has had to worry about their minimum mortgage payment increasing if they held a variable rate mortgage. Trigger rates were a theoretical idea – they simply didn’t impact anyone.

Today, the mortgage landscape is much difference. Those of you with VRMs are likely facing trigger rates. You need to start calculating how your budget is going to accommodate the higher minimum mortgage payment that is likely in your future. Be proactive and gather the knowledge you need to make an informed decision about your next steps.

You Should Always Be Saving Money!

There is no way around it. You should always be saving money – some way, some how. Life is expensive, and it only gets more so. Name one essential thing in your life that has gotten cheaper over the years. Food? Nope. Rent or housing costs? No! Gasoline? Not a chance. Utilities? Not a bit. Transit? Slower increases but increases all the same.

Even if you have a fixed mortgage on your home, the cost of borrowing money will go up when you renew. The central banks are on a tear because they want to get inflation under control. That means mortgages are more expensive. Even with a fixed mortgage, the other costs of home ownership have gone up over the years.

While it’s important to live in the present, I would argue that you owe it to yourself to resist the incessant urging of the AdMan and his trusty sidekick, the Creditor, to always be buying. You need to save money for Tomorrow, and there’s a good chance that you don’t know exactly how much you’ll need.

For example, if you own a house, then you should definitely be saving. At some point, your house will need an expensive repair or costly maintenance. It could be a new furnace, a new hot water heater, new windows, new roof, or a new foundation. It’s unlikely you’ll be able to buy another of those things for less than $100. And while a new hot water heater doesn’t cost nearly as much as a new roof, it’s best that you have the cash-money on hand to buy it outright. Your water heater should not be the reason you’re paying interest on your credit card.

And while a new roof is likely going to run you 5-figures, the same principle applies. Start saving money now so that you have the cash in place in 10-15-20 years when you’ll need to replace your roof. Much like successfully saving for retirement, owning a home requires long-term financial planning. I love my home but I’m the first to tell everyone that it’s a money pit.

Saving for retirement should be obvious. Your bills won’t disappear until you die. In other words, you may have parted ways with your employer but don’t assume that means that your bills will have parted ways with you. Whether 25, 45, 65 or 85, you’ll still need to eat and have shelter. Society still demands that you be clothed. No matter how old you become, you will need money for the basics.

You need to invest today so that Tomorrow You will be okay financially. Remember that most people don’t have pensions, i.e. their employers are not saving for them. It’s up to you to save and invest. For those few who do have pensions, there’s a chance that your pension is not indexed to inflation. This means that your employer will pay you a fixed amount when you retire, but that amount will never go up since it is not indexed to inflation. Prices will continue to increase but your pension amount will be set in stone until you die. This is not a good situation to be in if your retirement is going to last a long time. And since very few us know our expiry date in advance, it’s best that you start investing your money ASAP and ensure that your portfolio mix is built for growth.

Maybe you own your vehicle. You should definitely be saving. Oil changes, brakes, tune-ups, various repairs, insurance, registration – all of these things cost money. Ideally, you’ll pay cash for your car. And if you can’t pay cash, then pick the least expensive vehicle you can find that will do the job so that your financing costs are as low as possible. Once your loan is done, continue to pay that loan amount into your Next Car Fund. When the wheels fall off your current vehicle, hopefully you will have enough in your Next Car Fund to pay cash. Then repeat the cycle. This method works best if you can get 5 years or more between vehicle purchases.

Do you have loved ones with whom you like to celebrate things? Are they the people you call when you want to do things? Concerts? Sports games? Picnics? Wine tastings? Movies? If the answer is yes, then you should have some fun-money set aside for those times together. It doesn’t have to be a lot, but every paycheque should see $40-$50 going towards these outings. Life is better when it’s shared with those we love. And while there are free things that you can share with loved ones, there are also times when you might want to spend a little bit of money on them too.

One of the very best benefits of always saving your money is that you can live in a state of debt freedom. Your entire paycheque, after taxes, is completely yours. You need not send any of your hard-earned money to a creditor for a purchase made in the past. You get to keep your money! This is an exceptionally good thing considering how hard you’ve worked for it.

So just remember to always be saving. Whatever it is that you want, try to save for it in advance then pay cash. You won’t ever regret depriving your creditors of interest payments. Trust me on this one!

Life Gets in the Way

I’ve enough life experience to know that life gets in the way of the best laid plans. And since this is a personal finance blog, I’m going to try and expound on this idea as it impacts your money decisions.

It’s easy to tell people to invest consistently. Showing others how to set up automatic transfers to a brokerage account is a matter of a few graphs and maybe some one-on-one coaching. Reminding people of the importance of always living below their means is a simple task. Wanting to do those things is as easy as falling off a log!

The reality is that doing those things is NOT EASY. Ideally, everyone would be able to invest money from every single paycheque, without fail. Being able to do so for years and years requires that a lot of things go very right for a very long time.

First of all, you need to earn an income that has room for saving. If every penny you earn is spent on shelter, food, transportation and utilities, then where is the “investing-money” going to come from? Are you willing to cut back to only eating twice a day? Maybe you won’t bother paying for electricity during the summer months? Maybe you wouldn’t mind only showering once a week to save on water?

My point is that there is an income level at which it is unrealistic to expect someone to save. They would be living a life of deprivation, such that their basic needs are not being met. It would be cruel and perverse to expect that they would deprive themselves even more.

So let’s say someone is making enough to cover all of their needs and most of their wants. They might even have enough for a luxury or two. These are the people with “investing-money”. They can live below their means and still live a comfortable life.

However, life can get in the way of their investing plans too. What if a family member needs financial help? Or what if a vehicle needed to commute to work is totaled and the insurance payout isn’t enough to buy a replacement in cash? Maybe the parents’ retirement income isn’t enough to keep the lights on so they need a few hundred dollars every month to keep from being hungry? What if an employer goes bankrupt and another position isn’t to be found for another 8 months? What if illness prevents one from ever working again?

My point is that you can only invest month-in-month-out if everything goes well all the time.

This isn’t the reality for most. For the majority of us, there are always expenses that crop up and demand that we make a choice. You can personally make all the right personal finance moves then have your life upended by a motor vehicle or workplace accident that requires months, maybe years of rehabilitation. No one chooses to be hurt in this fashion. Being a great employee won’t save you if your employer goes bankrupt during a recession and no one else is hiring. Similarly, that status won’t help you if the only jobs you can find are minimum wage or just above that level. Let’s be honest. You cannot invest what you don’t have.

Even if you have an emergency fund, there’s no universal law stating that your emergency will cost as much as or less than what you’ve socked away. Similarly, there’s no prohibition against you experiencing more than one serious emergency at a time. And if you are “lucky enough” to have an emergency that falls within the capacity of your fund to handle, then you’re in the position of having to replenish your emergency fund.

So unless you’re income has increased, you’re faced with the choice of using your money to invest or to replenish your emergency fund. After all, you only have a finite amount of money. You owe it to yourself to make the best use of it. Having an emergency fund is a cornerstone to taking care of your financial needs. Yet, investing for the Care and Comfort of Future You is also extremely important.

It’s called personal finance because it’s personal. There is no one right answer for everyone. With each passing day, I am convinced that it’s a rare few who can invest without fail over a lifetime. While many have the intention, the vagaries of life can sometimes impede the implementation of such a plan.

Do me a quick, free favor. If you’re doing your best to save for your future, then pat yourself on the back. You still have to survive today. And if that means lowering your investment contribution to $10 per month, then so be it. I am not going to suggest that you starve today so that you can eat tomorrow. If you’ve used your emergency fund, replenish it. If you don’t have an emergency fund, start one. If you’ve lost your income, then preserve your money until you’ve secured another source of income. If your family needs help to avoid ending up on the street, then make the decision that lets you sleep well at night.

Life gets in the ways of the best laid plans. That doesn’t mean you stop planning. It means that you adjust and tweak your investment plan as necessary, without abandoning it completely.