Author: Blue Lobster

Finding the Balance

One of the biggest downfalls of the online personal finance community is the lack of balance. I suppose that’s partly due to the fact that we’re all competing for eyeballs on the screen, and extreme headlines garner more attention. It’s unfortunate though. I think more people would be willing to consider pursuing FIRE if they understood that an important element is finding the balance.

God bless him, but Jacob Fisker’s desire to live on $7,000 per year is not one that holds any appeal to me. That level of frugality makes me a little ill. Even the idea of being “face-punched” – popularized by a grand-daddy of FIRE, Mr. Money Mustache – isn’t particularly enticing. Fret not – I do understand the phrase is a metaphor. It’s meant to remind you that stupid decisions with money are just as painful as being hit in the face.

To each their own, right?

Well… maybe. Personally, I think that pursuing financial independence would benefit many people. In a society that abhors unionized labor, pursuing financial independence is the only way for employees to gain some measure of power in the workforce. At the end of the day, business owners need employees. It’s a power-dynamic that is ripe for abuse and exploitation when one party desperately needs money. You – or any employee – can minimize the risk of experiencing such exploitation by pursuing financial independence. When you have the financial resources to walk away from your job, you’re tilting the power dynamic back in your favour. I think that this is a good thing.

At a bare minimum, financial independence gives you choices. In our capitalistic society, financial independence is as much a status symbol as anything else. It’s a signal that someone has enough resources to spend their time how they wish. And isn’t that one of the biggest draws of being rich? Not having to do what someone else tells us to do?

The reality for all of us is this. We each only get one life and finding the balance is key to living a good one. That’s why it’s important to spend some of your money today.

Look, I know that I spend a lot of time telling you to save and invest your money for the long-term. There’s no denying that I think you owe it to Future You to create a sizeable investment portfolio. At the same time, I don’t ascribe to the belief that investing money should be a goal unto itself. Money is pointless if you’re not going to spend it.

Furthermore, no one is promised tomorrow. You have no guarantee that you will be alive in 5-10-25 years to enjoy all the money that you accumulate in the interim. By finding the balance, you’ll be able to spend some of your dollars today on the things that make you smile.

Of course, you should always invest part of your paycheque for the future. I’ll never change my mind about that. What I also want you to do is shave a little bit from each paycheque to spend today. Make no mistake! I don’t want you spending money needlessly. Rather, I’m suggesting that you spend on things that truly make you happy.

Consider taking the advice of Ramit Sethi – ruthlessly cull expenses from your life that don’t bring you joy and spend freely on the ones that do. To me, finding the balance means diligently adhering to my mother’s advice to spend some, save some.

It’s taken me a long time to learn that there has to be a balance. Like I mentioned above, each of us gets one life. We owe it to ourselves to make it as good as we possibly can. It’s important to find ways to enjoy the journey while planning for the future.

The balance is different for each of us. What brings you joy might generate indifference in someone else. No matter. Do what you must to find the balance in your own life.

*** My comments are not meant for those living on low incomes. Obviously, those on low incomes are doing what they can to survive. I don’t have the answer to the plight of the working poor. Telling low income workers to simply “earn more money” isn’t effective. It’s insulting. If they could, they would.

Go Beyond the Letter “A”

With age comes wisdom…or so they say. Speaking from personal experience, I can say that my wisdom is arriving in dribs and drabs. For their part, the birthdays arrive at a seemingly more frequent pace. I’ve made plenty of money mistakes, but I’ve finally learned to go beyond the letter “A”.

Blue Lobster, what the hell are you talking about?

It’s simple. I’ve finally learned to take my own advice about continuing to learn about personal finance. When I was younger, I would read a book and believe that the author’s words were the definitive way to do one particular thing. It never occurred to me that the author wasn’t a subject matter expert. After all, she or he had written a book! Who was I to doubt their greater experience? Or to even suggest that their advice/steps/insight might not be applicable to my individual circumstances?

Thankfully, the good folks behind the X-Men franchise created a villian who uttered words of wisdom that I’ve since learned to implement in my own life: “Take what we need, gentlemen.”

And later on, I came across a variation of the above: “Take what you need. Leave the rest.”

Looking back, I would’ve made fewer money mistakes if I had come across this wisdom sooner. For example, one of my biggest money mistakes was to focus on eliminating debt while ignoring the need to invest in the stock market at the earliest opportunity. I read The Total Money Makeover many years ago. I followed this book’s instructions diligently and focused extremely hard on getting myself out of debt.

What I regret is that I didn’t consider the possibility of investing my money sooner while paying off my debt slightly less agressively. My money mistake was in pursuing one path without giving adequate consideration to the other options open to me. I read this one book and I assumed that it was the optimal path for my life & my money. Then, I followed its steps without question.

In other words, I did not go beyond the letter “A”… I made the mistake of believing that the starting point represented by the letter “A” was the whole alphabet and that I didn’t need to learn anything more than what was in the pages of this single book. I was young and inexperienced, but also so very, very wrong.

Looking back now, I see that taking advice without considering my own individual goals and priorities is never the smart thing to do. There is more than one way to achieve the ultimate objective. Had I taken the time to consider the option of investing sooner while taking slightly longer to pay off my debt, then I would be in a position to retire now. One of my long-term goals has always been to retire as soon as possible instead of waiting until my 60s. By following the path set in the TTMM book, instead of considering all of my alternatives before choosing a course of action, I’ve delayed my retirement date by atleast 5 years. Ouch!

As I’ve written before, I wholeheartedly accept some of the Baby Steps as set out in TTMM, but I do not accept all of them as the one true path to financial prosperity. For those who are financially fortunate enough to do both, I would suggest investing in stock market while also paying off non-mortgage debt. The debt will eventually be gone, and you’ll be left with an investment portfolio that’s chugging along. At that point, you have the choice of investing your former debt payments in order to meet your financial goals faster. Or you can continue with the same contribution level you’d established while paying off debt and use your former debt payments in other areas of your life. In both options, you have an investment portfolio working hard for your 24/7 while you go about the business of living the life you want to live.

That said, I don’t want you to make the same mistake I did. Keep in mind that I’m not a financial expert nor am I licensed to give financial advice. Rather, I’m just an anonymous voice on the internet that enjoys talking about personal finance and sharing what I know. Consider my words and evaluate the source, then determine whether either proposed course of action gets you closer to fulfilling your life’s dreams and ambitions.

I’ve been working hard to practice taking-what-I-need-while-leaving-the-rest in my life. This new-to-me perspective requires me to broaden my horizons by considering things that I would’ve automatically disregarded. Metaphorically speaking, it’s necessary for me to go beyond the letter “A”. The first piece of knowledge is akin to the first letter of the alphabet. This is not the point at which I should simply stop learning. I need to move to letter “B” if I’m going to maximize my chances of learning how to get what I want.

For me, moving from one lesson to the next involves routinely assessing my habits. Some I’ve kept. Others I’ve discarded. I still read about personal finance every chance I get. I’ve purposefully found people who share my love of this topic. I seek out those who give me insightful feedback on my plans & ideas. No longer do I blindly accept everything that’s posited by someone else. By forcing myself to learn as much as I can, I’ve developed a nuanced approach to new ideas about how to achieve my goals. At the end of the day, I’m much better at assessing when to stick to my chosen path and when to tweak it ever so slightly. No longer do I give the opinions of others more weight than they are properly due.

Today, I ensure that I always go beyond the letter “A”. My dreams and priorities are too important to leave to chance. It’s up to me to do my very best to make them come true. Only time will tell if I’ve minimized my money mistakes. Even after decades of reading and learning about personal finance, my education is still not complete. My knowledge is hard-won, yet there’s still more to learn, more to consider.

You owe it to yourself to pursue your own life’s goals too. You are worthy of having the life you dream of, so make sure that you always go beyond the letter “A”.

Unexpected Expenses & the Beauty of Savings

This week, I celebrated my birthday.

Sadly, no one told my beloved SUV. Instead, I took my vehicle to my trusted mechanic because I needed an oil change and thought that changing an air filter might assist with a little acceleration problem I’d been experiencing. Instead, my SUV walloped me with a $2,900 estimate!

That’s not an inconsiderable amount for a car repair. It turns out that my clutch is slipping. That’s the mechanic’s lingo for my clutch is not working properly and I can’t safely drive my car until this extremely vital part is replaced. Yes – I drive a vehicle with a manual transmission. Unfortunately, a clutch is only good for about 150,000kms.

So I had a decision to make. My SUV is 13 years old. Yet it only has 137,000kms on it, which means there’s 70,000-100,000kms left on the engine. I’ve been with my mechanic for 17 years and I trust him, which means I believed him when he told me that the major components of my SUV are still in good shape. The tires are good – the brakes are fine – everything else on my car is fantastic. Barring a collision, I should be able to drive my car for another 5-7 years. My plan had been to replace my car in 4.5 years.

Still, a $2,900 repair bill is not a drop in the bucket. Despite its low mileage, the Kelley Blue Book value for my SUV is between $5900 – $6100. And a quick review of Auto Trader disclosed that a similarly aged SUV with slightly lower mileage than mine was listed at a price of $7,500. However, I couldn’t in good conscious sell my SUV without disclosing that it needs close to $3,000 of repairs… so no way am I getting $7,500 for this vehicle.

And if I were to sell, then I’d have to buy… I’m not a fan of car shopping. Besides, did I mention that I love my SUV? I’ve kept it for 13 years because it’s a great little vehicle.

So, on one of my favorite days of the year, I had a decision to make. Would I repair the SUV that I loved and drive it another 5 years? Or would I sell it at a discount, let someone else drive it for its remaining life, and proceed to buy something else?

After much deliberation and consultations with trusted friends, I decided to repair my SUV. I can continue to drive it for several more years. Clutches need to be replaced, so this rather large expense is not out of the ordinary.

Some reminded me that conventional wisdom is that a vehicle should be replaced when the repair is 50% or more of its value. On the numbers, my repair bill was just shy of 50% of my SUV’s value. Others reminded me of the global chip shortage, which means that there are fewer new cars available for purchase. Still others focused on the fact that I could drive my car for a few more years once this repair was made. One person reminded me that I “could afford” to buy a new vehicle, without compromising my long-term financial goals.

At the end of the day, I chose to repair my SUV. Why?

Mainly, I couldn’t get past the fact that any buyer would have to repair the clutch. The buyer would then benefit from the additional years of driving my SUV. Whether owned by me or someone else, my SUV needs a $2,900 repair in order to run. Why shouldn’t I be the person to benefit from the remaining years of life in my vehicle?

Besides, I abhor shopping for vehicles. There’s nothing on the road today that is an absolute must-have for me. As I mentioned above, I have loved my SUV from the minute I bought it 10+ years ago. I’m not yet ready to give it up.

With age comes wisdom.

Allow me to assure you of the following bit of financial wisdom. If you own anything with wheels or a motor, there will eventually be a big expensive repair. There is no telling when that day will come. You need to prepare for that day by having cash set aside in a savings account.

When I heard $2,900, I didn’t waste a second wondering how I would pay for the repair. Fortunately, I could jump right into the question of whether to keep or sell my vehicle. Thanks to years of funding my emergency fund and various sinking funds, I have the money on hand to pay for this expense. The only question I seriously pondered was whether I should.

Unexpected expenses are a fact of life. They can be financial zingers that throw your whole budget into disarray. They force you to re-prioritize how you allocate money and whether you allow yourself to go into debt. The first rule of handling unexpected expenses is to have savings. The second rule is to replenish those savings after you’ve used them.

Unless you already have one in place, set up an automatic transfer from your day-to-day chequing account to a savings account that is strictly dedicated to handling the unexpected. I would suggest $10 per day, which is $70 per week, or $3,650 per year. You know your budget better than I do, so maybe you can only do $5 per day ($1,825/yr) or maybe you’re fortunate enough to do $20 per day ($7,300/yr). The higher your per diem, the faster you build up your ability to handle life’s unexpected expenses. Pick a target amount for your savings account, then transfer your per diem amount into this account until that target is met.

The beauty of savings is this – they always curb the impact of unexpected expenses on the rest of your financial priorities. So while a $2,900 car repair bill was not on my birthday wish list, I’m fortunate to be able to take it in stride. Happy birthday to me!

Yesterday, Today, and Tomorrow

Today, I listened to a really good interview on YouTube with the fellow from Debt Ascent. He and his wife had over $500,000 in student loan debt. They paid it off in 5 years, while buying a house and also fully funding their registered retirement accounts. This was a great interview for two reasons.

Not everyone has fat to cut.

What I loved about this interview was that Mr. Ascent acknowledged that not everyone has the same ability to pay off debt as quickly and as easily as he and his wife. While both of them earned good six-figure incomes, they chose to live on one income while pursuing their financial goals. One of the things I loved best about this interview is that Mr. Ascent articulated that it is easier to meet your financial goals when you have a larger income.

Don’t misunderstand me. If you’re earning $300,000 per year and spending every penny, then you are in the exact same financial boat as the person who earns $35,000 per year and spends every penny. Both of you are living paycheque-to-paycheque. However, if both of you realize that you need to make financial changes, only one of you has the ability to make significant changes in a relatively short period of time.

Mr. Ascent acknowledges that there is a baseline of spending. In order to pay for the basics, everyone has to spend a certain amount of money. While it might fluctuate based on location, let’s say that the baseline is $35,000.

When you’re earning $300,000, you can choose to cut expenses. Doing so frees up a good chunk of money for you to fund your financial goals. Maybe you decide to pay off the auto loan in 18 months instead of 5 years. Perhaps you switch to cash instead of credit so that you can pay off your credit cards faster. Once your debts are gone, you have the ability to re-direct debt payments to funding your retirement accounts and paying off the mortgage.

At the other end of the spectrum, an income of $35,000 doesn’t allow you to make such big financial changes. At that salary, you’re going to need the vast majority of it just to pay for your life.

Unlike the vast majority of personal finance bloggers out there, Mr. Ascent expressly acknowledged that it’s easier to meet your financial goals when there is a lot of fat to cut from your budget.

Paying for yesterday, today, and tomorrow.

The other fantastic part of this interview was hearing Mr. Ascent talk about how he and his wife prioritized their money. In his words, they made choices to maximize every dollar. They were able to get a mortgage rate of 3%, and had a rate of 2.95% on their student loans. He disclosed that in order to get such a low rate on their student loans, they had to agree to pay $4,000/mth for 7 years. Further, they knew that they were responsible for funding their retirement so that was priority number one. And, of course, they had to pay the mortgage or else they’d lose their house. Every “extra dollar” was sent to their student loan debt rather than being funnelled into an investment account.

Why? Isn’t the common wisdom to invest while paying down debt? Don’t all the calculators show that doing both works out best over the long-term?

Perhaps… Yet, personal finance is personal for a reason. What works for one won’t necessarily work for all.

The Ascents took a different view. In Mr. Ascent’s words, they wanted to prioritize their money in order to maximize their cashflow. They realized that the sooner they rid themselves of that $4,000/mth minimum payment, the sooner they could earn and keep that money for themselves. In other words, eliminating that payment would mean an immediate increase in their household’s disposable income. The Ascents realized that they would be able to cut back to working 4 days a week if they chose. The former student loan payment could be re-directed towards their mortgage, resulting in even more disposable income sooner.

So that’s what they did. According to Mr. Ascent, registered retirement accounts were funded first as they were the highest priority. The next highest priority was paying the mortgage. Finally, the minimum student loan payment was made. And when there was extra money, it went to the student loans.

If I understood him correctly, they were completely debt-free within 7 years of finishing their respective graduate degrees. They paid off half a million dollars in student loans as well as a $200,000 mortgage. On top of that, their retirement accounts have hit the half million dollar mark. Their starting salaries after graduation were a combined $200,000 and they managed to double that in less than 10 years.

Again, Mr. Ascent was humble enough to recognize that he and his wife were in a very fortunate position to be able to do what they did. At not point did he ever try to make the argument that everyone could mimic their choices, no matter their income.

Well, anyone could do that…

… if they were earning that much money. That’s the common response upon learning that the Ascents earn big bucks as a dual-income professional couple.

I think that response is short-sighted. There are many people who earn high salaries, and are living paycheque-to-paycheque. Having a high income provides you with the opportunity to pay off debts fast, to fully fund your retirement, and to rid yourself of your mortgage. A high income is not a guarantee that any of those things will happen. The choice to spend money belongs to you. The Ascents are an example of a high income couple who chose to live below their considerable means in order to achieve the goals that they set for their money. Again, they chose to live on one salary while the other salary went to paying off debts and funding their retirement accounts. The choices they made after graduation paved the way for them to have full control over their entire paycheque.

There is absolutely no doubt that having a very high income was beneficial. That fact should in no way diminish the choice that they made to live on one income. They made the choice not to upgrade their lifestyle once they finished graduate school. Together, they decided to eschew the path of consumerism and to focus their energies on removing the shackles of debt from their lives.

Again, anyone could do that!

You’re right. Anyone who earns more than the baseline income needed to survive can make the same choice as the Ascents. To be clear, I absolutely understand that some incomes are just not large enough for more that subsistence living. This post is directed at those who do have the fat-to-cut in their budgets, yet choose not to align their spending with the dreams they have for their lives.

Just like the Ascents, you have the choice to prioritize your financial goals. Nothing is stopping you from living below your means in order to fund those goals. It might take you longer than 7 years, but so what? Would you rather spend every penny and not ever achieve your dreams? Or would rather work a little bit longer to see your long-term goals become a reality?

As soon as you decide what you want, you’ll be in a position to start figuring out ways to make it happen.

Intergenerational Wealth – Down Payments

Even though I’m not a parent, I find the topic of intergenerational wealth fascinating. It makes perfect sense to me that parents want to help their children succeed. Parents with wealth are able to give their offspring a boost with so many of the costs of starting adulthood. This week though, I was surprised to hear about parents who are starting down payment funds for their newborns.

My first reaction wasn’t that the parents are nuts, nor that they are helicopter parents. I didn’t even think that the parents were trying to deprive their children of the opportunity to achieve something on their own. Instead, my first thought was that it made sense to start saving at birth. Not even 50 years ago, eyebrows went up when learning that non-wealthy parents paid for a child’s post-secondary education. Kids who wanted to study after high school had been expected to pay their own way through school by working summer and part-time jobs. Today, I can’t think of a single parent in my circle who isn’t financing their children’s post-secondary education through RESPs, co-signing loans, or cash-flowing the tuition bills. My parent-friends all realize that their kids cannot earn enough money from summer jobs & part-time employment to pay for undergrad and graduate degrees.

Over time, more and more parents realized just how expensive a post-secondary education would be. They determined that one of the best ways to help their children become successful in life was to pay for their studies beyond high school. No parent has ever paid their child’s tuition because they believed that doing so would somehow hinder or limit their child’s opportunities for a quality life.

So when I hear of parents who want to save for their newborn’s eventually down payment, I’m not at all surprised by the idea. To my mind, it’s the next logical step in helping one’s child become economically established. Houses are incredibly expensive! Back in the day, a person aimed for a mortgage that was no more than 3 times their annual salary. Those days are long past. When house prices are such that a first mortgage can be 8-10X one’s salary, it’s very realistic to think that it may take 25 years to build a down payment.

Parents who can save for their children’s down payments will do so. They realize that if they don’t do this now, then their children might be priced out of the future real estate market later. Of course, if they’re wrong and their children can acquire a home on their own, then so much the better. The money is still available for something else…maybe the foundation of the anticipated grandchildren’s education fund?

The other aspect of parents saving for their offspring’s down payment is that such actions contribute to the very wealth inequality from which the parents are trying to protect their children. Parental financial contributions reinforce the divide between those who have financial resources and those who don’t. In 20-25 years, the children with down payments funded by their own contributions and those of their parents are going to be better positioned to buy a property compared to children who don’t have the benefit of parental money.

Bridget Casey talks about this phenomenon in her article about the Funnel of Privilege. Essentially, the privilege allows young adults to start investing for their future without the burden of debt. By starting down payment funds in their child’s infancy, wealthy parents are positioning their children on the property ladder sooner. Being handed a down payment means that someone need not spend years saving money from their paycheque to simply by the first property. Instead, that same money would be spent building equity sooner rather than later.

Parents help their children. This has been true since the dawn of time, and I expect it will be the governing order of things until the end of days.

I’ve mentioned before that my parents saved all baby bonus cheques and a portion of money from their paycheques so that they could pay for my brother and I to attend university. I have 8 years of post-secondary, while my brother has 9 years under his belt. I will never complain that my parents’ gift has ever diminished my life and I know that I’m far better off than I would have been without my education. My parents did the best they could, but they were nowhere near able to also save for our first down payments. My brother and I had to save for those on our own.

Did my parents help contribute to the increase in wealth inequality by directing their wealth towards ensuring their children graduated university without debt? Or were they simply taking the natural steps to make sure that their children had the best shot possible at having a successful life?

Wealth begets wealth. It is natural for parents to want what is best for their children. Helping a child to achieve a home is simply the next step for parents who have the money to make such a contribution. These are the seeds of intergenerational wealth.

You’ve Got This!

It’s natural to doubt yourself when you first start something new. However, the great part is that those doubts diminish over time as you get better at doing the new thing. Gaining some experience goes a very long way towards quelling the nagging voice in your head that tells you that you’re out of your depth. If you do anything over and over and over again for a long enough period of time, eventually you’ll approach it by telling yourself that you’ve got this!

Personal finance is no different. No one starts off doing it perfectly from the very first time they do a budget, or save money, or pick an investment. If it were easy, then everyone would do it. We would all be rich – none of us would have consumer debt – we’d all be retired by 35 and spending our time doing what we love best.

That’s not the reality though, is it?

In the real world, it takes a bit of time to gain confidence with our money. And that’s perfectly fine! I started at age 16 with $50 from my part-time job at the grocery store. Every two weeks, I would manually transfer $50 from my chequing account to my savings account. At one point, I had $8,000 in my savings account. (There was a condo up the road from my house that was for sale for $40,000. I had the 20% down payment, but I was still in school and I knew my parents would never co-sign a mortgage for me… Sometimes, things don’t line up for you and investment opportunities are missed. That condo is now worth over $200,000!)

Back then, I was young and un-knowledgeable about personal finance. All I knew how to do was save a little bit of my paycheque while spending the rest of frou-frou stuff that has long been forgotten. I shouldn’t be too, too critical of Young Blue Lobster – atleast I had the brains to pay myself first. Saving $50 bi-weekly was a good start, but I hadn’t realized just how much was yet to be learned. A savings account is not the place to invest money. By the time I’d finished my undergrad, I’d learned about mutual funds… so I started investing my money with in a bank’s lineup of mutual funds.

Better than a savings account, but still not great. Bank products generally had very high management expense ratios. I eventually learned about MERs, and how higher MERs lower my overall return. Once I had that knowledge, I I learned about investment companies and how they have lower MERs. I moved my money. Anyone remember Altamira?

Though hardly glamorous, each time I learned more about some aspect personal finance, I adjusted course. When I paid off my student loans, I turned my focus to paying off my vehicle loan. Debt was bad so I had to get rid of it. Renting was bad – or so I thought at the time – so I bought my first residence, a condo in the university district that became my first rental property. When I started thinking about retirement, I funnelled money into my RRSP and then, when they were introduced in 2009, into my TFSA. In my 30s, I switched from mutual funds to exchange-traded funds. The more I learned, the more I refined my money management skills.

Am I an expert today? Gosh, no! There’s still so very much more for me to learn. However, I can tell you that I’m more confident today than I was decades ago. I’m not frozen by indecision anymore. My trial and error, and my past mistakes, have taught me to ask better questions. I don’t invest in products that I don’t understand. Today, I’m far more prepared to do my own research before investing my hard-earned money.

Create your own plan of action.

Figure out what you want. These are your priorities, aka: the things you want to do/be/have in order to live the life that you want. Money that’s not spent on your survival should be channeled towards funding your priorities. Don’t spend your money on things that don’t get you closer to your priorities. Studying abroad? Six weeks in the Riviera? Starting your own business? Taking a sabbatical from work? Creating a scholarship fund? You can have what you want if you can figure out a way to get it. This blog is about the financial aspect of your priorities. Figure out what you want, then spend your money in a way that helps you to get it.

Determine your savings per diem. This is the daily amount of money that you will set aside to turn your dreams into reality. I don’t care how much you start with. My $50 bi-weekly amount worked out to $3.57 per day. Maybe you can afford more, maybe you can afford less. It doesn’t really matter. If you save $0 per day, then you will have $0 to create the life you want. You must save something. When it comes to money, some is definitely better than none!

Find the balance between enjoying the present and planning for the future. It’s taken me a very long time to learn how to spend a little bit in the here-and-now. Some would say that I still invest too much of my money. And they’re entitled to their opinions. For my part, I know that I’ve found a balance that works for me. In the Before Times, I’d started travelling to Europe each year. It was important to me to see another part of the world while I was still young and energetic enough to do so. I bought coffee a little more often than most FIRE gurus would suggest. My last two vehicles were purchased brand-new rather than used. Oh, I’ve spent money in countless ways on today’s whims – there’s no doubt about that! However, those whims were only and always funded after I’d paid myself first.

Finally, don’t be too hard on yourself. Personal finance is personal because there’s no one exact right way for you to handle your money. Your priorities are different than mine, as are your responsibilities and risk tolerance. You may hate the stock market so you’re investing in real estate. Or maybe you’re into cryptocurrencies and are getting in sooner rather than later. Maybe you’re running your own business, or you have a side hustle on top of your regular job. However you choose to earn your money, you owe it to your self to save then invest your funds in a way that gets your closer to living your dreams.

Never, ever stop learning. Remember the wise words of Dr. Maya Angelou – when you know better, you do better.

It’s all good, because you’ve got this!

Know Thyself

One of the keys to getting what you want from your money is knowing who you are. The very first step to getting what you want is identifying it. There is no way around it – you must know thyself.

Are you a person who buys something because everyone else buys it? Or are you saving up for something that may only be magical to you? Do you care about others’ opinions on how you spend your money? Are you a person who can live with the consequences of your choices?

Be very honest with yourself about how you want to use your money. Some people want to use it to impress others. Then there are those who use it to control or manipulate the people around them. A good number of people use their money to alleviate suffering in the world. And there are some who want to hoard money in an effort to build security for themselves.

What do you want from your money?

As the years roll by, my perspective on money is changing. I’ve always been a saver, a very good saver. And when I first learned about the FIRE movement, my goal was to one day save 50% of my income – maybe even 70%! However, as I approached this arbitrary yet magical allocation, I started to seriously consider the impact saving that much money would have on my desired lifestyle.

Thanks to several money mistakes, saving 50% wouldn’t allow me to retire in my 40s…which would have been awesome, since I’m long past the ability to retire in my 30s. I suppose if I were willing to commit to very reduced standard of living, I could retire in my 40s… But I know myself. I don’t want to retire and hope that nothing goes so wrong that I have to return to work. I want to be done with working once I retire. Saving 50% wouldn’t get me there. Even saving 70% wouldn’t give me the kind of retirement cash flow that I want.

So I stopped chasing that arbitrary goal and crunched my numbers. Saving a solid chunk of my paycheque would allow me to retire in my early 50s. And I’d have a little extra jingle in my pockets to enjoy the journey. Speaking of the journey, travel has always been one of my favourite things. The “extra money” that wasn’t squirrelled away allowed me to travel overseas. Before the pandemic hit, I was fortunate enough to visit Italy, Spain, and Ireland. Had I been saving 50% of my paycheque, those trips wouldn’t have been possible… and they also wouldn’t have been possible after retirement because my retirement cash flow would not be enough to pay for them.

See… I know myself. And I know that I don’t want to be a penny-pincher during my retirement. I won’t be keeping tigers on a gold leash, nor skipping across the globe to spend equal time in my 4 homes. However, I will have the flexibility to do more international trips, to make renovations to my home, to replace the appliances as needed.

What I also know is that if I had been smarter sooner, I would have made different choices. There’s no sense regretting my choices because I don’t have a time machine to go back and change them.

Knowing myself means that I’ve made peace with the following truth: I don’t use a budget. My money-management system does not involve very many categories. The only ones I have are: retirement, short-term goals, charity, and Everything Else. I’m a huge fan of using automation to ensure that my first three categories are funded. My paycheque hits my account – my automatic transfers are triggered – I spend whatever’s leftover in my chequing account. The leftover money has to last me until the next payday. I can spend it however I want, on whatever I want, secure in the knowledge that the priorities most important to me are being funded.

Your choices need not please everyone else.

Thankfully, I’ve reached the stage in life where I don’t require a popular vote to feel good about my financial decisions. When I was younger, it bothered me that my friends’ financial priorities didn’t align with mine. I intensely disliked being told that I was “saving too much money.” When others blithely told me “you can afford it”, I would bite my tongue so very hard in order to not lash out in anger. How dare someone else tell me how to spend my money?

I’ve since learned to let those comments roll off my back. Their priorities are not mine. And their hearts were probably in the right place. They honestly believed that their spending habits, which obviously made them happy, would make me happy too. And I’m sure I drove them nuts talking about retirement and investing and saving. Those were the things that made me happy. Over time, I learned to only talk about money with friends who are also interested in investing and retirement planning. Again, knowing myself has led me to find like-minded people who encourage and support me when it comes to pursuing my financial goals.

Know thyself. What is it that you want your money to do for you? Once you’ve answered that question, the next question is whether your money is actually being put towards achieving those goals. Finally, what changes do you need to make to align your spending with your financial goals?

Choices have consequences

This week, I had a conversation with a dear friend of mine about spending money. She made the observation that if she spends money today, then there’s that much money less to pay for her retirement. I couldn’t argue with her. In fact, I was happy that someone else in my circle of loved ones was thinking about their senior years. Sometimes, I feel like an outcast when I talk about money. It’s one of the reasons I like to chat about it online. It does me good to know that people in my real world are considering how to accumulate the gold for their golden years.

We live in a capitalist culture where we’re exhorted to spend every penny that we earn. Should our earnings not be enough, we’re strongly encourage to borrow money to spend beyond our means. Look around! Outside of the personal finance corner of the internet, there’s almost no discussion about saving money for emergencies, building up a retirement fund, and creating cashflow to replace your income. Instead the overwhelming message is to work hard, spend money, wake up, repeat.

I think this is a terrible way for people to live.

We were not given life just to work and spend money. Our lives should be about time spent with those we love best. We should be striving to spend as much time as possible engaged in the activities that bring us joy. I’m not convinced that we need to live on a never-ending work-spend-sleep treadmill to be happy. The beauty of financial freedom is that it’s a situation where work becomes optional. Being FI means spending your time as you see fit.

One of the universal truths is that choices have consequences.

I want you to think about what you want from your life. Now, ask yourself if your spending choices are getting you closer to or further from that life. If your choices aren’t getting you closer to the life you want to live, then explain to yourself why that is.

Vicki Robin and Joe Dominguez of Your Money Or Your Life have taught us that money is the manifestation of your life’s energy. In short, you trade your life energy for money. It seems only logical that you spend your energy in ways that create the life that you want to live.

From what I’ve observed, people base their spending decisions on short-term thinking. They’re concerned with today, and possibly next week. They don’t really start to consider the long-term until they hit their late 40s, 50s, and sometimes 60s.

I get it. When I was a teenager, I brought home roughly $108 every two weeks from my part-time cashier job. My money went to dinners at Red Robins with my friends, followed by a movie. It was a simple life, and I never thought beyond my next paycheque. Long-time readers know that I had an automatic transfer in place so that $50 was squirrelled away to my savings account. If I could go back in time, I’d tell Young Blue Lobster to just put that money into a broad-based equity index fund (or exchange-traded fund), and then never look at it. The past 30 years have flown by! Had I started investing at 16 instead of 21, I’d probably be retired by now. I would certainly be financially independent.

However, that didn’t happen and I have to live with the consequences of my teen-aged choices. I’ve spend the last few decades teaching myself about investing. When necessary, I’ve tweaked my investment strategy. I’m forcing myself to ask harder questions, to analyze information more critically. I’ve finessed my money-management strategy to the point where it’s on auto-pilot and needs very little attention from me on payday. My choices from yesterday have resulted in both good and bad consequences for me. Had I made different choices, I would be living with different consequences.

Take some time to assess your money choices. Are the consequences of yesterday’s choices bringing you joy or misery? Maybe neither? Are you committed to making more informed choices in the future? What will you do today to get the consequences you want tomorrow?

The choice is yours.

There are no guarantees…

I want to talk about a 2-part interview with Reader B about how he and his wife earn $360,000 each year in dividends. If you’re interested in learning how Reader B accomplished this, please read both parts of his interview at over at the Tawcan website – part 1 is here and part 2 is here. If you’re seriously interested in dividend investing, spend some time on this website. It is one of the best places on the internet to learn about creating a cash flow stream from dividends.

Reader B doesn’t live off his dividends. He and his spouse retired in 2004, and they live off their pension income. They started investing 36 years ago, in 1985. As I understand the article, they eschewed RRSPs and invested solely in Canada. Their portfolio was worth just shy of $1,800,000 when they retired. And because they’ve allowed their dividends to compound since retirement in 2004, their portfolio is now worth over $9,500,000. (You’ll have to read through the interview and the comments on the second part to get the exact numbers.)

That’s pretty damn impressive… Between 2004 and 2021, this couple has increased the size of their portfolio by $8,000,000. Needless to say, this interview has given me some points to ponder. Namely, can I do the same thing?

I started my own dividend investment plan in 2011. Ten years later, I’m on the cusp of earning $30,000 per year in dividends. That’s a decent amount, but it’s not enough to afford me a very comfortable retirement. I’m not comparing myself to Reader B and his wife. Again, their portfolio has been around for 36 years – that’s 26 years longer than mine.

Like the Bs, I’m going to be living on a pension when I retire. That means that I have potential to leave my dividends alone to compound for another couple of decades. I too could see myself with a six-figure annual dividend payment if I don’t use any of my portfolio’s returns during the first chunk of my retirement.

Also like Reader B and Spouse, I don’t have any kids. There are no tuition bills, weddings (other than my own, which at this point is a statistical improbability), house down payments or significant graduation gifts to fund. My pension will be sufficient to keep me in the same lifestyle that I’m enjoying now. Spending the dividends each year will be an option, not a necessity.

The question I have to ask myself is…

… do I want to have a large annual dividend payment if I’m not going to spend it?

Don’t get me wrong! I am utterly fascinating by what the Bs have accomplished, and I will be re-reading their interview to learn more. My question for myself is what is the point of having that much money rolling in if it’s not to be spent at some point?

The 2-part interview was on the mechanics of this extremely successful dividend portfolio. There wasn’t a lot of philosophical discussion about the uses of money, or how the Bs intend to distribute their money once they’re gone. For my part, I think one of the best reasons to emulate the Bs’ strategy is to have funds on hand to pay for my nursing care if I live to be too old to care for myself. Even after inflation is factored in, I’m hoping that $360,000 per year is sufficient to hire a competent and kind nurse who’ll help me with the un-mentionable tasks that come with having an aged body.

Beyond my considerations of future nursing care, I’m at a bit of a loss to imagine how I would benefit from $360K each year if I wasn’t spending it. Again, the Reader B didn’t talk about his intentions for his money. He didn’t discuss how he and his wife feel about their passive income stream. For all I know, the Bs are planning to create a sustainable scholarship fund for their favorite post-secondary institution. Maybe their dividend portfolio will be left in a trust to fund animal sanctuaries. I really don’t know what their plans are, and it’s none of my business.

I’m just thinking about what I would do.

Like the title of this post say, there are no guarantees.

Some of you may remember that I’ve switched my investment plan. As of October 2020, all of my investing contributions have been going into VXC instead of into XDV and VDY. I’d been faithfully investing in my dividend ETFs since 2011. Again, that investment has resulted in a good-sized annual dividend payment. After the market rebounded in 2020 from the pandemic, I wanted to take advantage of the growth in equity. In hindsight, I made the right decision. My portfolio has more than recovered all that it had lost from February 2020 to March 2020.

Now that I’ve digested Reader B’s interview, I have to wonder if I made the right choice. According to his interview, the Bs never deviated from their dividend investing strategy. Did I make a mistake in October 2020? Should I have continued funnelling new money into my dividend ETFs? Should I go back to my former strategy? How will I know if I made the right choice?

There’s simply no way to know the answers to these questions in advance. I’m going to trust the choices I’ve made thus far and I’m going to stick to what’s been working for me. Fortunately, my decisions to date have not led me off course. Having confidence in my own choices doesn’t stop me from learning about the paths to financial success taken by others, assessing their methods, and considering whether to incorporate them into my own.

So I thank Reader B for sharing his story with the world. His decision to tell the world about his dividend investing strategy means that I have another example to ponder. And, even though there are no guarantees, there’s absolutely nothing wrong with considering different options!

Sequence of Return Risk

There’s a lot of jargon in the world of personal finance. The more terms you know, the more comfortable you’ll be when it comes to making decisions about your money. Today’s post is meant to be a short and sweet tutorial about the basics of Sequence of Return Risk.

A bear market is one where overall stock market returns are falling.

A bull market is one where overall stock market returns are rising.

This distinction is very important.

Retiring into a Bear Market

Let’s say you retire with $1,000,000. You plan to live on $40,000. So long as your portfolio is kicking off atleast 4%, then you’re golden for as long as you live. Hooray!

You retire. You smash your alarm clock. You wake up when you want with a smile on your face. The only fly in this ointment is that you’ve retired at the start of a bear market. The value of your portfolio drops 15%, which means your portfolio is now worth $850,000 (= $1,000,000 x [1-0.15]).

Your portfolio is still kicking off a return of 4%, but you’re not getting $40,000 per year anymore. With a portfolio of $850,000, you’re only getting $34,000 (=$850,000 x 4%). Where will the other $6,000 come from? Remember, you need $40,000 to fund each year of your retirement.

You’ll have to withdraw the extra $6K from your portfolio balance of $850,000, leaving you with $844,000 (= $850,000 – $6,000). That’s still a decent chunk of change, but eating into the principal had not been part of your retirement plan…

Year 2 of retirement isn’t exactly great either. The bear market is easing, but it’s still a factor. The value of your portfolio drops another 10%. (Yes, it’s possible for the stock market to drop two years in a row.) That $844,000 that you had is now down to $759,600 (= $844,00 x [1-0.10]). Yikes! That’s $240,400 less than what you started with when you first retired.

Yet you still need $40,000 per year to live on, and your portfolio is still kicking off 4%. Sadly, 4% of $759,600 is $30,384… which is $9,616 (= $40,000 – $30,384) short of your needed $40K. So where will that $9,616 come from? You’ll have to take it from your $759,600….dropping your portfolio balance back down to $749,984 (=$759,000 – $9,616). Not good!

Year 3 of retirement welcomes the return of a bull market, and the stock market goes up 7%. Hooray! Your $749,984 is now worth $802,483 (=$749,984 x 1.07). That’s still not enough to kick off $40,000. In fact, your portfolio will only earn you $32,099 (=$802,483 x 4%), which means taking a further $7,901 (= $40,000 – $32,099) from your portfolio.

Do you see the problem?

When you retire into a bear market, your retirement portfolio might not be sufficiently large to cover your anticipated expenses. You may be forced to withdraw money to cover your living expenses when the value of your portfolio has dropped!!! This is a very bad thing because it means that your money won’t be invested when the stock market invariably starts increasing again.

Retiring into a Bull Market

However, if you retire into a bull market, then things are considerably better. Starting with the same assumptions of a $1,000,000 portfolio, a 4% return, and annual expenses of $40K in retirement, check out what happens if the stock market goes up 7% in the first year.

Your portfolio is up to $1,070,000 (=$1,000,000 x 1.07). At 4%, that means your portfolio is kicking off $42,800 (=$1,070,000 x 4%). Yet, you don’t need more than $40,000, so you leave the $2800 invested. Now your porfolio is worth $1,072,800 (=$1,070,000 + $2,800).

In year 2, the market goes up another 15%. Your portfolio goes up to $1,233,720 (=$1,070,800 x 1.15). At 4% return, you’re receiving $49,349 (=$1,233,720 x 4%). Again, you take out the $40K that you need and you let the $9,349 continue to stay invested. Now, your portfolio is worth $1,243,069 (=$1,233,720 + $9,349).

Year 3 is another positive year, though not as positive as year 2. The stock market only produces an average return of 5%, generating $62,153 (= $1,243,069 x 1.05) for you. You don’t change your spending, $40K goes into your spending account and the remaining $22,153 stays invested. Now your portfolio is worth $1,265,222 (= $1,243,069 + $22,153).

See the difference? Retiring into a bull market means your portfolio will continue to grow, so long as you don’t spend every penny of your returns.

Protecting yourself from the sequence of return risk

Like I said at the start, this is just a short tutorial on the sequence of return risk. Other persons far wiser than I have spent way more time coming up with great strategies. One of the books that I would strongly suggest you read for a more in-depth analysis on this topic is Quit Like A Millionaire by Kristi Shen & Bryce Leung. Their book offers a brilliant strategy for avoiding the sequence of return risk – it’s called the Yield Shield and it’s awesome. Another great source of information about how to avoid sequence of return risk is this article from The Retirement Manifesto.

And if you really want to sink your teeth into this topic, check out Big Ern’s Safe Withdrawal Rate series at Early Retirement Now.

If you’re not able to avail yourself of the Yield Shield, then another way to make up for the shortfall between when you need and what your smaller portfolio can provide is to get a job. I’m not suggesting a return to full-time work, but maybe you’ll have to find a part-time job that generates $10,000 per year. A part-time income of $10,000 per year would definitely cover the shortfall in year 1, which means leaving your money invested so that it can grow when the stock market returns start becoming positive again.

And if you’re deadset against part-time work, then there’s always the option of cutting your expenses to live on whatever your portfolio generates. This isn’t the preferred option for a few reasons. First, it’s never fun to cut out the little extras that make life a bit more pleasant. Secondly, there’s only so much you can cut. Thirdly, there’s no room for surprise expenses like a new furnace in the dead of winter. While it’s not ideal, working a few hours a week might be a better financial alternative for you than cutting out expenses that make the non-working hours more comfortable.

So that’s my primer on the sequence of return risk. Retiring into a bear market is fraught with peril, but there are ways to minimize its negative impact on the sustainability your long-term retirement money. It’s best to retire into a bull market. Should you not be one of the people with an accurate crystal ball able to tell you what the future will bring, then I suggest that you read and learn more about how to ensure that your retirement portfolio lasts for as long as you do.