Camille Audain, Author at Millionaire on the Prairie

Silver Linings

The silver linings are there if you look for them, even in a pandemic. We all know that COVID-19 has changed things in a fundamental way at a societal level. However, as with most things in life, its impact on individual lives is different depending on one’s access to money and resources.

Over the past few months, I’ve been reading articles about how some people are seeing an improvement in their finances in the midst of COVID19. Working from home means that people are saving money on professional wardrobes, commuting costs, grooming products, cosmetics. Some people are even moving from their expensive locales to cheaper areas since they no longer need to be physically close their offices. In other words, people haven’t had to spend their money in certain categories because COVID19 allows them to work in their pyjamas in the comfort of their own homes.

There is no arguing with the fact that the pandemic has severely impacted life as we knew it a mere 7 months ago. Yet, there are some pretty serious financial benefits for some people. The people I’m referring to still have steady and substantial paycheques, yet they can work from home. For this fortunate group, their income is the same yet their outgo has dropped.

If you’re one of the fortunate ones who still has a reliable income, assess your own situation. Determine if you’re saving money by working from home. If so, calculate whether those savings are getting you closer to your financial goals.

There’s some chatter in the system about a vaccine for COVID19. No one knows when it will be found, nor how quickly it will take for all of us to get it. All we know for sure is that the pandemic won’t last forever.

We can also very be certain of the following. Regardless of whether we move back into our old offices, spending will go up. Think of the concerts, retreats, tournaments, and conferences that have all been put on hold due to the pandemic. Those will return with a vengeance. People who’ve chosen not to risk traveling will be on the way to the airports within days of getting vaccinated. After all, time is precious and the world is a big place. Those struck by wanderlust will be making up for lost time.

What I’m saying is this. Take this opportunity to save. Nothing obligates you to spend the money you’re saving by working from home. I’m not even suggesting that you hoard every penny. I’m urging you to take note of the financial silver linings that available to you during this pandemic.

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Weekly Tip: Listen to podcasts about money. You’ll learn a little something about a great many things. Try out a few different ones. Take what you like. Leave what doesn’t work for you. Be open-minded, but don’t let your brains fall out. As I’ve said before, you need not make every mistake yourself. You can learn from the mistakes of others.

Why I love Tangerine

As you know, I hate paying bank fees. Thankfully, there are many great options available so I never have to. (And if you’re still paying bank fees, please tell me why? You don’t have to pay them either if you’re willing to spend roughly 20 minutes setting up a free online bank account.)

However, I digress. The three best online banks in my opinion are Simplii, EQ Bank, and Tangerine. And to be explicitly clear, I am not being paid by any of these banks for this post. I’m simply sharing my opinion. Feel free to do your own research make your own choices.

At the time of this post, EQ Bank had the highest interest rate on its savings accounts.

Tangerine is my favourite online bank for the reason that it is best suited to help me achieve my goals. First of all, one customer number allows me to create and access up to 5 sub-accounts. Secondly, I can ascribe a name to each of these sub-accounts. Thirdly, I’m able to use automatic transfers from my real-world bank account to the sub-accounts.

All of my favourite personal finance tools are available to me in one online bank. What’s not to love?

Make use of Sinking Funds!

The older I get, the worse my memory becomes. Raise your hand if you can relate! Anyway, having sub-accounts means that I can create pools of money for my short-term goals. Before COVID-19, I traveled every single year so one of my sub-accounts was appropriately named “Travel”.

The beauty of naming my sub-accounts is the inherent prioritizing function that I had to go through in picking those names. Again, I only have 5 sub-accounts so I had to figure out which of my many short-term goals were the highest priority. Travel is still more important to me than furniture, which is why I still don’t have a sub-account called “Furniture”.

Having various sinking funds for my short-term goals means that the money is there when I need it. Un-sexy things like insurance and property taxes need to be paid every year. One of my sub-accounts is a sinking fund for those expenses. When those bills come due, the money will already be there. Do you know how nice it is to not have to scrabble together the money at the last minute?

I also have a sub-account for medium-term goals, namely anything that needs to get purchased in the next 2-5 years. When it was time to replace the windows & siding on my house, I got the quote then got to saving. It took nearly 2 years to save up the money but I wasn’t worried about how to pay my contractor when the work was done.

And once that particular job was done, it was no longer a priority. So that particular sub-account acquired a new name… “Landscaping.” Trees need to be cut down… grading needs to be levelled… new sod needs to be laid. (For those of you who don’t yet own a home, know that it is a money-pit. On top of the mortgage, you will be on the hook for repairs, maintenance, upgrades, and all the other financial joys that come with home ownership.)

Automate!

You know what else I love? Automatic transfers! Yes, you heard me say it – I love automatic transfers. I have my main bi-weekly transfer from my checking account to my very first Tangerine sub-account, which I call my Freedom Account. (Shout out to Mary Hunt of Debt-Proof Living!) I have more transfers in place from sub-account #1 to the various other sub-accounts.

Here’s another reason why I love Tangerine. This particular online bank has a rather unique feature that I haven’t found anywhere else. Tangerine allows me to implement “Money Rules” and these rules allow me to control what happens to the overflow.

Overflow? Blue Lobster, what the hell is overflow?

Dear Reader, if you’ve been doing automatic transfers for any length of time, you know that money piles up. One day, you account has $25 then the next time you check it, there’s way more! That’s the power of implementing automatic transfers. You do it once then move on to other tasks in life. Your money will accumulate automatically without you having to remember to make every single transfer manually.

At Tangerine, you have the option of re-directing money once a pre-determined amount is sitting in your sub-accounts. That re-directed money is the overflow. Pay attention – here’s where the steak starts to sizzle.

Money Rules in Action!

For example, you need to accumulate $3000 for your pet emergency fund. So you set up an automatic transfer. Once your $3000 is in place, you’re not going to cancel your automatic transfer! Instead, Tangerine gives you the power to have that money re-directed to one of your other sub-accounts. Maybe you’re saving up to go on a road trip or new furniture. Tangerine’s system means that money that otherwise would’ve stayed in your pet emergency fund is sent to your next highest spending priority.

And you don’t have to worry about fiddling with the automatic transfer should you need to use some of your emergency funds. Let’s say you need $1500 for your furry friend’s surgery. Your pet emergency fund will drop down to $1500. The automatic transfer will go back to funding that sub-account until it gets back up to $3000. At that point, future funds – the overflow – are whisked away to the sub-account named for your next highest priority.

It’s a pretty sweet little feature. Again, it ensures that your money is going towards your highest spending priorities.

Do yourself a favour.

At the very least, consider opening a Tangerine account. The purpose of this account was, and mostly still is, to make it somewhat difficult to access this money until I really need it. I wanted a simple method to siphon money from my day-to-day spending to my financial goals.

You don’t have to obtain a bank card for this account. I’ve had my Tangerine account for more than 10 years. I’ve never asked for a bank card. Without one, I can’t withdraw money at a bank machine. My money stays in place until I need it. What more could a Single One want?

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Weekly Tip: Figure out your priorities and spend accordingly. There will come a point in life where you realize that it makes absolutely no sense to spend your money on things that don’t make you happy. The sooner you reach that point, the better.

Guilty Pleasure – Big Haul Grocery Videos

Yes… it’s true. I’m a Single Person who loves to watch YouTube videos about people – almost always women – who do huge grocery shops and create videos about it.

Since the Pandemic, and before I found these videos, I thought I was buying lots of food when I went to Costco. I’d buy two packages of chicken thighs and one package of chicken breast. Then I would head to the Real Canadian Superstore and buy a bulk size package of extra lean ground beef. Being a Single Person, I’d round out my shopping with a trip to Sobeys for bread, vegetables and fruits. I’d pat myself on the back for buying an extra loaf of bread, or maybe 2 packages of soft Kaiser buns, to put in the freezer. And let’s not forget about those 6 cans of sliced peaches!

Yes, indeed – job well done – way to go, Blue Lobster!

I was pretty proud of myself… until I found The Queens Cabinet on YouTube. This woman knows how to shop! From what I’ve gathered so far, Shelby and her husband Ken live on a farm and are raising 4 sons. When theywere younger, they had to budget their money and lived quite frugally. As a result, they chose to stock up on the things that they always use so that they always have food in their pantry.

Big deal, Blue Lobster – most everyone who can already does this!

Gentle Reader, I would suggest that few people stock up their pantry with a year’s worth of food the way that Shelby and Ken do. How many people do you know with 7 freezers? And how many people have their own baking centre, yet alone one that is so well-organized?

I’m not ashamed to admit it – a tour of her pantry made me wish that I had a slight touch of OCD just so I too would be motivated to take the time and organize my food storage space. In my world, a $3700 (or more!) grocery shop is still a very rare thing…even for those I know who go to Costco!

While a 4-figure grocery haul is not part of my life, I can see its benefits. You can stock up when things are on sale. This saves you from shelling out more when the price is higher. Secondly, meal planning is easier when what you need is already in your home. You can put the money-saving magic of your kitchen to work more easily when you have ingredients at your fingertips.

I’ve no doubt that Shelby still runs to the grocery store throughout the year for certain items. Fresh fruit and vegetables immediately come to mind. However, I would guess that she doesn’t have to waste money on condiments, meats, prepared drinks, and baking supplies throughout the year. She stocks up when it’s on sale, then it’s on hand when she needs it.

And if you subscribe to her channel, you’ll see that she’s a big fan of meal planning. I can’t say that I blame her! If I had her kitchen, I’d want to spend a lot of time in it too – cooking and baking things. Try to find the videos where she talks about her fridges – yes, more than one fridge in a kitchen!

Their Pantry is an Emergency Fund

What Shelby and Ken have done is to create an emergency fund of food. If their income stops for a period time, their monetary savings need not be used to feed their family. They have a cache of food already set aside so everyone will be able to eat while another source of income is found. Their cash-money doesn’t have to be spent on food, which means that it will last longer.

Take a look at your own budget. What percentage of your monthly income goes towards food? And if you lost your income tomorrow, how much longer would your emergency fund last if you didn’t have to use it to feed yourself?

But I don’t have the room for that much food, Blue Lobster!

I hear you. And trust me, I don’t have that much room either. However, I do have freezer in my basement and I have a freezer area in my fridge. That means I can freeze a much smaller, but no less important, amount of food. I have 6-8 packages of extra lean ground beef. Is that too much for a Single Person? No, not if I lose my job. A single package becomes 4-5 hamburgers, or a cookie sheet of meatballs, or a big pot of meat sauce. Whatever the final product, that’s a few meals that I don’t have to buy with money from my emergency fund.

The same principle to the chicken thighs that I’ve bought. A bulk package of chicken might have cost me $30. Yet, I can get 25-28 chicken thighs that I then divvy up into Ziplock bags of 4-5 pieces. It takes very little time to prepare a marinade, pour some into each bag with the chicken, and then freeze the bags for later use. I haven’t bought chicken in several months. I do the same thing with my pork.

I’ve started going back to my office, which means taking a lunch and taking snacks. My freezer allows me to baking a big batch of cookies, or muffins, then tuck them away for when I need them. If you’d rather have something else for snacks, then be my guest. My point is that it’s not a bad idea to have some extra food stored away. Save money now by buying things when they’re on sale. Save money later by not having to buy outside food unless the purchase has been planned in advance.

Use Your Pantry and Freezer Space

Do what you can with what you’ve got. Your pantry and your freezer space are tools that can help you save money. I’m not an expert. No one’s expecting you to be an expert either. That said, I learn a little bit more each time I watch videos about how other people do it. I can take a tidbit or two and incorporate it into my life. There are ways for me stretch my dollars.

Build up your own emergency fund by learning to buy a bit more when things are on sale so that you can stock your pantry and your freezer. Watch a few more cooking videos on YouTube so you can cook for yourself a little bit more. Figure out how to cook or bake what you like to eat, then do so. If you don’t already, learn to love leftovers.

You have to eat. Keep your pantry and your freezer well-stocked with foods that bring you joy. Then learn to cook & bake what you love in your own kitchen. Doing so is another way to insure that you’re using your money to create a life that maximizes your happiness and joy. And isn’t that one of the very best reasons to have money in the first place?

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Weekly Tip: Contribute to your Tax Free Savings Account every year. Invest your contributions in a broad-based equity exchange-traded fund or index fund for 2-3 decades. (You can select a mutual fund, if you wish. However, mutual funds have higher Management Expense Ratios than ETFs or index funds so it makes little sense to spend more money for the same product.) Let your money grow over the years and re-invest all the dividends. When you finally do withdraw your money from the TFSA, never pay any taxes on the principle or the growth.

Money-Making Magic – Real Estate Investing

It’s taken me a few years but I finally understand how to create money from real estate re-financing. It’s another aspect the money-making magic of properly investing your money.

Right off the top, I want to tell you that I have never done this. In other words, my understanding of the process is only theoretical and it is not based on my own experience. I have never bought a property, renovated it, and then re-financed it to extract my investment.

Secondly, I want to be explicitly clear that I am not telling, instructing, advising, recommending, or otherwise encouraging you to do this with your money. It’s just a theory that I have finally understood so I want to share it with the world via this blog.

I’m a fan of the podcast Millionaires Unveiled. In episode 145, the hosts were talking to a guest who had made significant money in real estate. The guest used the same BRRRR method espoused by Brandon Turner at Bigger Pockets. You may also want to check out Graham Stephan on his YouTube channel, where he goes through a detailed example of how to profitably invest in real estate.

A Simple Example…as I understand things!

Purchase Price – $80,000. Renovations – $20,000. Total Investment – $100,000. After Repair Value – $150,000. Re-Finance & Cash Out @ 85% of ARV – $127,500. Free Money to Investor – $27,500.

So let’s un-pack this.

In this example, the investor bought a property for $80,000 in cash, meaning that there was no mortgage debt to the bank. (This example also works if the investor invests a 20% down payment – $16,000 – and gets a mortgage for the remaining $64,000. Either way, she’s still buying an investment property for $80,000.)

Renovations of $20,000 were made to the property. At this point, the investment in the rental property is $100,000 = $80,000 + $20,000.

The money-making magic starts when the investor goes to the bank to get financing on the property. (If the investor had had a mortgage, then she would’ve “re-financed” the property.) In the example above, the bank appraises the property at $150,000, which is $50,000 more than the investor’s total investment. The bank agrees to finance 85% of the ARV, which puts $127,500 back into the investor’s hands. As we all know, $150,000 x 85% is equal to $127,500.

(And if the investor started with a mortgage, she would go to a second bank to re-finance the property. She would then pay off the mortgage of $64,000 at the first bank, and be in the same position as if she had paid the full $80,000 up front. $127,500 – $16,000 – $64,000 – $20,000 = $27,500.)

Since there is now a mortgage on the property, equivalent to $127,500, the investor uses the rent from that property to pay back the mortgage. If everything goes perfectly, the rent will also cover other costs such as insurance, property taxes, and repairs.

In this example, the investor has earned $27,500 in free money through the money-making magic of real estate investing. Remember, she invested $100,000 of her own money ($80,000 + $20,000) and is walking away with $127,500 after financing her property. There are three things to take-away from this example.

The investor now owns an investment property while also recouping her entire $100,000 investment. In other words, she has none of her own money in the property.
If everything goes right, someone else is paying the mortgage and costs of this property with a little something leftover for cashflow to the investor.
Finally, the $27,500 is tax-free money. This is money that was derived from a higher appraised value. She’s removed some of the equity from the property and put it in her own pocket.

If you decide to start real estate investing, get proper accounting and tax advice from professionals you’ve paid to do work on your behalf. Do NOT take accounting and investing advice from blogs on the internet.

Lots of Things Have to Go Right for This to Work

The rewards are bountiful when things go right. In our example, the investor had the money to invest. The appraised value after the renovations was high. The bank was willing to finance 85% of the property value. There was a pool of available renters who could afford to pay a rental amount that covered the mortgage payment and associated costs of the investment property. The market rental price was high enough to cover the mortgage payment and the aforementioned associated costs.

Let’s say the bank had only wanted to finance 65% of the ARV. Our investor would have only been able to pull out $95,700 (= $150,000 x 65%). She would not have pulled out her entire $100,000 and the increase-in-equity-through-the-power-of-smart-renovations amount of $27,500.

Or let’s say that the real estate market had dropped between the date of the purchase and the date of the new appraisal. The bank tells our investor that the appraised value had come back at only $115,000, instead of $150,000. Even at the 85% ARV financing, the bank would only give the investor $97,750 (= $115,000 x 85%) to put towards the purchase of her next investment.

Another area where the plan could’ve gone haywire is the renovation costs. If our investor had budgeted $20,000 for renovations but wound up paying $50,000 for renovations, then her investment amount in the property would be $130,000 (= $80,000 + $50,000) instead of only $100,000. If the re-appraised value remained $150,000 and she could finance the property at 85%, she still would not be extracting her full investment of $130,000 because the bank would only be giving her $127,500.

Finally, there’s always the possibility that the renter stops paying the rent and the investor is forced to pay for the property. Every dollar out of the investor’s pocket is a decrease in the return from the investment property. The money-making magic has suddenly been turned into a money-sucking curse.

Research, research, research!

Like I said at the beginning, I finally understand the theory behind the money-making magic of real estate. It’s taken me years and many, many, many hours of listening to various podcasts & YouTube videos, but I finally get it. Now that I do understand it, I personally think it’s disingenuous to use click-bait language like “buying real estate with none of your own money.”

Obviously, at some point, you will need money to invest in real estate. It’s more accurate to say that there isn’t always a need for your own money to stay locked inside your investment properties… Okay, I get it – my language isn’t nearly as catchy and it would never qualify as click-bait.

However, that doesn’t change the fact that I generally know what the pundits mean when they use the click-bait language. I’m not a real estate investment expert. I haven’t put this theory into practice, and I’m not certain that I ever will. What I am certain of is that I finally understand – in a very rudimentary way – how a person can own real estate without keeping their money in an investment property. If the stars are aligned just right and nothing goes awry, real estate investors have the ability to own real estate without their money remaining in their investment properties.

It’s certainly not risk-free, but it does sound like it could work if everything goes right. If it’s something that you’re interested in, then I suggest that you start learning as much as you can before you start investing.

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Weekly Tip: Pay off your mortgage before you retire. It’s not good to go into retirement with debt. You will more than likely be living on a fixed income. Do what you can to ensure that creditors aren’t take a bite out of your fixed income every month. You won’t regret the fact that you’re mortgage-free when you’re retired.

Invest Your Money or Pay Down Debt?

The question often arises about whether it’s better to invest your money or to pay down debt.

My position is that you should do both. The reality is that the younger you are, the more time your money has to compound if invested. From the tiniest acorn did the mighty oak grow, and all that. So if you’re younger, you have time on your side. More time means a longer investment horizon, which means larger returns by the time you retire.

On the other hand, debt inhibits the growth of your net worth. The longer it takes you to pay off your debt, the more interest you pay to your creditors. This is not an ideal situation. Instead of paying interest to your creditors, you should be earning a return on your investment. However, you can’t earn any returns if you don’t have the money to invest.

So here’s my proposal – invest while you pay off debt. Why can’t you do both? If the interest rates on your debt are lower than what you can achieve over the long term in the stock market, then pay the minimum on your debts in order to maximize your investment returns.

Mortgages

At the time of this post, 5-year mortgages in Canada can be had for 2.5% and lower. These are lifetime lows, which will likely be around for the next 2 or 3 years. If you’re in a position to lock in one of these ridiculously low rates, then you should seriously consider doing so.

If you have a mortgage and you’re paying the bank 2.5%, then I don’t want you to make extra payments on the mortgage. I want you to invest in the stock market for the long term. Over the long term, the stock market has returned an average of 7% to investors. I want you to learn about investing in index funds. Then I want you to pick one and to start automatically investing your money.

When mortgage rates are at historical lows like they are at the time of this post, there’s no sense in repaying your mortgage faster. So long as you can earn the long-term average stock market return, you’ll be earning 3 times the amount you’re paying on your mortgage. It would be stupid not to do so while you can.

Vehicle Loans

The same rule applies if you have a car loan at a reasonable interest rate. My definition of reasonable is that it is less than 6%. If you’re paying a higher rate, then you can split your investment money in half. One half will still be automatically invested. The other half will be sent to your vehicle loan so that it is paid off faster. When the vehicle loan is gone, then you can put the money back towards your investment. You’re also free to use your regular car loan payment for investing or for something else.

Let’s say you have a monthly car loan of $750 and you’ve got a 60-month loan at 6% (or higher). And you also have $500 per month that you’re investing for long-term growth. Divide the $500 in half, so that you’re now paying $1000/month on the car payment and directing $250/month into your investments. When the loan is paid off, you can go back to investing $500/month. You’ll also have $750 in your budget that no longer has to be sent to someone else. You can keep the $750 in your own pocket.

Oh, and the next time you want to buy a car? Save up for it first! If you can find the way to pay a loan of $750, then you’re just as capable of squirrelling $750 away every month until you can pay for your next vehicle with cold, hard cash.

Student Loans

By now, you should be picking up what I’m laying down.

In the interest of transparency, I will tell you that I graduated with $15,000 of student loans. I made it my mission to repay those loans within 2 years of graduating. With the benefit of hindsight, I have to say that my net worth would be higher today if I’d invested my money in the stock market and stuck to the 9-year loan repayment plan that I’d been on. My shaky memory suggests that my monthly payment had been something like $150. If I’d known then what I know now, I would not have made double and triple monthly payments to pay that loan off so damn fast.

Today, people are graduating with six-figure debts. And the word on the street is that they are not all finding high-paying employment with their very expensive educations.

I still maintain that if you’re in your 20s and 30s with a large student loan, it makes sense to pay the minimum on those loans and invest in the stock market. When you’re in your 20s and 30s, you still have 3-4 decades for the money to compound if you’re not planning on early retirement. Your income will go up as you expand your skillset, refine your expertise, and gain useful experience. Use 25% of your increased income to bump up your student loan repayment. Take another 30% to inflate your lifestyle just a little bit! Make sure the remaining 45% of your increase is invested.

The analysis has to be a lot more nuanced if you’re still paying off a six-figure debt in your 40s and 50s. The question of whether to invest your money or pay down debt isn’t as crystal clear. What I do know for sure is that it’s almost always a bad idea to retire with debt.

If you have student loans in your 40s and 50s, then you need to divide your investment amount between your portfolio and your student loans. Pay those loans off before you retire! Once they’re gone, go back to ploughing as much money into your investment portfolio as you possibly can. Your investment window is going to be smaller due to age. However, that doesn’t lessen the onus you have to yourself to fund your retirement.

Without a solid investment portfolio whose returns outpace inflation, a person on a fixed income is going to have to pay for everything with dollars that are always losing value. Believe me when I say that you don’t want to be paying off debt in retirement.

I’m telling you right now that you need to have a portfolio that can support you when you no longer have employment income. As I’ve said before, pensions are disappearing. It’s on you to set aside enough money for your golden years. Unless you remain healthy, getting older is going to suck enough on its own. You need not make things worse for yourself by being old and burdened by student loans debt.

The Exception!

If you’re carrying credit card debt, forget about investing until that debt has been eradicated. Credit cards carry double-digit interest rates. The chances of your investments giving you a return higher than the interest charged on credit cards are exceedingly slim.

Focus on getting out of credit card debt, then you can start investing your money. Here are the steps to getting out of credit card debt.

Stop using your credit cards to buy things.
Make extra payments to your credit cards until each card is paid off.
As each card is paid off, do not use it again.
When all cards are paid, take your former credit card payments and invest them for the long term in an equity-oriented index fund.
Do not use your credit card without first saving up the cash in your bank account to pay for the eventual monthly bill.

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Weekly Tip: One thing to keep in mind that your portfolio doesn’t stop working just because you do. When you stop working, you won’t simply cash in your portfolio. Rather, you’ll structure your portfolio so that it’s continuously invested in manner that creates a cash flow for you until the day you die. This means that equities will continue to be a steadfast workhouse, ensuring that your portfolio lasts as long as you do.

Never Stop Reading!

Learning doesn’t stop with graduation. You should never stop reading. Read everything that you can get your hands on. Reading opens your mind to new ideas & perspectives. No one says you have to agree with everything that you read, but you owe it to yourself to learn as much as you can in the time you have left.

Since this is personal finance blog, I’m going to talk about the personal finance books that have shaped my financial life.

The Automatic Millionaire by David Bach

I loved this read for its simplicity and ease of implementation. After reading it, I didn’t have to spend too much time setting up my automatic transfers. 20 minutes? Maybe 30 minutes? In less than an hour, I’d created a system whereby a portion of my money went to my long-term goals, another portion went to my short-term goals, and the rest stayed in my chequing account to get me from one day to the next. Easy-peasy-lemon-squeasy!

I’ve been using automatic transfers for more than 2 decades. They eliminate the need for me to remember to transfer money from my chequing account to my investment account. The money is magically in place when it’s time to make an RRSP or TFSA contribution. There’s money waiting to be deployed to pay my monthly utility bills. Learning how to automate my money at a young age set me on a good path when it came to personal finance.

The Wealthy Barber by David Chilton

There’s something special about your first. I was 21 years old when I read this book. I was naive and very un-sophisticated when it came to money matters. However, this book impressed upon me the important of starting my Registered Retirement Savings Plan as soon as possible so I did. I was a student who paid nothing in taxes, hence I got a full tax refund back every year. Still, those little contributions to my RRSP have since grown into a nice six-figure income. What I took from this book is that investing is best started as soon as humanly possible.

The Two-Income Trap by Elizabeth Warren and Amelia Warren Tyagi

Senator Warren’s book was my first foray into the political implications of personal finance, and the risks that are associated with dual income families spending both of those incomes. I promised myself that if I ever married, I would make sure that my partner believed in living below our means just as much as I did. That way, we could live for today while still saving and investing.

While I’ve never married, I still set aside a good chunk of my salary for investing purposes. Mental gymnastics allows me to split my household income into two! Sometimes I pretend that the monthly dividends generated by my portfolio are the take-home pay of my imaginary spouse. It’s the best of both worlds – a second income without any money fights about how it will be spent!

Debt-Proof Living by Mary Hunt

This book was fantastic. I loved it because it gave me an infrastructure for how to set up my short-term money. One of the best ideas I’ve ever come across is the Freedom Account. Its purpose is to cover the irregular expenses that come up every year, but aren’t emergency expenditures. Think of things like oil changes, clothes purchases, pet expense, vacations. These are the expenses that do not occur regularly but still have to be covered. You don’t know exactly when you’ll have to pay for them but you know it’s going to cost some money.

I’ve had my Freedom Account for decades, and it’s been my safety net more than once. If you don’t have one, I suggest that you get one.

The Richest Man in Babylon by George S. Clason

It’s a parable that’s also a quick read. I loved this book! The financial principles about savings and investing have been around for centuries. And so have the mistakes that people make with their money. This parable touches upon the difficulties of not spending every nickel earned, finding good mentors, investing properly, and repaying debts. It’s also about the fact that get rich quick ideas are scams, more often that not. Building wealth takes time and consistency, but almost anyone can do it by following the right principles.

Quit Like A Millionaire by Kristy Shen & Bryce Leung

This inspirational story of retiring in one’s early 30s will stick with me for a long time. I learned about the challenges and strategies for early retirement. This book opened my eyes to idea of living outside of North America in order to save money. I learned about how to segment my money so that I wouldn’t have to sell from my portfolio during a market downturn.

Kristy and Bryce are the brains behind the Investment Workshop, one of the best free sources I have ever found for learning about how to create, maintain and re-balance your portfolio. Take advantage of their lessons to set yourself on a path for a comfortable retirement, early or otherwise.

Again, never stop reading!

As I’ve said before, you need not make every mistake yourself – you can learn from the mistakes of others. Books are a source of knowledge. They’re free from the library. Even in our COVID-19 circumstances, you can still access library books – you simply need to go online instead of into a building. Never stop reading!

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Weekly Tip: Create you own pension by investing your money towards your retirement. Fewer and fewer employers are offering pensions to their employees. This means that you have to save for your own retirement. If you don’t save the money for Future You, then no one will. Start today by squirrelling away a little bit of money, invest it for the long-term, learn a little bit more about investing, then start over. Save, invest, learn, repeat!

Taking it Day By Day

It’s been 4.5 months since the World Health Organization declared that the globe was in the grips of a pandemic. Since then, there has been much upheaval in people’s lives due in no small part to the financial impacts of lost jobs, the inability to travel, and social isolation. What are we supposed to do when going outside means taking the risk that we’ll contract a disease about which so much is still unknown?

We have to take things day by day.

By nature, I’m a planner. For example, I enjoy planning my travel. It’s fun to peruse all the websites, read up on the various sites, figure out where I want to go. In 2018, I went to Ireland for the first time. I crossed an item off my Bucket List – booking my time off then looking for a good travel deal. My biggest regret about that trip was that it was somewhat last-minute, in that I booked it only 6 weeks before getting on a plane. In the deep recesses of my travel-planner heart, I hadn’t given myself enough anticipation-time. Six weeks wasn’t enough time to dream about my upcoming trip and to imagine all the cool things I’d be seeing & doing.

Of course, in hindsight, I should have taken more time off and visited Northern Ireland and Scotland while I was over there. Who knew that a global pandemic would crush the airline & travel industries?

COVID-19 has changed things…

Today, I’m not doing as much travel planning. As you can well imagine, it’s difficult to get excited about flying anywhere when my personal view is that airplanes are the petri dishes of the sky. Similarly, long road trips are in the not-just-yet category since I’m not keen on staying in a hotel or going to restaurants.

Right now, I’m taking things day by day. My natural urge to plan has been channeled into cooking and baking. I’m already at home. My kitchen is right there. I have the ingredients and the tools to cook and bake delicious things for myself. Meal-planning is finally receiving the attention that it’s due. Trips to the grocery store are less frequent, but I do buy a lot more when I go. Once home, I start figuring out what to eat right away and how to meal-prep for the upcoming week.

As for investing, I have no choice but to take things day by day. The last time there was a big drop in the stock market was in 2008-2009. I made a huge mistake by stopping my contributions to my investment account!!! Thankfully, I was smart enough not to sell anything but I wasn’t smart enough to keep investing on the way down.

To date, the highest point of the Toronto Stock Exchange was reached on February 21, 2020. Then the market plunged, and kept plunging until March 23, 2020. The TSX has been slowly re-gaining ground since then. (Man oh man was I glad that I didn’t have access to cable TV during this time. I would’ve been a basket case listening to all the “experts” talking about investing.)

Sticking to the Plan

This time around, I stuck to my saving and investing plan. I ignored the headlines. I trusted the example set by history that the stock market will recover. No one knows precisely how, nor can anyone guarantee when the recovery will happen. This time, I decided to take things day by day and to continue to save & invest for my future.

I had a few things going for me. Firstly, I’m still fortunate enough to have my job. There are millions of people who aren’t in the same boat so they’ve had to decide whether to eat today or eat tomorrow. Secondly, I was already debt-free before the pandemic hit. I don’t have to worry about creditors or missing my mortgage payments. My financial foundation is firm. Thirdly, I don’t have cable so I missed a great many of the interviews with the people who predicted that “this time would be different.” I didn’t hear the stories from people who believe that the market could not possibly recover from COVID19.

Finally, I’m older and wiser today than I was in 2008-2009. I’ve learned from my mistakes. Had I continued to invest back then, I’d be so much closer to my retirement goals. My inexperience and fear caused me to sit on the sidelines while the market recovered. In other words, I wasn’t investing when the stock market was on sale. When I finally did re-start my investment program, I’d promised myself that I would continue to invest during the next downturn.

So when COVID19 came long and took a great big bite out of the stock market, I kept my promise. Money earned – money saved – money invested – repeat!

My portfolio still hasn’t recovered completely but I’m much farther along than I would have been had I stopped investing. I’ve been able to my more units in my dividend exchange traded funds. As a results, my monthly dividend payment has gone up considerably. This is a very good thing. I was fortunate enough to be able to make a contribution to my Registered Retirement Savings Plan. As per the advice of an independent financial planner, I invested those funds into a global equity ETF. Boom! I firmly believe that my choice to follow his advise will add a nice little kick to my RRSP in the coming years.

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Weekly Tip: Allocate your money in a way that allows you to invest in the stock market for atleast 15 years. Use broad-based ETFs to invest your money in equities. ETFs move in the same direction as the stock market. They simultaneously eliminate the risks of trying to cherry pick the next Apple/Tesla/Facebook stock. If you absolutely cannot stop yourself from stock picking, then please limit this hobby to only 5% of the equity portion of your portfolio. The other 95% of your equity investments should be allowed to chug along in a broad-based ETF for a long period of time.

House-Hacking is Worth Considering

House-hacking can be an amazing tool for building wealth.

You know how sometimes you’re on YouTube watching one thing and then a suggestion pops up on the side of the screen? And you decide to hit play instead of scrolling past it? Well, this week held one of those so I indulged my curiosity and hit play on a video that I otherwise never would have found by searching. For one reason or another, I was watching some videos about tiny houses. I started with this one because I wanted to know how anyone could spend $165,000 to build a tiny 300 sqft house.

And that’s how I discovered Robuilt. I promptly watched several more of his videos and I have to admit that a lightbulb went on after watching his video on house-hacking. I loved this particular video because this fellow goes into detail about how he financed his house-hacking project. He’s not shy about sharing how he obtained the money to build a tiny house, to renovate his basement suite, and how much rental income he’s earning from various sources. The only question I would’ve appreciated hearing him answer was how he and his spouse had initially accumulated the down payment for the purchase of their $640,000 home on writer & teacher salaries, but I guess everyone likes to maintain at least some small measure of mystery.

Anyhow, the lightbulb moment for me was when I realized – deep in the marrow of my bones – that it’s sometimes okay to go into debt if you’re borrowing money to buy real estate. I shouldn’t have been so shocked by this revelation. I’ve borrowed money to buy all of my properties. I’m very familiar with the concept of mortgages, how they work, how to repay them, etc…

Living in a Million Dollar House for Free

No. What shook me to the core was the manner in which Mr. & Mrs. Robuilt went from having a $4000/mth mortgage payment to a $0/mth mortgage payment by borrowing money. This video goes into more detail about how exactly they accomplished this feat so I encourage you to watch it.

Okay – so they bought the house and renovated the basement suite within two months. That rental of that suite netted them at least $2K – sometimes $3K – each month.

Blue Lobster, that still leaves at least a $2K/mth mortgage payment.

Yes, Numerate Reader – you’re right. Having the basement suite wasn’t enough.

The Robuilt’s decided to build a tiny house in their backyard. They’d initially budgeted $40,000 but the project ended up costing them $72,000. They didn’t take the money from the equity in their main home. Instead, they went to a private money lender to pay for this project.

Once the tiny home was built, they eventually rented it for $1800 per month. They refinanced the mortgage on their home to get rid of their PMI, bringing their mortgage payment down to $3700/mth… meaning that they were able to live in their home for free. Oh, and the value of their principal residence had gone up to over $1,000,000 because of the tiny home in the backyard.

Damn…

The Key was Getting Financing

Pay attention to the part where they went to a private money lender. (And they also relied on their credit cards, which is a very risky move because of the very high rates on credit cards. I am not recommending that you do this.)

As I watched the video, I could hear the thunderclap inside my head. You need access to money to acquire property, whether your own home or rental properties. The money can come from your own savings, from a family member, from friends, from a sou-sou, from a lifetime of collecting your loose change… it matters not. You need to get your hands on money to fund your real estate purchase.

And if you don’t have cold hard cash of your very own, then you need financing.

The Robuilt videos opened my eyes to the world of private money lenders. I don’t know all the details about how they work. Nor am I familiar with how they structure the lending terms. I don’t even know the rates or how they assess your credit. And to be clear, I don’t know why Robuilt’s didn’t go to a bank to get the money they needed to build their tiny house.

What I do know is that people who are cut off from obtaining financing are essentially cut off from the opportunity to acquire real estate. And if they’re not cut off completely, then their lack of access to money contributes to their delay in wealth-building. Maybe it takes someone an additional 7 years to be in a position to buy real estate. Whether that’s 7 years to save up a sufficient down payment, or 7 years to clean up their credit enough to qualify for a mortgage or a private money loan, it hardly matters. The result is the same – that person is unable to build wealth through real estate for 7 years.

Financing & Intergenerational Wealth

The thunderclap for me was the realization that access to financing is one of the keys to getting ahead when it comes to building wealth. If you buy rental properties, then you earn the equity while your tenants pay down the debt. If you buy your own home, then you still earn the equity while you pay down the debt. In order to earn the equity in the first place, you have to own property.

House-hacking as displayed in the Robuilt videos wouldn’t have been possible in as short a timeline as theirs without access to financing. That access allowed them to start creating wealth for themselves today. They’re also now able to build intergenerational wealth for their daughter.

It should be obvious that a lack of access to financing inhibits the creation of intergenerational wealth. In this blog post, I’ve focused on one couple who have used financing to buy & build real estate. Their reliance on financing allowed them to craft a situation where others pay for their mortgage. This results in their salaries going to other things, like accumulating another down payment to buy more property if they choose.

I’d like to point out financing can also be used to start a business. People who are more sophisticated than I am use it to invest in the stock market. For the record, there are many ways to use financing to build wealth.

People who don’t have access to financing have fewer opportunities to build wealth. It can still be done but it’s harder because those people have to accumulate the same amount of money from their own earnings. Imagine if your credit was so bad that you couldn’t get a mortgage. Or if you were legally prohibited from owning property. The only way for you to buy a property would be to save money from your paycheque then pay cash for a home.

How long would it take you to save enough money from your paycheque to buy a house? Even if you were house-hacking by living with a roommate?

Access to Financing = Access to Opportunity

The person who has to pay cash for a house doesn’t have the same opportunity to build wealth through real estate as the person who can get financing to buy property. I know that it might take the mortgage-holder a lifetime to repay the debt. After all, that’s why 25-year and 30-year mortgages exist, right?

Assuming the mortgage is paid, then the home can be passed down to the next generation. Imagine where would you be financially if you’d inherited a full-paid for home!

The person who can’t get financing for a home – yet miraculously saves enough money to buy one – can also pass their home down to the offspring. The possibility exists in theory only. It’s just such a monumentally harder endeavour to use cash to buy a home that most people never seriously consider doing it this way.

I’ve always believed that debt-free is the ultimate and best status when it comes to personal finance. This week, I’ve had cause to re-assess my position on debt. For whatever reason, these videos about house-hacking were more visceral for me than anything else I’ve read, watched, or heard. The power of financing and its ability to generate intergenerational wealth was put on full display. I have to admit that my eyes were opened to the possibilities in a way that they hadn’t been before.

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Weekly Tip: Borrow books from the library. It’s free and it’s a better use of your time than scrolling a social media site. There are books on anything that you can think of. Borrowing books is free. Libby is a magnificent app that prevents you from ever incurring a late fee because it automatically returns books to the library for you. Feed your brain – read a book.

Old-Fashioned Advice

It struck me recently that one of the reasons I’ve achieved some of my personal finance goals is that I’ve followed old-fashioned advice. These are the top three nuggets that come to mined.

Stay Out of Debt.

This particular pearl has served me well. I’ve had credit cards in my wallet for more than 25 years. I’ve paid interest once, and that was because I’d miscalculated when I made my payment. I don’t carry a balance on my credit cards.

The credit card companies would call me a deadbeat. I wear their moniker with pride.

One of the keys to becoming a deadbeat is to have an emergency fund and other accounts to fund short-term inconvenience. If you have a vehicle, then you know that you’re only one weird sound away from a mechanic’s bill. When my vehicle needed $600 of work, I had the money set aside in an account set up to field these kinds of expenses. Mary Hunt calls this a Freedom Account, and she describes it in her book Debt-Proof Living.

If my house burned down, or I lost my job for an extended period of time, then I’d go to my emergency fund in order to pay cash for my living expenses. I have insurance on my house but why should I pay the credit card companies interest while I’m waiting for my insurance money? And if I’m out of a job, that’s hardly the time to be incurring debt in the form of 19.9% interest payments to the banks. I have money set aside so that I don’t have to turn to credit cards during the bad times. You should too.

It takes as long as it takes to create a nice, fat cash cushion of emergency money. Start today.

Pay Cash.

The following method has worked for me. I suspect that it will work for you.

First, I identify what I want. Second, I look at my bank account to see if I have the money.

The third step goes one of two ways. If the money is already in my bank account, then I buy what I want. If the money is not in my bank account, then I don’t make the purchase.

Fourth, I get what I want… when I have the cash in hand to pay for it. The fancy term for this is delayed gratification. Call it what you want. The bottom line is that paying cash throughout my life has benefitted me far more than any inconvenience caused by waiting.

Pay Off Your Mortgage

I was lucky enough to get into the housing market with a modest, mid-sized mortgage under $70,000. When I moved from my first home into my next one, I bought a property that suited my life circumstances. I did not accept the bank’s gracious offer to lend me several times my annual income. My refusal of that gracious offer has meant that I live in an older home that’s roomy enough for a Single One. It also meant that I could pay off my mortgage in my mid-30’s. I’m happy to report that those former mortgage payment are now the foundation of my automatic investment plan.

I know that there is a lot of debate among very smart people about whether to invest or to pay off your mortgage. Today, we live in a world without pensions and $300,000+ mortgages. Essentially, these two facts combine to create circumstances where people can spend their entire working lives paying off a mortgage. They may not have any “extra” funds to put towards retirement. Every dollar is allocated to paying for the mortgage and for the costs of living. Most people enjoy the little luxuries – you know, food & transportation. Crazily enough, they’ll even prioritize those luxuries over saving for a retirement that’s decades away. Even I go back and forth on whether I should have taken 25 years to pay off my mortgage so I could have invested in the stock market for a longer period of time.

Since paying off my home 10+ years ago, I’ve never worried about having shelter. Rental increases haven’t impacted me, because I own my home free and clear. Mortgage rates no longer make me apprehensive, because I don’t have to worry that my budget will be impacted if those rates shoot up. (Of course, that’s a hollow argument in the mortgage market of 2020 – when 5-year rates can be had for less than 2.5%.) I no longer have to hope that absolutely nothing goes terribly awry with my paycheque for over two decades so that I can service a gigantic debt. This last benefit just might be my very favourite – sleep is easier without money worries.

I still think paying off your mortgage is a great course of action. At the same time, I’m realistic enough to recognize that it’s not always the best option.

Everyone’s situation is different so use these nuggets as you wish. Stay safe – wash your hands – be well.

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Weekly Tip: Ladies, you’re statistically more likely to outlive men so you should invest a greater percentage of your portfolio in equities to generate higher returns over your longer lifespan. Withdraw your age from 120 and allocate the number as the percentage of your investments to the equity portion. As you become a more sophisticated investor, you can change this percentage if you want.

Learn from Others!

If I can impart one nugget of wisdom to you today, it is this. You need not make every mistake yourself in order to learn a lesson. You’re always free to learn from others. I’m not promising that you’ll avoid making your own mistakes – that’s utterly impossible. What I am promising is that some of the biggest mistakes can be avoided if you’re willing to pay attention and think about the choices made by the people in your life.

These people won’t all be your family & friends – although it’s important to pay attention to the consequences of their choices too. Sometimes, the people who can teach you important lessons are only in your life for a few minutes.

When I was in high school, I had a part-time job as a cashier in a grocery store. Living at home, I had the luxury of having all of my paycheque go towards having fun with my friends since my parents paid for my shelter, my food, and the other important stuff. I was a very fortunate kid!

Anyway, two of my customers made indelible memories on me. One customer was an elderly lady who came through my till. I don’t recall how the topic of money came up but she very specifically told me to start saving for my retirement. I was a 16 or 17 years old at the time, but her words stuck with me. The second customer was also an elderly lady. I remember watching her compare two cans of cat food, and she was teary-eyed. When she came through my till, she confessed to me that she stocked up on cat food when it went on sale because she ate it herself. At the time, each can cost $0.59. She was tearful because the price had gone up from the last time she’d shopped.

Like my parents & teachers before them, these women provided me with a very important opportunity to learn from others. In their respective cases, the lesson was about money and retirement.

Those two anonymous customers forever changed my perspective on saving money for my future. Here were two seniors, who had very different options at the grocery store. I don’t know their back-stories. I can’t give you any details about their lives. Again, I was a teenager in a cashier’s uniform who rang through and bagged their orders before wishing them a nice day.

Yet, each of them taught me a valuable lesson her own way. From that day forward, I knew down to the marrow of my bones that I had to save a lot of money for my retirement.

When I was in my 20s, I worked part-time in a bank while going to school. One Saturday, a customer came in to pay $20,000 (maybe $25,000?) towards his mortgage. Those kinds of transactions were beyond my skillset as a customer service rep so the loans officer had to process it. After the customer left, I asked the loans officer why the customer had done that. The loans officer took the time to explain to me how the customer’s lump sum payment would knock years of payments and thousand of dollars of interest off his mortgage debt. That was the first time anyone had ever explained anything about mortgages to me.

Once again, I tucked that knowledge away for the future. I promised myself that, once I got a mortgage, I would pay it off as fast as possible by using these magical “prepayment options” that the loans officer had taught me.

Now, I still made mistakes. I didn’t learn about RRSPs until I was 21. So even though, I’d been working part-time since the age of 16 and saving $50 every two weeks in my savings account, I delayed starting my retirement savings program by 5 years. My parents ensured that I filed a tax return each year, so my RRSP room was accumulating every year. I could’ve made a contribution sooner but, alas, I did not.

So what happened at age 21? That’s easy. I read the book The Wealthy Barber by David Chilton. That book changed my life! In addition to starting my RRSP, I began to read more books about personal finance. When I graduated from school and started my career, I had a firmer foundation than I otherwise would have had. Though not perfect, I had a plan for my money.

Due to my choice to learn from others, I started contributing to my retirement accounts at age 21. I forced myself to start an automatic savings program at age 16. I’ve continued to live below my means. This choice has allowed me to always have money for investing. I chose to learn from others and I’ve avoided some of the very worst mistakes that I could have made with my finances.

Again, you need not make every mistake yourself. You have the option to learn from others. Use it!

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Weekly Tip: Set up an automatic savings plan. Part of your paycheque needs to be invested every time you are paid.