Author: Blue Lobster

What If…

When I talk about financial independence and wanting to retire early, many people look at me as if I’d sprouted a second head right in front of them.

“I love my job!” they say. “I don’t want to retire!”

Great! Wonderful! You’re being paid to do what you love – that makes you one of the Lucky Ones!

Take a moment and consider what it’s like for those of us who aren’t so blessed as to love our livelihoods, those of us who dream of a day when we can do what we want with all of our precious, precious time. Most of us work because we have to, not because we love what we do. And a good number of workers don’t actively hate their jobs. They simply don’t love them and would rather be paid to do something that they enjoyed.

And if you’re wondering why we don’t just find jobs that we love and do those instead, please gently hit yourself in the head with a hammer. Take it on good authority that we have tried to find jobs that we love as much as you love yours. There just aren’t as many of those ideal positions going around so not all of us are going to get one.

Instead, I’m going to ask you Lucky Ones to put yourselves in the shoes of the rest of us. That way, you might gain some insight into why some of us are working so hard to achieve financial independence and, possibly, early retirement.

Lucky Ones, ask yourselves the following: What if you didn’t love your job? And what if the job you love today turns into one that you don’t love tomorrow?

What if any of the following things happen?

  • The boss you love retires…and the new boss isn’t to your liking.
  • Your best work buddies move away.
  • You have to take on duties that make you stressed and irritable.
  • You’re passed over for a promotion that you know you earned.
  • Others are laid off, which means your workload goes up.
  • Harassment, sexual or otherwise, creeps into your daily workday.

There are many, many things that can happen in one hot minute to turn a job-you-love into a job-you-hate. Spend an hour or two at Ask-A-Manager to see what I mean. If half of the people writing to Alison had built up enough money to leave their jobs when they wished, then she’d have so much less to write about!

Or maybe your job never causes you to shed a tear, yet you lose it anyway. For example, your company is bought by another one, or there’s some kind of re-organization. For whatever reason, your job is eliminated. It happens to a lot of people. Those who don’t have a financial cushion are the ones who will be stressed and desperate to find something else. People who’ve been working towards financial independence have the luxury of taking some time to figure out what the next steps are going to be.

What if you had enough money to walk away from your job when it stops making you happy? Or what if you had a great, big cushion of money to land on if you were kicked to the curb due to downsizing or ageism?

That’s the beauty and power of financial independence. When your job stops being one that brings you joy, being financially independent gives you the choice to walk away.

I want to be explicitly clear – you don’t have to retire early just because you’re financially independent. Money = choices. Having money doesn’t remove your choice to keep working. It simply gives you the choice to do something else when your current position stops bringing you happiness.

So make hay while the sun shines! Get in touch with your inner squirrel and start gathering that sweet, sweet cash for the day when you’ve simply had enough. You won’t regret having the options that only money can buy when the time comes.

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Weekly Tip: Pick one day a week to be the day that you don’t spend any money. Most of us spend a little something every single day. Did you know that it only takes $27.40 per day to spend $10,000 in one year? Challenge yourself to keep your money in your pocket atleast one day out of every 7.

In Sickness & In Health

Emergency funds… you need them in sickness and in health.

My workplace has been a hotbed of germs and colds and flu for the past few weeks. Even I had to take a day off to give myself some time to rest and recover from my head cold. And I started thinking about how fortunate I am to have sick leave banked for times like this. Staying home for the day won’t impact my salary. I can focus on feeling better without worrying that my paycheque will be less than normal.

Some people are not so fortunate. For many, many people, a day away from work means losing money. As we all know, bills don’t take a break. Whether you’re sick or healthy, the bills and expenses of life need to be paid. If missing work due to illness would negatively impact your paycheque, then you need to have emergency funds set aside somewhere.

It is absolutely imperative that you have some money stashed away to replace your income. You don’t know when you’re going to get sick. And you don’t want to be thinking about the damage to your monthly income when you’re dealing with a runny nose, body chills, and a hacking cough.

Emergency funds take time to build and, once used, time to replenish. They should be relatively easy to access, so I suggest putting this money into a high interest savings account. When you’re healthy, find a way to squirrel away some cash into this financial necessity. Challenge yourself to set aside a particular per diem until your emergency fund has hit six months worth of expenses. Maybe you’ll pay $5 per day, maybe $10 per day. Even $1 per day is a good goal if your budget is particularly tight. Trust me – you will never regret the small sacrifices that you had to make when you truly need to rely on your emergency funds.

Let’s say that you had a car loan or student loan that you’ve just finished paying off. After congratulating yourself for paying off a debt, re-direct that former payment to the care and feeding of your emergency fund. You were living without the money before so you can continue to live without it for a little while longer.

The last thing you need to do when your income drops is to go into more debt by borrowing money to make up the lost income. Emergency funds can drastically reduce the need for you to go into debt.

Finally, make sure to replenish your emergency funds after you’ve used them. Emergencies can strike at any time. The sooner you get yours back to full strength, the better prepared you will be for the next one.

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Weekly Tip: Cut back on how much TV you watch so you can get rid of cable. The added benefit of less viewing time is less exposure to marketing. You’ll be amazed by how a significant reduction in TV-watching dampens your desire to buy stuff.

Progress need not be Perfect!

When you know better, you do better…

from one wise soul to another, Maya Angelou to Oprah Winfrey

No one is born knowing how to invest. This is awesome news! It means that anyone can learn how to invest if they take the time to practice the skill. It also means that progress need not be perfect.

Much like walking, playing the piano, and mastering Candy Crush, the skills of investing must be practiced and honed before one becomes proficient at them.

I’m a huge fan of YouTube. As I was perusing the millions of videos on that platform, I came across one that was called “Vanguard or Fidelity – Which one is Better?”

And do you want to know something?

Yes, Blue Lobster. Please, tell us what you’re thinking.

My initial reaction to that post’s title was to scroll right past it. I’ve learned a little bit of wisdom on my relatively few revolutions around the sun. And one of those bits is that it’s best to just start investing, regardless of where you do so. Progress need not be perfect in order for you to achieve your dreams. Think of it this way – every journey starts with a single step but not every journey to the same destination requires the same number of steps. If a person needs to take a few extra steps to where she’s going, then she still gets there.

Focus on progress, not on perfection.

For example, we will look at the situation of an investor named One. Let’s say One decides to invest with Fidelity. (To be frank and open, I invest with Vanguard Canada. And no – I’m not being compensated for mentioning them in this blog post.) One sets up an account at Fidelity and creates an automatic transfer to have a fixed amount invested into an exchange traded fund every time One gets paid.

Superb! One has taken the very first steps towards investing for One’s own future.

Did One make the absolutely best choice for an investment account? It’s hard to say without knowing if One spent hours doing the research to determine the management expense ratios, various fees, product offerings, and account features from all of the investing companies that One could have chosen.

What we do know with certainty is that One did not delay her progress by staying in the quagmire created by analysis-paralysis. One made the smart choice by focusing on progress, rather than trying to achieve perfection. One is taking action by accepting the maxim that progress need not be perfect.

There’s no doubt in my mind that a perfect, best account does exist somewhere out there. I’m just not certain that it makes sense to waste more than 3-4 hours looking for it. The ultimate objective is to start investing your money; it’s not “to open the perfect, best investment account.” Keep your eyes on the prize! No one is going to pat you on the back for opening the absolute best and perfect investment account if it takes you 2 years to find it after sifting through all the options. The best and perfect account doesn’t actually help you if you never actually open it and make an investment.

Again, progress need not be perfect. I know a baby who has just started to walk. He’s only been doing it for a few weeks, but he’s focused on progress, not on perfection. At first, he could only stand and would fall down every time he moved his head. A week later, he could walk ten steps unaided. The next time I saw him, he would walk slowly…and drop down to crawl if he had to get somewhere quickly. (The kid’s got a great big brain and understands that sometimes speed is of the essence!) The last time I saw him, this kid was very nearly walking like a champ – moving his head, going further distances, turning around without falling down too much. In another six weeks, crawling will have long been forgotten as a preferred method of travel.

The first time you walked, you fell down after a few steps. You didn’t let that stop you, did you? No, you didn’t! Instead, you tried again and again and again and again until you could do it. Without knowing you personally, I’m willing to bet that you’re now quite a proficient walker. The same principle applies to investing.

Always be learning while making progress.

Be like a baby – save and invest your money with the perspective that progress need not be perfect!

You see, there’s nothing stopping you from continuing to research investment accounts once you’ve started investing. Save-invest-learn-repeat. You are free to keep learning after you’ve made an investment.

Again, full-disclosure, I invest with BMO Investorline. And, again, I’m not getting compensated for mentioning them. Yet just because I invest with BMO Investorline doesn’t mean that I haven’t also research Scotia I-Trade, Questrade, RBC Direct Investing, or any other investing platform/company. (I’m not being paid for mentioning these platforms.)

Further, I have no idea if BMO Investorline is the ultimate, best and perfect option for me. It doesn’t matter. What does matter is that I am automatically investing in very inexpensive exchange traded funds and earning big dividends every month. And even though I’ve been with BMO Investorline for years, I would switch my investment portfolio in a heartbeat if I found a platform that better suited my needs for a lower price.

If One discovers that Vanguard Canada offers a more suitable range of investments products than Fidelity, then One is not in any way prevented from moving One’s investment account from Fidelity to Vanguard Canada.

Procrastination is the enemy of progress.

When it comes to investing your money, procrastination is extremely detrimental to achieving your financial goals. The reason why it is so bad is because you have a finite amount of time in which to grow your money. Money needs to be invested so it can compound. And compounding is most effective over long periods of time. Ergo, start investing your money right now so that it has as long as possible to compound.

Don’t let analysis-paralysis stop you from taking action today!

Your progress need not be perfect in order for you to reach your goals. Lord knows that my investment path hasn’t been smooth, nor will it ever be exalted as the absolutely correct path to take. If anything, my investment story should be viewed as a cautionary tale for fellow investors. However imperfect my journey has been, the fact that I started when I was 21 and have consistently invested my money for the past 2.5 decades has been a key factor in me pursuing and achieving my goals.

Neither you nor I can get to where we want to go without making some kind of progress. So we have an obligation to ourselves to keep moving forwards. Whether that’s listening to a podcast, reading a book, following a blog, or using trial-and-error, doing any or all of these things will lead us closer to taking action. And taking action is how we will progress towards making our dreams come true.

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Weekly Tip: Don’t pay for memberships or subscriptions if they’re no longer making your happy. As much as we might like to believe it, peer pressure didn’t end when we graduated from high school. Review your monthly expenses. How many things are you paying for simply because your friends are paying for them? If those things are no longer bringing you joy, then stop paying for them.

It Never Hurts to Ask

When it comes to money, it never hurts to ask for what you want.

Case in point – the mortgage on my rental property comes up for renewal this spring. For the first time ever, my bank sent me my renewal instructions 6 months before the renewal date. Usually, I get my renewal letter 3 months before I have to sign on the dotted line. In any event, I was somewhat surprised by their eagerness.

Naively, I’d thought they would be more than happy to renew at my same rate. For the past five years, I’ve been paying 2.79% on my mortgage. It’s a sweet, sweet rate and I’ve loved it. The mortgage before had been at 2.99%, so I’d gotten very comfortable with a rate of less than 3% for a 5-year term.

I girded my loins. I straightened my crown. I softly repeated my mantra to myself – “It never hurts to ask.” And I made the first strike.

Round One

My first call to my bank resulted in the perfectly-pleasant customer service representative telling me that the best my bank could offer was 3% for 5 years. I gently reminded him that I’d been a good customer for over a decade and that I also had a significant portfolio with their investment arm. Mr. Perfectly-Pleasant appeared not to be moved. We courteously discussed my ability to take my mortgage elsewhere, a move I was secretly loathe to make. We also discussed the fact that the Bank of Canada would be making four more rate announcements before I had to renew my mortgage.

(Of course, this means very little since the 5-year mortgage rate is far more heavily influenced by the bond market than it is by the prime rate. The prime rate has far more impact on short-term and/or variable mortgage rates.)

At the end of the call, Mr. Perfectly-Pleasant had stuck to his guns. My bank wasn’t going to offer me a 5-year rate at less than 3%. I’d asked and the answer had been “No”… which I’d chosen to interpret as “Not just yet.”

I’d been knocked on my bum and was no closer to my goal of getting another 5-year mortgage interest rate of less than 3%. Luckily for me, this wasn’t my first time at the Mortgage Rodeo. I knew that this was simply part of the dance that always exists when one wants to borrow money without enriching the creditor too, too much.

It never hurts to ask… but there’s never any guarantee that you’ll get the answer you want.

Round one went to the Bank… but, much like the Terminator, I would be back.

Attempt No.2

The second call to the bank didn’t go too terribly differently except for one incredibly distasteful detail – my bank now wanted to charge me 3.05% for a 5-year rate. Wait one damn minute – 3.05% is even higher than 3%!

I nearly fainted from shock!

How on Earth could my bank even consider charging me a higher rate than the one they’d offered before? Did they not understand that I wanted a rate of less than 3% for another 5 years? Had I not been explicitly transparent by stating “I’d like to have another rate of less than 3% for the next 5 years”?

It had never occurred to me that my bank would try to raise my mortgage renewal rate a second time! Was this some strange ploy to scare me by planting the seed that the rate would keep going up before my actual renewal date?

If so, their plan had failed miserably. I knew I was a great customer with a spotless repayment history and excellent credit. Let’s not forget that both my bank and I were well-aware that many other banks would be happy to have me as a new customer… and that they’d be willing to offer me their Shiny-New-Customer rates.

Still, finding another bank to finance my mortgage wouldn’t be exactly free. I’d have to pay an appraisal fee. Someone would be running a credit check. There was also the fact that I’d had to meet the requirements of B20 Stress Test, which I could easily do. There might even be fees associated with moving my mortgage from one bank to another since my bank would do what it could to extract money from me in lieu of all that mortgage interest they would no longer be getting from me. All of these were little hassles that I really didn’t want to endure if I could avoid them.

My bank was simply doing what banks do: trying to fleece me like they try to fleece all their customers. It wasn’t personal – it was simply business.

Sticking to my Guns

I refused to be deterred from my goal of renewing my mortgage for less than 3%. Just because other people were renewing at higher than 3% rates was no reason for me to do the same. If they jumped off a bridge, was I going to jump too? I think not – my parents had raised me better than that!

Ignoring the also-pleasant customer service representative’s statement that I could get a 5-year fixed mortgage of 3.05%, I asked her if there was any way that the rate could be lowered. Like my wise aunty has often said, them’s that asks are them’s that gets.

Ms. Also-Pleasant did her employer proud. Once again, she repeated that my bank was willing to offer me a 5-year rate of 3.05%. She said that her computer told her that this was the bank’s best rate of the day. Much like her predecessor, Ms. Also-Pleasant told me that I was free to check back in the future. She even added a teaser by stating that the rates might go down in the spring since a lot of people would be buying houses.

The trouble was, I didn’t want to have the task of renewing my mortgage hanging over my head until the spring. I wanted to get this chore crossed off my list, but I wasn’t going to renew unless I got a rate of less than 3% for the next 5 years. Why couldn’t they just give me what I wanted?

I held my tongue and I kept my cool. If I’ve learned anything during my few, precious years on this little Blue Ball of ours, it is this: The person who talks to the public is never the person who has all of the power. There’s no sense yelling or cursing at those on the front lines because they can’t override the decisions made by those who are higher up on the chain. However, they do have the power to put in a good word on my behalf to the people who make the decisions. And this means that it never makes any sense to be rude, mean, or un-kind to the front-line soldiers. (Also, they’re human beings doing a job so you shouldn’t be rude, mean or un-kind to them in any event.)

Again, I ignored the offer of 3.05% and I again asked – politely! – if there was any way for that rate to be lowered. You see, Life has also taught me that it never hurts to ask for whatever it is that you want. If anything, asking for exactly what you want exponentially increases your odds of getting it.

Ms. Also-Pleasant’s response to my polite inquiry thrilled me to the core. She stated that she could forward my request to the Pricing Department and see what they could for me.

Success!!! I had no idea what the Pricing Department was, nor did I have any clue as to what it could do for me. All I knew at the end of the second call was that I didn’t have to start shopping the market for another mortgage nor had I yet reached the point of calling a mortgage broker.

Round Two is what I’d like to call a draw. I hadn’t gotten what I wanted, but I hadn’t landed on my bum either.

Victory!

Phone call number three can legitimately be categorized as a late Christmas present. When I got back to my office after the holidays, my bank had left me a voicemail. Returning their voicemail resulted in unbounded glee for the rest of my first day back in the office.

The mysterious folks of the previously-unknown Pricing Department had finally understood what I wanted… and they’d granted me my wish. Finally, my bank was offering me a rate that I could live with for 5 years = 2.84%. My new rate from the Pricing Department was even lower than the rate my bank was advertising to its own Shiny-New-Customers.

Woohoo! This was more than I’d been paying, but still less than my acceptable upper limit. As much I’m not a fan of banks, even my bank should be allowed to make a wee bit of money from me. I truly feel that I’ve been quite generous by allowing my bank to increase my mortgage rate by the equivalent of 0.01% for each of the next 5 years. I’d allowed my bank to save face by charging me a slightly higher rate. My bank can still hold its head up and participate when all the banks stars talking trash about customers on the playground.

At the end of the day, I’d gotten exactly what I’d wanted. And the cherry on this particular sundae was that my name would not be flagged as a Problem Customer because I’d been polite during all of my interactions with everyone.

So you see… it never hurts to ask for what you want.

Could I have gone back to the Pricing Department and asked for a lower rate? Sure.

Would I have gotten it? Maybe…or maybe not.

Do I feel foolish for not asking for more of a discount? Not in the slightest. My life isn’t about looking to save every single penny. I had a goal and I’ve met that goal. Now, it’s time for me to direct my attention and my energy towards satisfying other goals.

After all, I was one of them’s that asked and now I’m one of them’s that’s gots! ;-}

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Weekly Tip – If you’d like to have $1,378 by the end of the 2020, then I invite you to participate in the 52-Week Savings Challenge. You can complete the weeks in order or however you see fit. Just make sure to make every required contribution then enjoy/invest/donate/whatever-you-want-do-with your money on December 31, 2020.

Book Review – Quit Like A Millionaire

Two people I’ve been following online for the past few years – Kristy Shen and Bryce Leung – wrote a fabulous book called Quit Like a Millionaire. You should read it sooner rather than later. (And let me be very clear, right up front – I am not being compensated by anyone for this review.)

Kristy and Bryce are also the masterminds behind the magnificent blog called Millennial-Revolution. And while some of the tidbits of the book have been disclosed on their blog, I can assure readers of MR that there’s so much more to their story that they haven’t already divulged online.

Their story is great for a variety of reasons. To start off, Kristy came from poverty. Her parents immigrated to Canada when she was young and she’s worked very hard to achieve her current success. I can’t tell her story as well as she can. However, this is a very accomplished woman whose initial idea of wealth was having a single can of Coca-Cola. Kristy has worked her ass off to earn her wealth!

Another thing I love about Kristy & Bryce’s story is that it’s a great example of how living below your means and wisely investing in the market can propel you to financial independence very early. Despite the volatility that they faced during their initial years, they stuck to their plan to invest in equities to achieve their goal of early retirement. Did I mention that they retired at age 31?

I’m not trying to blow smoke. Their means were more than adequate. Both of them graduated with engineering degrees and, together, they were earning a six-figure income within a year of graduating. Unlike the majority of people who start earning big-money after graduating, this dynamic financial duo chose to save very large chunks of their paycheque and to invest it in the stock market.

Show of hands – are you saving big chunks of your disposable income? Or have you made the choice to spend every penny you make?

Do what you want! It’s your money after all. I’m simply going to tune you out when you complain that you don’t earn enough to do what they did. You’ll need to show me your expenses and your income if you want to convince me that you can’t live below your means and invest for long-term growth. Knowing where your money goes is the first step towards controlling it.

That’s another beautiful element of Quit Like a Millionaire! Kristy and Bryce tracked their expenses for years, and then they disclosed them in the book. In other words, they laid bare the money choices they made each year to live the life they wanted while pursuing financial freedom. Not every blogger does this so I give them kudos for being so transparent. Even though they were making bank as DINKs, they never lived on more than $51,000. And you want to know what’s even crazier?

They spent $51,000 shortly after graduating from their engineering program. Every year after that, their annual spending went down while their incomes continued to go up!!! This is a couple who understood the perils of lifestyle inflation and fought against it, hard. They continued to live cheaply while still traveling, investing, and enjoying life with their friends. Kristy and Bryce didn’t become hermits or give up anything that really, really mattered to them. They prioritized their goals and made sure that their money was funding their dreams of attaining early retirement.

Kristy and Bryce also made the wise decision of finding a crusty but trustworthy financial advisor who helped them invest their money when they decided not to follow the herd’s example. Kristy and Bryce earned their early ticket to financial freedom, in part, by not yoking themselves to a huge mortgage. (Again, I’m not endorsing Garth Turner. No one is compensating me for mentioning him or his blog. I’m just stating the facts as I understand them. If you want to work with a financial investor, then I encourage you to do your due diligence to ensure that you pick the right person for the job.)

Another magnificent feature of this book lies in the appendices. Kristy & Bryce teach you the formula for creating a spreadsheet that tells you when you’ll reach your own Financial Independence number.

Oh, come, Blue Lobster! Everyone already knows how to do that!

Well, excuse me! I’ll be the first to say that I didn’t know how to create such a spreadsheet. However, I know now and that means a little bit more knowledge to help me reach my goals. I was contemplating using some of my savings to pay off my rental property, but thanks to Kristy and Bryce’s formula I now realize that doing so would set my retirement date back by a couple of years. As they do on their blog, Kristy and Bryce’s Quit Like a Millionaire will teach you stuff that you might not already know.

A new year starts in a few days. Much ado is being made about the fact that a new decade also starts in a few days. So, if you’re looking to make some changes in your financial life, then you should do yourself a solid. Take a few hours to read this book and figure out for yourself how to Quit Like a Millionaire.

Start Planning Today…

A new decade starts 11 days from today. What do you want to accomplish next year? Which dreams are most important to you?

The key to getting things done is to start planning today. Time waits for no one, and not a single one of us is promised tomorrow.

Sure, there are those rare instances where you fall ass-backwards into exactly what you want. Those instances are few and far between, so they don’t make for a good use of your time, energy, and focus. It’s better that you figure out what you want, then start planning today so that you can get it.

Maybe you’re like I was 5 years ago. At the time, I was sick and tired of being someone who had never been to Europe. It seemed like everyone I knew had been overseas and I’d somehow missed the memo. Know what I did? I created a sinking fund for my travels. I made it a goal to get over to Europe. In the past five years, I’ve been to Italy, Spain & Ireland.

It’s now a burr under my saddle that I haven’t seen the cherry blossoms in Japan. I’m going to start planning today on how to move this particular Bucket List item from the “Hope to Do One Day” column to the “Did It & Loved It” column.

  • Goal? See the cherry blossoms in full bloom in Japan.
  • When? Before 2025.
  • How? Save money from every paycheque in my Travel Sinking Fund.

Sinking Funds are an Excellent Tool

Travel might not be your jam. It’s not for everyone – I get that. However, I’d be willing to bet dollars to donuts that there is something you’d like to have bought, seen, done, experienced by this time next year.

More likely than not, there’s a good chance that it’s going to cost you a bit of money.

Introducing…sinking funds! They’re a magnificent tool to help you fund your dreams, whatever those might be.

Imagine for a moment that you want to take a $500 cooking class next September. If you don’t have $500 kicking around with nothing better to do, then set up a sinking fund. This is going to be a savings account where you stash money every month until you have the $500 you need to pay for your class. There’s 8 months between now and the start of September, so you’ll need to stash away $62.50 per month. Or you can decide to stash away $100 per month for 5 months, or $250 for two months… I think you understand my meaning.

Once the sinking fund contains enough money for you to cash flow your particular goal, you can re-direct that monthly/bi-weekly/weekly savings amount towards something else.

There’s no limit to how many sinking funds you can have going at once. If you’re fortunate enough to have the extra disposable income, then you can fund more than one goal at a time.

What if you can’t think of something you really, really, really want? Well, in that case, you should still have a sinking fund that you’re filling with cash. You can call it your Dream Fund, or your When I Figure Out What I Really Want Fund. The point is to have the money in place so that you can cash flow whatever your heart eventually desires.

Automatic Payments are also an Excellent Tool

Maybe your goal for 2020 isn’t to buy anything. Perhaps you’re in debt and you simply want out.

If this is the case, sinking funds aren’t the tool for you. There’s no sense paying additional interest on your debt while money builds in a savings account. That’s a foolproof way of ensuring that you pay way more interest than necessary to your creditors. We definitely do not want that!

Let’s say that you want to pay down atleast $2500 against your debt. It doesn’t matter if it’s credit cards, a vehicle, student loans, whatever. I want you to set up an automatic payment that sends money directly to your debt every single month.

Pay attention to the following because this where the steak stars to sizzle. This automatic payment is over and above your minimum monthly payment. You’ll get out of debt way, way faster by making extra payments than you will by paying the minimum amount owed.

By paying the minimum amount owed, you’re guaranteeing that you’ll pay the maximum amount of interest to your creditors. If you can avoid doing that, then avoid doing that. Pay as little interest as you can to your creditors and keep your money for the things that make you happiest.

A New Year, A New Decade, A New You?

I’m never been one for New Year’s resolutions. To my mind, if a resolution is going to improve your life, then you should implement that resolution today. Waiting until some arbitrary date in the future always seemed counter-productive to me. Why keep doing less-than-optimal things in your life simply because of a date on the calendar?

That said, I know that many people imbue January 1 with a whole lot of importance. So I urge you to start planning today so that you improve your odds of making your dreams come true.

No-Spend Days

This week, I’d like to introduce you to the idea of keeping your wallet closed one day each week. I call these No-Spend Days!

Pick any day you want. It doesn’t matter. The purpose of this exercise is for you to give your wallet a break! Slow down your spending – keep your money in your wallet just a wee bit longer than you normally do.

How is this useful, Blue Lobster?

It’s been my experience that no-spend days mean that I’ve been more organized in the days prior. I’ve managed to cook some food, so I’ve had lunches to take to work and something tasty waiting for me at home for dinner.

No-spend days also mean that I’ve ingested fewer empty calories. I’ve avoided buying snacks at work or getting coffee throughout the day. Some of you might not be able to live without your daily cup of java, or something to tide you over from one meal to the next. Fair enough! I’m not asking you to be hungry or thirsty. I’m just asking you to find ways to satisfy your hunger/thirst pangs without opening your wallet.

I’m not a monster. I do indulge in sinfully delicious treats every once in awhile. They just happen to come from my own oven. Homemade baking, anyone?

These little darlings are a great reward for not spending money!

The third benefit of No-Spend days is that I keep my sweet, little ass at home. Between catching up with friends, reading for book club, tidying the house, doing laundry, cooking meals for the freezer, baking tasty things, and zoning out with a streaming service, I find that I can keep myself busy at home for hours on No-Spend Days. So many more of the daily chores of living get accomplished on my No-Spend days because I stay out of the stores.

If I leave my house, suddenly I’m at a store. Which one, you ask? Take your pick: the grocery store, the liquor store, the book store, the Things-I-Didn’t-Know-I-Needed-Until-I-Walked-Past-It-At-The-Mall store.

No-Spend Days force me to be organized. Like I said earlier if I know that I’m committed to not spending money on a particular day, then that means making some plans in advance.

  • No morning coffee run? Bring my coffee in from home.
  • No snacking during the day? Bring a bigger lunch, or bring some homemade treats. (I like cookies and muffins. You might like granola, or peanuts & raisins, or veggies with dip.)
  • No spending after work? Plan to get caught up on laundry, household chores, finishing books, watching a movie, cleaning the flowerbeds. There are many, many, many, many tasks to be done in and around your home when you commit to not spending money.
  • No online shopping? Go through your stuff and figure out what you can sell online to decrease your clutter while earning a few bucks.

It might take a few tries, but you should eventually be able to figure out how to give your wallet a break atleast one day each week.

An Unexpected Benefit

Committing to a No-Spend Day puts you in the same shoes as those shoe don’t have the choice about whether to spend money! If you’re fortunate enough to choose whether to spend money or not on a given day, then you have some disposable income kicking around. You’re not in the situation of having every dollar committed to the necessities of staying alive.

Depending on your disposition, committing to a No-Spend Day might make you more sympathetic towards those with less. It’s a privilege to have a choice about whether to spend money. Going without exercising that privilege will give you a taste of what life is like for those who aren’t as fortunate as you.

Renting vs. Owning

I’ve been a big fan of Garth Turner, who blogs over at Greater Fool, for a few years now. He’s a big proponent of creating cash flows for retirement. Towards that end, he has written many, many persuasive posts about why people should sell their homes, invest the equity, and live off the investment income.

It’s not necessarily a bad plan. For a very long time, I thought it was a great plan.

But…

Lately, I’ve come to question how feasible this plan is for everyone who owns a house. If you’ve been in Vancouver or Toronto for a few decades, then your house could likely sell for a high 6-figure amount, possibly even a 7-figure amount. And if you’ve been there for a few decades, then hopefully your mortgage is gone.

Take that sweet, sweet cash and invest it – in a properly balanced and diversified portfolio, a la Garth Tuner. Now you’ve got cash flow coming in from your investment portfolio to pay your rent. If you’re really fortunate, your investments might even kick off enough money for you to live on. Easy, peasy, lemon-squeezy!

Yet I still have doubts…

My only concern with Mr. Turner’s advice is that not everyone has a home that, when sold, will generate enough money to live on. If a person’s in that situation, and sells, then they face the prospect of ever increasing rents. While their portfolio is growing in the background (hopefully!), it’s quite conceivable that their rental increases outpace the growth of their investment income. In this situation, portfolio income isn’t enough to pay your rent. Mr. Turner’s plan no longer works.

Are people really in a better situation if they’re renting and their employment income has to go towards rent, instead of towards buying more investments, because their portfolio’s returns won’t cover the bills?

In that situation, isn’t the portfolio more like a part-time job than a reliable cash-flow on which one can live and eventually retire? And I use the term “part-time job” to convey the idea that, while the income from a part-time job nice to have, the annual amount of money generated isn’t enough by itself to keep body and soul together.

And if their employment income and investment income are both used to pay the rent, then what happens when the employment income goes away?

Then they’re without a home, and their portfolio’s not generating enough money to cover all that needs to be covered.

Renting might not be the answer

One of my greatest financial fears is being an elderly person who rents. Once employment stops, then all expenses have to be covered by pension payments and investment returns. Pensions are disappearing at an incredibly rapid clip. Investment returns aren’t guaranteed, even if you’re one of the lucky ones who managed build a multi-million dollar portfolio before retirement.

It seems to me that a paid-off home is a cornerstone of a secure retirement. People who own their own homes don’t have to be concerned with rental increases or eviction. They can stay in their homes for as long as their health will allow.

This is great!

And yet…

Houses are so damn expensive today! Even if you’re not in Vancouver or Toronto, a $350,000 house isn’t exactly cheap when you’re earning less than six figures. If it takes you 20-25 years to pay off your mortgage, and your employer isn’t promising you a pension, when exactly are you going to have that extra money to set aside in an investment portfolio?

If you’re not one of the people who earns enough money to pay off a mortgage while simultaneously saving for retirement, then maybe Garth Turner is right.

After all, you might avoid rental increases and eviction but let’s face facts. A paid-off house won’t help you buy groceries and heat and medicine in your dotage. Reality being what it is, a person cannot spend their house one doorknob at a time in order to buy what they need, when they need it. Only money can be spent on stuff. A paid for house represents locked-in money. It’s money that cannot be invested or spent unless the home is sold or otherwise mortgaged.

So what’s the right answer?

I have no idea. The older I get, the less I really know for sure.

For many people, housing is ridiculously expensive and it requires a paycheque-to-paycheque existence until the mortgage is gone. Funding one’s own retirement by creating a reliable cash flow is also ridiculously expensive, yet it’s a task that few of us can afford to ignore.

I can certainly see the allure of living off of investment income after liquidating the equity in your home. But so many things have to go right for a very long time for this plan to be feasible. One, you have to properly invest the money. Two, you have to hang on to your investments even when the market drops during a recession. Three, you have to know what to do when black swan events have a negative impact on your portfolio.

Yet, I can also see the hazards of spending most of your working life paying for a house. One, you don’t have significant retirement savings because it took so long to pay off your mortgage. You didn’t have enough time to re-direct your former mortgage payments towards your investment portfolio. Two, you’re making a long-term bet that you’ll always have an income over the 20+ years it might take you to pay off your mortgage. Three, you forever foresake the growth that your money could’ve provided had you invested it in a well-balanced & diversified portfolio.

Again, I don’t know what the right answer is. By way of this article, I simply want you to be aware of the options, the benefits, and the drawbacks. Start figuring out what’s best for you and for your future.

Whether you choose to rent or you choose to own, make that decision with your eyes wide open and fully aware of the opportunity costs of your choice.