Author: Blue Lobster

Money Mistake – Not Buying Equities

I think I’ve made a money mistake.

According to the personal finance blogs that I follow, the stock market has been on a bull-run since 2009. A “bullish” stock market is one where the stock market is rising. A “bearish” stock market is one where the stock market is falling.

Since 2011, I’ve been busily building my army of little money soldiers and I’ve been rewarded with nice, plump dividend payments every month. I don’t use those dividends for living expenses – instead, they’re automatically re-invested into buying more dividend-producing assets. I’m proud to say that I’ve created a lovely cash-flowing side income for myself that will supplement my other retirement income when the time comes.

After hearing about pension failures and the impacts on retirees, I wanted a source of cash that would allow me to survive during retirement if my monthly pension payment happened to be cut or eliminated. I’m a Singleton. This means that I can’t depend on someone else’s salary or expect that anyone else will take care of me. Creating a portfolio that pays me dividends every single month eases my worries about how to survive if my pension disappears.

That said, if I had invested that same money into the stock market over the same time period, my net worth would be a lot higher. I would be that much closer to early retirement!!! I hate to admit it but I’m realizing that choosing not to buy equities since 2009 was a very big money mistake.

Choosing dividends over straight equity investments was very definitely not the right move to make in 2011. According to the good folks on the Internet, the stock market returns have been higher than the returns on my dividend portfolio. In my defence, I wasn’t as knowledgeable as I am now. I succumbed to one of my many flaws – I’m stubborn. I was utterly convinced that my path was the absolute right one for my circumstances.

So now it’s time to fix this money mistake.

My new plan is to invest in an exchange-traded fund that invests in the global market place. This is an equity ETF and I plan to hold it for a very long time. I do believe that over the long-term, the stock market rises.

One of the wisest things I’ve ever read on the internet was an article that stated that one shouldn’t invest believing that age 65 is a portfolio’s end date. It persuasively argued that one’s investment horizon ends at death, not at retirement. People are living into their 80s and 90s, which means that a 40-year old still has a 40+ year timespan over which to watch their money grow. That bit of wisdom shook me up. I’ll need the growth from my equity investment to power my portfolio until the end of my life, not just until the end of my career.

I’ve also decided not to divest myself of my dividend-producing assets. They’ll continue to grow over the next few decades. I’ve accepted that their growth will be slower since I won’t be adding new money to that part of my portfolio. Once my equity holdings make up 40% of my investment portfolio, then I’ll start to consider re-directing new cash into buying more units in my dividend ETFs.

So my portfolio will continue to churn out dividends, and my new money will go towards buying units in my global equity-focused ETF.

What about the recession that’s coming?

Yes – I’ll admit that the Talking Heads of the Media have been nattering quite a bit about the upcoming recession. It caused me concern for about 3 minutes, then I chose to ignore them. I won’t allow their incessant chinwag to dissuade me from my chosen path.

First, no one has been able to tell me when the recession will start, how long it will last, nor how bad it will be. There’s nothing I can do about the recession.

Second, there will be a recovery from the upcoming recession. There is always a recovery from a recession. I have no reason to think this time will be any different. Much like the recession itself, the recovery’s details are a mystery. No one knows when the recovery will start, how long it will last, and how good it will be.

Third, recessions are a natural part of the economic cycle. Stock markets do not rise forever. They go up and they go down. It’s normal and natural. The best bet is to ignore the hysteria from the Talking Heads, to invest early & often, and to go about the daily business of life.

Fourth, I plan to be in the stock market for the long-term. I’m not timing the stock market. I’m starting to put time into the stock market. The only way for me to have time in the market is to start buying now. I’m going to follow the advice of J.L. Collins, who wrote The Simple Path to Wealth, by buying into an equity product and letting the stock market do its thing for a very long time.

I’m never going to make the perfect investment choices all of the time. However, what I am going to do is continue to learn and think about how best to achieve my money goals. And when I find that I’m making a money mistake, I’m going to stop making it.

When you know better, you do better.

Start Today

There’s no one perfect way to become financially savvy. Yet, I can promise you that you won’t obtain the knowledge you need unless you start today.

There are very few people in your life who will care about your financial health as much as you do. If you’re lucky, your family will take it upon themselves to teach you what you need to know to be successful with money. Once you’re an adult, you owe it to yourself to build upon the lessons that your family taught you and to share that increased knowledge with those closest to your heart.

Your employer pays you to do a job. She really doesn’t care what you do with your money so long as it doesn’t negatively impact how you perform as an employee. She doesn’t care if you save to pay cash for your goals, whether you pay off your debts, or if you invest for your retirement. At best, she cares that you don’t ask for her to pay you any more than you currently earn to do your job.

On the other hand, the AdMan cares about your money very much, and so does his trusty sidekick, the Creditor. They care about taking it away from you. The AdMan’s sole goal is to convince you to give your money to someone else – a restaurant, a retailer, a car dealership, a pharmaceutical company. The AdMan doesn’t care who you give it to, so long as you give your money away.

The Creditor simply wants you to give your money to him. The Creditor will lend you money because he wants you to pay it back with interest.

Your ability to avoid falling into a deep debt hole is contingent on learning how personal finance works. Creating effective strategies to achieve your goals and dreams is going to be somewhat dependent on how you handle the money that comes your way. Part of self-care is learning the lessons of money.

Start today. Whether you need to pay off a debt or you want to save for next year’s vacation, I want you to start today. It may take a while to achieve your goal and that’s perfectly okay. The sooner you start, the better off you’ll be. No one has ever regretted handling their money in a way that allows them to meet their life’s goals.

Don’t be too hard on yourself. No one has ever learned it all at once, and you won’t either. Believe me when I say that you won’t pick the perfect investment – no such thing exists. You can start immediately – there’s no need to wait until January 1 of next year. There’s no time like the present. Transfer $1, $5, $10 to your savings account. If you don’t have a saving account, open one then make the transfer. Commit to one no-spend day per week or per month. Figure out how to prepare and cook more of your own meals. These are small changes within your locus of control. They will help you reach your goals.

Your money situation won’t change by itself. Nothing changes until you do. Start reading books and blogs today. You don’t have to master it all at once. Open a savings account – set up an automatic savings plan – accumulate your first $1,000. And while you’re doing that, read books and consume blogs about investing so that you feel more comfortable with the topic. Again, don’t be too hard on yourself; no one knows everything so you’re not alone. And when you are finally comfortable making your first investment, I want you to only invest in things you could explain to your grandmother. If you don’t understand an investment product, do not invest in it until you do. Never let anyone bully you into putting your hard-earned money towards something you don’t understand.

Today is the best time to plant your money tree. The sooner it’s planted, the longer it has to grow.

Start learning – don’t ever stop. Start saving money – don’t stop! Start taking care of yourself financially so you’re not dependent on others to do so.

Knowledge is power. Take the small steps first. Start today.

The Money-Saving Magic of my Kitchen

I have to admit that it sometimes takes me a very long time to learn lessons that should be obvious. One of those lessons is how the kitchen can be used to significantly cut food costs. Today’s lesson, Gentle Reader, is about the money-saving magic of my kitchen.

At the end of last week, I found myself in the very happy position of having some extra money in my bank account. Hurray! Being the money nerd that I am, I promptly started reviewing my outstanding credit card charges and my surplus funds went to paying them off.

But I had to ask myself – where did that extra money come from? I’m almost always wondering how to stretch my remaining money at this point in my paycheque cycle. If my bank account were a gas tank, I’d characterize this point of the cycle as “running on financial fumes.” It’s not fun, but I’d also believed it was unavoidable.

I was wrong.

The reason for my unexpected largesse was the money-saving magic of my kitchen.

Clarification please, Blue Lobster – what in the hell are you talking about?

My kitchen is home to my fridge, an old-fashioned upright refrigerator with a handy-dandy freezer at the top. The weekend before last, I went grocery-shopping and purchased a bulk pack of chicken. I decided to cook several pieces for lunch. The rest of the chicken was rubbed in a lovely marinade, portioned into freezer bags, and set inside my freezer. I took my lunch to work with me four days last week, saving myself atleast $80 in the process.

In addition to my magnificent refrigerator and its freezer, my kitchen is also home to a working oven & stovetop. Again, I cooked some of the chicken and I also prepared some saffron rice for myself. After dinner, I portioned out the chicken and rice into several reusable containers. They were stacked in the fridge and I simply tossed one into my lunch-bag each morning before I left to catch my bus. No more scrambling to make a tasty lunch in the morning. I didn’t have to figure out which of the it-all-tastes-the-same-to-me dining establishments would have the privilege of serving me their food.

As I’ve written before, cooking at home is a money-saver. It’s healthier and often tastier than whatever you can buy at a restaurant or fast-food outlet. For the most part, you control the amount of sugar, fat and salt that goes into the food you cook because you get to adjust the recipe to suit your tastes. The cherry on the sundae is that your wallet stays heavy as you eat your own homemade food.

The beauty of using the freezer along with my range is that I minimized the amount of cooking and grocery-shopping that I have to do. For as much as I love eating good food, I really hate shopping for groceries. In my family, I’m an oddity. Both my mother and my brother love grocery-shopping. I chalk it up to them both being Pisces…

After a long day in the office, I’m not exactly excited to get into the kitchen and create a lovely meal from scratch. I’m far more likely to eat Triscuits with cheese, or enjoy a lovely bowl of breakfast cereal. These aren’t good meal options!

The awesome appliances in my kitchen minimize the drudgery of cooking every single day!!! I cook on Sundays, then – maybe – again on Thursday or Friday night. The marinated meat that I’d stashed in my freezer is ready to be put into the oven after having been safely thawed in the fridge. It doesn’t take long to cook some rice, to boil some potatoes, or to make some pasta to go with my meat. Add in a bag of salad or some veggies and voila! Dinner is ready to go relatively quickly. Again, there is no need to cook every day – make enough rice/potatoes/pasta/whatever-side-you-prefer to last for a few days.

No Fail Marinade Recipes

If you’re a fan of sweet-and-spicy, try this recipe for sriracha brown sugar chicken. It’s absolute delicious! I wish I could say that I created this recipe but I did not. It’s from the website Dinner then Dessert, one of my favorite places to find new recipes. I’m already salivating as I sit here thinking about how tasty my lunches are going to be this week!

Here’s another magnificent recipe for honey garlic chicken. Again, I can’t take credit for this recipe. I found it at Chef Savvy. What I can take credit for is creating a honey garlic marinade for the two packages of chicken thighs that are currently sitting in my freezer. They will be utterly scrumptious when I cook them for lunch in the future.

This particular recipe for sheet pan chicken tinga bowls has been on my mind since I first saw it on my Instagram feed. Again, the credit for this recipe has to go to the website called Pinch of Yum. Technically, this is a make-ahead meal but I think you could make the sauce, let it cool, pour it over the chicken, then freeze it until you’re ready to eat it.

So far, I’ve only used chicken with my marinades. This is because I love chicken in all forms, except feet & liver. Chicken liver = yucky! That said, I’m not adverse to finding marinade recipes for other meats. Ideally, I’d like to find an equally delightful marinade for pork chops that can be baked in the oven.

Learn it, live it!

I have learned my lesson. There is no way around my deep-seated fondness for eating. However, I do have the capacity to find recipes that will make my tummy happier. I’m smart enough to cook without starting fires. The internet is filled with recipes and You Tube is bursting with videos of people making those recipes.

I’ve learned my lesson – cooking once a week is grand. Marinating my meat in advance will save me trips to the grocery store and will save me some prep time during the week. My range & my freezer are my friends. I can eat well without whipping out my wallet on workdays.

Let me say it again – I love the money-saving magic of my kitchen! I have the tools at my disposal to create fabulous meals for myself while saving a boatload of money at the same time. When it comes to food, what could be better than that?

SOS! Funding Your Retirement is an Emergency

This week, I heard a very sad story about how seniors in Canada are becoming increasingly impoverished as they age. They don’t have enough funds to support themselves in their dotage. Here’s the link to the article. I’d encourage you to read it for yourself.

Here’s one of the main take-away’s from the article. If you don’t save for your own future, no one is going to do it for you.

Your employer is not looking out for your financial well-being. Pensions are vanishing. If truth be told, your salary is a business expense that is only grudgingly tolerated. If your employer ever figures out a way to eliminate that expense before you’ve figured out a way to live without your salary, then you will be up shit creek without a paddle. When was the last time a gas station employee pumped your gas?

Your parents probably want to help you, but chances are good that they will need their money to pay for their expenses. Maybe they need nursing care. Perhaps they helped fund your education or had a big debts so they didn’t have a chance to save for their own retirement. Maybe your parents didn’t earn a lot during their working years so they still live hand-to-mouth. If your parents are flush and have promised you everything, you should still save for your own retirement. Inheritances are meant to be received, but they should never be the bedrock of your future financial security.

What about your friends? They may love you to death. You may have the kind of friends who would bring the shovels to help you bury a body without asking any questions. Even friends as treasured as these are not going to fund your retirement. They have their own retirements to fund. At best, you and your friends could figure out a way to buy nice, big house and live together as senior citizens – it could all be very Golden Girls!

As a Singleton, you probably don’t have the benefit of a second income coming into your household. In other words, you generate all the income and the paycheques stop when you do. There’s no second earner to help you bring home the bacon. You won’t benefit from survivor’s benefits or a life insurance policy if your partner pre-deceases you. There’s no back-up salary unless you create one by investing your money today so that you have a cashflow for tomorrow.

****** Stop, Blue Lobster – just stop! What is a “back-up salary”? And how do I get one? Simply put, a back-up salary is a cashflow that comes to you without you having to go to work. Think of dividends. Once you’ve bought the stock, you don’t have to do anything else – the dividends will roll in like clockwork unless something very, very bad happens. Another example is royalties from a book or music. You write the book or the song once – it sells – the royalties roll into your wallet every time the book is sold or the song is played. Think of your back-up salary as money you don’t have to sweat for. Pretty sweet, isn’t it? *******

It’s on you to do the heavy lifting. Should you be fortunate enough to have fat in your budget, then you owe it to yourself to trim it away and to put that money to be better use. Set up an automatic savings plan so that a portion of each paycheque gets squirreled away. Invest in an equity-based index fund or exchange-trade fund. Get out and stay out of debt. Save for purchases before you make them.

If you can max out your TFSA and your RRSP each year, great! If you can’t, then contribute as much as you can. These are registered savings vehicles, which means that your money will grow tax-free while inside them. Money that comes out of a TFSA is never taxed. Money inside an RRSP is taxed upon withdrawal. Remember, you can accumulate money faster if you aren’t paying taxes on it every single year.

When it comes to your retirement, saving money is the factor that matters most. Without savings, there can be no investing. You have to save & invest the money now or else you won’t have enough money later. It’s really that simple.

Absolutely clarity is required for this next point: Simple doesn’t mean easy. Not once in my life have I ever said “It’s too damn easy to save money!”

It’s always hard to save money. There are so many things I want. Temptation – aka: advertising – is everywhere. Truth be told, I like love spending money. You know what else I love? Knowing that I’ll be able to buy groceries after I retire.

If you’d rather not be working in your 70s and 80s, then start saving & investing for retirement today. And if you’ve already started, then good on you – don’t stop. You don’t get a pass on taking care of your financial future just because it’s hard.

It’s up to you. Funding your retirement is an emergency.

The days are long but the years are short. This is an old-fashioned way of saying that time passes by very, very quickly. Even if you think retirement is decades away for you, I want you to believe me when I say it will be here before you know it.

Give Yourself Some Credit

I want you to give yourself some credit – literally.

Allow me to back up a little bit, to give you some context. A year ago, my credit card number was stolen when someone booked a hotel with my information. Although it took a few weeks, my bank reversed the charges and life went on as normal.

One of the lessons that I took from this experience was to keep my authorized credit card limit at an amount I could pay off within 30 days. I was lucky. The thief only stole enough credit to book a hotel room. He or she could have racked up way more charges since my limit had been around $5,000. I’m not entirely confident that my bank would have made me whole if the stolen credit amount had been to the max of my credit limit.

Luckily, I’m the kind of person who checks all of my bank and credit balances every few days. That’s how I was able to catch this fraudulent transaction within 24 hours of it being posted to my account.

Protect Yourself with Lower Limits

After this unfortunate event, I lowered my credit card limits. I have two cards, although I use one more often than the other. The first card is for transactions like buying gas, dining with friends, tickets for entertainment, and my monthly bus pass. It’s the card I use for my regular life. The other card is for travel, so it has an even lower credit limit. Should my card be compromised while I’m away from home, the potential damage is much lower. There’s less credit for a thief to steal.

You may want to consider lowering your credit card limits if they’re more than what you could repay in a month. If a Bad Person uses your card fraudulently and you can’t report it right away, then you might have trouble convincing your bank to help you get those charges reversed. Until such time as they freeze those transactions, you might have to pay interest on them. I’m not an expert on how banks operate when people experience credit card fraud. Contact your bank and find out what they will do to help you if you find yourself a victim of credit card theft.

Sometimes, a Higher Limit is Necessary

However, there are circumstances where I need a larger credit limit. In my case, I’m getting some house renovations completed before winter. After 18 months of saving money in a designated account, I pulled the trigger and signed the contract. If I were to run the renovation cost through my credit card, there is no way that my limit would be sufficient. A five-figure renovation is more than my credit cards can handle.

So what’s the solution?

Most people would apply for more credit from their bank. This is a bad solution to this kind of challenge. The smart solution is take matters into my own hands by giving myself some credit.

Again, I already having the savings in place for this home renovation. The money is already in the bank. The solution of how to use my credit card to pay for my renovations is to front-load my credit card with the savings that are already in my bank account.

What are you talking about, Blue Lobster?

It’s really very simple. If it’s possible to make payments to your credit card, then it is similarly possible to front-load your credit card with cash. You essentially turn your credit card into a gift certificate.

  • Step One: The money is loaded onto your card, which gives you a positive credit balance on your card.
  • Step Two: You use your credit card as you normally would.

When you need more credit than is currently available to you, then you need to give yourself some credit by front-loading your credit card with cash.

Can I really do that?

Whether you make payments in person or online, you have the ability to apply cash to your credit card. In fact, this is precisely how you pay off your credit card balance each month. (And if you’re not paying off your credit card balance each month, then stop using your credit card. Make payments until the balance is $0.00. Lower your credit limit to $1,500. At that point, you can start front-loading your card with cash so that you can use your credit cards and simultaneously stay of credit card debt forever.)

There’s no law that limits how big that payment is. Front-loading cash onto your credit card results in a credit limit higher than the one given to you by the bank. The front-loaded money is available for you to spend but there’s no concomitant obligation to a lender.

The credit available to you from your bank via your credit limit results in a debt that you owe to the bank at the end of the billing cycle.

The front-loaded cash on your credit card does not yield any debt whatsoever. It is money that is spent for you to acquire whatever it is that you want without requiring you to pay any interest to anyone.

Do you see how my solution is way, way better than getting an increase to your credit limit?

Benefits of Front-Loading Credit Cards

I’m going to repeat myself – give yourself some credit. The benefits of using your own cash to increase your credit limit are awesome.

  • You don’t pay any interest on the money that you front-load onto your card. This is money from your bank account, which means that it is not money that you are borrowing from the bank.
  • You can eliminate the impact of fradulent transactions on your account. Only front-load your credit card a day or two before you’re planning to buy whatever it is that costs more than your credit limit. Do not carry an artificially-high credit limit at all times. That puts you at the same risk of having a high credit limit when your credit card gets compromised. Credit card thieves will steal your money just as easily as they will steal the bank’s.
  • You’ll be far less tempted to spend your savings on stuff that doesn’t matter. The reason you’ve front-loaded your card in the first place is because you’re spending the money on something that’s very important to you. It could be tuition, a trip, a celebration, a piece of art, jewelry, whatever. The point is that if you were committed enough to save up for that purchase, then it’s very unlikely that you will squander your front-loaded funds on stuff.
  • Your credit score is not impacted by the act of front-loading your credit card with cash.
  • Front-loading your credit card is the same as paying with cash without having to carry cash on your person. You are spending your own money, instead of the bank’s, but you’re doing so via plastic. Imagine if my contractor was actually willing to be paid $10,000 in cash. Neither of us would exactly be comfortable flashing a brick of $100-bills around. However, he has no problem accepting my money via a credit card.
  • Front-loading your credit card eliminates the need to pay a bank fee in order to buy a bank draft or a certified cheque. Even with e-transfers, there is a limit on how much can be transferred electronically.
  • Finally, front-loading your credit card prevents you from going into debt. Banks who lend you money want to make profits off of you. They do so by charging you interest when you can’t pay your credit balance in full. They want you to go into debt so that you’re in a never-ending cycle of paying them interest every month. While this is good for them, it’s very, very bad for you.

When you have a credit limit that can be satisfied by your monthly income, then you won’t go into debt. This is due to the fact that you’re in a position to pay off your balance every single month.

Keeping your credit limit low and front-loading your card with cash means that you’ll stay out of debt while still buying the things that really matter to you.

Don’t rely on the banks to control how much you can spend on your credit cards. Instead, give yourself some credit by front-loading your credit cards with your own money.

“Your relationship with money?” Clarification is required.

Lately, I’ve been seeing the phrase “your relationship with money” all over the place. What is that?

Clarification is required.

How can you have a relationship with money? It will never remember your birthday, tuck you in at night, check on you to see how you’re doing, worry about your health, or care about your feelings. Money is an inanimate object without feelings towards you. The fact that you have feelings for money is not the same as you have having a relationship with it.

If you have feelings for a movie star or sports figure whom you’ve never met, it doesn’t mean you’re in a relationship with that person. You’re in even less than a relationship with money than with a famous person because there’s a teeny, tiny chance that the Fates may smile on you, let you meet your heart’s desire, and that s/he becomes your friend/partner/spouse/boss/mentor.

Believe me when I say that money will never be any of those people to you or for you.

Money is merely a tool – that is all.

Much like a hammer or fire or a fork, money can be used to help you achieve your life’s goals, ambitions, and dreams. Money does not have feelings towards you, and it never ever will.

Take your birthday, for instance. Money allows you to buy candles for the cake. Money is useful if you want to buy yourself a present. Money is spectacularly proficient at assisting you to throw yourself a birthday party. However, money will never take the initiative to plan a birthday party for you or take the care of all the little details that will make your birthday special. The details, the organization, the planning – those all have to be done by a human being in your life.

Your parents, your friends, your boss, your elderly next neighbour down the street, your barista – these are people with whom you can have a relationship. Good or bad, your interactions with these people will create memories for both of you. Your shared experiences will be the foundation of your relationship with other people. You can influence whether those interactions are friendly or forgettable, frosty or fabulous.

No matter how you use money, the fundamental nature of your use of money is that of a human being using a tool to achieve a purpose. It is akin to you using a knife to butter toast. It is not a relationship, no matter how many times you use that particular tool.

Though we imbue it with many attributes and power, never forget that money isn’t a person. It has no loyalty towards you. It will never love you, never care about you, never think about you for one second. When you die, money will neither remember nor mourn your passing. Money is an inanimate object without feelings, reason, or morals.

Make no mistake. I am perfectly aware that money is extremely useful when it comes to buying things. However, money will never – not even in a million years – satisfy your emotional need for connection with another human being.

The high that comes with spending money on stuff never lasts because it doesn’t satisfy what people really want. They want the joy of connecting to someone else, so they buy the golf clubs or the sweater or the car or the house. What they really want is to feel heard, loved, and appreciated by special people in their lives.

You cannot have a relationship with money. This is why I’m so very perplexed by this phrase “your relationship with money.” You don’t have a relationship with money – it’s impossible. You have more of a connection with someone whom you’ve never met on the other side of the world that you do with money. You know what you have in common with the other-side-of-the-world-stranger? You’re both living on planet Earth and you share a common interest in ensuring that climate change doesn’t destroy the planet.

See? Money is not a person. That means it cannot relate to you. It also means that there’s no relationship.

Money can be used to build relationships.

You can use money to build relationships with people. If you want to do something nice for your co-workers, you can use money to buy the ingredients to bake for your colleagues or to bring in a box of pastries for all to enjoy. If you want to spend more time with your friends, you can use money to host potlucks at your house, to attend concerts with them, or to partake in a once-a-month-no-matter-what dinner date. If you want to improve your relationship with your family, you can use money to do those things that you know will bring the most joy and create the best memories for your kin.

Do you understand what I’m trying to say?

Money is useful for assisting you to achieve some of the relationship goals that you may have for relationships with the people in real life. Allow me to be clear. Money won’t solve all relationship problems, but it can certainly facilitate the creation of experiences & memories that you wish to share with those who are close to your heart. Do you want to take a vacation with friends? Attend a concert with a sibling? Try a new restaurant with a fellow foodie? Money can help you do all of those things.

Money is a tool that permits you to create experiences with other human beings. Those shared experiences are the foundation of your relationships, whether positive or negative. Money has no feelings about those interactions one way or another, which means money is not relating to you. It is simply a tool that you can use to achieve what you want.

You can have as many relationships as your energy and time will allow. But I’m here to tell you that you simply cannot have a relationship with money.

Per Diems Move the Needle

One of the best things about being a Singleton is that you alone are responsible for your financial choices. You need not debate each purchase nor do you need to compromise with anyone about how your household’s money will be spent. You have the freedom to choose which of your life’s goals to pursue and how to fund them.

Based on my own experience & observations of others, personal goals often have a financial component. Money has to be sourced somehow. Children have the benefit of someone else generally paying for their lives. They get to write lists to Santa Claus to get what they want. They can even leave teeth under their pillows in order to wake up to money. Adults – not so much. (Some of my friends pay their kids $5/tooth… the power of inflation is real, ladies & gentlemen.)

Enter the per diem…

Pray tell, Blue Lobster – what is a per diem?

I first learned of them when I started travelling for work. On top of reimbursements for my meals & accommodations, I earned a per diem for the incidentals that I might have to buy while away from the office and home. Most of the time, I didn’t have to use my per diem so I would simply sock it away in a savings account.

In terms of personal finance, a per diem is simply is a daily amount of money that you pay to yourself.

You can create your own per diem by deciding how much money you want to pay yourself each day. You know how you choose to pay a certain amount each day for rent/mortgage? Student loan payments? Credit card bills? Utility payments?

Add up each of these payments then divide that amount by the number of days in the year. This is how much you’re paying on a daily basis for each area of your financial life. If you haven’t already done this exercise, trust me when I tell you it’ll be an eye-opener!

Next, I want you to pick a number and pay that to yourself. It could be $1 per day, $10 per day, or $100. The amount is up to you since you know your numbers better than I do. Keep in mind that a higher per diem means that you’ll reach your goals and accumulate money faster.

Why do I like this money hack?

I want people to be aware of how they spend their money. I hear so many people complain about never having any, yet I never hear them articulate where it goes. To my way of thinking, setting a per diem forces a person to be very specific about what they want their money to do. They are assigning a purpose to their per diem money. They are giving those particular dollars a task that goes beyond the basic elements of survival. The per diem dollars are going to be allocated towards a person’s most important financial goals, not just towards the nice-to-have-but-not-important-stuff.

Spend your per diem however you want!

Yes – that’s right. At the end of the day, this is your money and you’re the one who gets to decide what to do with it. I’m not familiar with your heart’s deepest desires. I’m a fan of the theatre. Your joy may lie in beach volleyball championships, taking self-development courses, Grand Prix auto-racing, or raising salamanders to sell online.

After selecting your per diem amount, your task – should you choose to accept it – is to focus your efforts on the goals that have the highest meaning for you. The order of your goals isn’t set in stone. Again, it’s your life and your money. You’re the lucky duck who gets to determine the order in which your goals are satisfied. Once you’ve accomplished the highest priority goal, you can move on to the next one and keep moving down your list until you’ve achieved what’s most important to you. In this way, your money is working hard to create the life that you want to live.

For some people, the goal is to take a really awesome vacation once a year. That might mean renting a houseboat for a week every summer. It could mean a weekend with friends or family at a favourite campsite. Maybe it means a six-week trip overseas. However an awesome vacation is defined, the per diem money can help pay for it if you so choose.

For other people, the goal is to pay off a debt, to build an emergency fund, to save for a down payment, to go back to school, or to renovate a home… The goals are as endless as your imagination. The sad reality is that your paycheque isn’t infinite. (And if it is infinite, please leave a comment explaining how you’ve managed to create such a wondrous thing!) No matter its size, your income has limits. That’s why per diems are such a great money hack. They help you to satisfy those desires that are most important to you. Nothing wrong with that!

Two things to keep in mind about per diems.

One – don’t be deterred by how long it takes to reach a goal. It’s obvious but I’ll say it anyway. Some goals take longer to reach than others depending on the size of your per diem. Buying tickets to a concert might take a few days or a few weeks. Gathering the down payment for a second home in Cinque Terre might take a bit longer.

Two – if you use your per diem to pay off debt, then you an added benefit once the debt is gone. Your former debt-payment can be used to increase the size of your per diem. A larger per diem means that you can achieve your next goal even faster. There’s always the option of simply frittering your former debt payment away on stuff and keep the same per diem amount. As always, you’re the one in control of allocating where your money goes.

In my humble opinion, paying yourself a per diem gives you the psychological boost of knowing that each day is taking your closer to your goals. When your head hits your pillow, you can be satisfied knowing that your money is working towards building the life of your dreams. And who doesn’t want that?

Minimize Your Vehicle Debt

It is ridiculously easy to incur as much vehicle debt as much as possible – aka: more than absolutely necessary – when buying a new set of wheels. You simply have to do the following three things:

  • borrow as much as you possibly can,
  • get a really high interest rate; and
  • pay the absolute lowest minimum monthly payment.

Taking all of these steps will ensure that you acquire and maintain the maximum amount of vehicle debt for as long as possible.

… Wait – what?!?!?

On the off-chance that you’d like to keep more of your money for yourself, this article will teach you how to manipulate a few financial levers. By following some or all of these tips, you’ll get a new vehicle. The side benefit is that more of your hard-earned money will stay in your own damn pocket.

Ideally, you’ll pay cash for your next vehicle. The sad truth is that we don’t live in an ideal world. Gentle Readers, I know that most of you will take a loan and spend several years paying off your vehicle debt.

Should you wish to avoid paying the maximum on your debt, then heed the following words. There are several levers at your disposal to keep your vehicle debt as low as possible.

Lever 1 – Buy a less expensive vehicle

First, you don’t need the most expensive vehicle that your budget will allow. It’s perfectly okay to drive something that costs a wee bit less than what the car dealer wants you to finance. Be completely honest about what you need, not what you want. All you really need is a vehicle that will safely get you from A to B.

Your worth as a human being is not determined by the car you drive. Transportation should never have any impact on your self-esteem. People who care about how your car looks aren’t the ones who are paying for it. If they want you in a $95,000 SUV, then let them foot the bill. Your goal should be to drive what’s best for your budget because you know that your value as a human being is not dependent on the kind of vehicle that gets you from one destination to the next.

It never ceases to amaze me how many people never consider the option of spending less money in the first place!

Lever 2 – Get the lowest possible interest rate

I cannot stress this enough. There are 2 portions to each of your loan payments – the interest and the repayment of principle. The interest rate is the price you have to pay to the lender for borrowing their money. If you have a low interest rate, then more of your payment will go to repaying the principle instead of lining the finance company’s pockets. The opposite is true. A high interest rate means that more of your payment goes towards paying interest.

The interest rate applied to your vehicle loan will fluctuate with your credit score. A higher credit score results in a lower interest rate. Conversely, a low credit score results in a higher interest rate.

Lever 3 – Increase your monthly payment

Increase your monthly obligation results in the loan being paid off more quickly.

For example, let’s stay that you can get a 5-year loan for $150 per month. If your budget will allow for a $350 payment, then make the higher payments for a shorter period of time and pay off your debt years earlier. Hear me well as I say the following to you…

Making the minimum payment never benefits the borrower!

Paying the lowest minimum amount always results in the maximum amount of interest being sent to your lender. Paying a higher amount than absolutely necessary is a form of short term pain for long term gain.

Lever 4 – Make a big down payment

Your down payment on your next vehicle should be as large as you comfortably afford. The larger your down payment, the smaller the monthly payments required to completely eliminate the loan.

You’re going to have to pay for the vehicle anyway so minimize the pain by paying for it as fast as you can. Hopefully, you’ll be able to sell your previous car privately and get more money than by selling it to the dealer. There’s always the chance that you’d been saving up for your next car in anticipation of being able to pay cash, but something went awry and you had to buy sooner than you’d anticipated. If that’s the case, then good on you! Use the money from your vehicle savings fund as your down payment.

Lever 5 – Make loan payments to yourself

Once your loan is paid off, continue to save the payments in a separate account. Your current car will not last forever. And no – paying off one loan is not an automatic trigger to buy your next vehicle. Drive your vehicles until the wheels fall off!

Trust me on this – your car purchases will always incur far less hassle, angst and financial worry if you already have money in place when it’s time to buy the next vehicle. By continuing to save your car payments, you’ll give yourself two options: you’ll either have the cash on hand to simply pay for it all at once or you’ll have a sizeable down payment to ensure small monthly car payments.