Author: Blue Lobster

Financial Independence – Make It Your Goal!

Over the past few months, I’ve been seeing many articles about the death of FIRE. For those that don’t know, FIRE is an acronym for Financial Independence, Retire Early. Its popularity as an idea really took off before March 2020. Since the return of inflation, not as many people have been preaching about it.

For my part, I’ve always wanted to retire early – ideally in my 30s and 40s. Believe me when I say that ship has sailed! To be fair, I’ll retire before the traditional age of 65, but I definitely won’t be considered a super-early retiree. And if we’re being honest with each other, I’ll admit that I’m a bit sad that I can’t retire right now. So while I’ve always been a big fan of FIRE, the second half of the acronym was intriguing but I was never able to be fully wedded to it.

The first part of the acronym is a completely different story. Financial independence? Yes, please!

Achieving financial independence is one of my foundational beliefs about the purpose of having money. In my opinion, everyone should be striving for financial independence. Nobody should be financially dependent on someone else their entire life. As a single person, I’ve always known that I didn’t have the luxury of another person’s paycheque coming into my household. I’m the only one responsible for ensuring that there’s enough money to pay for the life I want to live. To that end, I’ve made financial independence one of my life’s goals because I know that one day, I won’t be able to work anymore. When that day comes, I need to ensure that I have enough money to pay for my life’s expenses when my employer and I part ways.

I have always been enamored with the idea of having sufficient passive income to live comfortably without having to go to work. This was my Holy Grail. And the best way I knew how to achieve this was to invest a portion of every single paycheque into the stock market. What do I mean by a portion? I’d describe it as a decent chunk – maybe not half but certainly more than a measly 10%.

A long time ago, I decided to invest and that decision has paid off handsomely. I started slowly, with $50 bi-weekly. As my income grew, so did my bi-weekly contribution amount. The habit of investing was made much easier by the power of automation. I didn’t have to decide to invest every 2 weeks. The automatic transfer whisked the money out of my chequing account and into my investment account without my participation. Today, I’m very happy that my stock portfolio kicks off an ever-increasing amount of passive income every single year.

So how did I get to this point with my money? And is it something others can do too?

When I was 21 years old, I knew nothing about investing. I started anyway.

My parents’ accountant told me I wasn’t making the wisest choice by contributing to my RRSP. I ignored him and put money into my RRSP. He had suggested that I save for my first house. Looking back, I can appreciate his advice and, with the benefit of hindsight, I’ll admit that it made the most sense. I was a 21 year old student, therefore in the lowest tax bracket, so contributing to an RRSP might not have been ideal for my circumstances. That said, the fact remains that I was headstrong and so I did what I wanted. After all, I knew what an RRSP was and I’d been influenced by the Freedom 55 commercials that were popular at the time.

So for a few years, all I did was invest money into mutual funds within my RRSP. Remember, I knew next to nothing about investing. I didn’t let my lack of knowledge stop me. I consumed books about personal finance. When the internet allowed, I started to consume websites and blogposts about money, investing, and personal finance. Eventually, I graduated and got my first adult job, so I set up that life-changing automatic transfer from my paycheque to my investment accounts.

I moved out of my parents’ house and really had to pay attention to where my money was going. At some point, I started an emergency fund. It took a very, very long time but eventually my emergency fund grew to where it is today. I can easily cover 6 months’ of expenses, if I have to.

In 2009, the TFSA came into existence. I decided to stuff my TFSA to the max every January. When I learned that ETFs were cheaper than mutual funds, even though they do the exact same thing, I switched the securities inside my RRSP and TFSA from mutual funds to ETFs. That was the second smartest money move I’ve ever made.

Again, it took a very long time but eventually my RRSP and TFSA were both maxed out. I still wanted to invest a portion of my paycheque, but where? And that’s when I remembered my brokerage account. (My parents had bought me a few bank shares when I was a baby, so I’d been holding them in my brokerage account.) By this point, I knew that money earned in the form of dividends and capital gains would be taxed less harshly than money earned from my job.

And while the RRSP and TFSA had contribution limits, my personal brokerage account allowed for unlimited contributions. In theory, I could invest so much money that income from dividends and capital gains would be enough to pay for all of my life’s expensive. Stated in a different way, I could live on passive income and pay less taxes at the same time! Once I’d had that realization, I was hooked. Every time I got a raise at work, I increased the contributions to my brokerage account.

By now, I’d heard of FIRE. I thanked Younger Me for putting me on the path to financial independence. Of course, Younger Me made some very big mistakes. For example, I was investing in dividend-paying ETFs instead of equity-focused ETFs for way too long. As a result, I didn’t benefit as much as I should have from the stock market bull-run between 2009-2020. Had I invested in equity-based ETFs from Day 1, I would probably be retired right now and my portfolio would probably be twice as large. No sense crying about it. I’ve since corrected my investment strategy and my portfolio is doing much better.

Financial independence was my goal, and I’m well on my way to meeting achieving it.

And the longer I strive for it, the more I believe that everyone owes it to themselves to be financially independent too. I’ve watched colleagues get trapped into jobs they hate by their debts. So many people live off their credit cards and lines of credit, which makes them slaves to their creditors. Living in debt equals sacrificing your financial future. It also means that your employer has more control over you life’s choices than you would otherwise want to give them.

Can you imagine the options you would have if you had a portfolio that covered your basic needs?

Such a portfolio would give you the power to walk away from any employer at any time. You wouldn’t need the paycheque! Your portfolio would be paying for your food, shelter, clothing, transportation, and communication needs. You could live without a job. How awesome would that be? No more Sunday-scaries!

Alternatively, if there was a job you loved and it paid peanuts, you could happily take that job and still not worry about how to pay for your life’s expenses. Think about it! The money from the love-job would be your fun money. Passive income would ensure your survival and you could join that exalted group of People-Who-Love-What-They-Do-For-A-Living! Those are truly some of the luckiest people in the world.

This is why I believe that everyone should be striving for the first part of FIRE – financial independence. And if you want to retire early, then go for it. Not everyone wants to retire ASAP and that’s fine. When to retire should be your choice. If you want to keep working after having accumulated a nice, fat cash cushion of investments, then you can do so… with the added comfort of knowing that it’s truly a choice, rather than a necessity.

So, is the idea of FIRE really dead? No. I think it’s still alive and well for many people. What I think has changed is the sentiment that it’s okay to talk about FIRE in the current economic climate. Many, many, many people are suffering due to the impacts of the high inflation we experienced in 2022-2023. Prices skyrocketed while wages and salaries remained the same. Many people were squeezed and continue to feel the pinch of their money not going as far as it used to.

Talking about FIRE would be crass. People who are struggling financially, yet also want FIRE, do not need to be reminded that it will be harder for them to become financially independent and that retirement is further away. Instead, the pursuit of FIRE has returned to the shadow and those of us who are still pursuing it are simply doing so very quietly and very discreetly.

I’ve Hit a New Money Milestone!

Indulge me for a moment as I pat myself on the back for hitting a pretty significant-to-me money milestone! When I was updating my various spreadsheets, I realized that I had done something I’ve only ever read about. In the first six months of 2024, the amount of dividend income that I’ve received exceeds the amount of dividend income I earned for the entire year of 2019! This means that, within the space of only 5 years, I’m on track to double my annual dividend income.

Not too shabby at all…

As long-time readers know, I’ve made many money mistakes. I’m a DIY-investor and I didn’t have the benefit of blogs, podcasts, and websites about money when I started. It took me a long time to course correct. Even still, the one thing I did absolutely right for the past 16 years of my investing journey was to invest money from every paycheque. (I will admit that I started investing in 2004, but then the stock market crashed in 2008 and I stopped investing for 6 months. While I didn’t sell anything, the fact remains that I completely missed the fantastic buying opportunity. I still think about what could’ve been had I not acted like a dummy…sigh…)

As my debts got paid off, I re-directed the lion’s share of those former payments to my investment account. As a teenager, I started down this path by investing $50 from my bi-weekly paycheque. By the time I had my first adult job, that amount was a few hundred dollars every two weeks. When my mortgage and SUV loans were paid off, those amounts meant I could invest atleast $1,000 every two weeks. I was still living below my means, instead of allowing money to burn a hole in my pocket. Trust me – there was still money being saved for short-term goals like travel, renovations, and annual insurance payments. Bottom line, I invested first and lived on what was leftover.

And I’ve always used a DRIP for all of my dividends. DRIP stands for dividend re-investment program. I’m nearly at the point where my dividend income matches the amount of money I contribute to my portfolio every year. If all goes according to plan, I’ll hit that particular money milestone in 2026. Until then, I will continue to revel in the fact that my DRIP is causing my portfolio to grow exponentially faster than it would if I were relying solely on my contributions to increase its value. At this point, I earn returns on my contributions and my DRIP units. This is so much better than only earning returns on my contributions.

Today, my choices are paying off. This year, I’m on track to have my dividend income exceed my planned spending. This is another spectacularly fantastic money milestone! According to the wisdom of the internet, I’m financially independent because my portfolio is covering all my costs. At this point, I can live off my dividends and I don’t have to work anymore, so long as nothing goes sideways. Is that amazing or what?

On some level, I knew I would hit this target eventually but seeing it on my spreadsheet has made it very, very real. In the first 6 months of 2024, my portfolio has covered every single purchase that I’ve made.

So what changes?

Not much. I’m going to bask in the joy of this accomplishment, then go back to my regularly scheduled life. I’m content with how I spend my money. There’s very little more that I want. And while I’m technically financially independent, the fact remains that I’m “only” Lean FIRE. I want a little more margin before I hang up my gloves. I’d like for my dividend income to exceed my expenses by atleast 20%. That way, whatever’s not spent can pile up and pay for those inconvenient and irregular expenses. In short, my cash cushion needs a little more padding before my employer and I part ways.

My plan was very simple, but it was never, ever easy. It took me along time to get here, mainly because of some mistakes I made along the way. When I learned better, I did better. On top of that, there were always temptations to spend my money on something. I remained laser-focused on my priorities and did what needed to be done to ensure that my money only went to that which was most important to me.

Now, my portfolio is paying me more money every year. Five years ago, I wouldn’t have imagined that I’d earn an entire year’s worth of dividends in only 6 months. Yet, here I am – hitting my goals way sooner than I’d thought I would and still sticking to my plan. This is a day to celebrate. Yay, me!

Making good choices is always better!

Making good choices isn’t always easy or convenient, but it almost always pays off.

I’ll be frank. I love eating out. I go out for meals with friends regularly, usually twice a week. It’s part of my social life and I don’t apologize for it. There are other things I don’t buy so that I have money to spend time with my nearest and dearest. Sharing a meal is one of my favourite things to do.

That said, I get very vexed with myself when I have to eat out because I was too lazy to cook something beforehand. Leftovers are a fundamental requirement to me living my best life, since I’m not a fan of grocery shopping and I’m not too eager to cook every single day. That said, I hate being forced to to buy something – anything – just because I’m hungry. It’s a reminder that I’ve made a bad choice with my time, my diet, and my money.

On Sunday afternoon, I was out with a family member running errands when I realized that I was very hungry. My stomach was rumbling and all I could think about was a drive-through. I briefly considered going to a sit-down restaurant for lunch, then remembered that I have food at home. Good food – healthy food – the kind of food that I want to be putting into my body on a regular basis!

We had only completed two errands. The major to-do left on my list was grocery shopping, but I know better than to go to the grocery store while hungry! That’s a recipe for an unnecessarily large bill for things that I may or may not eat in the future.

Instead of finding a restaurant, I went home and made myself a tasty lunch. It was simple – marble cheese on whole grain toast with a gala apple. It was both delicious and gentle on my wallet. You see, if I’d gone to a restaurant as per my initial whim, I would’ve spent atleast $30. That’s $30 that I hadn’t planned to spend. The meal likely would’ve been too many calories, to many carbs, and too big of a portion. My choice to come home and feed myself out of my own kitchen saved me money, kept my food intake aligned with my nutritional goals, and was another teensy little step towards fulfilling my financial dreams of early retirement. (That $30 can go towards my short term goals and my retirement fund.)

Coming home for lunch in the middle of my errands might not have been ideal, but it was the right choice for me.

Now, it’s not always an option to come home when I’m hungry. For example, when I’m at work, I can’t simply visit my own kitchen when it’s time for lunch. Also, my office is located in a not-so-nice part of downtown so I don’t have great food options. My choices are crappy fast food or expensive slow food. Neither options appeal to me. So what’s my alternative?

I’ve chosen to batch cook on the weekend and take something tasty to the office with me. This week, I’ll be dining on sweet potatoes, baked chicken breast in a lightly-sweetened glaze, and a medley of mushrooms and brussels sprouts. For snack, I’ll be taking some nuts or some fruit. My lunches will be delicious, filling, and inexpensive.

As I’ve said before, there’s a fortune to be found in your kitchen. Cooking most of your meals at home means that more of your money can be directed towards the things that matter most to you. I’m not suggesting that you never eat out. Rather, I’m putting it out there that you might want to spend a little more time in your kitchen. Eating out is a luxury! Somehow as a society, we have forgotten this. Having an app to order our food is a very new idea. The financially better option is to buy your own food and cook for yourself. Make enough to have some leftovers for the next day, or to freeze for those days when time gets away from you but you still need to eat when you get home.

I’m not immune to the lure of the app. There have been many nights when I’ve wanted to order a pizza or something else on my phone. You know what stops me? It’s not the cost of the food item. It’s the cost of the add-on’s. There’s a service fee, a delivery fee, taxes, the day-ending-in-y fee, and a tip. After it’s all added up, the medium pizza that I’d planned to buy is somehow $40!!! I’m not yet at a stage in my life where $40 for one pizza makes any kind of sense. So instead of entering my credit card information, I close the app and go to my kitchen where I can always get a peanut butter and jelly sandwich, or cheese and crackers with an apple, or a bowl of oatmeal. I would rather have an un-glamourous, not-Instagramable dinner than spend $40 on a single pizza.

The other benefit of cooking my own food is that I don’t have my credit card on too many servers, waiting to be found by hackers. I’m not a tech-bro, nor do I have any background in the security features of apps. However, there are far too many stories of big companies being hacked and Bad Guys getting their hands on customers’ credit card information. This is something I don’t have to worry about too, too much when I don’t use apps and websites to order my food.

Making good choices is always better. It might not be convenient or easy, but it’s optimal. Cooking at home and taking food with you when you’re on the go is an all-around benefit. You control what goes into your body. Your skills in the kitchen mean that you can feed yourself as needed. And it should go without saying that your wallet stays a little heavier since money isn’t flying out as fast.

So if you’re looking for some extra cash to put towards your financial dreams, I suggest that you start by looking in your kitchen. A little extra time with your stove could result in a big boost to your budget. Take it from me and make good choices!

A Great Financial Planner Earns You More Money

A great financial planner is worth the money. This person will listen to your goals, respect your priorities, assess your current financial situation, and create a roadmap for your money. Most importantly, this person will not try to sell you a product where they get paid for doing so.

If you remember nothing else from this post, remember this.

WHEN SOMEONE ELSE PAYS YOUR FINANCIAL ADVISOR TO RECOMMEND THEIR PRODUCT, THEN THE FINANCIAL ADVISOR WORKS FOR THEM AND NOT FOR YOU.

Blue Lobster

The key to ensuring that the financial advisor is working for you is for you to pay a fee for their advice. When you pay them directly, then you don’t have to worry that their interest in getting paid is in conflict with your best interest of getting proper financial advice for your circumstances.

I’d been investing on my own for about 20 years before I ever saw a fee-only financial planner My choices had put me in a good position, but I would’ve done better had I received the advisor’s advice sooner. For one thing, I wouldn’t have made the rookie mistake of investing solely in dividends for 2 solid decades. I would have learned how to better diversify my investments, a very important component of building a solid portfolio. There was also my little problem of procrastinating for too long before I started funding my investment account in earnest. In short, a fee-only financial planner would have explained how and why my mistakes were undermining my goal of having a nice, fat cash cushion upon which to retire.

The free foundational advice that’s available online is satisfactory. Truth be told, you won’t go terribly wrong with it if you follow the general maxims that are everywhere:

  • Spend less than you earn.
  • Pay yourself first.
  • Build an emergency fund.
  • Get out of debt.
  • Invest for long-term growth.
  • Max your TFSA and RRSP contributions.

These generic rules are fantastic for nearly 95% of the population. You will be financially secure if you follow all of them. Of that I have no doubt.

If you’re in that 5% of people for whom these rules aren’t as good, you need to find out sooner rather than later. A financial planner will help you craft a personalized money plan to help you reach your goals.

Further, there are some nuances to these rules that aren’t immediately obvious. It’s the financial planner’s job to be aware of these nuances and to explain them to you. This is why it’s vitally important that you’re the one paying for the financial planner’s advice. If the planner is being paid by an investment company to sell their product, then you can never be sure that the recommendation is what’s best for you or what’s best for the planner.

For example, you might agree that investing is a good idea, but you need to know how to go about doing so. A fee-only financial planner will give you the answer to the question how exactly does one go about investing for long-term growth???

I’ve been investing in my brokerage account for so long that I forget that not everyone knows what a brokerage account is, much less how to open one. I also forget that not everyone is as enamoured of automatic contributions to investment accounts as I am. If you never open the account and you never set up a way to get the money into the account, then investing for long-term growth is going to be challenging.

Another question is whether it’s better to pay off debts before starting to invest. Further to that, you may be wondering if you should fully fund your TFSA and your RRSP before investing in a non-registered investment account. And if your funds are limited, should you fund your TFSA before you fund your RRSP?

These are the kinds of questions that a financial planner is best-situated to answer. You’re looking for someone who is going to be straight forward about your options and who can create a path for you to follow. A good financial planner explains why steps need to be taken in a certain order. There is clarity about the purpose behind each recommendation. Most importantly, a financial planner will listen to you in order to craft a personalized financial blueprint for your money. As your circumstances change, the financial plan will change too. Your financial planner can help you navigate how those changes impact your financial goals.

Finding a great financial planner isn’t easy. Luckily for you, Moira Vane of MoiraRoseFinancials is ready to help you create a solid plan for your money. Your job is very simple. All you need to do is know what you want your money to accomplish, show up, ask questions, and learn. From that point forward, Moira will explore your current situation and determine the steps you need to take to get to where you want to be financially. Working with Moira will improve your financial trajectory.

They All Do the Same Thing.

When it comes to paying for a vehicle, it pays to remember that they all do the same thing.

I first heard this statement on a YouTube video. And if I’m being honest, I’ll admit that I haven’t been able to get it out of my mind. The YouTuber in question was talking about car payments and why it’s stupid to direct so much of one’s hard-earned paycheque towards car debt. After all, they all do the same thing. She was referring to the fact that all vehicles get you from A to B.

Mind blown! It’s true, isn’t it? Whether you pay for your vehicle in cash, or you have a $700 monthly car payment, the fact remains that both of them will get you from one destination to the next. Everything else is a detail.

Now, I’m not telling you not to buy the vehicle that you want. We all have our idiosyncrasies and desires, so you do you. If your vehicle is your highest financial priority, then so be it.

What I am going to suggest is that you spend some time examining why you’re willing to pay hundreds of dollars a month of one vehicle when you don’t have to. I’ll be perfectly transparent. I paid cash for my current vehicle, which was a 5-year old SUV at the time of purchase. I hate car payments. My knee was giving me trouble so working the clutch on my previous SUV was becoming a problem. It was time for me to switch to something new. I’d always admired my cousin’s SUV so I decided to buy what she had. I would have easily qualified for financing for the current year’s model, but I realized that the current model wouldn’t do anything different than the used one.

Whether new or used, a vehicle has to get me from one spot to another. If both of them will do so, then why would I pay more for the new vehicle?

I don’t need to impress anyone with my vehicle. Those who love me will do so no matter what I drive. And those who don’t will not change their feelings based on which 4-wheeled money pit I own. The only people who really and truly care what I purchase are the financing companies who loan me the money to buy and the salespeople who make a commission on the sale. No one else is paying attention nor are they giving two hoots.

Once you’ve accepted that they all do the same thing, then you have to figure out why you want to pay more for one vehicle instead of another. Remember that money committed to a car payment is money that cannot be spent pursuing your other financial goals. It’s money that’s not going towards your emergency fund, retirement, your next vacation, a special celebration with family and friends, or starting your own business.

Most of the time, the desire to buy the more expensive vehicle is proof that marketing works. The advertisers have convinced you that you’re more worthy as a human being and definitely a lot more special if you spend your money on whatever they’re selling. This message isn’t financially damaging when they’re selling you a pack of gum. It’s a whole different financial wrecking ball when it means shelling out hundreds of dollars every month for a vehicle that does the same thing.

There are so many other things that you could be doing with your money other than paying a higher-than-necessary car payment. You’ll be doing yourself a favor if you can determine why you want to spend more than you have to on your vehicle debt when a less expensive option will do the same thing.

Five Ways to Join the Double Comma Club

First off… not everyone has the financial ability to pursue all of 5 of these tactics at the same time. So, as always, do what you can right now. When you can do more, then do more. This post won’t be about starting your own business or making money through real estate. It’s geared at those who have income, who want to invest some of it for their future selves, and who want to eventually be millionaires. So with that proviso out of the way, let’s turn to the five paths you can take to join the Double Comma Club.

Tax Free Savings Account (TFSA)

The name sucks. It really does. As I’ve mentioned elsewhere on this blog, the government did a disservice to people by calling this a “savings” account. It should be viewed as an investment account. The money that you put into this account will grow tax-free. You can withdraw money from this account and you don’t have to pay taxes on the gains. In light of this feature, this account should be used for investing for the Care and Feeding of Future You.

There are rules about contributing and withdrawing money in the same year. You can read those details here. Essentially, if you take any amount of money out in a calendar year, i.e. 2024, then you cannot return that same amount of money to your TFSA in 2024. You can return that money in 2025 or later. (If you mess this up, then the Canada Revenue Agency will penalize you. So don’t mess up.)

Right now, the annual contribution room to TFSAs is $7,000. Ideally, you’re able to stuff that much into your TFSA all in one shot. If you can’t, please don’t let that stop you from contributing something. Set up an automatic transfer so that you’re contributing something to your TFSA every time you get paid.

If you’re paid bi-weekly and you contribute $50/paycheque, then you’ll be setting aside $1,300 in a year. That’s way better than $0/year. Remember, this is money that will grow tax-free. Start where you can and increase your contribution amount as you’re able to do so.

Should you come into a lump sum of money, then stuff your TFSA right away so that it can start growing for you as soon as possible. The sooner your money is invested, the higher your odds of reaching the Double Comma Club. Here are some examples of lump sums:

  • inheiretance
  • tax refund
  • divorce/lawsuit settlement
  • lottery win

Do not let the money just sit in the account. You must invest it. Personally, I invest my money in the stock market by using exchange-traded funds from Vanguard that are in the equity category. Equity products are those that are growth-oriented. They are suited for people who don’t want their investments decimated by inflation. Equity products have more volatility, but they deliver the best return over the long-term. You should be stuffing your TFSA with equity products to maximize the compound growth of your contributions. When it’s time for Future You to live off the money in your TFSA, you’ll be glad that your cash cushion is as large possible.

I used to invest in dividend ETFs because I loved the monthly dividends they paid me. However, I would have done better overall by investing in growth-oriented ETFs. Don’t make the same mistake that I did. Start investing in the growth-ETFs first. You can worry about getting dividends later.

Registered Retirement Savings Plan (RRSP)

In all fairness, it takes $269.23 bi-weekly to contribute $7K to your TFSA. If you’ve been fortunate enough to max out your TFSA contributions every year, then you should do the same with your RRSP. You can find out how much RRSP contribution room you have by going to CRA’s website.

The RRSP gives you a tax deduction for every dollar that you contribute. It’s a tax-deferred account, which means that you pay taxes on the withdrawals that you’ll eventually have to make. In short, the government will make you draw down your RRSP starting at age 71.

In the mean time, the money in your RRSP will grow tax free!

There’s a lot of debate about whether the RRSP is a tax-trap. In my little opinion, it’s better to pay taxes on money that you have than not pay taxes on money you don’t have. When Future You is too old or too ill to work, you probably won’t mind having a fat and juicy RRSP that gets taxed when you withdraw the money that you need.

As with the TFSA, I would urge you to stuff your RRSP with any lump-sum monies that you received. Do so after stuffing your TFSA. After all, the TFSA is the home of money that will never be taxed. As such, you should aim to have as much of your money in your TFSA as you possibly can.

If you’re not in line for lump sums, then go back to your tried-and-true automatic transfer. Each time you’re paid, send some money to your RRSP. When your income goes up, the increase the transfer amount. Eventually, your RRSP contributions will be maxed out. Yay for you!

Invest in equity-products, ideally ETFs. I’m not a fan of mutual funds because they’re too expensive. They have higher management expense ratios than ETFs, yet they do not – and cannot – guarantee higher returns. If I’m not getting a higher return, then why would I pay more money?

The MER is the slice of each investment dollar that goes to the investment company offering the product. My ETF has an MER of 0.22%. This means that $0.22 of every $100 that I invest goes to Vanguard. I used to own the equivalent mutual fund (at a different company), where I was paying an MER of 0.76%. Essentially, I was paying an extra $0.54 for every $100 invested. I saw no good reason to continue that trend so I switched from mutual funds to ETFs.

I know that $0.54 is a very trivial amount of money. Keep in mind that eventually you will be worth over $1,000,000. At that point, the extra MER of 0.54% means that the MER to be paid will be $5,400 per year. This is unnecessary! I don’t know about you, but I don’t see any need to fork over an extra $5,400 to anyone when I can get the same thing for less. Check out this calculator and play with your own numbers if you need more convincing.

Non-Registered Investment Account aka: Brokerage Account

Okay – this is where the steak starts sizzle. Unlike the TFSA and the RRSP, there’s no limit to how much you can invest in your brokerage account. You will pay taxes on your capital gains and dividends each year, but that is not a reason to avoid investing in this account. If anything, you want to earn as many capital gains and dividends as you possibly can because they aren’t taxed as heavily as income you get from your employer. I’m not a tax expert so speak to an accountant if you need more details. Trust me when I tell you that you need a brokerage account to better your chances of joining the Double Comma Club sooner rather than later.

Let’s say you’ve maxed out both your TFSA and RRSP. Don’t cancel that bi-weekly contribution. All you need to do is re-direct it to your brokerage account. Never forget that your automatic transfer is proof that you’re living below your means. It’s the amount of money between what you earn and what you spend. When you see money being automatically sent to your various accounts, be proud of yourself! Living below your means is no easy feat.

Once the TFSA and RRSP are fully funded, you should re-direct your automatic savings to your brokerage account. After all, you’re used to living without that money in your budget. Also, investing every time you get paid is a fantastic habit. There’s no good reason to break a good habit. The money going into your brokerage account will be working alongside the money in your TFSA and RRSP to ensure that Future You lives a comfortable life.

In my little old opinion, you should be investing atleast 25% of your take-home pay. (For transparency sake, I’ll admit to investing one third of my paycheque. It’s a good chunk and it’s easier to do when one is debt-free and childfree.) As always, the choice of how much to save is yours alone. It’s the money you earned so you have final say over where it goes.

For the third time, you can contribute lump sum amounts to your non-registered account.

The money should be invested in equity-focused ETFs with low MERs. My definition of low is anything less than 0.35%. Others only buy ETFs with MERs less than 0.10%. Don’t let the MER be the sole factor you consider when purchasing your ETFs. I have one ETFs with an MER of 0.55%, but it’s consistently paying me a 4-figure dividend every month so I’m loathe to sell it at this point.

Pay Off All of Your Debts

I have to admit that I had qualms about putting this method in the fourth position on my list. You see, I didn’t follow my own advice. I paid off my debts first – student loans, car loans, mortgage – then I seriously started investing. My former mortgage payment went into mutual funds and later ETFs. The same thing happened with student/car loans.

Looking back with the wisdom gained from experience, I should not have accelerated my mortgage payments every year. I should have been putting that money into the stock market. I would’ve had my mortgage for a lot longer. (It was paid off in 2006.) However, I also would’ve had a lot more money in the stock market, which was on a tear from 2008 to 2020. In short, investing my money in the stock market sooner would have meant greater compounding over a longer period of time on a bigger pile of cash.

Live and learn.

You need not repeat my mistake.

If you have the money, pay off your debts while you’re investing for Future You. It’s in your interest to ensure that you have as few financial obligations as possible. Make all of your minimum payments as required while stuffing your TFSA and your RRSP. If your debt is paid off before you’ve stuffed those accounts to the gills, then take that former debt payment and send it to your other debt payments. In this way, your debts get paid off faster than originally planned.

Should you receive a lump sum before your debts are entirely gone, I would suggest splitting it in half. Send half of the lump sum to the Care and Feeding of Future You accounts, aka: your TFSA and then your RRSP. Ensure that the other half goes to your debts, particularly your credit card debt if you have any. That’s almost always the most expensive debt so it’s in your best interest to get rid of it first.

You’re free to do what you want with your hard-earned money. I kindly ask that you consider investing for your future while at the same time you’re working hard to pay down your debts.

Oh, also – once you’re out of debt, don’t go back into it. Do what you need to do to save up your money before you spend it. Paying as you go is far preferable to committing future income to today’s needs.

Spend Your Money

Yes – you read that correctly. I want you to spend your money – not all of it, but some.

Look. I know that I am constantly asking you to invest a part of your paycheque for the future. But I also realize that every single one of us lives in the present. We should all be able to enjoy some of our money today. Right?

My story involves a lot of travel, entertainment, and various stuff. It’s just that it arrived at different times of my life. Once I’d paid off my house, I started sending my former mortgage payments to my RRSP and my brokerage account. When the TFSA came into being, I started sending money there too.

And while I was paying off my mortgage and investing for Future Me, what was I doing to live in the present?

I was eating out with my friends two or three times a week. I travelled to the US to see family and to visit different places. I went to concerts. I did renovations to my house. I bought my beloved SUV. Once I’d maxed out my accounts and hit a savings rate of 1/3 of my take-home pay, I decided to spend a little bit more money. Some people want to hit a savings rate of 50% or even 70%. Living on that little of my paycheque wasn’t the goal for me. I could achieve my goals by saving one third of my paycheque. Everything over and above that target could be spent however I wished. In my case, I started travelling overseas. I did bigger renovations to my home. In the past 8 years, I’ve been to Europe 4 times… and that 8-year period included 4 years of not travelling by plane. I even paid for a professional financial planner. (That was money very well-spent because he told me that I could retire 2 years earlier than I’d planned!)

That’s a long-winded way of saying that you should spend some of your money along the way. Investing for Future You and paying off your debts are two very important financial goals. Living in the present is also a very important financial goal. Spend some of your money today so that you’re building up your inventory of memory dividends and making your dreams come true. Future You will thank you!

The Debt Is Gone. Now what?

I spend a lot of time talking about paying off debt. Why? For the simple reason that debt impedes you from spending your money on the things that you really want.

Once the debt is gone, what should you do with your former debt payments?

This post isn’t for those of you who already have a plan for your money.

If, however, you’re a person who doesn’t have a good plan for your money, then you should stick around while I drop some pearls of wisdom. Feel free to pick them up as you see fit.

Whatever your former payment amount, I want to divide it by three. One third will go to your emergency fund. The next third will go to your retirement and/or investment account. The last third will go into your chequing account so that you can spend it on upgrading your life.

Build Up Your Emergency Fund

Emergencies can strike at any time. They’re inconvenient that way. And while I don’t know what kind of emergency will land in your lap, I can pretty much guarantee that it will have a financial component. You need to have an emergency fund to handle it.

Some people advise having 3 months’ worth of expenses in the bank. I’m a lot more conservative than that. I think everyone should be aiming for atleast 6 months’ worth of expenses in their emergency fund. Let’s say you lose your job. That’s definitely when you will need your emergency fund to carry you until you can persuade someone else to pay you for your skills and expertise at whatever it is that you do.

It will take a long time to build up 6 months’ worth of expenses. (For those of you who are really, really conservative, aim to build up 6 months’ worth of income!) Debt is a barrier to building a sizeable emergency fund. That’s why I dedicating one third of former debt payments to the task of weaving your financial safety net.

Give Your Retirement & Investment Accounts Some Love

The next third of your former debt payment should go to maxing out your Tax Free Savings Account and your Registered Retirement Savings Plan. These are the two registered accounts where you should be investing money for your retirement. Future You will thank you for doing so.

In the fortunate event that you’ve already contribute the maximum allowable amounts to both your TFSA and your RRSP, you should open a non-registered brokerage account and invest one third of your former debt payment. Your investments will grow tax-free, so it’s to your advantage to invest your money sooner rather than later.

Unlike the TFSA and the RRSP, there is no limit on how much you can invest in your non-registered account.

When your debt is gone, set up an automatic transfer from your chequing account to one of these accounts – TFSA, RRSP, or non-registered brokerage account. Max out the first 2 before you start investing in the last one.

Inflate Your Lifestyle With the Last Third

That’s right. I’m encouraging you to spend your money. After all, you worked hard for it. Now, instead of sending it to someone else, you get to keep it. You can spend it on whatever you want. That’s the beauty of being debt-free!

Maybe you’ve been dying to take a trip? Or maybe there’s something new you want for your home? Perhaps it’s finally time to join that wine club you’ve found? Whatever it is, I want you to buy it. You now have the cash and your purchase won’t impact your ability to invest for the future, nor your ability to save for emergencies.

Maybe there’s nothing you want to buy right now. That’s fine too. You don’t have to spend money if you don’t want to. Keep the money in a sinking fund labeled “Whatever I Want”. When you figure out what you want to buy, if anything, the money will be there waiting for you.

And if there truly isn’t anything want to purchase, then you may want to fill up your emergency fund even faster. No one has ever complained about having too much money during an emergency. You could also send more money to your retirement and investment accounts.

I’m not encouraging you to squirrel away every penny for the future, or for emergencies. However, if you don’t see a need to increase your day-to-day spending, then those are two great options for the final third of your former debt payment.

Another fantastic option is making a charitable donation to causes that you hold dear to your heart. It’s good karma to help others and money is very helpful for those who need it.

So there you have it – Blue Lobster’s suggested use of your former debt payment. Again, take what you need and leave the rest. You earned the money so you get to decide how best to use it to make your dreams and goals your reality.

Debt is the Enemy of Financial Security.

It never ceases to amaze me how easy it is to get into debt.

I haven’t been a child since the last millennium, but I do still remember that people had to apply for credit by filing out a paper form. Today, offers for credit come directly to my email address. The financial institutions pushing credit no longer need a signature. Somehow, tapping a screen has become an acceptable way for people to start the journey into debt. They don’t even need to verify that I’m the one tapping the screen on my phone! Anyone can tap that screen and – poof! – I’m the one who’s responsible for repaying a new credit card. ***

Just this week, a financial institution offered me a credit card with a $25,000 limit!!! Are they crazy? Exactly what algorithm are they using to think that my income could pay off that kind of limit every month? To be clear, I don’t earn enough money to pay off that kind of limit in one month. And since I always pay my credit card bill in full each month, I make sure that I don’t charge more than I can repay.

Debt is a cancer to wealth.

You build less wealth while you have debt payments.

Let’s get one thing straight. Personally, I’ve come to believe to that people should be investing while they’re paying off their debt. I don’t care if it’s $10 per week or $50 per month. A little something needs to be invested for the future until the debts are paid. It may take years to repay your debt. During that time, people should still be building their wealth through investing. Small amounts invested over long periods of time do have a way of growing into very large sums. Time is too precious to waste, so invest while paying off debt.

Try not to think about how much further ahead you’d be if you were able to send your debt payments to your investment account. Obviously, investing more sooner is better. At the same time, investing something is better than investing nothing.

Once the debts are gone, atleast 70% of those former debt payments ought to be re-directed towards investing. The other 30% should be spent on whatever frivolities a person wants.

Don’t go back into debt!

Do what you want with your own money. I’m just here to tell you that going into debt over and over again will prevent you from building any kind of wealth for yourself. Debt is not getting cheaper. When was the last time the interest rate on your credit card came down?

Secondly, if you’re forever going into debt for one thing or another, when are you going to have the monthly 3-figure or 4-figure amount to invest for your future? Do you really want to spend your entire life working just so you can send most of your paycheque to someone else?

I’ve had debt before, but I got out of it.

I used a loan to buy my second vehicle. It was a 5-year loan, and I don’t remember the interest rate. The payment was $325 per month, so a little more than $10/day. I was tickled to death when that car loan was finally done. I’d hated making those payments!

So imagine my shock and horror when the financing company offered me another loan to buy a new car.

WTF?!?!!

At the time, a friend of mine explained that I was the exception. She said that most people would go and buy another vehicle. My mind was blown! I simply couldn’t fathom the idea of going into debt for another vehicle simply because I had repaid my loan. The vehicle I had just paid for was only 5 years old. There was nothing wrong with it, mechanically or cosmetically. Best of all, that car no longer siphoned $325 out of my wallet every month. Why on Earth would I want to go back into debt for another car?

Debt is easy to acquire, yet hard to eradicate.

Read that heading again. The truth is that I’ve never had an easy time getting out of debt, when I’ve had it. It took me years to pay off my mortgage, and I did it rather quickly. As I’ve noted, it took me 5 years to pay off a vehicle loan. I seem to recall that it took me several years to repay my student loans too, and those were relatively small at an amount of $15,000. Thankfully, I’ve never had credit card debt.

Yet, if I could remember how long it took me to acquire the debt, I would have to say that each loan application required less than 30 minutes of my time. My mortgage might have taken a bit longer but it was still less than an hour to be approved.

Mere minutes to acquire over $100,000 of debt… sigh… it’s almost breathtaking, isn’t it?

In very sharp contrast, it took me years and years to pay it all back. And I managed to repay those loans early! There were tax refunds and retro-cheques to help me do so. Most of the early repayments came from delayed gratification and extra payments. According to my memory, I accelerated my mortgage payment every year on the anniversary so I could pay off my principle residence’s mortgage super-early. I started at $304 bi-weekly and had bumped it up to $750 bi-weekly by the time it was done.

I have to wonder why the length of payback is never, ever advertised when creditors are extending debt to customers. Never ever forget this truth – it takes a long time to repay debt.

Debt is an impediment to the life you want.

Sending most of your paycheque to creditors sucks. You work hard, and someone else benefits from your efforts. I’m not at all convinced that most of us want the results of our life’s energy and precious time going to our creditors. We should be in a position to determine where our money goes. After all, we’re the ones who used our blood, sweat, and tears to earn it.

Get rid of your debt. There are many websites offering good suggestions about how to do so. I don’t claim to be an expert. My path to debt freedom included living well below my means and practicing delayed gratification for years. It worked for me because I earned a decent income and was able to keep my expenses low as a Single Person. I didn’t take on many subscription services. I went to the grocery store and cooked my own meals. As I rid myself of debt (student loans, car loans, and a mortgage), a significant chunk of those former payments went into my retirement and investment accounts.

Today, I’m very content with my financial situation and Past Me’s choices about money. Eliminating debt from my life, sooner rather than later, means that I have better options and that I’ve secured a spot in the Double-Comma Club. Creditors are not part of my life and I think that’s great.

*** I minimize the risk of this ever happening by deleting these email offers immediately. Then I go into my trash folder and delete the email permanently. I also never let anyone else touch my phone outside of my presence. If there’s another way to stop unsolicited credit card offers coming to my email, please let me know.

And now, I Replenish the Sinking Fund!

Last month, I went on my first post-pandemic overseas trip. It wasn’t cheap. However, travel is one of my spending priorities so I have a sinking fund to pay for it.

It was my first trip to the Netherlands, with a very short stop in Belgium. I traveled with a dear friend of long acquaintance, who had suggested this trip the fall of last year. After months of blue-sky ideas, we settled on a river cruise since we’d both wanted to do one. And that river cruise was followed by 3 days in Amsterdam. The trip was amazing: canal tours, chocolate-making, stroopwafels, the Red Light District, Keukenhof Gardens! There simply wasn’t enough time to do everything that was on offer in the amazing city that is Amsterdam. Trust me when I say that we made the most of our available time.

First things first. You should know is that I spent every nickel of my travel sinking account:

  • I used some of the money to upgrade my airline seat, and those extra 4 inches of room were well worth the splurge. (Shout-out to another dear friend who’d made the suggestion to upgrade!)
  • Purchasing an all-inclusive tourist app prior to leaving home was a fabulous use of funds! That app allowed for free transportation on buses, trams, and the metro within the city. It also gave us free entry to many cool museums and various other tourist spots.
  • I also had the funds to book a more expensive hotel very close to all the things we wanted to see and do. Had we stayed elsewhere, precious time would’ve been wasted on commuting from one location to another. As it was, we were able to walk to almost all the places on our itinerary. The spectacular Vondelpark was a stone’s throw from our accommocations and the stunning Rijkmuseum was only a 10-minute walk away.
  • During our river cruise, we realized that the Hague was only an hour away from Amsterdam by train so, without any consideration as to cost, we made a last minute decision to visit the city of Peace and Justice too.
  • My souvenir knapsack came back stuffed with chocolates, magnets, tulip bulbs, cheese, stroopwafels, and books.

My travel sinking fund allowed me to say “Yes!” to everything I wanted to do, eat, taste, see, and buy. Again, I spent every single nickel of that fund on this trip… And I felt absolutely no guilt in doing so! The money was earmarked for this purpose. I spend freely when I travel because there’s no guarantee that I will ever pass that way again. I don’t want to come home with any regrets or thinking “I should have <insert missed opportunity here to do what I wanted> while I was there.”

Looking back, I can say that this was one of the very best trips that I’ve ever taken.

So, now that I’m home, it’s time to replenish the travel sinking fund. I want to go somewhere new in 2025, and I don’t want to come home with debt. Where I want to go hasn’t yet been decided, but I’m thinking that I’d like to travel in April or May of next year. Destination is very important, but there’s a high chance that I’ll change my mind about what I want to do next year. Scotland had been on the list for 2020, but those plans were destroyed when the world shut down. I haven’t been to Asia yet so it might be nice to go there. Japan has always intrigued me, and I’ve heard many wonderful things about Vietnam. There’s also this culinary course combined with local tours that’s also available in regions of Italy that I haven’t visited yet… So many options!

Determining where I want to go isn’t the main driver here. There’s a good chance that the destination will change a few times. Nope, my first task is to figure out how much to save from each paycheque going forward. If I save too little, then I can’t do my 2025 trip the way I want to without incurring credit card debt. That’s a no-go for me. Literally! I’d rather stay home that pay interest to a credit card company for my trip.

And if I save too much for travel, then my other financial priorities will be short-changed. I don’t want to do that either.

First things first, I’ve considered the size of my paycheque and I’ve figured out how it has to be allocated amongst all of my financial priorities. Long-time readers will know that I have sinking funds for property taxes and insurance premiums – the unsexy, necessary expenses of adulthood. Sadly, they take priority over travel so they have to be funded first. There are also some landscaping projects around my house that are slated for 2024. Gardening has become a hobby of mine and I want more perennials around my home. The kind of plants I want to buy are not particularly cheap, so I need to budget for them. I’m also still a fan of live theatre and those subscriptions don’t pay for themselves.

Thankfully, I’m debt-free. I managed to pay cash for my latest vehicle. Student loans and mortgage debt have been in my rearview mirror for a very long time. As such, I don’t have to have send money to creditors every month. While I use credit cards, the balances are paid in full every single month. A good portion of my former debt payments is put towards travel every time I get paid. (The rest of those payments has already been re-directed towards building my emergency fund and investing for my retirement.)

Even though I spend a lot of time talking about the future, I recognize that money is also meant to be spent to bring us some joy today. The Care and Feeding of Future You is incredibly important. That’s why you should be investing a good portion of every paycheque for long-term growth. When your paycheque stops, your investment portfolio should be ready to take over.

However, taking care of Present Day You is also a serious responsibility. You should be able to do some of the things that you really, really, really want to do now without going into monstrously expensive credit card debt to do so. And that’s why I advocate for sinking funds. Setting aside the money first means that you don’t burden yourself with debt while still getting to do what you want.

Figure out your priorities, then create sinking funds for each of them. When the money is in the fund, spend it as intended without any guilt whatsoever. When you get home, replenish your fund so that you can get down to the business of turning your next dream into a reality.

Money, Memories, and Memorials

This past weekend, I attended the memorial service of a family member. It was beautiful.

My lovely aunt passed away at the age of 94. She was a vibrant woman, much-loved by family and friends alike. The fact that chairs had to be brought in to the small theatre where her service was held is a testament to number of people who wanted to honor her passing.

As I sat with my family, I watched the large screen as picture after picture was displayed. There was my aunt with her parents, her siblings, her husband, her children, and her friends. My aunt loved life! She was always the life of the party and she loved to laugh with whoever was around her. There is no doubt that she will be missed.

It occurred to me that I need to spend more time asking myself if I’m spending my money the way I want to today to build as wonderful a legacy of memories that my aunt did. So much of personal finance is about the mechanics. There’s plenty of talk about investing and emergency funds and getting out debt. There’s insufficient discussion about what the money is truly meant to do for you.

Money is merely a tool to assist to you in building a marvellous life. It is not a goal in and of itself. Without the love of family and friends, money is nearly meaningless. Money won’t gather to mourn you when you’re gone. It won’t sit at your bedside when you’re sick or near your end. Money will never give you a kick-in-the-ass when you need one. Money can assist you to create memories, but it should never be the only thing memorable about the real you. It is merely a tool to assist you to survive in our capitalist society. Money is not loyal to you, and it will leave you in a heartbeat without a backwards glance.

Now don’t get me wrong. My aunt needed money to pay the bills and feed her family, to afford shelter and utilities and clothes, etc…. I’m not daft enough to suggest that money is irrelevant. Obviously, it’s not.

What I am positing it that it’s vitally important that each of us realize that having strong and loving relationships with other people is what makes life worth living. Laughing with friends, sharing meals, sitting quietly together, giving others your precious time and access to your unique presence – these are the moments that knit relationships together. Memories create the salve needed to heal the emotional pain felt by those who will mourn you when you’re gone. And at the end of the journey, a well-lived life is measured in memories.

Now, I have to consider how I’m living my own life. Am I creating these memories with those I love and hold most dear? Do I focus too much on the numbers and not enough living life? How many moments will there be to tally when it’s my time to shuffle off this mortal coil?

Thank you, Auntie. Even though you’ve moved on, you’ve taught me another important lesson. I will strive to follow your beautiful example of how to create many wonderful moments in my own life.