Author: Blue Lobster

Create Your Own Pension

Yes, really. This post is about the fact that that employees without employer-provided pensions bear the responsibility of saving enough money to ensure their own financial comfort once they’ve stopped receiving a paycheque. All employees should be setting aside a chunk of money from every paycheque so that the money is still around when the paycheque ceases to exist.

 

Everyone justifiably laments the fact that employers routinely fail to provide pension plans for their employees. A pension used to be part of the compensation package. In other words, a pension was a form of deferred compensation. The loose contract between the employer and the employee was that the employee would do the work today and the employer would provide compensation via a pension payment tomorrow, i.e. when the employee retired.

 

Way back in the day, employees had the luxury of allowing their employers to set aside money for the day when the employees became retirees. For the vast majority of people, those days are over. Employees are being forced into the position of thinking about their own futures and of making the decision to set aside a portion of today’s money in order to turn it into tomorrow’s money. Employees are fiercely howling about this situation because this turn of events means that they have to be responsible enough to say no to some of their present-day desires. Way back when, the employer said no on the employees’ behalf, squirrelled away the money, and then doled it out to the employee-turned-retiree in monthly allotments. Essentially, the employees were liberated from the requirement to discipline themselves to saving money for a future beyond the next allotment.

 

Today, pensions for the vast majority of employees are a daydream. Today, employees do the work and they get a paycheque for their time. The employees bear the onus to defer spending some of their money today so that they have the ability to spend it tomorrow. They are responsible for paying for themselves when they are retired and they cannot rely on their employers to take care of them in the future. In short, there is no longer an agreement between employees and employers that there is any deferred compensation waiting for employees after their last paycheque. An employee’s compensation is immediate and employers are not holding any of it back for later.

 

The responsibility now lies on employees to create their own pensions. The duty to take part of today’s paycheque and set it aside for tomorrow’s expenses rests squarely on the employee receiving the paycheque.

 

I’m not here to debate whether this shift is fair or effective. My purpose with this post is to impress upon you that every paycheque you receive is an opportunity for you to set aside money for your retirement so that you can stave off poverty when you finally stop working.

 

If you’re in the camp of not having money to save after today’s expenses are satisfied, then you need to reduce today’s expenses so that you can save for your future. Alternatively, you need to find a way to increase your income without increasing your lifestyle so that you have some money to set aside for Old You. The government is not going to have enough money to pay for your old age unless you learn to enjoy living in conditions that you wouldn’t tolerate while earning a paycheque. You have to prioritize your future and you must save some of today’s money in order to accumulate tomorrow’s money.

 

How do you start? I would suggest that you start with $10 per day, which translates into $3650 per year. That money should be invested in passive index funds or exchange traded funds (ETF). Fill up your tax free savings account (TFSA) and your registered retirement savings plan (RRSP). Fill up the TFSA first, then make your very best effort to max out your RRSP – both of them allow for tax-free growth so long as the money stays put. Invest this money in equities and bonds. The younger you are, the more money should be directed to equity investments. As you age, the percentage of your portfolio going to equities should gradually decline. Keep in mind that you will need the growth from equities for your entire life so even when you hit your 80s and 90s, no less than 30% of your portfolio should be invested in equities.

 

A great book to read was written by J.L. Collins, called The Simple Path to Wealth. I strongly encourage you to read this book and put its principles for investing into practice.  (I don’t get paid if you buy this book. I’ve read this book and I liked it a lot. I wish I’d read it 20 years ago, but what’s done is done. I can still implement the author’s advice now and benefit from it going forward. So can you.)

 

This next part is crucial to the success of your plan. Keep your mitts off your investments until you retire! Do not use it for vacations or home renovations. Do not use it to supplement your grocery expenses or to fill up your car. Give up cable – slice your own pickles – cook your own food – cut down on your smoking – drink less alcohol – cut back on entertainment – host more potlucks – throw more card parties! Do what you need to do in order to find $10 per day to set aside for your retirement. Your retirement money is only for your retirement, nothing else.

 

Sadly, you cannot rest on your laurels at $10 per day. Unless you start this program at age 15, you won’t accumulate enough money for a comfortable retirement on only $10 per day. You will have to do whatever is necessary to increase your income and thereby increase your savings. If you get a raise, allocate half of your new net income to increasing your retirement savings and the other half can go towards your day-to-day living expenses. Life is about balance so I don’t expect you to save every penny for the future. You only get one life so you have to find ways to enjoy the journey.

 

What I want you to do is increase your contributions to your TFSA and RRSP until you’re putting away 25% of your net income. If you max out your TFSA and your RRSP on less than 25% of your net income, then I want you to invest the difference in a non-registered investment portfolio. Your goal is to be living on only 75% of your net income and investing the remainder in your retirement plan, aka: your self-created pension.

 

I also encourage you to keep learning about money. Financial literacy is not taught in schools, nor is it available in every home. The television’s job is to present you to the marketers who want your money so you definitely won’t learn about sound financial principles from the media or its minions. For your own benefit and that of your loved ones, you should be reading and learning about investing throughout your lifetime, starting right now. So many people have written so many good books on the topic of personal finance that I can’t name them all but you should start by visiting the personal finance section of your library.

 

  • David Chilton, “The Wealthy Barber”
  • Gail Vaz-Oxlade, “A Woman of Independent Means” (and many others)
  • David Bach, “The Automatic Millionaire” (and many others)
  • Suze Orman, “The 9 Steps to Financial Freedom” (and many others)
  • George S. Clason, “The Richest Man in Babylon”
  • Mary Hunt, “Debt-Free Living” (and others)

 

These are just a few of the authors and books who have changed my views on personal finance. (Again, I am not getting paid for mentioning these authors in this blog post.) Much like everything you’ve learned to do up to this point, you won’t know everything about investing from just one book but I promise that you will start to figure out the basics as you continue to read and learn from a variety of sources. While you are learning, start putting the money aside in a dedicated retirement kitty. You can both save and learn at the same time. When you’re ready to make that first investment, the money will be there. I promise you that no one has ever regretted having money set aside for their retirement.

 

There’s no way around it – you will need to create your own pension so it’s best that you get started right now. Start funding your future today!

Finding the Balance – Saving Money for Today and Tomorrow

When I was a very young girl, I’d heard about a marital method of allocating money to both present and future goals that made a lot of sense to me at the time. Essentially, in a situation where both spouses worked, the household’s present needs would be paid for from one paycheque while the other paycheque was devoted to saving for the future. To my naive mind, this division would be split evenly since obviously both parties would earn the same amount and there would be no reason to fight about money… Ah, the innocence of youth!

 

Now that I’m an adult, I realize that many, many, many factors go into the process used by couples to decide how their money is allocated. Many of my friends are married. As far as I know, not a single one of them uses the “ideal allocation” that I’d envisioned as a child. They’ve worked out money rules that work for their relationships and they all seem very happy with their decisions. Still though, I remain convinced that spending one income while saving the other is a great idea.

 

If you’ve read enough personal finance blogs, you’ll have noted that the common minimum savings target in the online world of personal finance is 50% of your income. There’s often the admonition to save as much as you can, as soon as you can but 50% should be considered the baseline if you want to reach financial independence sooner than 65!

 

The challenge for singletons is obvious! We don’t always have that second income coming into our households, which means it’s not always as easy for us to live on 50% today while saving 50% for tomorrow. Economies of scale are missing since there’s only one paycheque to pay for the entire cost of housing, all of the food, all of our entertainment/travel/debt payments, etc… There are ways around some of these costs. For example, those singletons living with roommates have found a way to decrease their housing costs but not everyone wants to live with roommates. Also, it’s highly unlikely that roommates are willing to fund one another’s retirement accounts from the disposable income that results from lower housing costs! A couple’s desire to share their financial goals and to pursue them over a lifetime together is something that is very definitely missing from the roommate relationship.

 

If you’re a singleton with a side hustle, then maybe you’re one of the fortunate ones whose side hustle income is equivalent to what you earn from your regular job and saving that income already amounts to saving 50% of your income. Or maybe you’re a singleton with a nice, fat paycheque that allows you to live well below your means. If so, then hooray for you! You’re well on your way to funding the very desirable status of being a financially independent person where working for a living is an option rather than a requirement.

 

Singletons without lucrative side hustles or incredible incomes have to find ways to increase the savings target so that they can also reach financial independence and have the option of whether to continue working. Even singletons who love, love, love their current jobs should be saving big chunks of cash from their paycheques. The things that we love about our jobs can change over time. When they do, it’s best to be in a position to leave when those changes become intolerable and it’s even better to be able to leave without financial fears for the future.

 

What’s a singleton to do? As one singleton to another, I would urge you to save money towards your future. Personally, I automatically transfer money from my paycheque to my investment and retirement accounts every single time I get paid. The convenience of automatic transfers cannot be overemphasized because automation is beautiful!

 

If you need a daily reminder to commit to your future, consider the savings method employed by Grant Sabatier of www.millennialmoney.com where he decided to save a fixed amount every single day in order to reach his goal of financial independence and early retirement. Not everyone is able to save as much as Grant does. If you can, great! If not, then pick an amount that you can save and go from there. The point is to start saving money for your future as soon as you can. Once you’re in the habit of saving money, you’ll more likely than not increase the amount that you’re saving so that you can reach your financial goals sooner rather than later.

 

And the reality is that saving something is far better than saving nothing, even if your financial situation doesn’t allow you to hit the target of saving 50% of your income every year.

 

In a perfect world, I would be living on 50% of my income. I would pretend that my Illusory Partner was bringing in the other 50% of the household income and that his income would be going into the bank towards our goals of financial independence and early retirement while continuing to enjoy a standard of living that’s as good as the one I have now. Unfortunately for me, saving 50% of my income would mean that I wouldn’t enjoy my day-to-day life as much as I already do because I’d be living on a very tight budget that wouldn’t allow for the little luxuries that make life sweet. That’s just a fancy way of saying that I’m not yet prepared to cut out any of today’s expenditures in order to save even more for the future.

 

Am I still working towards the goal of saving 50% of my income? Of course I am! Yet, I will freely admit that my choices about how I want to live my life from one day to the next have prevented me from reaching this goal.

 

This particular singleton has made the decision to live below her means and to save as much as possible while still incorporating travel, entertainment, and spontaneous fun into her life. It’s a constant battle, but I’ve managed to create a budget where I save 40% of my net income and I set it aside for my aforementioned goals of financial independence and early retirement. I’m not terribly hard on myself for not being able to save the full 50%. As far as I’m concerned, 40% is still a respectable chunk of money so I think I’m doing okay.

 

The extra 10% that stays in my chequing account is for the small extravagances and short-term goals that are most important to me. It has paid for my recent international trips to Italy (2016) and to Spain (2017). It paid for a last-minute invite to a production of Comedy of Errors at Shakespeare in the Park. It has paid for my annual theatre subscription. It has paid for the costs associated with flying all over North America to attend family reunions. That extra 10% allows me to enjoy life now without having to wait to do all of my enjoyment later. I’ve been able to find a balance that works very well for me.

 

Could I have lived without those little extras in order to save the money? Of course I could have! And had I made that choice, there is no doubt in my mind that I would be closer to my financial goals. However, the other reality of choosing to save more money would be that I wouldn’t have seen as much of the world as I already have. I wouldn’t be as close to my extended family as I am now because I would have missed time with them nurturing the familial bonds. Similarly, I wouldn’t have had as much time with my friends building great memories around time spent doing things that we’ve enjoyed.

 

It’s very important to me to be free of the obligation to work as soon as possible – that’s why I save 40% of my net income and invest it for my future. Hopefully, I will continue to earn raises and receive larger dividend cheques from my army of Little Money Soldiers. One day, I will be in a position to meet my target of saving 50% of my net income.

 

Until then, it’s vitally important to me to live my best life each and every day on the other 60% of my paycheque. I don’t want to reach early retirement and realize that I haven’t nurtured important relationships or that I don’t have enough good memories of my life-before-retirement.

 

It’s taken me the better part of nearly 5 decades to figure out the best balance between my today money and my tomorrow money. Life is so short and the time flies so fast! There is a balance and I’ve been lucky enough to find it.

Not all healthcare expenses are free

We Canadians pride ourselves on our free healthcare system. However, I’m the first to admit that the Canadian healthcare system is not perfect and that there are challenges which will get worse as more and more of us age and try to access the resources and services simultaneously. However, it’s still better than the experience of our neighbours to the south – we are far less likely to go bankrupt for want of a bandaid…

 

Today, I’m positing that even Canadians need some emergency money set aside for medical expenses. Sometimes, we delude ourselves into thinking that we don’t need to pay for expenses related to healthcare. Hogwash! There are some expenses which arise from healthcare and they have to be funded just like everything else. And since these kinds of expenses are unanticipated, a healthy emergency fund should be in place so that the money is already there when you need it. I’m not talking about regular prescription co-pays, which should be accommodated in your monthly budget. I’m not talking about any health insurance premiums that you may have to pay, since these should also already be a line item in your budget. You know in advance that you have to pay these expenses so you can plan for them ahead of time.

 

Nope! Today, I’m talking about the sneaky and indirect health-related costs that can spring up at any time and without warning yet must still be paid.

 

Back in 2014, I took a trip to Vegas and had a very good time until I arrived at the McCarran airport to fly home. My right Achilles tendon started to cause me significant pain with every step. I tried to minimize my walking through the airport, but the pain was still there when I landed and had to get off the plane. I had a few days off before returning to work so I kept my leg elevated and applied an ice-pack. I’m not a doctor – I don’t even dress up as one at Halloween! Needless to say, my home remedies did not work and I eventually had to visit my primary care doctor. Her time, attention and expertise were all free  – thank you Canadian healthcare system!

 

My doctor ran some tests and told me that I’d likely sprained my tendon. She advised me to avoid any weight-bearing on my foot for a few days then I could start walking on it a little bit after 5-7 days. After that initial period, I could gently increase the amount of walking that I did each day. No weight-bearing meant using crutches to get around – not fun, but not impossible either.

 

Now, I normally commute to work by bus. I’m not a fan of rush hour traffic and the bus is convenient. Riding the bus allows me to have a little catnap after work before I arrive home. It’s also a lot cheaper than monthly parking. (The money I save on parking funds my travel, i.e. travel such as the trip to Vegas where I somehow hurt myself!) The only problem with commuting while on crutches was that my closest bus stop is roughly a 5-minute healthy-tendon-walk from my office. As I wasn’t terribly fast on my crutches, I knew that my injured-tendon-walking time would be a lot longer than 5 minutes so I chose to drive to work and to park in my office building, a whopping $13/day at the time.

 

My injury did not heal nearly as fast as my doctor had predicted. When day 7 rolled around, I still couldn’t walk the distance between my parked vehicle to the bus! I still needed my crutches so I made the decision to pay for parking until such time as I could walk comfortably.

 

It took me 5-6 weeks before I was confident that my tendon was strong enough to let me get through the day without being hobbled by mid-afternoon. This meant that I had to shell out several hundred dollars for parking fees! While parking is not technically a health expense, it is an example of how health issues can result in unexpected expenses. If I hadn’t had an emergency fund, I would have been funding those parking expenses with my credit card.

 

Another example of unexpected expenses related to healthcare is visiting people in the hospital. When my mom has gone in for surgery and has been required to stay in the hospital for a few days, I’ve paid close to $100 in parking fees for 3-4 days’ worth of visits. I’m convinced that the streets surrounding the hospitals in my city are worn down faster than every other city street because visitors spend many hours driving around in search of a free parking spot. Each of my hospital visits started with the mandatory loop around the hospital in search of an elusive free spot. More often than not, my search was futile and I found myself standing at various parking meters trying to figure out how much time to buy. Thankfully, I live in the same municipality as my mother so I didn’t have the added financial burden of travelling out of town, possibly staying in a hotel, and missing a few days of work in order to be with her.

 

What about injuries that don’t require a trip to the doctor or hospital? In 2016, I hurt my thumb so badly that I couldn’t concentrate. (Again, I have no idea what I did to myself!) It was impossible to pick up items and any movement caused pain in that digit. I was afraid to drive my 5-speed because I wasn’t confident that I would be able to work the stick-shift in case I need to complete an emergency maneuver. I went to a medical supply store and bought myself a hand brace. Relief was immediate and I happily handed over my money.

 

Thankfully, I had the money in my emergency account to fund all these unexpected purchases. I wasn’t forced to borrow money in order to get to my office, to visit my mother, to find a non-prescribed solution to my injury. I’d had the foresight to put money aside for an emergency. When those emergencies showed up, I was ready financially and I was easily able to weather the added strain on my finances without going into debt. My focus was properly on healing the injury without the distraction of wondering how I would pay off credit card debt.

 

Medical emergencies will happen. They will never be at a convenient time, nor will they give you much, if any, warning. However, I can promise you that they will result in some sort of impact to your finances. If you’re lucky, the financial impact will be minimal. If you’re not so lucky, then you’ll need to have a larger cash cushion to get you through the situation. (And if you don’t already have short-term or long-term disability insurance, then get a policy in place sooner rather than later!) I strongly urge you to start funding your medical emergencies now by putting money aside in your emergency account.

 

Trust me when I say that you won’t regret having the money in the bank when you need it!

Coasting to Financial Independence

How many of you have heard of coasting to financial independence once you’ve hit a pre-determined target for your investment portfolio?

 

It’s a concept known as Coast FI. I first learned about it in a post from Military Dollar. Essentially, Coast FI means that you can stop contributing money toward your goal of financial independence once you’ve accumulated a certain amount of money in your investment portfolio, i.e. your Coast FI amount. Your Coast FI amount will increase via compounding returns until it’s the amount of money needed to sustain your life’s expenses without you having to earn an income. Once you’ve obtained the prescribed amount of money, then you need not ever add another penny to your investment portfolio because compounding will do the work of growing it to the right amount of money to cover for your future spending needs. Keep in mind that if your spending needs increase, then your required Coast FI amount will also increase proportionally.

 

I was most intruiged! Coast FI is a great idea and I admire those who have faith that they will get the annual returns that they need to make this work. Obviously, higher annual returns mean that you’ll need a lower amount in your investment portfolio. The opposite is also true – if the anticipated annual returns are going to be lower, then you’ll need a higher initial amount in your investment portfolio before you can start coasting. The real trick, of course, is reliably predicting what your future returns will be in order to accurately determine your personalized Coast FI number.

 

Based on the Rule of 72, you can figure out when your money will double by dividing 72 by the your investment return. For example, if you earn a 9% annualized return, then your money will double every 8 years. If you earn a 10% return, then your money will double every 7.2 years. If you earn a 3% return, then your money will double every 24 years.

 

The other neat thing I like about this concept is that once you’ve saved your Coast FI number in your investment account, then you can stop contributing to your investments because compounding will take over and you’ll reach your financial independence number without adding another nickel!!!  This is where faith comes in. There are people out there who will stop contributing to their investment portfolio once they’ve hit their Coast FI number. They will trust in the long-term returns of the stock market to deliver unto them the money that they will need in order to retire when they want.

 

For the record, I’m not a person who would stop making contributions without a signed guarantee from God that I’d have enough money in place to stop working. Others may feel differently. I have a feeling that I’ll keep adding to my investment portfolio forever. My reasons are as follows:

 

One – I actually feel better when I set aside a little bit of money. Psychologically, I know that I’m saving for a rainy day. I get great comfort knowing that there’s a little pot of money set aside in case I need it. Saving money also makes me feel responsible and  in control of my destiny. It’s my way of telling myself that I’m doing the right thing with my money. I’ve been a saver since I was a little girl and I’ve lived by the spend some, save some philosophy for my entire life so I doubt that this aspect of my personality is going to change just because I’ve reached the point of Coast FI.

 

Two – Saving a portion of my paycheque helps me with budgeting. For the past 18 years, I’ve been using percentages to divvy up my money. Right now, 40% of my net income goes to investing. There may come a time when I drop that allocation down to 25% but that’s pretty far away. If I were to start adding more fixed expenses to my budget now, then I’d have to figure out where to cut them later just in case I wasn’t getting the annualized returns that I would need for the Coast FI method to work for me. So instead of having 15% more expenses, I simply invest that money and live on whatever’s leftover. So far, this method has worked beautifully for me.

 

Three – Even if I do get the returns that I need to coast to financial independence, adding extra money to my investment account would mean that I could retire from work even sooner! Pretend for a moment that relying on Coast FI means I can retire at 56. If I keep adding to my investment account in addition to relying on Coast FI then I’m creating the option to possibly retire even sooner at 52 or 53. Nothing wrong with that!

 

Finally, when it comes to money, I’ve always believed that it’s better to have it and not need it than to need it and not have it. In the unlikely event that I wind up with “too much money” – a concept I find as foreign as the idea of “leftover wine” – I will have done myself a huge favour by creating a financial cushion that weathered the storms of my life. Whatever money remains after I’ve departed this mortal coil will be used to better the lives of my beneficiaries. Make no mistake – I am not depriving myself during my lifetime and I’m going to continue doing the things that I want to do. The reality is that my wants are few: time with family and friends, travel to new places, money for dining out, theatre and concert tickets, renovations to my home. My income is sufficient to satisfy these desires and I see no reason to find new ways to spend my money simply because I have it. I’ve found that delicate financial balance between living for today and saving for tomorrow. Coast FI is simply another layer of icing on my already super-delicious cake!

Procrastination is a Money Mistake!

I’ve made my share of mistakes when it comes to money.

 

One of my biggest mistakes was waiting 5 YEARS before I started investing in my non-registered portfolio of dividend-paying exchange traded funds (ETFs). I paid off my house when I was 34 but I waited half a decade before I started investing in dividend-producing assets outside of my TFSA and my RRSP. That was such a dumb move that I almost want to slap myself! I was investing my former mortgage payment money in somewhat expensive mutual funds. Fortunately, I’d had the brains to not spend my newly-freed-up mortgage payment on stuff! However, I was getting raises at work during this time so I’d had the good fortune of having additional disposable income on top of my former mortgage payments. Unfortunately, I wasn’t smart enough to re-direct these extra funds towards my non-registered investment portfolio. In other words, money from my raises did not work as hard for me as it should have.

 

And if you were to ask me what I did with my “extra” money during that time-frame, I’d be hard pressed to tell you. I know that I took a trip to Hawaii with my mother. I know that I bought my SUV, although I paid it off within 6 months of purchase through gazelle intensity. I know that I did some renovations to my house. However, the rest of it must have just disappeared via thoughtless spending. I have no idea where it went and that drives me crazy!

 

You want to know the kicker? I’d spent the three years prior to actually investing thinking that I should be putting my money into an asset that would pay me dividends. I yearned for a dividend-paying portfolio so badly that I could taste it. I craved a dividend-paying portfolio because I understood that those dividends would compound over decades to create a solid cash flow to supplement my other retirement income. I spent hours reading blogs and personal finance books, pouring over newspaper articles about value investing versus growth investing, deciphering the various blah-blah-blah from multiple sources. Yet, I was no closer to actually buying the dividend-producing assets that I wanted.

 

Despite all my time thinking about what I wanted, I didn’t take any action to make it happen – instead, I waited and waited and waited to start! And when the financial crisis hit, I froze. I listened to the faceless voices on the radio who were predicting the end of the stock market as we knew it. Years of procrastinating will cost me dearly because I could have been investing steadily during the financial crisis and scooping up investments at low, low prices. Instead, I waited and pondered and thought and wondered and dreamt and delayed and considered and waited a little bit more!!! My inaction means that my Little Money Soldiers have five fewer years to go out and reproduce themselves.

 

I’d always wanted to retire at 50, but I don’t think I can hit that target without winning the lottery. In case you were wondering, picking the right numbers is a lot harder than it looks!

 

Part of me will always wonder if I could’ve hit my goal if I’d started investing all of my disposable income into my non-registered portfolio as soon as I’d paid off my mortgage. It’s a horrible game of “What if?” and there’s no good answer. The truth is that I can’t go back and re-write history. What’s done is done. And I have to remember that I still love the renovations that I’ve done to my house, and that I loved the travelling that I’ve done since becoming mortgage-free. During those 5 years of procrastination, I was smart enough at the very least to pay cash for everything so I never got myself into debt.

 

So what caused me to finally make the investment that I’d wanted for 5 years? Mainly, it was a smart little voice inside my head that spoke firmly and said the following: “Enough! Just start or it will never get done.”

 

I wish that voice had been more melodramatic or that the words had been more inspiring but the little voice was short and sweet. I listened to the little voice and went to my brokerage account’s website to get started. It only took a few minutes to set up my automatic transfers, to enter the initial buy order for my dividend-producing assets, to set up the dividend re-investment plan (DRIP), and to take the first step towards getting the kind of portfolio that I wanted.

 

The other thing that kicked me into gear was all the reading I was doing on personal finance blogs about something called the “side hustle.” Back in my day, a side hustle was called a part-time job. Times change and I must change with them. In any event, a side hustle is a way to make money beyond going to your main job. I knew that an investment portfolio which paid me dividends every month would count as a side hustle…and it offered the added benefit of not requiring me to really do anything in order to get the money. Yes, I had to earn the money to buy the units in my ETF but I already had a firmly established habit of investing my former mortgage payment so there was no trouble on that front. I simply had to move the contribution from my old investment to my new one. Easy-peasy!

 

The other benefit of my chosen investment plan was that my deeply-held preference for laziness would be satisfied, yet I could still tell myself that I had a side hustle.  I too had joined the ranks of the personal finance bloggers whom I admired and who had found ways to benefit from a side hustle in addition to their regular, full-time employment. The cherry on top of my plan was that my dividend income would receive preferential tax-treatment, which is just a fancy way of saying that my dividend money would be taxed at a lower rate than my employment income.

 

There are many, many ways in which I could have made significant financial mistakes with my money. Procrastination is the one that will hobble my dream of early retirement at age 50. However, it could have been worse. I could’ve gone into debt, or I could’ve co-signed a loan with someone who skipped out on the debt. I could’ve spent my mortgage money after my mortgage was gone. I could still be waiting to start!!! When I’m flagellating myself a wee bit too much about this financial mistake, I remind myself that I’ll still retire sooner than most and that I could’ve done a whole lot worse than living in my own head instead of taking action as soon as I’d figured out what I wanted to do with my money.

Debt is Corrosive to the Creation of Intergenerational Wealth

Debt is a cancer to building intergenerational wealth. The phrase intergenerational wealth conjures up images of the very, very rich who are able to bestow entire empires upon their progeny. Truthfully, the concept doesn’t require anything quite that elaborate. My definition of intergenerational wealth is the ability to provide financial assistance to your offspring in order to help them get ahead as adults. It’s above and beyond that level of sustenance that is legally required of parents. Intergenerational wealth is what you use to assist your child in achieving a better life – financial or otherwise – than the one you’ve had. This type of wealth is created when you’ve acquired assets that can be utilized to fund the major purchases of your child’s life when the time comes.

A few weeks back, I read an article about how black women graduate with the highest amount of student loan debt. It got me thinking. How could these women build wealth for their families if they were saddled with big student loans which required years to repay? And what if they also had mortgages, car loans and credit card debt while carrying student loan burdens? How much money would they have to earn to both pay off all debt and save enough to invest in the family’s future? What kind of impact does debt – student loan or otherwise – have on a parent’s ability to build intergenerational wealth?

My ultimate conclusion was that all debt is an inhibitor to the creation and growth of intergenerational wealth, regardless of the demographic group to which the debtor belongs. Debt of any kind impedes the accumulation of wealth because you’re so preoccupied with paying someone else that you rarely get the opportunity to pay yourself first. Obviously, larger amounts of debt have a greater negative impact on the creation of wealth because it takes so much longer to pay it back. At the end of the day, debt is corrosive to the accumulation of wealth.

If you’re making payments on your student loan, your car loan, your credit cards, and your mortgage, then your money is not being put towards your family’s future. Whatever the size of the debt obligations, whether $500 per month or $5000 per month, the fact remains that you’ve committed to giving that amount of money to someone else in order to pay down your outstanding debt. You’ve agreed to give away the money that could have been used to build a foundation of wealth for yourself and your family.

Recently, I read an interview with a millionaire where a cycle of intergenerational wealth was put into place. The millionaire being interviewed was the daughter of parents who had worked very hard at regular jobs, while also running their own side hustles. Her parents had worked very hard to create wealth for their family. They taught their children the same principles, and the millionaire in turn taught those principles to her own two sons, the grandchildren. Over time, this family had created sufficient wealth that offspring who needed a mortgage did not have to go to the bank. Instead, mortgages were issued within the family from one generation to another. When the millionaires’s sons graduated from post-secondary schooling, each of them already had $200,000 in their investment portfolios. Their money had grown from cash gifts bestowed upon them by the grandparents. (Check out ESI Money if you want to read more millionaire interviews.)

Many parents want to pay for their children’s educations. This is a worthy goal and I have no quarrel with it. In today’s world, an education opens doors and provides opportunities that would otherwise not be available. An education is not a guarantee of success, but it is certainly an asset in the pursuit of success. Parents who save for their children’s educations are providing their children with a gift, i.e. starting their adult lives without student loans. They are gifting their children the opportunity to start with a clean slate. Once employed, their children will not be required to send a portion of their paycheques to the student loan people. Instead, if the children are wise, they will start using that portion of their money to invest for the future and to buy cash-flow positive assets…assuming, of course, that the children appreciate the opportunity provided by their parents’ gift of a debt-free post-secondary education.

The children who wisely take advantage of this opportunity are then in a position to do the same for the grandchildren, when they make their appearance. The children will have continued the tradition of ensuring that the next generation begins adulthood without debt. If the children were also fortunate enough to have invested in assets the grew over the years between their graduation and the start of the grandchildren’s post-secondary education, then those invested assets may still be available for the benefit of the grandchildren and the eventual great-grandchildren.

The cycle of passing down intergenerational wealth cannot flourish if the parents or the children are required to send part of their income to creditors, year in and year out. Creating intergenerational wealth begins with the basic principle of paying yourself first. The accumulation of wealth comes from the act of setting money aside from your paycheque and investing it for a positive return. If your money from today’s paycheque is being used to pay for yesterday’s purchases, then you’re impeding your ability to invest money for your future and for your family’s future. In other words, today’s paycheque cannot be used to pay for tomorrow’s needs and opportunities. Once you’ve given your money away to pay off debt, then your money is gone forever and you must find a way to earn more. Money spent on repaying debt can never be used to change your family’s future.

I am not an expert in parenting, but I have observed families in my life who have established a positive cycle of investing in businesses and assets while also saving money for their offspring’s future. These families are ensuring that the financial lessons are passed down so that each successive generation has the money to live a comfortable life and to both grow and preserve their wealth. One of the other things I’ve observed about these families is that they do not have debt.

I’ve watched as the parents gifted down payments for homes to the children. I’ve seen the parents assist the children to buy businesses. I’ve observed the children purchase income-producing rental property where their parents did not have intergenerational wealth to pass down. Where the parents didn’t have money, they had worked in real estate and had advice to give to their children about how to assess investment properties.  The children’s rental properties will become part of the intergenerational transfer of wealth to the grandchildren. Personally, my brother and I benefitted from such intergenerational transfers of wealth by having nearly all of our post-secondary education funded by our parents.

Please don’t get me wrong. Receiving a down payment didn’t eliminate the children’s obligation to pay the mortgage. However, the gift of a down payment meant that the children were able to start building equity in their homes sooner than their contemporaries who had to save up a down payment.

Even where the parents assisted a child to buy a business, there was still the need for a commercial business loan from the bank which had to be repaid. The parents’ transfer of wealth assisted the child to take advantage of the opportunity to buy a business that he understood intimately at a time in the child’s life when he did not have the money to buy the business himself. In that situation, the child received another form of intergenerational wealth – his parents worked at his business for free for the first couple of years until he got himself established enough to hire his own staff.

The children whose parents did not provide them with intergenerational transfers of wealth still took it upon themselves to start creating a strong financial foundation for their own future children. They purchased property, lived in it, and then rented it when they moved to the next home. Did they have to use mortgage debt? Yes, of course. Are they using the underlying asset to create positive cashflows in their lives? Yes, they are. The tenants pay the mortgage debt, and the cash flow from the properties is directed towards improving the families’ financial future.

I have also observed other families who seemed destined to live paycheque to paycheque. From what I can see, they make decisions with their money which will always require them to remain in debt servitude. From the outside, it looks like they actually love being in debt to someone. When a car breaks down, a brand-new car with a $700 per month payment is immediately purchased. There is no consideration given to the option of buying an adequate used car that fulfills the same purpose of safely going from point A to point B. Student loan debts are not aggressively paid down as soon as possible due to other priorities. Such loans last for ten or more years after the former student has graduated when sustained monetary effort could have eradicated the debt in three years or less. Mortgages are taken out when there is insufficient household income to handle the monthly payment, the utilities, the taxes and the other associated costs of running a home. Unfortunately, the mortgage-holders do not earn high incomes so they’ve essentially made themselves house-poor. They will be forced to live paycheque-to-paycheque until the mortgage debt is gone or until the bank forecloses on them for non-payment.

These families have purposely created situations for themselves where they are unable to create any wealth to pass on to the next generation. In fact, they cannot even create wealth for their own retirements. They purposely seek debt-burdens rather than debt-freedom, and I haven’t been able to figure out why. At the same time, these families want to live a life that they could actually afford if they didn’t have debt payments. They want the toys and the travel and the comforts that come with debt-free living yet they are not willing to do what needs to be done to rid themselves of debt.

Perhaps the distinction between the two families comes from the debt-free choosing a long-term view while the indebted choose a short-term view? I will continue to think about why some people get it and some people don’t, how some families are able to create a comfortable legacy while others are not. In the end, I guess the reason for the distinction doesn’t matter too, too much. The bottom line is that debt always inhibits the creation and the accumulation of intergenerational wealth. Debt prevents people from saving for their families’ future since it requires people to pay for their past purchases.

Just imagine what you could do for your family if you didn’t have to repay debt. How different would your life be? Is there something that you would be able to give to your children and your grandchildren that you can’t give them right now? How much could you change your family’s future if debt were not a part of your life?

Insuring your mortgage

If you have a mortgage, then you should have some kind of insurance in place to pay it off just in case you die while the mortgage is outstanding. My suggestion*** is that you get a life insurance policy that is sufficient to cover the full amount of your outstanding mortgage. This way, the life insurance can be used by your named beneficiary to pay off the mortgage debt in the event of your death.

 

In Canada, there is a product called mortgage insurance. While I am not in any way, shape or form an insurance expert, I would urge you to get a life insurance policy instead of a mortgage insurance policy.

 

If you have a life insurance policy worth $750,000 and a mortgage worth $350,000, then the full $750,000 is paid out to your beneficiary to use as they see fit after your death. Your beneficiary can choose to pay off the mortgage and to pocket the remaining $400,000. Your beneficiary can choose to take over the mortgage payments and put the $750,000 towards some other goal. You don’t really care what your beneficiary does since you’re dead. What you care about while you’re alive is the fact that the life insurance policy will pay out its face-value. Presumably, you care that your beneficiary is put in a position to continue to live in her or his home upon your demise so that’s why you’ve obtained an insurance policy that will be sufficient to pay off the mortgage on that home. (If you don’t care where your beneficiary lives after you die, then there’s really no need for either type of insurance unless you simply have a deep and perplexing love of paying insurance premiums.)

 

If you have a mortgage insurance policy, then your beneficiary will be the lender who hold your mortgage. The mortgage insurance policy will only pay out the necessary amount to cover your mortgage at your death. If you die when your mortgage is $350,000, the the insurance policy pays the bank $350,000 because the bank is the beneficiary.  Let’s say that you you die near the end of the mortgage and your mortgage balance is only $7,500, then the bank gets $7,500 as the beneficiary of the policy.

 

If your intent is to have the mortgage paid off after your death, then life insurance is superior to mortgage insurance.

 

With a mortgage insurance policy, you do not get to choose the beneficiary. If you should pass away when you have children who still need to be raised and educated, a life insurance policy is a better vehicle by which to provide money for their future financial needs. The mortgage insurance policy only ensures that they can stay in the home, but there is no additional money set aside for post-secondary expenses, extracurricular activities, weddings, or any of the other experiences that you, their parent, would have liked to have given them.

 

Secondly, life insurance premiums will buy you the same amount of coverage for the life of the policy. If you’re paying $5 per month for life insurance, then you are getting $750,000 worth of insurance no matter when you die during the life of that policy. Your beneficiaries will get $750,000 whether you die one month after buying the policy or whether you die 3 days before the expiration of the policy.

 

With a mortgage insurance policy, you pay the same monthly premium for a decreasing amount of coverage. In effect, the mortgage insurance policy’s premium gets more expensive as the mortgage balance goes down. Again, assume that the premium is $5 per month. At the start of the mortgage, you’re paying $5 to cover the full mortgage balance of $350,000. Near the end of the mortgage, you’re still paying $5 but, should you die, the mortgage insurance policy will only pay out the very small amount owing on the mortgage debt.

 

Dollar for dollar, you are purchasing more insurance coverage for your life’s expenses with a life insurance policy than with a mortgage insurance policy.

 

Few people like to think about their deaths, which is understandable. However, the fact remains that people die and they leave dependents behind. The responsible and kind thing to do for your dependents is to ensure that they don’t have to worry about where they will live as they struggle to rebuilding their lives after you’re gone. One of the most loving things that you can do for your dependents after your death is to ensure that their overwhelming grief is not compounded by financial worries.

 

*** I am in no way, shape or form an insurance expert. This blog post reflects my personal opinion, which is based on my life experience. Insurance is a very complicated product so if you decide to purchase insurance, please get an unbiased opinion from an insurance expert.

Singletons & Money

One of the things that I’ve learned over the years is that the principles for saving money are the same whether you’re coupled or a singleton.

 

Pay yourself first… Live below your means… Invest in the stock market for long-term growth… Always have an emergency fund… Buy the proper insurance… Use low-cost index funds to invest… Take advantage of your employer match at work… Maximize any tax-advantaged investment options… Get out debt… Stay out of debt… Save as much as you can as soon as you can…

 

While these principles work just as well for singletons as they do for couples, the fact remains that it’s more expensive for a single person to pay for the costs of daily living than it is for a couple due to economies of scale. For example, a single person might bring home $2500 and have rent on a one-bedroom apartment for $1000. This represents 40% of the single person’s net income. A couple might bring home $5000 and have rent of $1500 on their two-bedroom apartment. The couple is paying 33% more in rent, but spending only 30% of their net income. The couple has more money – both numerically and proportionally – to devote to their other goals. The couple has 70% ($3500) of their money left over to devote to the rest of their lives after paying rent while the singleton only has 60% ($1500). A monthly difference of $2000 is not insignificant for most people!

 

On the flip side, the single person doesn’t have to discuss her money decisions with anyone. The singleton is free to spend or save or donate money however she sees fit. Couples are required to compromise and make joint decisions about money, lest they fight once too often and find themselves singletons once more. Single money means a lifetime of never having to justify an expenditure to anyone other than yourself.

 

I’ve been a singleton my whole life. The personal finance acronym for people like me is SINK – single income, no kids. And while there was a time when I worried if I would ever find a life partner, that time has passed. I simply don’t worry about it anymore – what will be, will be. I haven’t taken the same laissez-faire attitude towards my money. I apply a laser-sharp focus to that area of my life because I don’t have the insurance of a second income tiding me over if I lose my primary source of money, i.e. my job. I know that it’s expensive to run a house, to make renovations, to replace vehicles, to stock a pantry, to do all those things that my coupled friends do on bigger household incomes.

 

When I look at my married friends, particularly my married professional couple friends, I sometimes get envious of the six-figure incomes that they bring into their homes every year. However, all of these friends have children and they’re spending atleast 5 figures every month to run their households, raise their families and service their debts. While they have the larger – okay, much larger – annual incomes, they are not matching my 40% after-tax savings rate. They simply don’t have the room in their budgets to set aside 40% of their take-home income. When their children are finally raised, educated and launched, my friends will be in a position to save as much or more of their money as I do. Their mortgages will be gone and they will hopefully all be out of debt. They will most likely still have much larger household incomes than me.  Yet the reality is that their investments will not have as much time in the market for their returns to compound – I will have been saving for close to three decades, while they will only have 10-15 years to save before the traditional retirement age.

 

You know those comparisons of twins who invest and one twin starts ten investing years before the other one, then stops investing in year 11 yet still winds up with way more money than the twin who started investing in year 11? I’m the first twin, while my coupled friends are represented by the second twin. I’ve been investing for years longer than all my coupled friends, so the math says that I will have a significantly larger cash-cushion even if they start investing buckets of money after their children are grown.

 

Check out this article which does a damn fine job of explaining the benefits of long-term compound investing growth. My situation is akin to that of Chris, or possibly Susan should I choose to stop investing before retirement. My coupled friends will be Bill. They will do well, since half a million dollars isn’t an insignificant sum of money. However, they simply won’t have the same amount of time to let compound interest work its magic on their investments.

 

My savings & investment habits were ingrained early. My parents saved $10 from each of my father’s paycheques when I was growing up and that money was earmarked for university expenses. This explains how I knew to start my investment portfolio by setting aside $50 every 2 weeks from my part-time job as a grocery store cashier. I was 16 years old when I started to save my own money. Fifty bucks was roughly one third of my net income, but it was enough to get the ball rolling. I continued to save money from every paycheque for the next 30 years. Over time, my income grew which meant that my investment contributions grew too. As I paid off my debts (student loans, vehicle loans, and my mortgage), my bi-weekly investment contributions increased. I used part of my former debt payments to increase my standard of living and the rest of it went to investments for my future. Along the way, I happily celebrated my friends’ weddings and the births of their babies.

 

Let’s go back to the example above of the singleton and the couple. While the couple may have an extra $2000 on paper, that money is more than likely going towards the costs of raising a family. They might not be saving anything as that “extra” $2000 gets eaten up by family-related expenses. The singleton might only have $1500 leftover after rent but she has the choice of putting aside the minimum 10% of her net income towards her investments. This would leave her with $1250 (= $2500 – $1000 – $250) to pay for the rest of her day-to-day life but the odds are that her income will go up over time and give her some breathing room. That little pot of money that was started with 10% of her net income will likely continue to grow too, giving her options about whether to continue renting. She might decide to buy a home and to get a roommate to share household expenses. She might decide to become a house-sitter to eliminate her housing costs. So while it is more often than not more expensive to be single, the fact remains that singletons have more options about how to lower their expenses and to increase their income because they only have themselves to think about when it comes to money decisions. Couples with children do not have that same level of flexibility with their money – their kids need to be fed, clothed, housed, educated and entertained.

 

The fundamental principles of personal finance have allowed this singleton to create a comfortable life for herself and I don’t have many regrets about my money. Thanks to my love of all things personal finance and my commitment to continually educate myself about money, I’ve reached a stage in my life where my portfolio kicks off a four-figure income every month. Is the amount enough to retire? No, not yet. However, I’m earning more money every month because I’ve created a positive feedback loop which automatically increases the amount of cash flow that I earn from monthly dividend payments. I fully expect that by the time I retire, my side income will be over $3500 per month. My coupled friends are not in a position to do what I have done, nor to expect what I expect because their priorities dictated different choices with their money.

 

Singletons who follow the principles of investing steadily and starting early are likely to do just as well as couples who earn more money but are raising families. Earlier I said that the expenses of life are more expensive for singletons because there simply is not as much disposable income leftover after the necessities are paid. I stand by this statement. The added expenses of keeping body and soul together makes things harder in the beginning, but they don’t make the final goal impossible. Singletons can still achieve financial independence should they wish. All they have to do is start investing for the long-term, stay out of debt, maximize their tax-advantage investment accounts… In short, all they have to do is follow the principles of personal finance in order to achieve their financial goals.

Reflections on Financial Infrastructure & Intergenerational Poverty

I recently finished two books about poverty – Evicted: Poverty and Profit in the American City by Matthew Desmond and $2.00 a Day: Living on Almost Nothing in America by Kathryn Edin & H. Luke Shaefer. The stories that were shared within their pages will stay with me for a long time.

 

I’m not an expert on poverty and I’ve been fortunate enough not to experience the kind of poverty described in these books.  After finishing both of them, the thing that struck me most deeply is the idea that intergenerational poverty is something from which it is almost impossible to escape. I say “almost” because I’ve also read Hillbilly Elegy: A Memoir of a Family and Culture in Crisis by J.D. Vance. And who among us hasn’t heard the story of how Oprah Winfrey started out in very, very disadvantaged circumstances yet managed to become a multi-billionaire?

 

My impression after reading these books is that the majority of people who are born into intractable intergenerational poverty do not have anyone in their lives who has money, or other financial resources, that can be given or lent in order to assist them to move out of poverty. Most people in this situation do not escape the desperate poverty in which they live nor are they ever in a position to help their family escape from it either.

 

Intergenerational poverty appears so intractable to me because I interpret it as a complete absence of a financial infrastructure. What do I mean by a “financial infrastructure”? Simply this – it is a person’s ability to access financial resources.

 

On the other side of spectrum is intergenerational transfer of wealth. My definition of the intergenerational transfer of wealth is that one generation in a family transfers wealth down to the next generation, traditionally from parent to child.

 

I’ve noticed that, very often, the concepts of a financial infrastructure and the intergenerational transfer of wealth are very tightly linked. Throughout my life, I’ve had the opportunity to observe and learn from examples of people who have a financial infrastructure and who have benefitted from the intergenerational transfer of wealth. And while I always knew the families in my circle weren’t all equally rich, I didn’t know anyone who did not have the ability to access money from somebody if it was really, really needed. I never would have articulated it this way as a child but I inherently understood the idea that those who have a financial infrastructure and those who can benefit from an intergenerational transfer of wealth are in a position to get money when they need it.

 

My parents weren’t rich, but my maternal aunt had a farm. When my parents were a young couple with a new mortgage and young babies, my aunt would raise some chickens just for them and my parents would fill their freezer with meat. Since my parents had a large backyard, they planted a garden and canned vegetables for the winter. The availability of these financial resources meant that my parents lowered their grocery bill, thereby saving money, while feeding their family. They might not have been living large, but they weren’t living above their means and they were able to set a few dollars aside every paycheque to build a money-cushion for themselves. Eventually the mortgage was paid and those former mortgage payments could be redirected to other goals. The help from my aunt was part of my parents’ financial infrastructure. My aunt didn’t give my parents money, but she was able to indirectly help my parents to accumulate money so that they could meet their financial goals. My aunt was part of my parents’ financial infrastructure.

 

I know another person who worked in a retail liquor business during his undergrad. His graduation coincided with his boss’ retirement so his parents gave him the down payment to buy the liquor store from his boss and they co-signed his business loan. He worked his ass off to repay the loans to his parents and the bank and he is quite comfortable today. This is an example of intergenerational wealth – his parents had the ability and willingness to help him buy an established business so that he could support himself. Thanks to his parents’ financial resources, this person has been able to build a strong financial infrastructure for himself and his young family. This situation exemplifies what I mean when I use the term financial infrastructure – this man had the ability to access financial resources from other people. His life includes people with money. As a result, he is now a person with money and he will be able to both transfer his wealth to his own children and also be a significant part of their financial infrastructure until they are able to create their own wealth. It is this cycle of transferring money from parent to child for the purpose of acquiring assets that creates, maintains and increases intergenerational wealth.

 

Another friend started working a part-time job in her first year of high school to support her household and she’s worked hard ever since. Through her own efforts and her dedicated savings, she created her own financial infrastructure and relied on it to get her though university. Once married, she and her spouse were able to purchase land in the mountains and to build a rental property due to the assistance of her mother-in-law, who runs a business renting that propety on a year-round basis. My friend jokes that she and her family have a hard time using their own property because it’s always booked so far in advance. All kidding aside, my friend has benefited from an intergenerational transfer of wealth and the fact that she has created a strong financial infrastructure for hersefl. She and her husband share in the profits of the rental business. Both of them are careful with their investing. As a result, they are simultaneously strengthening their financial infrastructure and creating more wealth for themselves and their own children.

 

I know of several people whose parents were able to assist them with down payments on their first properties. One of my friends had parents who were able to give her the down payment on a condo when she graduated from university. My friend had a roommate to assist her with the mortgage but she eventually sold that condo when she moved into a larger townhouse. She then moved from that townhouse into her now-husband’s home. They sold that home and are raising their family in a very nice luxury home. Without her parents’ initial infusion of cash, it is unlikely that my friend could have saved enough money from her starting salary to build a sufficiently-large down payment which would have permitted her to buy before real estate prices skyrocketed. The money from her parents allowed my friend to benefit from the rise in real estate prices and to build equity that allowed her, and eventually her husband, to purchase their current home. This is yet another example of both intergenerational wealth and access to a financial infrastructure.

 

Again, I’m not an expert but it seems to me that intergenerational poverty is intractable and it prevents one generation from helping the next because there are no financial resources to be distributed when needed and there are precious few opportunities to accumulate those resources. It is incredibly detrimental to all who are its victims.

 

When I read Evicted, I was struck by the fact that the tenants portrayed in the book had no family with whom they could stay until they got back on their feet. The tenants’ financial infrastructure simply did not exist because they couldn’t access enough money to build one. For the most part, they did not have full-time wages and they did not have their own homes. Their family and friends couldn’t be counted on for help because they were similarly under-employed and they were also renters living in dilapidated structures that were only slightly better than being homeless. The tenants were at the mercy of their landlords, and they were essentially powerless in the landlord-tenant relationship. Their landlords knew that they could be easily replaced by someone who was just as poor and just as desperate.  For a variety of reasons, the tenants could not pool their meagre funds with others in order to create a little bit of a safety net for themselves. In other words, they had no opportunity to create and build a financial infrastructure because they had no money that could be set aside for the future. Whatever meagre income they received went to their rent, their food, the basics of survival. There literally was no money leftover for the proverbial rainy day, and it was always raining in their lives in one way or another. The tenants depicted in Evicted did not appear to have any way out of their abysmal situations beyond winning the lottery. No one in their respective circles had financial resources. The seeds of a financial infrastructure and intergenerational wealth simply did not exist.

 

The story was even worse for the people described in the book $2.00 a Day – which translates into $730 per year for those who like to do the math. These poor people were literally starving, and they were forced to make horrible choices in order to survive from one day to the next. They did not have family members who could help them with a down payment, who could raise food for them, who could help them find a job or to start a business. More often than not, the people of $2.00 a Day were born into poverty and were raising children in poverty. There didn’t seem to be an end to the cycle as there was no way out without cold hard cash. It made me so sad to realize that many of the people living in the horrid conditions described in the book simply couldn’t begin to build a financial infrastructure for themselves or their children because they had to devote so much energy – mental and physical – to basic survival. They did not have the luxury of “big-sky thinking” because they were so worried about living without food, water, electricity, etc…

 

This blog is about money so my comments are limited to the financial impressions that these books left on me. There are many layers to the problems faced by the people in these books, so forgive me for simplifying. All of the people in both books had many issues and challenges that needed to be resolved and I don’t want to create the impression that all of their problems could have been solved with money. However, having money would have meant that their issues and challenges would have been addressed, even if not solved, because they would have had the ability to seek the help that they needed. If the people in these two books been able to access sufficient financial resources, then they would also have been able to address the other problems in their lives without losing their homes, their children, or the basic necessities. They would have had a financial harbour while they sorted things out.

 

Did the books’ subjects have any examples in their lives of people who had made it out of poverty? I don’t know – the authors were silent on that question. In both books, the only people with money were the landlords and they were not portrayed in a favourable light. Neither book gave any indication that any of the landlords had ever been in the position of their tenants. Beyond the landlords, the impoverished subjects of each book appeared not have had any exposure to anyone who had overcome dire financial circumstances or who could teach them how to get out of poverty.

 

Whether you choose to read the books is up to you. What I want to impart to you is that you should carefully consider your own financial infrastructure and assess your own access to intergenerational wealth. If you lost everything in a fire, do you have insurance in place so that you can start over? Do you have family or friends who could put you up until you get back on your feet? Do you have a source of passive income that can tide you over if you lost your employment? Are you the kind of tenant that a landlord wants to keep? Are there people in your social network who could help you find job leads if you needed them? If you wanted to start or buy a business, are there people in your life who could help you fund that dream if necessary?

 

What are you doing to build your own financial infrastructure? Is building intergenerational wealth important to you?