General Thoughts - Millionaire on the Prairie

Debt is not Wine!

Time is good for wine, but it’s very bad for debt.
Blue Lobster

Though it should be obvious to everyone, I’m going to say it again. Debt is not wine.

Hear me now! Time makes debt get worse. This is not a secret. Nor should it come as a surprise. The longer you keep it, the worse it gets. And there is no limit to how big a debt can get.

You know how they say that fine wine gets better with time? Debt is the complete opposite. Debt get WORSE over time. Due to the impact of compounding interest, all of your debts will get bigger the longer you keep them around.

Gangrene gets worse with time too, but only so much. Eventually, flesh that is infected with gangrene is removed. Gangrene has an end life. Debt is worse than gangrene because it can go on indefinitely. For those in the cheap seats who insist on pedantic accuracy, it is true that both gangrene and debt end when the host/debtor dies. However, I’d like to see you get rid of debt (and gangrene) before you shuffle off this mortal coil.

Debt gets worse over time.

Time is the ally of the creditor and the enemy of the debtor. When you borrow money, you’re a debtor and you’re obligated to repay both the amount your borrow and the interest on that debt. Think of the interest rate as the price you pay to borrow money. You might need $1,000 to fix your vehicle. If you borrow money, the creditor is going to charge you interest. For simplicity’s sake, let’s assume you borrow $1,000 for 1 year at a rate of 5% per year. At the end of the year, you have to repay $1,050 to your creditor.

And if you can’t repay your creditor, the interest rate of 5% continues to compound that debt. At the end of the second year, you’ll owe your creditor $1,102.50 (=$1,050 x 5%). At the end of the third year, you’ll owe your creditor $1,157.63 (=$1,102.50 x 5%). And the amount of money owed just keeps going up until the debt is paid.

Take a look at your credit card statement. How much interest is being charged on your credit card balance when you don’t pay the full balance every month?

So there’s two factors impacting the growth of your debt: time and interest rate. You know how when you invest your month, you want a really high rate of return so that your investments grow really big, really fast? Your creditor feels the same way about the debt you owe them. I can assure you that your creditor does a happy dance when you take out an 8% car loan, or a 19.99% credit card loan. The higher the interest rate you pay, the better rate of return your creditor is getting.

Do yourself a favor. Take a pen and a piece of paper and physically write out how much interest is charged annually on your current credit card balance if you let your monthly balance roll over each month. Now add on another year’s worth of interest. For good measure, keep doing this calculation for 10-15 years. The resultant number should make you slight nauseous.

Take a look at this list of facts about credit cards in Canada. Two years ago, the average credit card debt was $4,240. And since this is an average, there are some people with much higher balances! Plug the average number into the compounding calculator of your choice and watch the numbers jump, year over year… I feel sorry for the person who doesn’t have the high income to wipe out this kind of debt in a month or two. High interest debt can balloon very, very quickly.

Wine ages well. Debt…not so much.

Again, debt is not wine. Here’s another simple way to tell the difference between the two. Seeing the end of one makes you sad, but ridding yourself of the other will bring you financial contentment.

When my wine is all gone empty, I’m sad – even if it wasn’t a great bottle of wine. Yet when my debts are all paid off, I do a little happy dance and smile brightly for the rest of the day.

Do what you need to do to get rid of debt. Maybe you give up cable and other streaming services for 12 months? Trust me when I tell you that they will always re-start your subscription. Cook at home a little more often than you normally do. You can continue to get take-out or delivery, but just get them one or two days less each week.

The time will pass anyway. Pay off your debts and start investing your money so that you can pursue your heart’s truest desire. Once your money is going towards your investments instead of towards paying off debts, then time will be working for you instead of against you. And wouldn’t that be a really, really good thing?

Shorting a Stock – the Simple Basics

A major stock market event occurred during the week of January 25, 2021. The current lore is that a group of humble retail investors put a serious hurt on the hedge fund experts who had shorted GameStop stock. As a result of the online amateurs banding together to drive up the stock price, the hedge funds lost billions of dollars.

I’m discussing it in today’s post because I found it both riveting and exceptionally educational. January 24, 2021 was the week that hedge funds bled billions of dollars because of a little thing called a short squeeze.

(In my humble opinion, the stock market events of January 2021 were far more enlightening than the predictable plunging of stock market values in February/March of 2020 due to the COVID-19 pandemic.)

At its most basic, this is how you short a stock:

Let’s say you ask to borrow your sister’s skirt. She says yes, but she needs it back in 4 weeks. You take the skirt and sell it to someone else for $100. Now, you have money in your hand but you owe your sister a skirt. You find a skirt identical to the one you borrowed, and it’s priced at $45 so you buy it. In 4 weeks, you’ve returned the skirt to your sister and you’re $55 richer.

Now, go back to the last paragraph and change the word “skirt” to “stock” and the word “sister/she” to “brokerage house”.

You now understand the rudimentary principles behind making money by shorting stocks.

Got it? Good. Let’s move on.

Why would anyone do this?

Why? You’re kidding me with that question, right?

They would short a stock for the same reason that they do anything in the stock market – to make money. To short a stock is to gamble that its price is going to decline between the time you borrow the stock to sell and the time you buy it back to return to the lender.

In the case of GameStop, the hedge funds borrowed the stock and sold it when it was around $10/share. They wanted the price to go down so that they could buy it back at a lower price. Once they’d bought it back at the lower price, they would have returned the stock to the lender and kept the monies earned. They would’ve had derived their profit from the difference between the sell price and the lower purchase price.

That was the plan anyway…

What is a short squeeze?

The short squeeze happens when the price of the stock (skirt) doesn’t go down. Instead it goes up. And since there is no limit to the stock’s price, the person holding the short can get squeezed pretty severely if the price doesn’t stop rising.

Remember, the stock (skirt) must be returned to the brokerage house (sister) in 4 weeks. So you might need to pay more than the original $100 to buy the same stock (skirt) from someone else.

During the week of January 25, 2021, very sophisticated hedge funds got caught in a short squeeze instigated by amateur investors who belonged to a sub-account on Reddit called WallStreetBets. The retail investors started buying stock in GameStop, thereby driving up demand for the stock. In-demand stocks have rising prices, which is exactly the outcome that the hedge funds did not want. Remember – in order for the hedge funds to make money on their short-bet, the price of GameStop stock had to keep going down.

After selling the borrowed stock for $10/share, the last thing the hedge funds wanted to do was to buy back the stock at $11 per share, $50 per share, or $400 per share. For every penny that the stock rose, they were losing buckets and buckets of money.

Don’t Try This At Home

Shorting stocks is not for amateurs. Yes, some of the retail investors in GameStop have made money. The ones who got in early, way back in 2019 when this started. The early investors would have bought at prices that were far lower than they are today. Those early birds would have profited handsomely this week if they sold at the GameStop stock price rose above $300/share.

Even the Ontario Teachers Pension Plan wisely took advantage of the opportunity to divest itself of its shares in the company which owned the malls where GameStop were located and earned $638 million dollars for its members.

Hedge fund managers who had invested in shorts when the stock price was less than $10 had essentially wagered that the stock price would go down further. The plan would have been to buy more stock at the new, lower price and keep the difference after returning the stock to the brokerage house.

This is not what happened.

By buying the stock, the amateurs drove the stock price up and way past $10. As more investors bought more stock, the price increased tremendously.*** The hedge funds still had to “cover their short”, which means they had to meet the deadline for the return of the stock they had borrowed and sold at the price of $10. In order to meet those deadlines, they had to buy stock at the much-higher price thereby losing billions in the process.

Absolutely fascinating to watch…

Shorting a stock is a risky stock market move. The risk lies in the fact that there is no limit to how high the price of the shorted stock can go. In other words, there is no way to accurately predict just how much money can be lost if the stock price doesn’t go down.

And as the events of late January demonstrated, even the experts can get financially walloped if things don’t go according to plan.

*** At the time of writing this post, the stock in question had hit a high of $469.42USD!

A Consideration of a New Investment

Every so often, I take a quick gander at the new investment products that come onto the market. For one thing, it’s important to never stop learning about investing. There’s no pressure to change my investment path just because I’m reading & learning about something new. The worst thing that can happen is that I’ll know more than I did before I started reading.

Over the Christmas holidays, I engaged in a consideration of new investment portfolios from Tangerine. Overall, I wasn’t horribly impressed. Let me tell you why.

But first – read the following two paragraphs very carefully and commit them to memory.

Disclaimer

I am not in any way qualified, certified, designated or otherwise authorized to give advice to anyone about how they should invest their money.

If you need or want professional investment advice, then you should hire a certified financial planner who is paid by you and not by investment companies. Do not base your investment choices on blogs that you read on the internet without careful consideration of all the factors impacting your personal situation.

Blue Lobster’s Personal Review***

*** Not to be confused with a professional recommendation that has been tailored for your life’s goal, income, ambitions, and risk tolerance.

a) Management Expense Ratios

In my view, the Core Portfolios are all too expensive. The MERs range from 1.05%-1.06%. For a similar product, you could buy an exchange traded fund at Vanguard Canada or iShares and pay considerably less in MERs. Personally, I don’t see any reason to pay MERs any higher than 0.35%-0.55% for investment products that are similar if not identical to the Core Portfolios.

Here’s a link to Vanguard Canada’s index funds/ETFs. You’ll see that their MERs are way cheaper than Tangerine’s.
https://www.vanguardcanada.ca/individual/indv/en/product.html#/productType=etf&managementStyle=index

The MERs for Tangerine’s Global ETF Portfolios are all 0.65%. I still think that this is too much to pay for these products. As per the prospectus and despite their names, these products are mutual funds . The last time I look at this statistic, the average MER charged for Canadian mutual funds is 1%-2%.

b) Composition of the Portfolios

The Core Portfolios invest directly in various companies and in exchange traded funds. As I understand the prospectus, the Core Portfolios are mutual funds. I don’t invest in mutual funds anymore because I prefer to buy the ETF equivalent, which always has a lower MER. Why pay more for the same thing?

The Global ETF Portfolios are mutual funds created out of ETFs. Each portfolio is comprised of a subset of ETFs, held in varying proportions.

Given their newness, none of these funds holds over $7Million in assets. Again, I’m no expert but this tells me that they are much smaller in size than comparable mutual funds and ETFs.

c) Age of the Portfolios

The Core Portfolios haven’t been around that long. The oldest was started in 2008, and the newest was started in 2016.

To be transparent, I transferred my holdings to Vanguard Canada when the parent company – Vanguard – came to Canada a few years ago. I invest in VDY, which is a dividend-focused ETF with an inception date of 2012. In other words, they haven’t been in Canada all that long. Vanguard has been big in the USA for a much longer period of time and I’ve been a fan of John C. Bogle for a long time. If I hadn’t been aware of Vanguard’s history in the USA, I likely would not have invested in them since they hadn’t been in Canada long enough to give me comfort.

The Global ETF portfolios were all started in November of 2020… less than 2 months ago. As such, they do not have any kind of track record that is worthy of note.

d) Overall Impression

In my opinion, investors in these funds are paying more money to own a mutual fund where the ETFs held inside the mutual fund cost less, on an individual basis, than the cost of the mutual fund itself.

It would be far cheaper to buy an equity ETF and a bond ETF from Vanguard Canada, achieve the same performance results, and pay a lower overall MER. By purchasing equity and bond ETFs directly via an online brokerage, investors are coming out ahead because the brokerage fee, if any, for purchasing those units would be lower than the 0.65% MER that would have to be paid on the Global ETF Portfolios.

My brokerage charges me $9.95 on my monthly purchases. $9.95 x 12 = $119.40 in annual fees. Once your portfolio is more than $18,369.23 (=$119.40 / 0.65%), then you’re paying less in fees if you buy units directly instead of buying units in Tangerine’s Global ETF Portfolios.

In the interests of transparency, I have the following products with Vanguard Canada and iShares.

VDY – dividend ETF with an MER of 0.22% (VC)
VXC – equity ETF with an MER of 0.26% (VC)
VSB – bond ETF with an MER of 0.10% (VC)
XDV – dividend ETF with an MER of 0.55% (iShares)

Buying my ETFs through my brokerage account (BMO Investorline) saves me money on my MERs, and those savings are more than enough to cover my annual $119.40 purchasing costs.

e) Conclusion

I’d love to see you open a brokerage account and buy units in ETFs that best-match your investment goals. And that goal, in case you’re wondering, is to not outlive your money. Never forget that ETFs are cheaper than mutual funds.

Brokerage accounts are easy to open. You buy units in the cheaper ETFs of your choice, then you forget about them and let them do their thing over a long period of time.

However, if you’re uninterested in opening a brokerage account, then I suppose that Tangerine’s Core Portfolio options aren’t a horrible choice. If you can set up an automatic transfer from your account to one of the Core Portfolios, then I think this is probably a not-bad way for you to invest in your future dollars. My comments apply to the money going into your registered accounts – RRSP & TFSA – and your non-registered accounts. Your emergency funds will stay in cash, since you shouldn’t be forced to sell investments just to pay for an emergency.

A consideration of a new investment won’t harm you. There’s no requirement that you chase every investment rabbit that enters your field of vision. That said, it’s always a good idea to know and understand the options for your money. Get professional investment advice as needed, but always be learning about new stuff.

Student Loans are an Anchor

When I was younger, I was convinced that student loans are an anchor. I believed that the best course of action was to eliminate them as soon as humanly possible. Full stop – no further discussion needed. Paying off student loans ASAP was a sign of being a mature adult. One did not carry debt if one could pay it off early. Being debt-free was the Holy Grail!

Suffice it to say that my views on student loans have become more nuanced as I’ve aged.

Full disclosure. When I graduated from post-secondary, I had student loans of just under $15K. My salary was paid bi-weekly, so I made extra student loan payments from every paycheque. These were on top of my regular monthly payment. I was fortunate enough to receive bonuses at work, so my first two years’ worth of bonuses went towards my student loans. Within 2 years, those loans were gone!

For the most part, I still believe that student loans are an anchor for many folks. If you’ve got a $200, $400, $700 student loan payment every month, that’s a big chunk of money that isn’t being used to build a better future for yourself. It’s not going towards a down payment. The money isn’t being set aside for your “thirsty underwear” years. (Hat tip to Garth Turner at Greater Fool for that descriptive phrase!) Those funds aren’t seed money being deployed in your own business. Depending on your circumstances, it could take you a very long time to pay off your student loan debts. Time that can never be recovered.

Truth be told, I still encourage people to focus on paying off their student loans. After all, it’s good to have less debt. Do what you can to make extra payments. Set up a per diem and have that money sent to your student loans every week. Do it via automatic transfer. If it’s $1/day, then send make an extra payment of $7/week. If you can afford $5/day, then that’s an extra $35/week. And if you can swing $10/day, then you’re looking at extra payments of $70/week… which is a very sweet $3,650 per year. The higher your per diem, the faster the debt goes away. Make this extra weekly payment on top of your regular minimum monthly payment. If you’re fortunate enough to get a raise or income from a side hustle, then use some of that money to pay off your student loans even faster.

When my student loans were gone, I felt very proud of myself. A debt obligation had been lifted from my shoulders! I was one step closer towards being debt-free. Yay, me!

Nuance…

It’s been over 15 years since I paid off my student loans. And I’ve learned a lot about investing in the stock market. Had I paid the minimum monthly payments on my student loans and invested in equities… <sigh> … Well, I’d be the Retired Blue Lobster by now, and my student loans would also be completely paid off. All else being equal, my loans would have been paid off in 9 years and I would have an even larger investment portfolio. My money would have had an extra two years to grow and all those extra payments would’ve been invested for growth.

Make no mistake! I still believe that student loans are an anchor. Yet, I’ve also come to believe that investing the stock market for the long-term is slightly more important than paying off student loan debt ASAP. This is because the weight of that debt burden, i.e. anchor, is reduced in two ways. Firstly, the debt gets smaller each time you make your minimum monthly payment. Secondly, the debt becomes a smaller portion of your net worth as your investments grow over time. Eventually, the debt will be gone and you’ll have a nice cushion of cash in the form of your investments.

If you go hard on your student loans to the exclusion of investing, you’ll be debt-free sooner but there’s no cash-cushion at the end. If you’re fortunate enough, you’ll be able to immediately re-direct your former student loan payments to investing. It seems trite to say this but I will anyways. Focusing solely on paying down debt robs you of the time that your money could have been working hard for you in your investments.

Investing early is a key to building wealth.

I’m not talking about investing money in a single stock and hoping that you’ve managed to get in on the ground floor of the Next Big Thing. From my perspective, that path is simply gambling. If you want to gamble, save your money and go to Vegas – it’s a lot more fun to gamble in Vegas!

The kind of investing that I’m referring to involves holding a broad-based equity exchange-traded fund (ETF) over a very long period time. Regular, consistent contributions to this kind of product gives investors access to the entire stock market and removes the temptation to jump from one promising stock to another.

An ETF offers you the chance to invest in a lot of companies at once. While they’re hardly exciting, ETFs offer regular people the opportunity to invest in some of the biggest companies in the world. You don’t have to be a genius, nor do you have to be lucky. The Next Big Thing will eventually become part of the ETF’s holdings, so you’ll still wind up own a sliver of it. And you’ll have avoided the risk of investing all of your money in one single company.

You should definitely read The Simple Path to Wealth by J.L. Collins. He does an excellent job of explaining why and how this works. Rest assured that I am not being paid for mentioning this book.

Real estate is another way to make long-term investments for the future. To be explicitly clear, this is not my preferred method. I am not an expert in real estate investing. If this interests you, then check out Bigger Pockets. I follow this account on social media and I’ve learned a lot. Again, I’m not being paid for mentioning them.

Some people can’t do both.

Fair enough.

I appreciate that not everyone has this option of to investing while paying down debt. Maybe you don’t have the money to do both. Reality being what it is, money only stretches so far. Or maybe the thought of debt causes you psychological distress. If that’s the case, then pay off your student loans as fast as you can. They are an anchor on your wallet. They prevent you from investing in your future because they force you to pay for your past.

You’ll make the best choices that you can with the information and money that you have available.

However, there are those in my audience who have enough to pay off the minimum student loan bill while also investing. If you’re fortunate enough to be in these circumstances, then I strongly urge you to do both. It may take you years to pay off your student loans. That is time that you can never get back. It makes the most sense to be investing in the stock market or in real estate while also paying down your debts. Your investments should be growing while your debts are decreasing.

Student loans are an anchor. There’s no doubt about it. However, how your handle those student loans will drastically impact your wealth-building goals. I don’t have all the answers because everyone’s situation is different. I just want you to think long and hard about what will work best for you.

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Weekly Tip: If you must finance a car, follow the 20-4-10 rule. Always put down 20% of the car’s purchase price. Make sure the loan is for a maximum of 4 years. Do not let the car loan be more than 10% of your annual salary. When your loan is paid off, keep making the payment to your Next Vehicle Fund so that you can pay cash the next time around.

A Potentially Horrible Boss

This summer, I was lucky enough to have a socially-distanced visit with some friends. As we enjoyed our cheesecake, the host mentioned that he was worried about what would happen when his boss retired. My friend explained that his boss’ child would likely take over the company. This likelihood was causing a good deal of angst since the offspring’s… leadership style… wasn’t particularly inspiring nor admirable. My friend was facing the very serious, very probable situation of working for a potentially horrible boss.

The worst part is that there is very little to be done. My friend has sought other employment, yet that pursuit has not been fruitful. Further, there are bills to be paid. The twin goals of paying off the mortgage and saving for retirement still have to be met. There’s no realistic option of just walking away from the bad situation which is looming. Like a great many people, my friend doesn’t have an income-producing portfolio as a safety net.

I had no words of wisdom for my friend. Instead, all I could do was be supportive and listen. However, that conversation has stuck with me. Perhaps I don’t have a way to fix the situation for my friend. Yet, I’m confident enough to believe that I do have a suggestion for those who aren’t yet in my friend’s circumstances.

Assess Your Situation

If you are very, very lucky, then you’re working for pay doing something that gladdens your heart. You’re satisfied with your work life and it’s a source of contentment for you. Your boss is an asset, rather than a point of stress. Still… you should always be aware that this is a situation that can change on a dime. Lots of things can happen. Maybe your current boss takes a promotion, moves away, retires or gets sick. In any of these situations. you’re suddenly facing the risk of a potentially horrible boss taking her place.

Trite though it might sound, the following statement must be acknowledged. Most of us do not have the financial ability to just walk away from our job. We realize that having a steady paycheque ensures we can feed ourselves and pay the bills. The vast majority of people have to keep working and hope for the best. In other words, a potentially horrible boss is a source of stress and there’s little that many workers can do to avoid it.

You, Gentle Reader, don’t have to be one of those people.

Get Horrible Boss Insurance

This is a form of insurance that insulates you from the risk of working for a potentially horrible boss. Unlike car insurance or house insurance, you don’t pay a premium to a company to acquire it. Nope! This is the kind of insurance that you create for yourself.

How so? By creating your own income-producing portfolio over time. The amount of time is up to you. You can save a little bit over the very long-term. Alternatively, you can save a lot over the short-term and engage in extreme frugality by saving up to 70% of your income. Or you can find a balance that works on a time-table that best suits your personal goals.

How you invest your money is your choice. Save-invest-learn-repeat. This is my mantra. Feel free to adopt it as yours too. You can learn about whatever investment you want. Some people are big fans of real estate investing. This is not my area of expertise but I have been devoting some time to learning about it over the past two years.

If you’ve been here for awhile, you’ll have noticed that I’m a big fan of the stock market and dollar-cost averaging over time. You’ve often heard me suggest that you should invest a portion of each and every one of your paycheque in a broad-based equity product, preferably an exchange-traded fund. The fees for ETFs are lower than the fees for mutual funds. Stock-picking is most likely not your strong suit so I’d advise you to only do it with 10% (or less) of your entire portfolio.

Money in the stock market is going to be invested for the long-haul. That means it is going to be invested in the stock market for decades. To be clear, your stock market investment money is separate and apart from your emergency fund money. It also shouldn’t be co-mingled with money you set aside for short term goals, which are those that are to be funded within a year or two. Oh, and you’re going to want to be very disciplined about ridding yourself of debt as fast as you can.

Money Buys Options

Gosh! That sounds like a lot, doesn’t it? Saving for retirement. Building an emergency fund. Funding short-term goals. Paying off debt! Life is meant to be lived and no one wants to be richest person in the graveyard.

Blah-blah-blah!

Believe you me when I say the following. The day that you have to work for a potentially horrible boss, you will not regret having money in your emergency account. You won’t ever regret having a second, back-up income generated by your portfolio. The Ad Man and the Creditor want you to believe that it’s some monumentally unfair disadvantage to not spend every penny you make. They are lying to you! The most precious thing in the world is time. Ironically, it is one of the few things that money cannot acquire. The second most precious thing in the world is having options. Money most definitely purchases options.

If a potentially horrible boss is on the horizon for you, then I promise you that you will want to have the option of getting away from that person. Having money allows you to do that. You need not work for someone who is going to make your life a living hell for want of money.

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Weekly Tip: Make extra payments towards your debts so that you minimize the interest that you pay to your creditors.

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Well, Gentle Readers, there are currently less than 60 days left in 2020. How are you doing with your financial plans? What needs to be tweaked for next year? Which financial habits will you keep in 2021?

Money in Your Kitchen

I’ve said it before, and I’ll say it again. There is money in your kitchen! The room of your home where you keep your fridge and your stove, your pots and your pans, your cutlery and your crockery is a treasure of stored value.

The way to find this money is to use your kitchen for …(drum roll please!) …COOKING!

Yes, I know this is a novel idea. And yes, cooking results in dirty dishes. I’m even willing to admit that you might not even know how to cook!

I don’t care. I want you to learn to feed yourself, and to save money while you do it.

Gentle Reader, there is nothing quite so satisfying as a delicious meal that has been prepared with your own hands. I say this a person who often socialized with my friends at restaurants in the Before Times. Steak – sushi – Thai – Greek – Italian – chain restaurant – bistros, cafes, and holes-in-the-wall! I loved them all, and I freely spent money on food prepared for me by others.

That said, very few meals – save for everything I ate in Italy – have been as sumptuous as the ones I’ve made for myself. If you eat out a lot, then you’ll understand me when I say the following. After a while, it all starts to taste the same.

Treats are special when they’re rare

We all know this. If you only eat out once every three months, then it’s a treat. It happens 4 times a year! It’s rare and that rarity makes it special. You might get dressed up. Possibly, you turn it into a special occasion. Dining out becomes an event and you anticipate it. You might savour each bite because you know it’ll be another 89 days before you eat out again.

But when you eat out everyday, it becomes part of your routine. It’s as mundane as brushing your teeth but exponentially more costly! When was the last time that you truly and deeply savoured the meal you picked up at the drive-thru window? Or had delivered to your home in an insulated carrier bag?

Get into your kitchen and cook for yourself. Turn those restaurant meals back into a treat! In the process, the money in your kitchen can stay in your wallet.

This week, I was lamenting to my sibling that I needed a new recipe for the extra lean ground beef that I’d taken out for dinner that evening. Trust me when I say that COVID19 has robbed me of my love for my own spaghetti and my homemade hamburgers. I’ve made them too often since the pandemic was declared and I don’t want to make them anymore! Though younger and much taller than me, my sibling is very wise in the ways of the kitchen. My younger relative suggested that I make Korean Beef.

Taking the suggestion to heart, I went to the World Wide Web and typed in the words “Korean beef recipe”. A plethora of results instantly appeared on my screen. I chose the following recipe from Damn Delicious, and I was not at all disappointed. What I love about this website is that so many people leave comments, tips, and insights into how to tweak the recipe. (I readily admit that the recipes can be made as-is and are still very, very tasty!) One such commenter suggested adding julienned carrots to the dish.

At first, I was afraid – I was petrified. I’d never julienned a carrot in my whole entire life!
(Apologies to Gloria Gaynor!)

However, there’s another marvelous invention in our universe called YouTube. It’s almost as good as the local library when it comes to a free resource for learning how to do stuff. I went to YouTube, searched for “how to julienne carrots”, and happily julienned my first carrot a few minutes later.

Another commenter mentioned that his family liked a lot of sauce, so he’d doubled that portion of the recipe. Guess what? I like lots of sauce too! So I followed his lead and doubled the sauce for my dish. No regrets! Doubling the sauce was a simple, easy, foolproof tweak that would increase my enjoyment of my own cooking.

So I made the recipe, doubled the sauce, and added my julienned carrot… and I wound up with this…

Then I added a little extra something….

Together, they produced the following…

And it was delicious! As another very wise friend would describe it, I served myself a meal that was yummy-yummy-in-my-tummy! There were enough leftovers for lunches and dinners the following days.

While I’m quite certain I could’ve ordered a pizza for $9.99 from a well-known chain, I’m equally certain that the pizza would not have tasted nearly as good as my homemade Korean Beef. Yes, I had to do dishes but it was a small price to pay for having a wonderful meal at home. And I received the added benefit of keeping the money I found in my kitchen. :-}

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Weekly Tip: Start an automated transfer to a savings account. The last time I checked, EQ Bank was paying 1.70% on deposits. I’m as un-impressed with that rate of return as you are. The point is to automate your money so that it’s there when you need it. The money siphoned off via automatic transfer is to plump up your emergency fund. If you’ve already got one that’s nice and fat, then use this automated transfer to save up money for your annual expenses: insurance premiums, property taxes, professional dues, etc…

Maybe you like to invest in big chunks. Fine. Set up the automatic transfer. Every time the account hits your pre-determined amount, transfer the money to your investments and then keep your mitts off it until you retire. Automatic transfers reinforce the savings habit so, if you haven’t already done so, set up your automatic transfer today.

Use This Time Wisely

Gentle Reader, I’ve been working on staying COVID-free. I’ve been staying home, washing my hands, wearing my mask, and trying not to go down the What-If rabbit hole. While I wait for a vaccine/innoculation/nasal spray, I’ve chosen to use this time wisely. The pandemic will end – we will all be able to breathe around each other like the Before Times. Until then, I’m going to use my time to learn things that will save me some money.

Towards that end, I’ve decided to use YouTube to save money.

Whatever do you mean, Blue Lobster?

It’s this simple, Gentle Reader. Like the public library, YouTube is chock-full of free stuff just waiting to be learned by people such as ourselves. This summer, I learned about gardening – both flowers and vegetables – from the very sweet couple who host Garden Answer. Just this week, I stumbled upon a wonderfully soothing channel called Savor Easy, where I’ve watched videos that consist of two hands baking bread or buns. I find this channel to be the antithesis of most social media. It’s very therapeutic because there are no visual distractions. And you can practically taste the final product through the screen!

Flattening the curve and stemming the spread of COVID-19 requires us to stay home more than usual. Since you’re going to be at home anyway, why not use the time more profitably than binge-watching your favourite show?

Use this time wisely by learning how to do things that will help your finances. Baking your own bread (or cookies, muffins, cakes, pies, tortes, etc…) will save you some money. You’ll probably enjoy the results a lot more than the store-bought stuff too. The same goes for starting your own flower gardens, or growing your own herbs. Up until this year, I was a huge fan of annuals. However, spending so much time in my own backyard has forced me to re-evaluate my stance. Perennials suited for my climate will come back year after year so long as I learn how to properly care for them. And YouTube has multiple videos that will show me how to do just that.

Maybe you’d prefer to channel your energies into something that will last a little bit longer than a sheet of cookies, or a season of sunflowers. Why don’t you learn a craft? There are a ton of videos about learning to crochet or how to knit. For the record, I’m a fan of crochet simply because I never stuck with knitting long enough for my index fingers to stop being sensitive to the pointy ends of knitting needles. The only reason I stopped crocheting is because I’d run out of people to give my blankets too. That said, one of my most challenging patterns was calling my name today… so I might have a new project to tackle this winter. (I’ll figure out who to give it to later.) I’ll be home anyway and having a cozy blanket to snuggle under never gets old.

Perhaps you’d like to get into something even more long lasting. Real estate investing, anyone? You’ve heard me talk about Bigger Pockets before. I still watch the new videos posted on this channel and I learn something new each week. Even though the laws are different between Canada and the US, the math doesn’t change when it crosses the border. You might want to consider whether you can implement the principles discussed on this particular channel. Do you have the interest, desire, and finances to build your own little cadre of real estate properties?

Use this time wisely to learn something that will add a little jingle to your pocket.

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Weekly Tip: When renewing your mortgage, shop the market and ask for a lower rate. If you’re about to renew, you know that 5-year rates are under 2%. I make no predictions about how much lower a bank is willing to go, but you owe it to yourself to ask for a lower rate. Trust me – the bank won’t just give you one so you have nothing to lose by asking!

Free Shipping

Who doesn’t love the word “free”?

This week, I decided to buy myself some new jeans. I went to the website of one of my favourite jeans-buying retailers, and discovered to my delight that everything was 50% off. Hooray! Jeans I want at a price I wanted to pay… how could I possibly ask for anything more?

And then another little banner popped up on my screen. I could get free shipping if my purchase was a minimum of $100.

Great googaly-moogaly! All I had to do was spend more than I’d planned in order to have someone else pay to ship my desired items to me? I could do that! I’d be an idiot not to spend more than I’d planned to spend, wouldn’t I? And I don’t like to think of myself as an idiot so the only logical thing to do was to search for a way to spend another $40.

So I set about reviewing other pages on the website. I looked at tops. Then I looked at the outerwear & accessories. My furious hunt through the pages of the website led me find another item I wanted under the sale-tab. (For the record, it’s a long-sleeved stripped sweater than only cost $9.49+tax after the discount code was applied.)

Yet, no matter how hard I looked, there was nothing else that I really and truly wanted to buy so my order did not meet the $100 minimum purchase. I would have to… <shudder>… pay for my own shipping. At the end of the day, my chosen items, the tax and the $10 shipping fee came to $83.46.

Afterwards, I thought about it and realized that the Ad Man had successfully convinced me to spend more money than I’d planned. Remember how I said that I only wanted jeans? What did I wind up buying? Jeans and a sweater… Sure – it was only an extra $9.49+tax, but I’d been willing to spend an extra $40 to save $10.

How is that a smart financial move? I would’ve been out $30 more than I’d planned to spend had I simply bought any-old-thing just to hit the minimum purchase amount to avoid having to pay my own shipping fees.

This kind of behaviour is less than financially prudent, aka: stupid money choices.

Don’t be a Dum-Dum

One of my very dear friends taught me this simple, useful piece of advice: don’t be a dum-dum. This advice is golden! I strive to follow it every day, and I think you should too.

Never spend more than you planned to spend just to get free shipping. I can’t make it any simpler than that. Chances are, you already have too much stuff and you’re one of those people who wishes they had more storage in their home.

Don’t buy more stuff, which is the only reason storage is needed in the first place, just to meet a minimum purchase.

If your planned purchase doesn’t entitle you to free shipping, then the only “downside” is that you get to keep your money.

Explain to me how keeping more of your own money is a bad thing? So you had to pay for shipping? So what? The only important consideration is that you spent what you’d planned to spend to buy what you’d planned to buy. Everything else is irrelevant. Do not let the Ad Man convince you otherwise.

I love free shipping just as much as the next person. However, you know what I love more? Having an extra $16.54 stay in my bank account because I didn’t meet the $100 minimum purchase. That extra $16.54 will go towards something else – groceries, retirement, post-pandemic travel. Who knows? The important thing is that $16.54 stayed in my wallet, instead of flying out the door on some item of clothing that wouldn’t have made me happy.

So my shipping wasn’t free. Big deal. I’ll survive to fight another day.

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Weekly Tip: Sell what you don’t need anymore. There are so many platforms that can be used to sell the things that might fit someone else’s need. You need not keep things that no longer serve a purpose for you. And while you won’t get the price you paid for whatever it is that you no longer need, you’ll get back some of your initial purchase. That’s far better than getting nothing back and having stuff cluttering up your home. Always, always, always be safe when you’re selling stuff online!

Taking Care of Future You

Quick! Take a look at your current net worth. If you had known 10 years ago that it would be what it is today, would you have been angry if you had been forced to save more money???

The reason I ask is because I’m getting older. And the older I get, the more I notice things. One of the things I’m noticing is that my friends are getting older too. And they’re starting to make worrying noises about not having saved enough for retirement. These disquieting rumblings are leading me to wonder if perhaps people shouldn’t simply be forced to save for their retirement.

It’s Easy to Put Off Saving

Want to know why I’m such a huge fan of automating your savings?

It’s due to the fact that automation removes freedom of choice. I know myself. If I to deliberately choose to siphon money from my paycheque to my future, then I wouldn’t. I’d go through that money like a hot knife through butter! I’d be no further ahead financially but I’m sure I’d have more stuff – clothes, electronics, whatever…

I’ve curbed my ability to spend away my retirement savings by setting up automatic transfers. My paycheque comes in – the automatic transfers are triggered – I spend whatever’s left over.

Yet, I’m realizing that a lot of people don’t use automation to improve their financial futures. To be fair, I’m not talking about people who don’t have any fat to cut. Sadly, lots of people are living by the skin of their teeth and an automated savings plan won’t help those people.

I’m talking about the people who do have fat to cut. The ones who can cut back without eliminating all the little extra in life in order to fund their future financial goals. Many of them don’t do so… a situation that I find perplexing.

There’s Little to No Urgency

Perhaps the Ones-Who-Can simply don’t because retirement is so far away. It’s in the distant future, so why worry about it now when it won’t be here for a very, very, very long time?

Good question.

The answer is that tempus fungit, which is Latin for “time flies”. Yes, I’m old enough that I took a semester of Latin in high school. It still blows my mind that this year was my 30-year anniversary of graduating high school!

Your retirement will be here before you know it. Everyone gets the same 24 hours in a day. And they pass by at the same speed for all of us. No matter how busy you are, no matter how full your life is of other priorities, believes me when I say that you will get old…unless you die. Sorry to be so blunt, but it’s the truth. The only people who aren’t getting any older are the ones who have already passed.

Regardless of how far away it feels, your retirement is on the horizon. Saving up enough money to pay for it is a priority that you should focus on throughout your life.

Money From Others…

Yes, that’s right. It’s up to you to pay for your own retirement. Whether you’ll earn CPP, OAS or GIS (or Social Security and its equivalents), the amount of money you get from the government won’t be enough.

If you’ve been promised a pension, then all you have right now is a promise. The harsh reality is that pensions can fail. Think of a pension as a repository of deferred pay. Your employer pays you less today with the promise that they will pay you after you’ve retired. When a pension fails, it means that the employee who did the work doesn’t get paid as he or she was promised. It sucks and it’s unfair, and it causes a lot of havoc to pensioners who can’t turn back time and go back to work.

You should be saving your own money to supplement whatever you receive from the government and your pension. If the government and/or your pension still has money to pay you in your dotage, then that’s great. If not, then you’ll be very happy that you made the choice to tuck a little something away over the years. Err on the side of caution and start saving for your retirement.

It’s Vitally Important

There’s not much more to say at this point. You know how happy you are when you’re hungry and you eat something? That awful hungry feeling goes away and you can go on about your daily life.

You will continue to be hungry when you’re retired. You’ll still need shelter, a few clothes, access to transportation, some entertainment once in awhile. When you’re retired, I promise you that you will still yearn for your creature comforts – much in the way that you do today. In order to acquire them, your retirement funds will have to take the place of your paycheque.

Gathering sufficient retirement funds is an integral step in taking care of Future You. For the vast majority of us, it’s going to take a very long time. So unless you’re next to destitute, take immediate action. Set up a plan whereby you funnel some of today’s money towards tomorrow’s financial needs. I promise that you won’t regret doing so when the time comes to live off your retirement nest egg.

Yet…

I suspect you’ll read this, think it’s a good idea, and go on about your lives. There might be one or two of you who actually take my suggestion and plant their money tree. The rest of you… not so much.

All of us will need money until we draw our last breath. That’s the world we live in. And that’s why I’m starting to come around to the idea that people must be forced to save for their retirement. It cannot be optional. If it’s optional, then people will choose not to do it and that’s a bad choice. No one is telling you to give up all of the things that make you happy today in order to save for tomorrow. Instead, I’m encouraging you to cut back a little bit. This is so you’ll have the money you’ll need for Future You. Isn’t taking care of Future You worth a little bit of sacrifice today?

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Weekly Tip: Use your tax refund in a way that allows you to pay down some debt (30%), to invest in the future (50%), and to enjoy the present (20%). Life is about balance and enjoying the journey along the way.

Higher Level Math Is Not Required

Let me tell you a little secret about myself… I’m not good at math! Luckily for me, higher level math is not required for success in personal finance.

Oh, I have a firm handle on the basics – addition, subtraction, multiplication, division, fractions & exponents. However, the higher level stuff like algebra, calculus, and trigonometry were challenging for me in high school. And when I got to university, I took my two required math courses and never looked back.

Truth be told, my mastery of mathematical concepts ends around grade 11 mathematics, maybe even grade 10. Since then, I’ve been limping along with the basics… and amassing a sizeable net worth along the way. Luckily for me, I didn’t need the higher level math skills in order to start investing for my future.

If you want the skills, go get them.

For my part, you need not master those skills unless one of the following two things are true:

you want to; or
you need them for your desired career

Had I wanted to pursue a career in science or finance then I would have had to put my nose to the grindstone in order to acquire higher level math skills. The STEM – science, technology, engineering, math – careers required a mastery of math that I just don’t have.

Thankfully, I didn’t need to master algebra, calculus, and trigonometry to become adept at personal finance. And since I didn’t particularly enjoy high school math, I found a way to build the life I want without having to take many more math courses after leaving secondary school. I’m not saying my decision is the right one for everyone so please do what you think is best for your particular circumstances. If you need higher level math skills to build the life you want for yourself, then go and get them post-haste.

Is it easy to do?

Sometimes I think people are intimidated by personal finance because they weren’t good at math in school either. I’m here to tell you that there are three mandatory ingredients to building wealth over a lifetime: an income, an automatic transfer, and opportunity to invest.

For my part, I pursued investment opportunities offered in the stock exchange. I used to invest in mutual funds, but then I learned about management expense ratios and switched my investments to exchange traded funds. ETFs are much cheaper than mutual funds. Over a very long investment horizon, lower MERs mean that I keep more money in my pocket.

Some people invest in themselves by starting a business. Some people build portfolios of rental real estate. I think those are great options, but they just weren’t ones that I pursued. Neither of those options necessarily require a mastery of higher level math skills. Successfully running a rental property portfolio requires a mastery of ensuring that the money coming in from rents is higher than the money going out for expenses. A Ph.D in calculus isn’t going to be required to be a successful landlord.

In any event, an income, an automatic transfer, and the opportunity to invest are the three main ingredients of the secret sauce of personal finance.

Is the formula simple? You better believe it is! If you have all three, then you’re in a position to increase your wealth.

Most people can master personal finance with the math concepts that they learn before junior high. I’d always felt bad about my high school math achievements. It was the one class where I struggled, and I never felt smart enough. In spite of his, I’m pretty okay with how I’m doing today.

Special Advice to the Young…

If you happen to be a young person reading this post, then I would encourage you to work hard at mastering math and getting those skills under your belt as soon as possible. Remember how I said that an income is part of the secret sauce?

STEM-careers pay higher incomes. It’s a reality. STEM careers are an avenue to increasing your odds that you’ll earn more than the median income. The higher your income, the larger your opportunity to build wealth. You can choose to save a higher percentage of your income when your income is large. When you’re trying to live on the median income, there’s not as much opportunity to save money. Generally, less money invested means slower growth of your money over time.

You might not think that’s fair, but I’m not here to argue about fairness. I want you to keep your options open by getting the highest grades that you can in the area of math. Doctors make more than cashiers. Pharmacists and engineers earn more than maintenance and daycare workers. I’m sure you can think of other examples. I’m not debating the necessity of each type of work to the functioning of society. I’m just pointing out the fact that STEM-careers pay more than non-STEM careers.

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Weekly Tip: Learn to use the word “No” when people ask you for money. You need not be rude, aggressive, or sarcastic. Practice saying “No” in a polite but firm tone. Doing so will ensure that you’re confident and calm when turning down someone’s request for your money.