Category: How They Did That

Life Gets in the Way

I’ve enough life experience to know that life gets in the way of the best laid plans. And since this is a personal finance blog, I’m going to try and expound on this idea as it impacts your money decisions.

It’s easy to tell people to invest consistently. Showing others how to set up automatic transfers to a brokerage account is a matter of a few graphs and maybe some one-on-one coaching. Reminding people of the importance of always living below their means is a simple task. Wanting to do those things is as easy as falling off a log!

The reality is that doing those things is NOT EASY. Ideally, everyone would be able to invest money from every single paycheque, without fail. Being able to do so for years and years requires that a lot of things go very right for a very long time.

First of all, you need to earn an income that has room for saving. If every penny you earn is spent on shelter, food, transportation and utilities, then where is the “investing-money” going to come from? Are you willing to cut back to only eating twice a day? Maybe you won’t bother paying for electricity during the summer months? Maybe you wouldn’t mind only showering once a week to save on water?

My point is that there is an income level at which it is unrealistic to expect someone to save. They would be living a life of deprivation, such that their basic needs are not being met. It would be cruel and perverse to expect that they would deprive themselves even more.

So let’s say someone is making enough to cover all of their needs and most of their wants. They might even have enough for a luxury or two. These are the people with “investing-money”. They can live below their means and still live a comfortable life.

However, life can get in the way of their investing plans too. What if a family member needs financial help? Or what if a vehicle needed to commute to work is totaled and the insurance payout isn’t enough to buy a replacement in cash? Maybe the parents’ retirement income isn’t enough to keep the lights on so they need a few hundred dollars every month to keep from being hungry? What if an employer goes bankrupt and another position isn’t to be found for another 8 months? What if illness prevents one from ever working again?

My point is that you can only invest month-in-month-out if everything goes well all the time.

This isn’t the reality for most. For the majority of us, there are always expenses that crop up and demand that we make a choice. You can personally make all the right personal finance moves then have your life upended by a motor vehicle or workplace accident that requires months, maybe years of rehabilitation. No one chooses to be hurt in this fashion. Being a great employee won’t save you if your employer goes bankrupt during a recession and no one else is hiring. Similarly, that status won’t help you if the only jobs you can find are minimum wage or just above that level. Let’s be honest. You cannot invest what you don’t have.

Even if you have an emergency fund, there’s no universal law stating that your emergency will cost as much as or less than what you’ve socked away. Similarly, there’s no prohibition against you experiencing more than one serious emergency at a time. And if you are “lucky enough” to have an emergency that falls within the capacity of your fund to handle, then you’re in the position of having to replenish your emergency fund.

So unless you’re income has increased, you’re faced with the choice of using your money to invest or to replenish your emergency fund. After all, you only have a finite amount of money. You owe it to yourself to make the best use of it. Having an emergency fund is a cornerstone to taking care of your financial needs. Yet, investing for the Care and Comfort of Future You is also extremely important.

It’s called personal finance because it’s personal. There is no one right answer for everyone. With each passing day, I am convinced that it’s a rare few who can invest without fail over a lifetime. While many have the intention, the vagaries of life can sometimes impede the implementation of such a plan.

Do me a quick, free favor. If you’re doing your best to save for your future, then pat yourself on the back. You still have to survive today. And if that means lowering your investment contribution to $10 per month, then so be it. I am not going to suggest that you starve today so that you can eat tomorrow. If you’ve used your emergency fund, replenish it. If you don’t have an emergency fund, start one. If you’ve lost your income, then preserve your money until you’ve secured another source of income. If your family needs help to avoid ending up on the street, then make the decision that lets you sleep well at night.

Life gets in the ways of the best laid plans. That doesn’t mean you stop planning. It means that you adjust and tweak your investment plan as necessary, without abandoning it completely.

There are no guarantees…

I want to talk about a 2-part interview with Reader B about how he and his wife earn $360,000 each year in dividends. If you’re interested in learning how Reader B accomplished this, please read both parts of his interview at over at the Tawcan website – part 1 is here and part 2 is here. If you’re seriously interested in dividend investing, spend some time on this website. It is one of the best places on the internet to learn about creating a cash flow stream from dividends.

Reader B doesn’t live off his dividends. He and his spouse retired in 2004, and they live off their pension income. They started investing 36 years ago, in 1985. As I understand the article, they eschewed RRSPs and invested solely in Canada. Their portfolio was worth just shy of $1,800,000 when they retired. And because they’ve allowed their dividends to compound since retirement in 2004, their portfolio is now worth over $9,500,000. (You’ll have to read through the interview and the comments on the second part to get the exact numbers.)

That’s pretty damn impressive… Between 2004 and 2021, this couple has increased the size of their portfolio by $8,000,000. Needless to say, this interview has given me some points to ponder. Namely, can I do the same thing?

I started my own dividend investment plan in 2011. Ten years later, I’m on the cusp of earning $30,000 per year in dividends. That’s a decent amount, but it’s not enough to afford me a very comfortable retirement. I’m not comparing myself to Reader B and his wife. Again, their portfolio has been around for 36 years – that’s 26 years longer than mine.

Like the Bs, I’m going to be living on a pension when I retire. That means that I have potential to leave my dividends alone to compound for another couple of decades. I too could see myself with a six-figure annual dividend payment if I don’t use any of my portfolio’s returns during the first chunk of my retirement.

Also like Reader B and Spouse, I don’t have any kids. There are no tuition bills, weddings (other than my own, which at this point is a statistical improbability), house down payments or significant graduation gifts to fund. My pension will be sufficient to keep me in the same lifestyle that I’m enjoying now. Spending the dividends each year will be an option, not a necessity.

The question I have to ask myself is…

… do I want to have a large annual dividend payment if I’m not going to spend it?

Don’t get me wrong! I am utterly fascinating by what the Bs have accomplished, and I will be re-reading their interview to learn more. My question for myself is what is the point of having that much money rolling in if it’s not to be spent at some point?

The 2-part interview was on the mechanics of this extremely successful dividend portfolio. There wasn’t a lot of philosophical discussion about the uses of money, or how the Bs intend to distribute their money once they’re gone. For my part, I think one of the best reasons to emulate the Bs’ strategy is to have funds on hand to pay for my nursing care if I live to be too old to care for myself. Even after inflation is factored in, I’m hoping that $360,000 per year is sufficient to hire a competent and kind nurse who’ll help me with the un-mentionable tasks that come with having an aged body.

Beyond my considerations of future nursing care, I’m at a bit of a loss to imagine how I would benefit from $360K each year if I wasn’t spending it. Again, the Reader B didn’t talk about his intentions for his money. He didn’t discuss how he and his wife feel about their passive income stream. For all I know, the Bs are planning to create a sustainable scholarship fund for their favorite post-secondary institution. Maybe their dividend portfolio will be left in a trust to fund animal sanctuaries. I really don’t know what their plans are, and it’s none of my business.

I’m just thinking about what I would do.

Like the title of this post say, there are no guarantees.

Some of you may remember that I’ve switched my investment plan. As of October 2020, all of my investing contributions have been going into VXC instead of into XDV and VDY. I’d been faithfully investing in my dividend ETFs since 2011. Again, that investment has resulted in a good-sized annual dividend payment. After the market rebounded in 2020 from the pandemic, I wanted to take advantage of the growth in equity. In hindsight, I made the right decision. My portfolio has more than recovered all that it had lost from February 2020 to March 2020.

Now that I’ve digested Reader B’s interview, I have to wonder if I made the right choice. According to his interview, the Bs never deviated from their dividend investing strategy. Did I make a mistake in October 2020? Should I have continued funnelling new money into my dividend ETFs? Should I go back to my former strategy? How will I know if I made the right choice?

There’s simply no way to know the answers to these questions in advance. I’m going to trust the choices I’ve made thus far and I’m going to stick to what’s been working for me. Fortunately, my decisions to date have not led me off course. Having confidence in my own choices doesn’t stop me from learning about the paths to financial success taken by others, assessing their methods, and considering whether to incorporate them into my own.

So I thank Reader B for sharing his story with the world. His decision to tell the world about his dividend investing strategy means that I have another example to ponder. And, even though there are no guarantees, there’s absolutely nothing wrong with considering different options!

5 Traits to Become Wealthy

Ever since I started learning about personal finance, I’ve noted that those who are successful at it have 5 traits in common. These 5 traits appear regardless of the path taken. Some people invested in the stock market, either through stock picking, mutual funds, or exchange-traded funds. Others became real estate investors and built a portfolio of rental properties. Then there’s the group of people who only invested in their retirement accounts and grew those a nice 7-figure amount before retirement.

Regardless of the path chosen, the people who accumulated a comfortable cash cushion all appear to have relied on the same 5 traits to become wealthy.

The Word “No”

To my mind, saying “No” is fundamental to achieving your goals. There will always be someone or something who wants your money. If you’re unable to say “No” to the requests that stop you from meeting your priorities, then how will you ever be able to create the life that you want?

Gathering the funds to meet your financial objectives will require you to use the word “No”, a lot. Let’s pretend that you want to start investing in real estate. Unless you can use the strategies Richard Fain discusses in this video, you’ll need a down payment to get into the real estate market. Saving for a down payment may take you a year or two. If you don’t use the word “No” when faced with other opportunities to spend, then it’s going to take you considerably longer to achieve your goal.

Delayed Gratification

This trait is a kissing cousin of the first one. It’s the ability to say “No…not right now.” It’s the ability to delay saying “yes” to whatever it is that you might want.

Instead of going into debt to buy something today, you save up the cash and buy it tomorrow.

Delayed gratification keeps you out of debt. If you pay cash, then you’re not using credit. When you don’t use credit, then you don’t pay interest to a creditor. The beauty of not paying interest is that more of your money can be spent on the pursuit of your life’s dreams.

Be honest with yourself. Wouldn’t you prefer to spend your money on your dreams instead of spending your money to pay off debts for purchases that don’t align with your financial desires?

Sinking Funds

My long-time readers know that I love sinking funds! I use them all the time because they help me to organize and track my money so that I can get what I prioritize most. Between sinking funds and automatic transfers, I very rarely need to think about how I’m going to pay for things. My paycheque lands in my chequing account. My automatic transfers whisk pre-determined amounts of money to each of my sinking funds. Whatever’s left over once the transfers have done their task is mine to spend freely.

  • Retirement money? Check!
  • Emergency funds? Check!
  • Insurance premiums? Check!
  • TFSA contribution? Check!
  • House renovations? Check!
  • Travel money? Check!
  • Utilities? Check!
  • Charitable donations? Check!

Your priorities will determine your sinking funds. If you want to buy your first home, or your first rental property, then you’ll have a sinking fund for your down payment. This is where you’ll direct a certain portion of your income until you have the down payment that you need to make your purchase. This sinking fund might be in place for one year, two years, five years, or more. It hardly matters. What does matter is that you are saving money towards one of the goals that is most important to you.

Some sinking funds will last longer than other. For example, your retirement funds are just a long-term sinking fund. You save and invest money in a retirement account so that the funds can replace your paycheque when you stop working for a living. However, your sinking fund for utilities exists to hold money that will be spent within the next 30 days. The money goes in – the bills arrive – the money goes out to pay the bills.

Whether designed to pay for long-term goals like retirement or financial independence, or to pay for short-term goals like paying your utilities, sinking funds are integral part of your financial toolbox.

Living Below Your Means

If you earn $60,000 and spend every penny, then there’s no way to build wealth. Your net worth remains at $0 because nothing is set aside for investing.

However, earning $60,000 and spending $59,000 means that there’s $1,000 available for investing. That $1,000 is available because you made the choice to live below your means. The money can go towards the down payment on a real estate purchase. It can be invested for retirement. It can be the seed money for a business.

Leftover money doesn’t happen by accident. Trust me – there is no amount of money that cannot be spent. The more you earn, the more spending opportunities you will find. The duty to impose spending limits in your life rests solely on your shoulders .

Money

Surprised that I saved this one for last?

You shouldn’t be. Its priority in this list is irrelevant. Whether you earn a little or a lot, wealth will always elude you if you can’t implement the first 4 traits that I’ve already discussed.

Let’s say you earn $250,000 every month…but you don’t know how to say “No” when presented with the opportunity to rent a yacht for the week to party in Monaco. And you’ll need to rent a private jet to get there since you can’t rely on traditional airlines to get you there on time. Let’s face it – when you’re earning $3Million per year, do you really want to travel on Air Canada? Or even British Airways if you can afford to rent a private jet for you and a few of your closest friends?

Let’s say that you earn $35,000 in a year, and you manage to set aside $3,000. You are living beneath your means. Those dollars might be allocated between a variety of sinking funds. You employed the trait of delayed gratification. The reason you have that $3,000 in the first place is because you said “No” to the various requests for your money.

Unless you impose some kind of spending limit on yourself, the money will be gone. It doesn’t matter how much you earn. This is why the simple act of earning money is insufficient proof that a person is also building wealth. It takes all 5 traits to become wealthy.

Without the first 4 traits, no amount of money will make you wealthy because you will spend it all. You cannot be financially wealthy without money.

Guilty Pleasure – Big Haul Grocery Videos

Yes… it’s true. I’m a Single Person who loves to watch YouTube videos about people – almost always women – who do huge grocery shops and create videos about it.

Since the Pandemic, and before I found these videos, I thought I was buying lots of food when I went to Costco. I’d buy two packages of chicken thighs and one package of chicken breast. Then I would head to the Real Canadian Superstore and buy a bulk size package of extra lean ground beef. Being a Single Person, I’d round out my shopping with a trip to Sobeys for bread, vegetables and fruits. I’d pat myself on the back for buying an extra loaf of bread, or maybe 2 packages of soft Kaiser buns, to put in the freezer. And let’s not forget about those 6 cans of sliced peaches!

Yes, indeed – job well done – way to go, Blue Lobster!

I was pretty proud of myself… until I found The Queens Cabinet on YouTube. This woman knows how to shop! From what I’ve gathered so far, Shelby and her husband Ken live on a farm and are raising 4 sons. When theywere younger, they had to budget their money and lived quite frugally. As a result, they chose to stock up on the things that they always use so that they always have food in their pantry.

Big deal, Blue Lobster – most everyone who can already does this!

Gentle Reader, I would suggest that few people stock up their pantry with a year’s worth of food the way that Shelby and Ken do. How many people do you know with 7 freezers? And how many people have their own baking centre, yet alone one that is so well-organized?

I’m not ashamed to admit it – a tour of her pantry made me wish that I had a slight touch of OCD just so I too would be motivated to take the time and organize my food storage space. In my world, a $3700 (or more!) grocery shop is still a very rare thing…even for those I know who go to Costco!

While a 4-figure grocery haul is not part of my life, I can see its benefits. You can stock up when things are on sale. This saves you from shelling out more when the price is higher. Secondly, meal planning is easier when what you need is already in your home. You can put the money-saving magic of your kitchen to work more easily when you have ingredients at your fingertips.

I’ve no doubt that Shelby still runs to the grocery store throughout the year for certain items. Fresh fruit and vegetables immediately come to mind. However, I would guess that she doesn’t have to waste money on condiments, meats, prepared drinks, and baking supplies throughout the year. She stocks up when it’s on sale, then it’s on hand when she needs it.

And if you subscribe to her channel, you’ll see that she’s a big fan of meal planning. I can’t say that I blame her! If I had her kitchen, I’d want to spend a lot of time in it too – cooking and baking things. Try to find the videos where she talks about her fridges – yes, more than one fridge in a kitchen!

Their Pantry is an Emergency Fund

What Shelby and Ken have done is to create an emergency fund of food. If their income stops for a period time, their monetary savings need not be used to feed their family. They have a cache of food already set aside so everyone will be able to eat while another source of income is found. Their cash-money doesn’t have to be spent on food, which means that it will last longer.

Take a look at your own budget. What percentage of your monthly income goes towards food? And if you lost your income tomorrow, how much longer would your emergency fund last if you didn’t have to use it to feed yourself?

But I don’t have the room for that much food, Blue Lobster!

I hear you. And trust me, I don’t have that much room either. However, I do have freezer in my basement and I have a freezer area in my fridge. That means I can freeze a much smaller, but no less important, amount of food. I have 6-8 packages of extra lean ground beef. Is that too much for a Single Person? No, not if I lose my job. A single package becomes 4-5 hamburgers, or a cookie sheet of meatballs, or a big pot of meat sauce. Whatever the final product, that’s a few meals that I don’t have to buy with money from my emergency fund.

The same principle to the chicken thighs that I’ve bought. A bulk package of chicken might have cost me $30. Yet, I can get 25-28 chicken thighs that I then divvy up into Ziplock bags of 4-5 pieces. It takes very little time to prepare a marinade, pour some into each bag with the chicken, and then freeze the bags for later use. I haven’t bought chicken in several months. I do the same thing with my pork.

I’ve started going back to my office, which means taking a lunch and taking snacks. My freezer allows me to baking a big batch of cookies, or muffins, then tuck them away for when I need them. If you’d rather have something else for snacks, then be my guest. My point is that it’s not a bad idea to have some extra food stored away. Save money now by buying things when they’re on sale. Save money later by not having to buy outside food unless the purchase has been planned in advance.

Use Your Pantry and Freezer Space

Do what you can with what you’ve got. Your pantry and your freezer space are tools that can help you save money. I’m not an expert. No one’s expecting you to be an expert either. That said, I learn a little bit more each time I watch videos about how other people do it. I can take a tidbit or two and incorporate it into my life. There are ways for me stretch my dollars.

Build up your own emergency fund by learning to buy a bit more when things are on sale so that you can stock your pantry and your freezer. Watch a few more cooking videos on YouTube so you can cook for yourself a little bit more. Figure out how to cook or bake what you like to eat, then do so. If you don’t already, learn to love leftovers.

You have to eat. Keep your pantry and your freezer well-stocked with foods that bring you joy. Then learn to cook & bake what you love in your own kitchen. Doing so is another way to insure that you’re using your money to create a life that maximizes your happiness and joy. And isn’t that one of the very best reasons to have money in the first place?

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Weekly Tip: Contribute to your Tax Free Savings Account every year. Invest your contributions in a broad-based equity exchange-traded fund or index fund for 2-3 decades. (You can select a mutual fund, if you wish. However, mutual funds have higher Management Expense Ratios than ETFs or index funds so it makes little sense to spend more money for the same product.) Let your money grow over the years and re-invest all the dividends. When you finally do withdraw your money from the TFSA, never pay any taxes on the principle or the growth.

Money-Making Magic – Real Estate Investing

It’s taken me a few years but I finally understand how to create money from real estate re-financing. It’s another aspect the money-making magic of properly investing your money.

Right off the top, I want to tell you that I have never done this. In other words, my understanding of the process is only theoretical and it is not based on my own experience. I have never bought a property, renovated it, and then re-financed it to extract my investment.

Secondly, I want to be explicitly clear that I am not telling, instructing, advising, recommending, or otherwise encouraging you to do this with your money. It’s just a theory that I have finally understood so I want to share it with the world via this blog.

I’m a fan of the podcast Millionaires Unveiled. In episode 145, the hosts were talking to a guest who had made significant money in real estate. The guest used the same BRRRR method espoused by Brandon Turner at Bigger Pockets. You may also want to check out Graham Stephan on his YouTube channel, where he goes through a detailed example of how to profitably invest in real estate.

A Simple Example…as I understand things!

Purchase Price – $80,000. Renovations – $20,000. Total Investment – $100,000. After Repair Value – $150,000. Re-Finance & Cash Out @ 85% of ARV – $127,500. Free Money to Investor – $27,500.

So let’s un-pack this.

In this example, the investor bought a property for $80,000 in cash, meaning that there was no mortgage debt to the bank. (This example also works if the investor invests a 20% down payment – $16,000 – and gets a mortgage for the remaining $64,000. Either way, she’s still buying an investment property for $80,000.)

Renovations of $20,000 were made to the property. At this point, the investment in the rental property is $100,000 = $80,000 + $20,000.

The money-making magic starts when the investor goes to the bank to get financing on the property. (If the investor had had a mortgage, then she would’ve “re-financed” the property.) In the example above, the bank appraises the property at $150,000, which is $50,000 more than the investor’s total investment. The bank agrees to finance 85% of the ARV, which puts $127,500 back into the investor’s hands. As we all know, $150,000 x 85% is equal to $127,500.

(And if the investor started with a mortgage, she would go to a second bank to re-finance the property. She would then pay off the mortgage of $64,000 at the first bank, and be in the same position as if she had paid the full $80,000 up front. $127,500 – $16,000 – $64,000 – $20,000 = $27,500.)

Since there is now a mortgage on the property, equivalent to $127,500, the investor uses the rent from that property to pay back the mortgage. If everything goes perfectly, the rent will also cover other costs such as insurance, property taxes, and repairs.

In this example, the investor has earned $27,500 in free money through the money-making magic of real estate investing. Remember, she invested $100,000 of her own money ($80,000 + $20,000) and is walking away with $127,500 after financing her property. There are three things to take-away from this example.

  • The investor now owns an investment property while also recouping her entire $100,000 investment. In other words, she has none of her own money in the property.
  • If everything goes right, someone else is paying the mortgage and costs of this property with a little something leftover for cashflow to the investor.
  • Finally, the $27,500 is tax-free money. This is money that was derived from a higher appraised value. She’s removed some of the equity from the property and put it in her own pocket.

If you decide to start real estate investing, get proper accounting and tax advice from professionals you’ve paid to do work on your behalf. Do NOT take accounting and investing advice from blogs on the internet.

Lots of Things Have to Go Right for This to Work

The rewards are bountiful when things go right. In our example, the investor had the money to invest. The appraised value after the renovations was high. The bank was willing to finance 85% of the property value. There was a pool of available renters who could afford to pay a rental amount that covered the mortgage payment and associated costs of the investment property. The market rental price was high enough to cover the mortgage payment and the aforementioned associated costs.

Let’s say the bank had only wanted to finance 65% of the ARV. Our investor would have only been able to pull out $95,700 (= $150,000 x 65%). She would not have pulled out her entire $100,000 and the increase-in-equity-through-the-power-of-smart-renovations amount of $27,500.

Or let’s say that the real estate market had dropped between the date of the purchase and the date of the new appraisal. The bank tells our investor that the appraised value had come back at only $115,000, instead of $150,000. Even at the 85% ARV financing, the bank would only give the investor $97,750 (= $115,000 x 85%) to put towards the purchase of her next investment.

Another area where the plan could’ve gone haywire is the renovation costs. If our investor had budgeted $20,000 for renovations but wound up paying $50,000 for renovations, then her investment amount in the property would be $130,000 (= $80,000 + $50,000) instead of only $100,000. If the re-appraised value remained $150,000 and she could finance the property at 85%, she still would not be extracting her full investment of $130,000 because the bank would only be giving her $127,500.

Finally, there’s always the possibility that the renter stops paying the rent and the investor is forced to pay for the property. Every dollar out of the investor’s pocket is a decrease in the return from the investment property. The money-making magic has suddenly been turned into a money-sucking curse.

Research, research, research!

Like I said at the beginning, I finally understand the theory behind the money-making magic of real estate. It’s taken me years and many, many, many hours of listening to various podcasts & YouTube videos, but I finally get it. Now that I do understand it, I personally think it’s disingenuous to use click-bait language like “buying real estate with none of your own money.”

Obviously, at some point, you will need money to invest in real estate. It’s more accurate to say that there isn’t always a need for your own money to stay locked inside your investment properties… Okay, I get it – my language isn’t nearly as catchy and it would never qualify as click-bait.

However, that doesn’t change the fact that I generally know what the pundits mean when they use the click-bait language. I’m not a real estate investment expert. I haven’t put this theory into practice, and I’m not certain that I ever will. What I am certain of is that I finally understand – in a very rudimentary way – how a person can own real estate without keeping their money in an investment property. If the stars are aligned just right and nothing goes awry, real estate investors have the ability to own real estate without their money remaining in their investment properties.

It’s certainly not risk-free, but it does sound like it could work if everything goes right. If it’s something that you’re interested in, then I suggest that you start learning as much as you can before you start investing.

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Weekly Tip: Pay off your mortgage before you retire. It’s not good to go into retirement with debt. You will more than likely be living on a fixed income. Do what you can to ensure that creditors aren’t take a bite out of your fixed income every month. You won’t regret the fact that you’re mortgage-free when you’re retired.

House-Hacking is Worth Considering

House-hacking can be an amazing tool for building wealth.

You know how sometimes you’re on YouTube watching one thing and then a suggestion pops up on the side of the screen? And you decide to hit play instead of scrolling past it? Well, this week held one of those so I indulged my curiosity and hit play on a video that I otherwise never would have found by searching. For one reason or another, I was watching some videos about tiny houses. I started with this one because I wanted to know how anyone could spend $165,000 to build a tiny 300 sqft house.

And that’s how I discovered Robuilt. I promptly watched several more of his videos and I have to admit that a lightbulb went on after watching his video on house-hacking. I loved this particular video because this fellow goes into detail about how he financed his house-hacking project. He’s not shy about sharing how he obtained the money to build a tiny house, to renovate his basement suite, and how much rental income he’s earning from various sources. The only question I would’ve appreciated hearing him answer was how he and his spouse had initially accumulated the down payment for the purchase of their $640,000 home on writer & teacher salaries, but I guess everyone likes to maintain at least some small measure of mystery.

Anyhow, the lightbulb moment for me was when I realized – deep in the marrow of my bones – that it’s sometimes okay to go into debt if you’re borrowing money to buy real estate. I shouldn’t have been so shocked by this revelation. I’ve borrowed money to buy all of my properties. I’m very familiar with the concept of mortgages, how they work, how to repay them, etc…

Living in a Million Dollar House for Free

No. What shook me to the core was the manner in which Mr. & Mrs. Robuilt went from having a $4000/mth mortgage payment to a $0/mth mortgage payment by borrowing money. This video goes into more detail about how exactly they accomplished this feat so I encourage you to watch it.

Okay – so they bought the house and renovated the basement suite within two months. That rental of that suite netted them at least $2K – sometimes $3K – each month.

Blue Lobster, that still leaves at least a $2K/mth mortgage payment.

Yes, Numerate Reader – you’re right. Having the basement suite wasn’t enough.

The Robuilt’s decided to build a tiny house in their backyard. They’d initially budgeted $40,000 but the project ended up costing them $72,000. They didn’t take the money from the equity in their main home. Instead, they went to a private money lender to pay for this project.

Once the tiny home was built, they eventually rented it for $1800 per month. They refinanced the mortgage on their home to get rid of their PMI, bringing their mortgage payment down to $3700/mth… meaning that they were able to live in their home for free. Oh, and the value of their principal residence had gone up to over $1,000,000 because of the tiny home in the backyard.

Damn…

The Key was Getting Financing

Pay attention to the part where they went to a private money lender. (And they also relied on their credit cards, which is a very risky move because of the very high rates on credit cards. I am not recommending that you do this.)

As I watched the video, I could hear the thunderclap inside my head. You need access to money to acquire property, whether your own home or rental properties. The money can come from your own savings, from a family member, from friends, from a sou-sou, from a lifetime of collecting your loose change… it matters not. You need to get your hands on money to fund your real estate purchase.

And if you don’t have cold hard cash of your very own, then you need financing.

The Robuilt videos opened my eyes to the world of private money lenders. I don’t know all the details about how they work. Nor am I familiar with how they structure the lending terms. I don’t even know the rates or how they assess your credit. And to be clear, I don’t know why Robuilt’s didn’t go to a bank to get the money they needed to build their tiny house.

What I do know is that people who are cut off from obtaining financing are essentially cut off from the opportunity to acquire real estate. And if they’re not cut off completely, then their lack of access to money contributes to their delay in wealth-building. Maybe it takes someone an additional 7 years to be in a position to buy real estate. Whether that’s 7 years to save up a sufficient down payment, or 7 years to clean up their credit enough to qualify for a mortgage or a private money loan, it hardly matters. The result is the same – that person is unable to build wealth through real estate for 7 years.

Financing & Intergenerational Wealth

The thunderclap for me was the realization that access to financing is one of the keys to getting ahead when it comes to building wealth. If you buy rental properties, then you earn the equity while your tenants pay down the debt. If you buy your own home, then you still earn the equity while you pay down the debt. In order to earn the equity in the first place, you have to own property.

House-hacking as displayed in the Robuilt videos wouldn’t have been possible in as short a timeline as theirs without access to financing. That access allowed them to start creating wealth for themselves today. They’re also now able to build intergenerational wealth for their daughter.

It should be obvious that a lack of access to financing inhibits the creation of intergenerational wealth. In this blog post, I’ve focused on one couple who have used financing to buy & build real estate. Their reliance on financing allowed them to craft a situation where others pay for their mortgage. This results in their salaries going to other things, like accumulating another down payment to buy more property if they choose.

I’d like to point out financing can also be used to start a business. People who are more sophisticated than I am use it to invest in the stock market. For the record, there are many ways to use financing to build wealth.

People who don’t have access to financing have fewer opportunities to build wealth. It can still be done but it’s harder because those people have to accumulate the same amount of money from their own earnings. Imagine if your credit was so bad that you couldn’t get a mortgage. Or if you were legally prohibited from owning property. The only way for you to buy a property would be to save money from your paycheque then pay cash for a home.

How long would it take you to save enough money from your paycheque to buy a house? Even if you were house-hacking by living with a roommate?

Access to Financing = Access to Opportunity

The person who has to pay cash for a house doesn’t have the same opportunity to build wealth through real estate as the person who can get financing to buy property. I know that it might take the mortgage-holder a lifetime to repay the debt. After all, that’s why 25-year and 30-year mortgages exist, right?

Assuming the mortgage is paid, then the home can be passed down to the next generation. Imagine where would you be financially if you’d inherited a full-paid for home!

The person who can’t get financing for a home – yet miraculously saves enough money to buy one – can also pass their home down to the offspring. The possibility exists in theory only. It’s just such a monumentally harder endeavour to use cash to buy a home that most people never seriously consider doing it this way.

I’ve always believed that debt-free is the ultimate and best status when it comes to personal finance. This week, I’ve had cause to re-assess my position on debt. For whatever reason, these videos about house-hacking were more visceral for me than anything else I’ve read, watched, or heard. The power of financing and its ability to generate intergenerational wealth was put on full display. I have to admit that my eyes were opened to the possibilities in a way that they hadn’t been before.

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Weekly Tip: Borrow books from the library. It’s free and it’s a better use of your time than scrolling a social media site. There are books on anything that you can think of. Borrowing books is free. Libby is a magnificent app that prevents you from ever incurring a late fee because it automatically returns books to the library for you. Feed your brain – read a book.

Consistency is One of the Keys

This week, I listened to a story that blew my mind! It was a testament to the power of consistency in investing, through good times and bad. Diane was her name – a lady in her 60s who’d survived divorce from an alcoholic, while raising 4 kids, taking 8 years to get her electrical engineering degree, and starting her professional life at age 42. By the time she’d retired, Diane was worth $5,500,000…. and did I mention that she never earned more than $82,000 per year?

Check out episode 99 on Millionaires Unveiled to hear the rest of her story, a podcast that has recently caught my attention. They focus on interviewing millionaires and the stories are fascinating.

The Financial Independence Retire Early (FIRE) community loves to tell stories about people who figured out who to make a lot of money quickly in order to retire in their 30s and 40s. And to those who can do it, I say “More power to you!”

I would have loved to have retired in my 30s too, but that wasn’t the way that my cookie crumbled. I learned about the FIRE community in my 30s, though the regular channels – Mr. Money Mustache – and went from there. However, no one has been able to teach me how to turn back time so I’ll be retiring in my 50s.

What I loved about Diane’s story is that she had challenges in her life, including cash-flowing college for her children. I mentioned that she had 4 children, but did I tell you that there was a 16-year spread from the oldest to the youngest? Diane was paying for college for 16 years straight and she still wound up debt-free with over $5Million in her kitty.

How in the hell did she do it?

Consistency is the key. Throughout her podcast, Diane emphasized that she and her husband saved atleast 10% of their income throughout their working lives.

Single People, please don’t roll your eyes at this point. Kindly avoid the trap of believing that it’s-easier-if-you’re-married-because-there-are-two-incomes! Diane was very clear that she kept her money separate from her husband’s.

In other words, the money that she has not is solely Diane’s money. Being single is not an impediment to becoming wealthy. It’s possible to become a millionaire even if you don’t become a spouse.

Diane committed to saving 10% of her income from the time she started working in her 20s. At the time of the interview, she was in her 60s. That’s 40 years of investing in the stock market! Diane mentioned that she’s been told to allocate her funds into a 60%-equity & 40%-bond portfolio, but she prefers to keep 70% in equity and 30% in bonds.

That’s two lessons we can take from her story. She chose to save something every payday by living below her means and she invested her savings in the stock market. Time in the stock market helped her investments to grow.

The third lesson from Diane’s story is that you don’t need to make a six-figure income to do what she did. Diane never earned more than $82,000 while she was working. I’ll agree that she earned more than the median income for the average bear, but keep in mind that she was raising children on this income. It’s reasonable to assume that the costs of childrearing ate into whatever was left of her income after she’d set aside her savings.

Creating Wealth for her Family

Diane has also set an example for her children, one that they will hopefully pass down to her grandchildren. Through her actions, Dians has shown her children that consistency is one of the keys to building wealth and that saving money has to happen no matter what. If I understood her correctly, Diane already had children by the time she returned to school at age 34 to study electrical engineering. She worked full-time while studying, and she graduated at age 42. Throughout those 8 years, Diane continued to save and invest from every paycheque like clockwork. At the age of 50, Diane was divorced…and she was worth a cool million dollars. The rest of her money came from the compounding over the next 15 years!

Creating a multi-million dollar nest egg was the first step towards ensuring an intergenerational transfer of wealth within her family. If she chooses, Diane can pay for the post-secondary educations of her grandchildren. By alleviating this financial burden, Diane would effectively be helping two generations of her family. Her children could invest their money towards their financial security and her grandchildren could study and graduate without the burden of student loans. If they are wise, Diane’s children will then use their money to pay for the educations of Diane’s great-grandchildren when the time comes so that the grandchildren can build their wealth.

Do you see how beneficial this cycle of intergenerational wealth can be? Diane’s example of consistently saving and investing for decades is a gift to her children, if they choose to follow it.

Save. Invest. Learn. Repeat.

Just like the rest of us, Diane won’t live forever. It’s time for her to enjoy some of her money while the bulk of it continues to compound and grow. According to the podcast, she is using her money to fulfill her dreams of travelling with her family and creating lasting memories. Good for her!

If you haven’t already started to save and invest, then start today. Open a savings account – set up an automatic transfer so that you save something from each paycheque – invest in the stock market through a broad-based index fund or exchange-traded fund. Live below your means so that you have the money to invest. Save – invest – learn – repeat.

There’s nothing to suggest that Diane had the ability to spend all of her money on her own personal priorities for her whole working life… I’m looking at your Single People Without Children. If you’re a Singleton, then you’re the only person making decisions about where your money should go, which of your dreams to fund, how much you’re willing to invest so that you can create a retirement nest egg for yourself.

Ignore the talking heads in the media. They deliver nothing but a steady stream of hype-and-fear in order to drive ratings. “It’s time to buy! It’s time to sell! It’s time to buy! It’s time to sell!” They have no personal stake in whether you achieve your goals or not, so ignore them.

Saving a little bit of money at a time and investing that money in the stock market will lead to more than a million dollars after a few decades. While your money is working hard for you in the background, you go about the business of living.