Category: Money Mistakes

It’s Okay to Keep Your Money

If you’re not already aware, then let me be the first to say the following: it’s okay to keep your money! You don’t have to spend all of it.

Now, you probably shouldn’t keep all of it either. After all, doing so means you won’t eat, nor have a roof over your heard or clothes on your back. Keeping every single penny of what you earn causes just as many problems as spending it all! A balance should be found as soon as possible.

Today’s post is based on my observation that there’s a goodly number of people out there who appear to operate on the belief that they simply must ensure that their expenses are equal to their income. I’m here to tell that such a belief is simply not true. It’s a formula guaranteed to keep you running in a hamster wheel for your whole life. Without keeping a little bit of your own money, you’ll never have the option of quitting whatever it is you’re paid to do now so that you can do whatever it is that you really want to do with your time.

You’re More than a Conduit

From what I’ve seen on a daily basis, there are many people who are little more than conduits between their paycheques and various retailers. These are people who work hard for their money, possibly at jobs they love and possibly not. They leave the comfort of their homes when they’d rather not. Nearly all are giving up time otherwise spent doing what they truly enjoy so that they can go to work and earn a paycheque. They’re foregoing sleep and health and time with friends & family all so that they can meet work obligations!

And then they turn around and spend every cent they’ve earned with barely a thought about the effort expended to earn it. I find this behaviour utterly baffling!

My comments are directed at those of you whose income don’t keep you on the absolute edge of solvency. I’m targeting those of you who can live well away from the edge yet you choose to put yourselves there. You work so hard for your money and you choose to spend it all.

Has no one told you that you don’t need to spend your money this way?

Again, it’s perfectly okay to keep your money.

Contrary to what the AdMan and the Creditor tell you every waking moment of your day, you’re not obligated to spend everything you earn. I will admit that the advertisements are enticing. Beautiful people are selling me everything from toothpaste to Tesla’s. Their sparkling white teeth and full heads of shiny hair inspire confidence that the products they’re hawking will complete my life. All I have to do is hand over my money and my life will be perfect.

It’s a seductive message.

Sadly, it’s also completely false! If we learned one thing from the Grinch by way of Dr. Seuss, it is this: happiness doesn’t come from the store!

Your Dreams Won’t Fund Themselves

So I say it again – it’s okay to keep your money! Put a portion of it away in an investment account so you can fund those years when your paycheque goes away. Create a few dream accounts! These are the accounts where you save up for those things that make your heart dance with joy. Maybe that’s a fancy cooking class. Perhaps it’s a trip to Greece. It might even be a fancy cooking class in Greece! You alone know what your truest desires are.

Yet, you won’t be able to fund those dreams and desires if you consistently spend every penny as fast as you can. The Hair & Teeth of Marketing aren’t going to help you achieve your goals. Their only objective is to persuade you to open your wallet. You have to believe me when I tell you that it’s okay to save your money for the things that you really want.

To be very clear, I’m not talking about people who have to devote their entire paycheques to rent and food. If you’re keeping it all together on a shoestring, then more power to you! The ones I’m talking about are those who have disposable income. They have some slack. If they had to take a pay-cut at work, they’d be able to stay in their current home and eat what they currently eat. Maybe they’d have to give up a few subscriptions, annual travel, and their plans to replace a 3-year old vehicle. Bottom line is that they would still have enough money to meet the survival expenses of food, shelter, and basic clothing.

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Weekly Tip: The 2019 RRSP contribution deadline is March 2, 2020. Make sure that you contribute something to your RRSP so that you have some cushion for your retirement years. Do not get trapped in analysis-paralysis. Make an RRSP contribution, preferably in an exchange-traded fund. Then leave the money alone for a long-time. While your RRSP-money is growing & compounding, your duty to Future You is to continue learning about investment options by reading books, blogs, magazines, websites, forums, stickies, and post-it’s. Learn as much as you can about this because it’s very, very important. Save-invest-learn-repeat.

Progress need not be Perfect!

When you know better, you do better…

from one wise soul to another, Maya Angelou to Oprah Winfrey

No one is born knowing how to invest. This is awesome news! It means that anyone can learn how to invest if they take the time to practice the skill. It also means that progress need not be perfect.

Much like walking, playing the piano, and mastering Candy Crush, the skills of investing must be practiced and honed before one becomes proficient at them.

I’m a huge fan of YouTube. As I was perusing the millions of videos on that platform, I came across one that was called “Vanguard or Fidelity – Which one is Better?”

And do you want to know something?

Yes, Blue Lobster. Please, tell us what you’re thinking.

My initial reaction to that post’s title was to scroll right past it. I’ve learned a little bit of wisdom on my relatively few revolutions around the sun. And one of those bits is that it’s best to just start investing, regardless of where you do so. Progress need not be perfect in order for you to achieve your dreams. Think of it this way – every journey starts with a single step but not every journey to the same destination requires the same number of steps. If a person needs to take a few extra steps to where she’s going, then she still gets there.

Focus on progress, not on perfection.

For example, we will look at the situation of an investor named One. Let’s say One decides to invest with Fidelity. (To be frank and open, I invest with Vanguard Canada. And no – I’m not being compensated for mentioning them in this blog post.) One sets up an account at Fidelity and creates an automatic transfer to have a fixed amount invested into an exchange traded fund every time One gets paid.

Superb! One has taken the very first steps towards investing for One’s own future.

Did One make the absolutely best choice for an investment account? It’s hard to say without knowing if One spent hours doing the research to determine the management expense ratios, various fees, product offerings, and account features from all of the investing companies that One could have chosen.

What we do know with certainty is that One did not delay her progress by staying in the quagmire created by analysis-paralysis. One made the smart choice by focusing on progress, rather than trying to achieve perfection. One is taking action by accepting the maxim that progress need not be perfect.

There’s no doubt in my mind that a perfect, best account does exist somewhere out there. I’m just not certain that it makes sense to waste more than 3-4 hours looking for it. The ultimate objective is to start investing your money; it’s not “to open the perfect, best investment account.” Keep your eyes on the prize! No one is going to pat you on the back for opening the absolute best and perfect investment account if it takes you 2 years to find it after sifting through all the options. The best and perfect account doesn’t actually help you if you never actually open it and make an investment.

Again, progress need not be perfect. I know a baby who has just started to walk. He’s only been doing it for a few weeks, but he’s focused on progress, not on perfection. At first, he could only stand and would fall down every time he moved his head. A week later, he could walk ten steps unaided. The next time I saw him, he would walk slowly…and drop down to crawl if he had to get somewhere quickly. (The kid’s got a great big brain and understands that sometimes speed is of the essence!) The last time I saw him, this kid was very nearly walking like a champ – moving his head, going further distances, turning around without falling down too much. In another six weeks, crawling will have long been forgotten as a preferred method of travel.

The first time you walked, you fell down after a few steps. You didn’t let that stop you, did you? No, you didn’t! Instead, you tried again and again and again and again until you could do it. Without knowing you personally, I’m willing to bet that you’re now quite a proficient walker. The same principle applies to investing.

Always be learning while making progress.

Be like a baby – save and invest your money with the perspective that progress need not be perfect!

You see, there’s nothing stopping you from continuing to research investment accounts once you’ve started investing. Save-invest-learn-repeat. You are free to keep learning after you’ve made an investment.

Again, full-disclosure, I invest with BMO Investorline. And, again, I’m not getting compensated for mentioning them. Yet just because I invest with BMO Investorline doesn’t mean that I haven’t also research Scotia I-Trade, Questrade, RBC Direct Investing, or any other investing platform/company. (I’m not being paid for mentioning these platforms.)

Further, I have no idea if BMO Investorline is the ultimate, best and perfect option for me. It doesn’t matter. What does matter is that I am automatically investing in very inexpensive exchange traded funds and earning big dividends every month. And even though I’ve been with BMO Investorline for years, I would switch my investment portfolio in a heartbeat if I found a platform that better suited my needs for a lower price.

If One discovers that Vanguard Canada offers a more suitable range of investments products than Fidelity, then One is not in any way prevented from moving One’s investment account from Fidelity to Vanguard Canada.

Procrastination is the enemy of progress.

When it comes to investing your money, procrastination is extremely detrimental to achieving your financial goals. The reason why it is so bad is because you have a finite amount of time in which to grow your money. Money needs to be invested so it can compound. And compounding is most effective over long periods of time. Ergo, start investing your money right now so that it has as long as possible to compound.

Don’t let analysis-paralysis stop you from taking action today!

Your progress need not be perfect in order for you to reach your goals. Lord knows that my investment path hasn’t been smooth, nor will it ever be exalted as the absolutely correct path to take. If anything, my investment story should be viewed as a cautionary tale for fellow investors. However imperfect my journey has been, the fact that I started when I was 21 and have consistently invested my money for the past 2.5 decades has been a key factor in me pursuing and achieving my goals.

Neither you nor I can get to where we want to go without making some kind of progress. So we have an obligation to ourselves to keep moving forwards. Whether that’s listening to a podcast, reading a book, following a blog, or using trial-and-error, doing any or all of these things will lead us closer to taking action. And taking action is how we will progress towards making our dreams come true.

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Weekly Tip: Don’t pay for memberships or subscriptions if they’re no longer making your happy. As much as we might like to believe it, peer pressure didn’t end when we graduated from high school. Review your monthly expenses. How many things are you paying for simply because your friends are paying for them? If those things are no longer bringing you joy, then stop paying for them.

Shopping Season

The shopping season is upon us once again! It used to be called the Christmas season or the holiday season but the notion of Christmas or holidays is no longer emphasized.

When I look around, all I see is the emphasis on shopping. Apparently, the proper and just way to show your love to family and friends is to empty your wallet. Every retailer under the sun is exhorting you to spend-spend-spend! If you’ve got a nickel, they’ll happily take it.

Need a gift for your bus-buddy’s grandmother’s snow-shoveller? Then head over to Staples and find just the right thing!

How about a little something for the hostess’ dog-groomer’s roommate’s twin sister? Surely you’ll find what you need at Tim Horton’s.

And let’s not forget to buy a gift for your neighbour’s chiropractor’s assistant’s step-sister’s tennis instructor’s mechanic’s first mother-in-law, okay? Surely, the perfect gift is just waiting to be found on Amazon.

I jest…but not by much.

Gift-giving expectations have exploded.

When I was a child, it was way back in the dark ages. People read by candlelight. A full-sized chocolate bar cost $0.05. It was a 10-mile walk to school, both ways uphill. Back then, a seasonal greeting was sufficient and no one expected anything else.

Today, the retailers have brain-washed us into believing that we should spend whatever it takes to buy something for everyone that we know. It’s insidious! What if my neighbour’s chiropractor’s assistant’s step-sister’s tennis instructor’s mechanic’s first mother-in-law doesn’t like the tin of saltwater taffy that I gave her? I spent $42 on shipping – she damn well better like it!

When we buy into the notion that everyone needs atleast one gift from everyone else, then we tacitly accept that money has to be spent or else someone won’t be happy.

Time – the Ultimate Gift

You know what has worked to create better relationships and strong connections? Spending time with people. Playing cards & board games, completing a puzzle together, or hosting a potluck allows for people to share their lives, talk about their dreams, laugh together, and make some good memories. Time is priceless because it is finite. You only get so much of it and it’s best not to waste it.

When you choose to spend time with someone, you’re giving them something precious. You can’t buy time, but you can use it to create spheres of intimacy where you, your friends and your family can just be. In today’s world, where the constant demand is to do more, be more, spend more, achieve more, one of the best gifts of all is creating a space where it’s okay to just chill, to simply relax, to be together with those whom you cherish.

I’m not trying to pretend that you don’t need some money at this time of the year. If you have to travel or you’re making something that’s not on your regular grocery list, then funds will be needed. If you’re hosting out of town guests, then you’re going to need some extra funds for the additional costs of running a household with a few more bodies. I don’t want to give the impression that this time of year doesn’t deliver some solid punches to your pocketbook.

However, I do want to disabuse you of the notion that buying stuff is the way to find the kind of relationship that you want. No one wants to feel like they’re simply a wallet-on-legs. You want to feel appreciated, not taken for granted. Going into debt to buy gifts for other people is not the way to create the genuine relationship that you most truly desire.

Spend cash! Spend cash! Spend cash!

If I can’t convince you to cut down on the number of presents that you dole out, then perhaps I can persuade you not to go into debt to do so. Keep the credit cards out of your wallet – don’t take them to the mall – most definitely do not use them online! If a website already has a copy of your credit card information saved, then go an delete it immediately. You need to slow down the speed at which you spend your hard-earned money. I call this slowing down process “financial friction”. You will need to create some friction between your viewing of an item and the purchase of that item. Friction will impede your ability to go into debt during the shopping season. This is a very good thing!

Trying to buy someone’s love is a bad idea. Going into debt to buy someone’s love is an even worse idea! If your plan to buy affection doesn’t work, then you’re in debt while also failing to get what you really crave from someone else.

At the root, everyone wants the same thing. People really want to be accepted and loved for who they truly are. They want a genuine connection to others and to know that they are cherished. Your wallet can only buy stuff – it cannot buy the intangible elements of a wonderful relationship.

After all, if your relationship is based on money, then what’s left if the money goes away? How do you know that you’re loved for who you are rather than for what you can buy?

As hard as this may be to believe, I have nothing against gifts! I enjoy giving them and I enjoy receiving them. What I’ve learned over my years is that the amount spent doesn’t correlate to the importance of the relationship in my life. The people in my life love me after shopping season is over, whether I’ve given them a $2 garage-sale mug, a tin of homemade baking, or the latest fancy electronic toy. Tossing aside my financial goals and going into debt to buy gifts for other people hasn’t resulted in stronger relationships.

Look, I’m not telling you to stop buying gifts. I just want you to think about why you’re buying gifts. And I’m going to gently suggest that you spend a little bit less this year in presents. Those who really and truly love you won’t stop loving you if the box under the tree is slightly smaller this year.

Trust me on this one.

Know Where Your Money Goes

It is a simple truism that what gets measured is also what gets managed. I can think of few other places where people fail to put this truism to good work beyond their money behaviour. People will track their calories, the amount of gas they put in their cars, the number of times they work out. Yet so few people will track their own money.

This is very perplexing to me. Tracking your money is one of the first steps towards controlling it. You have to know where you money goes.

Lately, I’ve been hearing a lot of talk about “self-care”. Since this is a personal finance blog, I’m going to put my own little twist on this idea. You can feel free to share this bit of wisdom with anyone and everyone.

One of the best ways for you to practice self-care is to know where your money goes. Every single time you spend money, you should know exactly where it is going and why. Anything less is a self-inflicted financial wound.

When I had cable, I loved watching “Til Debt Do Us Part”. (Sadly, the show has since been cancelled.) It was a TV show about couples who turned to a guru to help them figure out their money before money destroyed their relationship. The very first thing the couples had to do was track their money for a month or so before Madam Guru showed up.

Most of the couples had never tracked their money. I always enjoyed the look on their faces when they discovered that they were spending hundreds of dollars each month on bank fees and coffee! It was as though they’d convinced themselves that small amounts didn’t really count when it came to spending their money.

Does this sound familiar to you? Is it possible that you’re one who believes “it’s only a couple of bucks” each time you buy a coffee? Never mind that you buy coffee two or three times a day, Monday to Friday… which works out to over $1000 per year on coffee alone. That amount could fund a nice weekend getaway somewhere.

Relax, relax! I’m not going to tell you not to buy coffee. It’s your money – that means you get to decide how it’s spent. If you would rather spend money on coffee than on something else, that’s your business. Your money, your choice.

And yet… Who among us hasn’t looked in their wallet or bank account and asked: “Where did all my money go?”

I’m here to tell you that getting a solid answer to that question depends on you. Measure you money so that you can manage it. Given how hard you work for your paycheque, it’s in your own best interest to understand why each of your dollars leaves your hands. In other words, you must start keeping track all of your money.

Some people use Personal Capital. Others use Mint. There are probably many other apps for money-tracking that are unknown to me. Myself? I’m relatively old-school. I don’t keep track of my money with lead pencils by candlelight anymore. Instead, I created two personalized spreadsheets. When I spend money, I keep the receipts then I add the amount spent to the appropriate spreadsheet. If I don’t get a receipt, I make a note on my phone of how much money left my wallet. Every nickel is accounted for. This how I know how much it costs me to run my life.

Thanks to the wisdom of TDDUP, I started tracking my spending in 2016. I have a spreadsheet for the cost of running my home where I track my monthly expenses. Those include lawn care, snow removal, Netflix, phone, power, water, car registration, property taxes, insurance premiums and internet. These are the standard bills that have to be paid on a recurrent basis, whether monthly or annually. Some expenses can be eliminated if I choose since they’re luxuries – lawn care & snow removal – while others are fixed. My car and home certainly won’t insure themselves! And I suspect my municipality will get testy if I were to neglect to pay my property taxes.

I have a second spreadsheet for the day-to-day variable expenses of my life. This document tracks my groceries, clothing, medication, gasoline, parking, entertainment, travel, gifts, donations at work, outside food & drinks, taxis, books, etc… Anything that doesn’t go towards the recurring expenses on spreadsheet #1 is recorded on spreadsheet #2. My goal is to spend less than $1,000 each month on these variable expenses. Since 2016, I think I’ve hit my goal twice!

You see, the beauty of my spreadsheets is that they provide me with information and insights into how I spend my money. Up until a few months ago, when I started cooking at home more often, I was spending atleast 1.5X more on food outside my home than I was expending on groceries. I don’t begrudge the money spent on outside-food (as I like to call it). I was hungry. The food was there. I had money – I ate – I wasn’t hungry anymore. The system was satisfactory… until I started pondering on my priorities for my money.

Was spending so much on outside-food getting me closer or further away from my goals? Was I spending the same amount each month on eating out? Would my money go farther if I cooked my own meals more often than not?

Tracking my money helped me to answer these questions. I was able to look at my historical spending patterns to see where I was spending too much. I analyzed which categories needed to be trimmed in order for my spending to align with my personal goals. The information garnered from knowing where my money motivated me to make better spending choices.

I challenge to you to track all of your purchases for a few weeks. Then determine for yourself if your spending choices are helping you to fund the priorities that matter most to you. Know where your money goes.

Money Mistake – Not Buying Equities

I think I’ve made a money mistake.

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

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

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

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

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

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

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

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

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

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

What about the recession that’s coming?

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

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

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

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

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

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

When you know better, you do better.

Minimize Your Vehicle Debt

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

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

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

… Wait – what?!?!?

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

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

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

Lever 1 – Buy a less expensive vehicle

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

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

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

Lever 2 – Get the lowest possible interest rate

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

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

Lever 3 – Increase your monthly payment

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

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

Making the minimum payment never benefits the borrower!

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

Lever 4 – Make a big down payment

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

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

Lever 5 – Make loan payments to yourself

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

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

Money Mistake #2 – My Mortgage

Looking back, I’m certain that I made a money mistake when I chose to pay off my mortgage instead of focusing on investing.

At the time, I was in my 30s and my mortgage was less than $100,000. I had bought my first home when I was 28 years old. I had a 25-year amortization and my bi-weekly payments were $750, if memory serves. That amount was probably $450 more than I was required to pay since I had routinely increased my mortgage payment by the maximum allowable percentage each year. I was able to handle the costs of running my home, and my budget fortuitously still contained a significant bit of disposable income.

Hindsight is 20/20

I wish I had known then what I know now. Had I become wiser sooner, I would have invested that extra $450 bi-weekly into the stock market. Hindsight is always 20/20, right?

So how do I explain my choice? A good deal of my reasoning at the time was founded on fear. I’m a Singleton. That means I don’t have a second income coming into my household. I knew that if something were to go catastrophically wrong, then I would lose my home. My family’s not wealthy. They would have done what they could, but I would have most likely lost my home eventually. Having a paid-off home seemed to be the smartest move for me.

I was also a huge fan of Dave Ramsey’s book – The Total Money Makeover. I read that book diligently and wholeheartedly subscribed to his teachings of becoming debt-free as soon as possible. After adopting his teaching, I put it into practice and attacked my mortgage with a vengeance.

With the benefit of time, I’m wondering if I didn’t make another money mistake. My goal had been to retire at age 50, not a particularly young age in the world of F.I.R.E. but certainly younger than the traditional age of 65. I’ve crunched the numbers and I won’t be able to hit my target without a large lottery win, or without developing a taste for cat food. I don’t want to retire simply to stay in my house due to financial constraints.

What could have been

If I’d known then what I know now, I would have stuck to my minimum required mortgage payments. Doing so would have allowed me to invest all that extra money into the stock market. Obviously, I would have taken part in the roller-coaster ride of the 2001 crash. And I would have gone through the other one that we had in 2008. Yet, I would have been be sitting quite pretty by now. My investment portfolio would be much fatter even though I would still have my mortgage.

I should not fault myself for not knowing everything about money in my thirties. Blogs were just beginning to take off. Unlike today, the Internet wasn’t a ready source of debates about the benefits of paying off a mortgage versus investing for the future. I picked a path, believing that I could do just as well if I started investing in my mid-30s. I wanted the security of a mortgage-free home before directing my funds towards my investment portfolio. It seems kind of weird to write that down. Today, I realize that if I had invested first, my portfolio would be throwing off enough income to pay my mortgage.

Take it for what it’s worth

What worked for me won’t necessarily work for you.

Today, 5-year mortgage rates are less than 3.5%. When I took out my first mortgage, I was overjoyed to have a 5-year rate of 6.5%. Today, my first condo would sell for approximately $240,000. I’m the first to admit that my condo wasn’t anything special even though I fell in love with it on sight. (That’s another money mistake that I made!) When I bought that condo, I paid $74,000.

My advice to other Singletons with a mortgage is to crunch your own numbers very carefully.

Like I’ve written elsewhere on this blog, you’re the one who is responsible for your income security in old age. You’ll need a place to live and your goal should be mortgage freedom before retirement. At the same time, you need to invest your money for growth so that you have a nice, fat investment portfolio to get you through the thirsty underwear years.

Even though I now believe that everyone should be investing for long-term growth while paying off their mortgage, you know the particulars of your circumstances better than I do. As such, you are the person best situated to make the choice that you think is best.

My money mistake was a doozy, but I’ll still be okay. I’ve got a mortgage-free home and a solid portfolio. I would have had more if I’d known better, but I still have plenty so I can’t complain too loudly. Life presented me with a choice between two sacks of gold. I chose one over the other, but I still wound up with a sack of gold.

A Little Bit of Wisdom

I’m sharing the following bit of wisdom respecting the mortgage cash account. I don’t think this is a particularly good option for mortgage-holders, but I’m trying to keep an open mind.

The Mortgage Cash Account

My bank holds the mortgage on my rental property. I make bi-weekly payments on my rental property because I want to have it paid off sooner rather than later. By making bi-weekly payments, I’m prepaying my mortgage. Essentially, I’m paying it back faster than required under my mortgage contract.

The mortgage cash account is the accumulation of those extra payments. It’s a visual reminder of how much principal I’ve repaid since starting my bi-weekly payments.

The account is also a visual temptation to spend that money. My bank spins this account as a good thing. They tell me that if some kind of emergency crops up, then I can withdraw money from my cash balance account and that money gets added back to my mortgage. In short, the mortgage cash account allows me to get my extra payments back at a moment’s notice.

Why the Mortgage Cash Account is generally a Bad Idea

At face value, it sounds like a good benefit. In reality, it’s not. This option works best for the bank because it means that I can go back to paying the maximum amount of interest on my mortgage loan. This is not a good thing for me, nor any person who wants to be free of their mortgage debt as fast as possible.

The reality is that I can use that money to go on vacation, buy lollipops, or set it on fire. The money doesn’t have to used for an emergency. There is no obligation to use it on a new roof, or a sewer line repair, or to remove downed trees from my property. The bank doesn’t care how I use that money – they only care that I eventually use it so that they can charge me more interest on it.

Do you see how this could be an impediment to achieving my goal of being mortgage-free? Is it as obvious to you that the bank’s goals are adverse to mine?

Let’s be very honest – most people will simply spend the money from the mortgage cash account on whatever they want. However, if the goal is to pay off the mortgage ASAP, then people should not be spending their prepayments and simultaneously increasing the size of their mortgage!

Emergency Funds are the Better Option

Again, the emergency fund is for emergencies. This is the little bit of wisdom that I want to share with you. No one should be in the position of having a mortgage without also having an emergency fund in place. When the emergency hits, and it eventually will, you shouldn’t be looking to your home to cover the expenses resulting from the emergency.

If you’ve used your emergency funds to pay off the emergency, then you need to re-organize your priorities so that you replenish your emergency fund as quickly as you can. Easy? No, not really. Necessary? Yes, definitely! You always need an emergency fund, no matter what. So do what you have to build one and to keep it funded.

Taking money from your mortgage cash account means increasing your mortgage balance. It means that all your hard work to make prepayments to save on the interest is vitiated. Don’t do that to yourself! If getting rid of your mortgage is a priority, which it should be, then do not use your mortgage cash account. Instead, build and maintain an emergency fund while you’re simultaneously paying off your mortgage.

What is a HELOC?

What is a Home Equity Line Of Credit? Short answer – it’s a debt trap that’s best avoided.

At its heart, a HELOC is a debt product that banks offer to homeowners which permits the homeowner to go into debt by spending the equity in their home without selling it first.

For example, if you have $200,000 worth of equity in your home, you can get a HELOC for an amount up to $200,000 depending on the lender. Without a HELOC, you would have to sell your home to get your hands on the equity. In other words, someone would give you money in exchange for your house and you could then spend that money however you wanted. There would be no fees or interest payable on that money because it would be yours.

The HELOC is a completely different beast. With a HELOC, you get access to the equity in your home via a loan from the bank without first having to sell your home. This sounds like a good thing, but it’s a debt-trap that you would be wise to avoid.

Banks charge interest on outstanding HELOC balances

You must keep in mind that the banks will charge you interest if you use a HELOC. Again, you’re spending your equity via a loan from the bank. Any bank loan is accompanied by an interest payment. Interest accrues until such time as the HELOC balance is repaid in full and it runs from the moment that you use it.

The interest rate on a HELOC is usually lower than the interest rate charged on a regular Line Of Credit. A regular LOC is an unsecured product, whereas your home secures the HELOC. If you don’t pay back your LOC, the bank cannot initiate foreclosure proceedings and take your home away from you. This is why they charge you a higher interest rate on a LOC.

Banks can foreclose on you if you don’t repay your HELOC

Before extending you a HELOC, the bank puts a charge on the title to your home. This charge against your title is similar to a mortgage. It ensures that if you ever sell your home, the bank’s HELOC will be repaid from the proceeds of the sale. You’ll get whatever’s leftover after the mortgage debt and the HELOC debt have been repaid.

Again, this particular debt product is essentially a loan against your home. It allows you to spend the equity in your home however you want. No one will be watching you to ensure that you don’t spend your equity on items which will not increase your financial security.

Having a charge on your title makes you vulnerable. Should you fail to make your monthly payment on the outstanding HELOC balance, the bank has the right to foreclose on your home to get its money back. Also, the bank has the right to demand full repayment on an outstanding HELOC balance whenever it wants. If you can’t repay the balance when asked, the bank has the right to foreclose on your home to get its money back.

Let’s say that your housing market goes down and the amount of equity in your home drops simultaneously. You house used to be worth $350,000 but now it’s only worth $250,000. Effectively , you’ve lost $100,000 worth of equity in your home. The bank may get nervous because their loan to you, in the form of the HELOC, is no longer backed by an asset that can fully repay the outstanding balance. The bank may decide to cut its losses, which means that they will demand full repayment of the outstanding loan balance. Should you not repay that balance, then the bank can proceed to foreclosure in order to get its money back before all of the equity in your home disappears due to market conditions.

HELOCs facilitate the siphoning of your home equity in dribs and drabs

When you use a HELOC, you are spending the equity in your home instead of increasing it. You are increasing the debt owed on your home each time you spend its equity.

One of the most dangerous ways to use a HELOC is to have it attached to your debit card. There is nothing stopping you from spending your home’s equity on mundane items. Think of trips to the coffeeshop, to purchase concert / sports tickets, to buy clothes, to finance your daily life. If you need a HELOC to survive from on paycheque to the next, then you’re living above your means. You’re working your way into a severe debt trap. Figure out how to free yourself and stop digging a bigger debt hole.

If there is ever a good use for a HELOC, it’s to make major repairs to your home that are required for your safety, i.e. replacing the furnace or the roof.

There is nothing wrong with you spending your home equity on the costs of your daily life if you need to. Just don’t do it via a HELOC! The wiser course of action is to sell your house and get the cash. That way, the entire amount of your home’s equity is available for your life’s expenses. You won’t be paying interest and fees to the bank for the privilege of spending your own money. You won’t run the risk of foreclosure. You won’t be indebted to the bank. And the money is still yours to spend as you wish.

Cook Food – Save Money!

One of the reasons why I write this blog is because I have this deep-seated belief that someone out there might learn from my experiences and avoid making the same mistakes that I’ve made on my journey to wealth. I’m narcissistic enough to think that my words will have an impact if I share them on the Internet. So here we go…

Looking back on the choices I’ve made with my money, I can honestly say that one of my biggest mistakes is that I’ve never used my kitchen enough. I eat out – A LOT!!! I have a standing bi-weekly date with one co-worker. I go out with another friend every single week. There are impromptu lunch invitations which appear in my inbox, and I say yes to those far more often than I say no. I can count on one hand the number of times I’ve declined a lunch invitation! On top of those social outings, there are the many, many, many times that I’ve simply not brought a lunch and have gone to one or another of the fast-food outlets or restaurants located near my work.

On the plus side, I always pay cash for my meals. None of my meals has resulted in me staying in debt any longer than I have to. I can still accomplish my goals.

So why do I consider it a money mistake to not use my kitchen more often?

I view it as a money mistake because, most of the time, eating out isn’t the best use of my money. Now, my meals with friends and colleagues do allow me to socialize with people I love and respect. That’s wonderful and I don’t regret those meals.

However, when I have to go get a lunch to eat at my desk, I’m disappointed with myself. Money spent on those meals isn’t bringing me happiness or joy. I could have – should have – spent that money at one of the two wonderful grocery stores that lie between my parked car and my house. Twice a day, every day, I drive past two grocery stores. They’re bright, well-stocked, and very clean. The staff are friendly and helpful. Both stores carry everything I need to make myself healthy dinners, and thereby healthy leftovers for lunch the next day.

Even when I buy something healthy for lunch, I’m irritated with myself. For instance, I enjoy fruit so I occasionally buy fruit cups but this is still not a joyful purchase. I’m essentially paying double or more the cost of the same fruit at the grocery store. I’ve paid for someone’s labour to cut up the fruit, knowing full well that I have cutting boards and knives at home to do the same job. I’m contributing to the demand for plastic and other single-serve packaging, which is bad for the planet. Food from home is transported in reusable containers that are washed and re-washed many, many times before they break or otherwise need to be replaced.

And since this is a personal finance blog, I have to state as explicitly as I can that shopping at the grocery store is cheaper for me than it is to eat out for lunch! If I hit up a fast-food place, my wallet is atleast $9 lighter when I walk out. A sandwich from the grocery store is going to cost a lot less than a sandwich from the coffee shop. And if I want a drink to go with that sandwich, I’m looking at atleast $11. Try doing that 5 times a week – suddenly I’m spending $55 per week! Let’s say I go to a restaurant instead of a fast-food outlet. In my city, you can’t get a lunchtime meal for less than $20 after tip.

For $55-$100 per week spent on food, I’m better off going to the grocery store. A lasagna might cost around $27 to make once all the ingredients are purchased. (Your grocery store prices may be higher or lower. I live in an expensive province.) However, that lasagna will feed me atleast 5 times, bringing the cost per meal down to just over $5. Chain-store coffee in my city costs more than $5 if you go for one of the fancy ones!

And that’s just for lunches. I’m also very bad for mid-morning snacks. I leave my house by 6:30 am, which means I’ve eaten breakfast at 6:10 or so. My tummy starts distracting me around 9:45 or 10:15, so I invariably go down to the coffee shop for a muffin. I’m spending atleast $3.50 for that muffin! Thankfully, I don’t buy a coffee to go with that muffin or else I’d be spending atleast $5 for my mid-morning snack every day.

So what does all of this mean?

Essentially, it means that I’m a dum-dum for not doing some very basic meal-planning in order to cook tasty dinners that will generate enough food for the next day’s lunch. And, yes, I’m also a dum-dum for not baking some snacks for myself every weekend. However, Rome wasn’t built in a day and I know that I won’t kick all of my bad habits in a single blow.

The question I’ve had to ask myself recently is why should the fast-food places get my money instead of the grocery stores when it’s the grocery stores that best meet my need for tasty, healthy lunches & snacks?

Now that I’ve identified my money mistake, my next step is to stop making it in the future.

I’ve committed to reducing how much I spend on eating out. Time with friends over a meal is still very important to me so there will be no changes to that part of my budget.

The big change will happen on the days when I don’t have lunch plans. For those days, I will cook something delicious for dinner so that I have leftovers. Lasagna is a marvellous leftover food! I’ve also got a kick-ass recipe for Shepherd’s Pie. A few weeks ago, I discovered a recipe from www.allrecipes.com for something called Chicken, Sausage, Peppers & Potatoes – a wonderful one pot meal that easily accommodates additional vegetables if desired.

I will stop at the grocery stores two to three times a week so that I have the ingredients on hand to cook for myself. I may never learn to love grocery shopping, but it’s simply something I have to do to live my best life and to maximize the enjoyment that I get from my money. Am I still spending money? Yes, of course. Am I getting more enjoyment out of my money? Hell, yes!!!

It took a long time for me to come to this realization but I’m finally convinced of its truth. Cooking and baking my own food is a highly effective and utterly delicious way to satisfy my hunger and to save money at the same time.