Single Money - Millionaire on the Prairie

Finding the Balance

One of the biggest downfalls of the online personal finance community is the lack of balance. I suppose that’s partly due to the fact that we’re all competing for eyeballs on the screen, and extreme headlines garner more attention. It’s unfortunate though. I think more people would be willing to consider pursuing FIRE if they understood that an important element is finding the balance.

God bless him, but Jacob Fisker’s desire to live on $7,000 per year is not one that holds any appeal to me. That level of frugality makes me a little ill. Even the idea of being “face-punched” – popularized by a grand-daddy of FIRE, Mr. Money Mustache – isn’t particularly enticing. Fret not – I do understand the phrase is a metaphor. It’s meant to remind you that stupid decisions with money are just as painful as being hit in the face.

To each their own, right?

Well… maybe. Personally, I think that pursuing financial independence would benefit many people. In a society that abhors unionized labor, pursuing financial independence is the only way for employees to gain some measure of power in the workforce. At the end of the day, business owners need employees. It’s a power-dynamic that is ripe for abuse and exploitation when one party desperately needs money. You – or any employee – can minimize the risk of experiencing such exploitation by pursuing financial independence. When you have the financial resources to walk away from your job, you’re tilting the power dynamic back in your favour. I think that this is a good thing.

At a bare minimum, financial independence gives you choices. In our capitalistic society, financial independence is as much a status symbol as anything else. It’s a signal that someone has enough resources to spend their time how they wish. And isn’t that one of the biggest draws of being rich? Not having to do what someone else tells us to do?

The reality for all of us is this. We each only get one life and finding the balance is key to living a good one. That’s why it’s important to spend some of your money today.

Look, I know that I spend a lot of time telling you to save and invest your money for the long-term. There’s no denying that I think you owe it to Future You to create a sizeable investment portfolio. At the same time, I don’t ascribe to the belief that investing money should be a goal unto itself. Money is pointless if you’re not going to spend it.

Furthermore, no one is promised tomorrow. You have no guarantee that you will be alive in 5-10-25 years to enjoy all the money that you accumulate in the interim. By finding the balance, you’ll be able to spend some of your dollars today on the things that make you smile.

Of course, you should always invest part of your paycheque for the future. I’ll never change my mind about that. What I also want you to do is shave a little bit from each paycheque to spend today. Make no mistake! I don’t want you spending money needlessly. Rather, I’m suggesting that you spend on things that truly make you happy.

Consider taking the advice of Ramit Sethi – ruthlessly cull expenses from your life that don’t bring you joy and spend freely on the ones that do. To me, finding the balance means diligently adhering to my mother’s advice to spend some, save some.

It’s taken me a long time to learn that there has to be a balance. Like I mentioned above, each of us gets one life. We owe it to ourselves to make it as good as we possibly can. It’s important to find ways to enjoy the journey while planning for the future.

The balance is different for each of us. What brings you joy might generate indifference in someone else. No matter. Do what you must to find the balance in your own life.

*** My comments are not meant for those living on low incomes. Obviously, those on low incomes are doing what they can to survive. I don’t have the answer to the plight of the working poor. Telling low income workers to simply “earn more money” isn’t effective. It’s insulting. If they could, they would.

Unexpected Expenses & the Beauty of Savings

This week, I celebrated my birthday.

Sadly, no one told my beloved SUV. Instead, I took my vehicle to my trusted mechanic because I needed an oil change and thought that changing an air filter might assist with a little acceleration problem I’d been experiencing. Instead, my SUV walloped me with a $2,900 estimate!

That’s not an inconsiderable amount for a car repair. It turns out that my clutch is slipping. That’s the mechanic’s lingo for my clutch is not working properly and I can’t safely drive my car until this extremely vital part is replaced. Yes – I drive a vehicle with a manual transmission. Unfortunately, a clutch is only good for about 150,000kms.

So I had a decision to make. My SUV is 13 years old. Yet it only has 137,000kms on it, which means there’s 70,000-100,000kms left on the engine. I’ve been with my mechanic for 17 years and I trust him, which means I believed him when he told me that the major components of my SUV are still in good shape. The tires are good – the brakes are fine – everything else on my car is fantastic. Barring a collision, I should be able to drive my car for another 5-7 years. My plan had been to replace my car in 4.5 years.

Still, a $2,900 repair bill is not a drop in the bucket. Despite its low mileage, the Kelley Blue Book value for my SUV is between $5900 – $6100. And a quick review of Auto Trader disclosed that a similarly aged SUV with slightly lower mileage than mine was listed at a price of $7,500. However, I couldn’t in good conscious sell my SUV without disclosing that it needs close to $3,000 of repairs… so no way am I getting $7,500 for this vehicle.

And if I were to sell, then I’d have to buy… I’m not a fan of car shopping. Besides, did I mention that I love my SUV? I’ve kept it for 13 years because it’s a great little vehicle.

So, on one of my favorite days of the year, I had a decision to make. Would I repair the SUV that I loved and drive it another 5 years? Or would I sell it at a discount, let someone else drive it for its remaining life, and proceed to buy something else?

After much deliberation and consultations with trusted friends, I decided to repair my SUV. I can continue to drive it for several more years. Clutches need to be replaced, so this rather large expense is not out of the ordinary.

Some reminded me that conventional wisdom is that a vehicle should be replaced when the repair is 50% or more of its value. On the numbers, my repair bill was just shy of 50% of my SUV’s value. Others reminded me of the global chip shortage, which means that there are fewer new cars available for purchase. Still others focused on the fact that I could drive my car for a few more years once this repair was made. One person reminded me that I “could afford” to buy a new vehicle, without compromising my long-term financial goals.

At the end of the day, I chose to repair my SUV. Why?

Mainly, I couldn’t get past the fact that any buyer would have to repair the clutch. The buyer would then benefit from the additional years of driving my SUV. Whether owned by me or someone else, my SUV needs a $2,900 repair in order to run. Why shouldn’t I be the person to benefit from the remaining years of life in my vehicle?

Besides, I abhor shopping for vehicles. There’s nothing on the road today that is an absolute must-have for me. As I mentioned above, I have loved my SUV from the minute I bought it 10+ years ago. I’m not yet ready to give it up.

With age comes wisdom.

Allow me to assure you of the following bit of financial wisdom. If you own anything with wheels or a motor, there will eventually be a big expensive repair. There is no telling when that day will come. You need to prepare for that day by having cash set aside in a savings account.

When I heard $2,900, I didn’t waste a second wondering how I would pay for the repair. Fortunately, I could jump right into the question of whether to keep or sell my vehicle. Thanks to years of funding my emergency fund and various sinking funds, I have the money on hand to pay for this expense. The only question I seriously pondered was whether I should.

Unexpected expenses are a fact of life. They can be financial zingers that throw your whole budget into disarray. They force you to re-prioritize how you allocate money and whether you allow yourself to go into debt. The first rule of handling unexpected expenses is to have savings. The second rule is to replenish those savings after you’ve used them.

Unless you already have one in place, set up an automatic transfer from your day-to-day chequing account to a savings account that is strictly dedicated to handling the unexpected. I would suggest $10 per day, which is $70 per week, or $3,650 per year. You know your budget better than I do, so maybe you can only do $5 per day ($1,825/yr) or maybe you’re fortunate enough to do $20 per day ($7,300/yr). The higher your per diem, the faster you build up your ability to handle life’s unexpected expenses. Pick a target amount for your savings account, then transfer your per diem amount into this account until that target is met.

The beauty of savings is this – they always curb the impact of unexpected expenses on the rest of your financial priorities. So while a $2,900 car repair bill was not on my birthday wish list, I’m fortunate to be able to take it in stride. Happy birthday to me!

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!

Sequence of Return Risk

There’s a lot of jargon in the world of personal finance. The more terms you know, the more comfortable you’ll be when it comes to making decisions about your money. Today’s post is meant to be a short and sweet tutorial about the basics of Sequence of Return Risk.

A bear market is one where overall stock market returns are falling.

A bull market is one where overall stock market returns are rising.

This distinction is very important.

Retiring into a Bear Market

Let’s say you retire with $1,000,000. You plan to live on $40,000. So long as your portfolio is kicking off atleast 4%, then you’re golden for as long as you live. Hooray!

You retire. You smash your alarm clock. You wake up when you want with a smile on your face. The only fly in this ointment is that you’ve retired at the start of a bear market. The value of your portfolio drops 15%, which means your portfolio is now worth $850,000 (= $1,000,000 x [1-0.15]).

Your portfolio is still kicking off a return of 4%, but you’re not getting $40,000 per year anymore. With a portfolio of $850,000, you’re only getting $34,000 (=$850,000 x 4%). Where will the other $6,000 come from? Remember, you need $40,000 to fund each year of your retirement.

You’ll have to withdraw the extra $6K from your portfolio balance of $850,000, leaving you with $844,000 (= $850,000 – $6,000). That’s still a decent chunk of change, but eating into the principal had not been part of your retirement plan…

Year 2 of retirement isn’t exactly great either. The bear market is easing, but it’s still a factor. The value of your portfolio drops another 10%. (Yes, it’s possible for the stock market to drop two years in a row.) That $844,000 that you had is now down to $759,600 (= $844,00 x [1-0.10]). Yikes! That’s $240,400 less than what you started with when you first retired.

Yet you still need $40,000 per year to live on, and your portfolio is still kicking off 4%. Sadly, 4% of $759,600 is $30,384… which is $9,616 (= $40,000 – $30,384) short of your needed $40K. So where will that $9,616 come from? You’ll have to take it from your $759,600….dropping your portfolio balance back down to $749,984 (=$759,000 – $9,616). Not good!

Year 3 of retirement welcomes the return of a bull market, and the stock market goes up 7%. Hooray! Your $749,984 is now worth $802,483 (=$749,984 x 1.07). That’s still not enough to kick off $40,000. In fact, your portfolio will only earn you $32,099 (=$802,483 x 4%), which means taking a further $7,901 (= $40,000 – $32,099) from your portfolio.

Do you see the problem?

When you retire into a bear market, your retirement portfolio might not be sufficiently large to cover your anticipated expenses. You may be forced to withdraw money to cover your living expenses when the value of your portfolio has dropped!!! This is a very bad thing because it means that your money won’t be invested when the stock market invariably starts increasing again.

Retiring into a Bull Market

However, if you retire into a bull market, then things are considerably better. Starting with the same assumptions of a $1,000,000 portfolio, a 4% return, and annual expenses of $40K in retirement, check out what happens if the stock market goes up 7% in the first year.

Your portfolio is up to $1,070,000 (=$1,000,000 x 1.07). At 4%, that means your portfolio is kicking off $42,800 (=$1,070,000 x 4%). Yet, you don’t need more than $40,000, so you leave the $2800 invested. Now your porfolio is worth $1,072,800 (=$1,070,000 + $2,800).

In year 2, the market goes up another 15%. Your portfolio goes up to $1,233,720 (=$1,070,800 x 1.15). At 4% return, you’re receiving $49,349 (=$1,233,720 x 4%). Again, you take out the $40K that you need and you let the $9,349 continue to stay invested. Now, your portfolio is worth $1,243,069 (=$1,233,720 + $9,349).

Year 3 is another positive year, though not as positive as year 2. The stock market only produces an average return of 5%, generating $62,153 (= $1,243,069 x 1.05) for you. You don’t change your spending, $40K goes into your spending account and the remaining $22,153 stays invested. Now your portfolio is worth $1,265,222 (= $1,243,069 + $22,153).

See the difference? Retiring into a bull market means your portfolio will continue to grow, so long as you don’t spend every penny of your returns.

Protecting yourself from the sequence of return risk

Like I said at the start, this is just a short tutorial on the sequence of return risk. Other persons far wiser than I have spent way more time coming up with great strategies. One of the books that I would strongly suggest you read for a more in-depth analysis on this topic is Quit Like A Millionaire by Kristi Shen & Bryce Leung. Their book offers a brilliant strategy for avoiding the sequence of return risk – it’s called the Yield Shield and it’s awesome. Another great source of information about how to avoid sequence of return risk is this article from The Retirement Manifesto.

And if you really want to sink your teeth into this topic, check out Big Ern’s Safe Withdrawal Rate series at Early Retirement Now.

If you’re not able to avail yourself of the Yield Shield, then another way to make up for the shortfall between when you need and what your smaller portfolio can provide is to get a job. I’m not suggesting a return to full-time work, but maybe you’ll have to find a part-time job that generates $10,000 per year. A part-time income of $10,000 per year would definitely cover the shortfall in year 1, which means leaving your money invested so that it can grow when the stock market returns start becoming positive again.

And if you’re deadset against part-time work, then there’s always the option of cutting your expenses to live on whatever your portfolio generates. This isn’t the preferred option for a few reasons. First, it’s never fun to cut out the little extras that make life a bit more pleasant. Secondly, there’s only so much you can cut. Thirdly, there’s no room for surprise expenses like a new furnace in the dead of winter. While it’s not ideal, working a few hours a week might be a better financial alternative for you than cutting out expenses that make the non-working hours more comfortable.

So that’s my primer on the sequence of return risk. Retiring into a bear market is fraught with peril, but there are ways to minimize its negative impact on the sustainability your long-term retirement money. It’s best to retire into a bull market. Should you not be one of the people with an accurate crystal ball able to tell you what the future will bring, then I suggest that you read and learn more about how to ensure that your retirement portfolio lasts for as long as you do.

Super Powers

FU Money and being FI are super powers…
Dave from www.accidentalfire.com

I’ve written about FU Money before. It’s the money that you have set aside for those instances when you need to tell someone to “make love and go”. It’s not your emergency fund money. It’s not your retirement money. It’s not even your car replacement fund. Nope. Your FU Money consists of those funds set aside for giving you options when you don’t want to work anymore, when you just can’t handle another pointless meeting, nor one more inquiry from your micro-managing boss. It’s the money that will tide you over while you re-group and figure out the next step after you’ve left a situation that was driving you mad.

And long-time readers know that I encourage everyone to become FI, aka: financially independent. Being FI is great because it gives you even more options than FU money. Once your portfolio is kicking off enough capital gains & dividends to pay for your life as you’re currently living it, then you’re financially independent. And you want to know a secret? You don’t have to give up working just because you’re FI!

One of the options is to keep working, if you want to. You need not give up your employment just because your money is making more money for you. Once you’re FI, you no longer need to work but there’s also no need for you to quit your employment either. Again, for the cheap seats in the back, being financially independent gives you the option to work without needing the job. How cool is that?

I’d love to quit. As I’ve mentioned before, I have a great job. I work with very smart people on interesting problems that are mentally challenging. Before the pandemic, I travelled for work. My employer invests in training and I have opportunities to advance my career. I’m good at my job. There are many, many good things about my current position… Yet, it’s not what I want to do for the rest of my life. I want to quit.

So I’m working on developing my superpowers. Do I have enough FU money? Probably. Will I pull the trigger and use it? Probably not. Re-read my last paragraph. My position is pretty good so I don’t foresee a situation where I will be so incensed with my employer that I just walk out the door while giving someone the finger. Unless something changes drastically, I expect my departure to be mutual, respectful, and drama-free.

Still… I have my FU money in place, just in case I’m wrong.

I’ve spent the last 10 years working on developing the second super-power, i.e. becoming FI. It hasn’t always been easy and I’ve made my share of mistakes. However, I’ve learned from them and corrected them when needed. I’ve always believed that it’s okay to make a mistake. What’s not okay is making the same mistake more than once.

Do I still have learning to do? Of course I do! There’s this new thing called Bitcoin that everyone seems to be chattering about incessantly. I owe it to myself to figure out what that’s all about so that I can make an informed decision about whether to invest in it or not.

Despite my mistakes in investing over the years, I have to say that I’m far closer to being FI than I would have been had I not started. Investing money from every paycheque for the past 10 years has done wonders for getting me so much closer to my goal.

Maybe you wish you’d started 10 years ago too. It doesn’t matter. Start today. The time will pass anyway, so you might as well take the steps to build your own super powers. Don’t dwell on what you haven’t done yet. Make a plan to actively put a plan in motion to achieve your dreams. You get one life and you deserve to live the best life possible. If that means having a buffer between you and the Edge should you need to part company with your paycheque, then create that buffer. No one else is going to do it for you. And if you want to remove the golden handcuffs, then build a portfolio whose cash flow can replace your employment income. That way, if you decide to stay at your job, it’s because you want to be there. You won’t be shackled to the paycheque.

Super powers won’t solve all your problems. Life doesn’t work that way. What they will do is give you a financial cushion when you need one the most. They can alleviate the fear of not knowing how you’ll feed/shelter/clothe yourself without your employer’s money. The super powers will give you the confidence and comfort of knowing that you can survive even if you must part ways with your employer, for whatever reason.

Priorities Are Personal

Every day that you wake up offers you the chance to move closer to, or further from, your priorities. You can spend your life’s energy, time, and money in ways that are making your dreams come true. You can just as easily spend your resources making someone else’s dreams come true. One way or another, you will be spending our life doing something. It’s up to you to decide what that “something” is.

As the title of this post states, priorities are personal. There’s a very good chance that your priorities are not going to be the same as anyone else’s. Sure – there are general themes that apply to all of us. We all need food and shelter every day. Yet, some people will only eat organic while others will never learn to cook more than toast. Some people want a water view from their bedroom balcony, while others need easy access to the slopes and mountain trails in order to feel at peace.

The distinctions are in the details. And since this is a personal finance blog, I’m here to encourage you to spend your hard-earned dollars in ways that permit you to achieve your life’s priorities.

Most of the time, the things we want cost money. In the Before Times, I travelled every single year. In 2016, I had started travelling overseas. A big chunk of my annual spending was devoted to this priority – flights, hotels, food, souvenirs, excursions. It added up to $5,000 – $7,000 per year. Travel was one of my priorities so I was willing to give up other things. I ate breakfast at home instead of buying it at the coffee shop before work. I learned to cook more recipes in my own kitchen, instead of relying on the good folks of the restaurant industry. Spa treatments were curtailed. Concerts were foregone in favour of Spotify or CDs. Each of these littles choice allowed me to save between $100-$150 each week in order to fund my travel priority.

You can do the same thing.

List out everything that you want. Whether you cap the list at 10-20-30 things or experiences that you really want is entirely up to you. This is your list of priorities. Once you’ve completed the list, move to step two.

Put this list in order of importance. Is getting a pet more important to you than season’s tickets to a sporting event? Would you rather save for a down payment or go to a weekly happy hour? Does retirement matter more than upgrading your vehicle?

Once you have your priorities in order, you turn your attention to the money. How are you going to pay for all of your priorities?

Honestly? You can’t pay for everything at once. If you could, then there’d be no need to prioritize. You list is meant to help you choose where to allocate each dollar. As each priority is funded, the dollar can move to the next one.

For my part, my priorities are well-defined. Some of them will take a long time to pay for, but others can be funded in less than two years. Priority number one is paying for the annual expenses that will only stop when I do – property taxes and insurance premiums. I know in my heart of hearts that the day I don’t pay my insurance premiums is the day that my house burns down while my car is in the garage. I have an automatic savings plan in place so I can accumulate the money to pay these annual bills when they come due.

Retirement is priority number two. Sadly, I am not a member of the “I Love My Job” Club. My job is challenging, interesting, and well-compensated. I work with very smart people and am part of a well-functioning team. However, I’m not gleefully jumping out of bed every morning in order to do my job. I’m looking forward to retirement so I don’t have to do those parts of my job that I don’t enjoy.

As you may have surmised, travel is priority number three. In the Before Times, I’d be planning my next trip on the flight home. The world is a big place. I might not always have the physical ability to see it. Ideally, I will see as much of the world as I can while I still have the ability to walk, stand, sit, and maneuver without too much difficulty. However, we’re currently in pandemic times so travel is taking a back-burner.

Fixing up my house is priority number four. And by “fixing up”, I don’t mean replacing furnaces and water heaters. Those are things that fall under “maintenance/repair/replace”. No – I’m talking about landscaping projects. I’m taking about new carpet, new paint, new cabinetry. The stuff that has made HGTV so incredibly successful! There’s a good chance that I will be in my house for a very long time, so I want it to be comfortable and to my taste.

Priority number five…

Well, truth be told, there really isn’t one. Maybe replacing my SUV in the next 5 years? Whatever isn’t spent on priorities 1-4 sits in a slush fund, accumulating until such time as there’s something that I really and truly believe will make my happy.

It’s up to you to do the same with your money. From this day forward, think about your priorities before you spend your money. A simple way to do this is to set up automatic transfers to fund your priorities. Hive off part of your income into a savings account – for short term goals only – so that the money is there to pay for your priority. Long-term goals like retirement need to have their allocations invested in the stock market – RRSP and TFSA for registered monies and investment accounts for non-registered monies.

Keep Your Money!

I want you to keep your money. Yes – that’s right. You should put yourself in a position to keep your money.

Obviously, you can’t keep all of it. When you get paid, you have to give away some of your money. It has to go towards shelter, food, utilities, a basic wardrobe, and transportation. These are the necessities. Everything else is a nice-to-have. Beyond necessities, purchases are Wants. If they’re expensive enough, they might even be called luxuries.

Before you spend your money on the Wants & Luxuries, put some money aside to fuel your money-making machine. Ideally, you would pay yourself first, then pay for the necessities, and then pay for the Wants & Luxuries last. Many people don’t do this, and their reluctance to do so befuddles me. Truly, I’m befuddled by this behaviour. When you work so hard at a job that possibly might not fill your heart with joy and gladness, you should save a little bit of that money for yourself so that you can fund your dreams.

The first step to keeping your money is to plan your spending. If you don’t know how much you spend on shelter, food, utilities, transportation, and a basic wardrobe, then keep track of how much you spend. You can do this old school, with pen and paper, or you can use one of the fancy apps available for your phone. Either way, you need to know how much you spend living your current life.

Though I wish this did not need to be said, I’m going to say it anyway. If your monthly spending exceeds your monthly income, then you’re in a bad situation. You are living in debt, and this is a bad situation. It can lead to bankruptcy, homelessness, and other very unpleasant outcomes. If your monthly spending is less than your monthly income, fantastic! This situation is called living below your means. You have money to re-direct towards your money-making machine.

Once you’ve tracked your expenses, then you can plan how your next paycheque is to be allotted. I want you to think about the spending you did on your Wants & Luxuries. How happy were you with those purchases? Did the happiness last a long time or was it fleeting? If you hadn’t made the purchase, how would it have impacted your life? Any chance that you’d consider culling your future Wants & Luxuries purchases to only the ones that bring you joy and fond memories when you think about them?

I would never suggest that you limit your spending to necessities and savings. That’s no way to live. Everyone needs a little bit of frivolity once in awhile. What I am going to suggest is that you carefully evaluate why you made the expenditures that you did. Necessities? Obviously, you spend in this category so that you don’t starve to death a naked homeless person. I want you to focus on the Wants & Luxuries categories. If the purchase didn’t bring you joy, then why did you make it? Was it an impulse purchase? Did that impulse arise from a feeling of guilt? A need to self-soothe? A desire to be liked and included? Once you know why you spend, then you’ll know what triggers to avoid in order to keep your money in your pocket so that you can fund your most important dreams and priorities.

Keep the W&L expenditures that bring you true and lasting joy. Discard all the others. Use those savings to fund your money-making machine. My machine is an army of little money soldiers. Every month, I’m paid dividends from my investment portfolio. I’ve set up a Dividend Re-Investment Plan so that my dividends are automatically reinvested in my divided-paying exchange traded fund. This means that I’ll receive even more dividends the following month. It’s a sweet system!

Your money-making machine need not be the same as mine. You might want to get into rental properties. (And if the talking heads are to be believed, interest rates in Canada are going to go up. This may lead to a slew of foreclosures as people cannot service their mortgages at a higher renewal rate. Should that happen, property values will fall. If you have the money, and the desire to own a home, you may be able to buy a duplex or a triplex or multi-family property and start house-hacking.) There are some fantastic websites out there that can teach you how to do this. It’s not my preference but you should explore all of your options and decide for yourself.

Another money-maker is starting your own business. The entrepreneurs that I know are doing quite well for themselves. They work extremely hard, and are reaping the rewards of their efforts.

Don’t worry if you don’t know what your money-making machine is going to be. You can figure that out while you’re diligently finding ways to keep your money. Trust me! You don’t want to discover some fantastic opportunity and not have the money in place to take advantage of it.

You get one life! Keeping a part of your income from every paycheque is the most reliable way to have the money in place to fund your most important dreams and goals. It makes no sense to spend your life working hard for your money only to then disburse your life’s energy on things that don’t bring you lasting joy. It would be an absolute shame if you wind up regretting the choices that you made because they didn’t get you closer to fulfilling your dreams. Keep your money and build the life that you truly want!

Start Today

When I started investing, I had no idea what I was doing. It’s true.

I was in my early 20s, and my local newspaper had a column about personal finance. I’m older than the internet, so I grew up reading newspapers. I’ll never forget a column about David Chilton’s book The Wealthy Barber. That book changed my life. I bought it, read it from cover to cover, and decided that I knew enough to start investing. So I promptly took myself to the bank and I opened my RRSP when I was 21 years old.

I had the right idea, but I certainly had more confidence than knowledge at that point. After opening my RRSP, I went on with the rest of my life. Every year, I dutifully contributed to my RRSP… which my parents’ accountant told me wasn’t particularly smart since I was a student and my tax rate was super-low. However, he did tell me that I could eventually take advantage of the the RRSP Home Buyer’s Plan so I kept investing. I didn’t know what I didn’t know, so I didn’t ask the right questions in my 20s.

I got a little bit smarter in my late 20s. By then, I knew enough to stop buying GICs. Rates were no longer super high as central banks got a hold of inflation. And there’d been some chatter in the system about something called mutual funds. Great! That was where I’d put my money. So I did. I opened an investing account at one of the Big Banks and dutifully contributed money into it from every paycheque. I even met with the same banking officer each time, thinking that I was “building a relationship” with a financial advisor. After our third meeting, she told me that I didn’t have to personally make deposits with her each time.

Message received! Obviously, I was wasting that bank’s time so I opened an account at Phillips, Hager & North, now known as PHN. They helped me arrange for an automatic transfer of funds that coincided with my paycheque. I picked a few funds and barely thought about my investments unless I received a statement in the mail. I loved PHN! And would have little hesitation in going back to them if I had to leave my current brokerage.

The only reason I moved is because, sometime in my early 30s, I learned about exchanged traded funds and how they have way cheaper management expense ratios. The MERs at Vanguard Canada were much lower than the MERs I was paying on my mutual funds at PHN… so I moved my money again. Similar investment products for a lower price made more sense to me. Why pay more if I didn’t have to?

By the time I’d hit my mid-30s, my house’s mortgage was paid off and I’d heard of something called the FIRE movement. There were tales of people who pursued something called Finance Independence, Retire Early. It was an idea that spoke to my heart. Several years of working had disabused me of the belief that everyone grows up and is lucky enough to work at careers they love. Early retirement sounded like a brilliant idea!

Some how, some way, I stumbled across Mr. Money Mustache and I fell into a deep, multi-year dive into the world of personal finance blogs. It was intoxicating! So many people who had transformed their dreams into reality. Some of them were a decade or more younger than me, but so what? They had the knowledge that I wanted to have so I absorbed as much of their message as I could.

And I learned so very much! My perspective changed from wanting early retirement to wanting financial independence. In my mind, being financially independent is necessary. Being FI is a way to control your time, your autonomy over your life. It gives you the power to say “No!” to whatever it is that you don’t want in your life – atleast the things that can be controlled with money. Early retirement is still something I want, but it’s an option that becomes available to me (and to anyone else) as a result of financial independence. So many of the bloggers I followed used their FI-status to start working at things that they loved. They still made money, but they did so via endeavours that meant something to them. Unlike working for a boss, they were no longer fulfilling someone else’s dream but were busily and happily fulfilling their own.

Eventually, my self-tutelage led me to the sad realization that my dutiful bi-weekly investment contributions were going into the wrong type of investment. I love dividends! Passive income makes me dreamy. So a steady 4-figure monthly cashflow seemed like a marvelous thing…until I realized that I hadn’t taken proper advantage of the bull-run that existed between 2009 and March 2020. I would have seen much higher returns if my money had been going into equity ETFs instead of dividend ETFs! Had I been investing “properly”, I could have retired by now.

(Big sigh goes here.) There’s no sense crying over spilled milk. Once I realized the error of my ways, I corrected my path. All new contributions are going into equity investments. The longevity charts tell me that I have another 40-50 years***, so I still have a fairly long investment horizon. My course correction cannot change the past, but it can certainly prevent me from continuing what I perceive to be a big mistake.

Why am I telling you all of this?

Simply because I want you to start where you are and build from there. Would it have been better to have started 20 years ago? Sure, but you didn’t so stop dwelling on it. You have today so start today. The information is out there. And, no, you won’t understand all of it at first. So what? No one understands all of anything at first. Have you ever watched a baby learning to walk. Poor little buggers can’t figure out that they can’t move both legs at the same time. The slightest twitch of their heads means they topple over. And the first few steps are always quite wobbly. You know what happens? They always figure it out.

It’s the same with money. Start with setting aside some of your money in a savings account. Then move it to an investment account. Pick a product that has a low MER and invest in it for the long term. Don’t be afraid of the stock market’s daily volatility. You’re investing for years, and the market has always gone up over the long term. Keep learning about investing. Tweak your investing strategy if you have to, but try to keep those tweaks to a minimum. Save – invest – learn – repeat. Start today.

*** Never forget that you need your money to work hard for you, even after you retire. Don’t believe that you can stop investing in equities just because your old age security payments have started hitting your checking account.

Invest to Beat Inflation

The chatter in the system is that inflation is coming.

Hardly surprising. I would venture to say that inflation is already here. Groceries are more expensive than they were a year ago. Gas prices have risen in my corner of the world. Friends who need lumber are sharing horror stories about the price. There’s not a doubt in my mind that inflation has arrived…and it’s going to get worse before it gets better.

I’m going to suggest that you invest to beat inflation.

First of all, you need to know that I’m not an economist. I am not in any way certified to give you an opinion on how to invest. I know what has worked for me in my circumstances. There are no guarantees that my strategy will work for you in yours.

Secondly, I’ve been around long enough to know that paycheques don’t rise in line with the increased cost of living. It sure would be nice if they did, but they don’t. Your take-home pay will stay the same even though the prices of what you want to buy will continue to go up. In other words, your paycheque has to stretch farther just so you can continue to live way you want. This is inflation at work.

There are several ways to fix this. You could get a raise, or find a higher paying job. Great. If your employer chooses to pay you more money, then pat yourself on the back. Keep in mind that there’s no reason for your boss to give you a raise if she doesn’t want to. I mean, you could be replaced, right? And maybe the next person would do your job for less money… Trust me – this thought may have crossed your boss’ mind a time or two.

If a raise isn’t an option that your employer is willing to pursue, then you can always search for a higher paying job. Should you be lucky enough to find one, hooray! The higher take-home pay can now go towards paying higher purchase prices for all those things that are more expensive today than they were yesterday.

A third, less palatable option to combat inflation, is to cut out all the things that are now too expensive for your still-the-same-size-paycheque. That might mean giving up your gym membership, extracurricular/educational courses, cable, streaming services, books. You might have to move in with roommates, or stop eating out, or give up buying new clothes. There are many ways to cut back, but you can only cut back so much. There comes a point where there’s no more fat to trim.

I don’t want you to get to that point.

What I want is for you to invest to beat inflation.

How does that work, Blue Lobster?

Investing in equities over the long-term results in returns that are higher than the rate of inflation. Equities is a fancy way of referring to the stock market.

You cannot invest in GICs at the bank that only pay you 1.6% and expect to beat inflation. For one thing, inflation may be higher than 1.6%. Secondly, interest is fully taxable at your marginal tax rate. If your marginal tax rate is 27%, then you’re not earning 1.6% on that GIC. You’re only earning 1.168% (= 1.6% x [1-0.27]). Thirdly, GICs lock up your money for atleast a year. The main benefit of GICs is safety. Unfortunately, the cost of safety is too high because your money will be ravaged by inflation. You will effectively be falling further behind financially since you’re only keeping 1.168% of your GIC’s return while inflation is increasing prices by 1.7%.

Investment returns > inflation rate. Good.

Inflation rate > investment returns. Bad.

To avoid the second scenario, invest in the stock market through diversified equity-based exchange traded funds and/or index funds. Consistently save and invest your money into stocks via these investment vehicles then leave it alone to grow. Do not check it every day. The stock market is volatile. In other words, the value of your account will go up and down but the trend over the long term will be upward. If volatility bothers you, then the answer is to not check your investments every day. Avoiding the stock market is most definitely not the solution to your aversion to the unpredictable nature of the stock market.

Stuff money into your TFSA and RRSP and buy equity-based ETFs and index funds. It might take you a few weeks to max out your contribution room. It might take you a few years. That doesn’t matter too much. The important thing is to start today. Get your money working for you immediately. Once you’ve maxed out your registered investment accounts, then keep investing your money in your brokerage account, aka: your non-registered investment account.

How do my investments beat inflation, Blue Lobster?

Over the long term, your investments will earn a return that is higher than inflation. Your registered investments will have the added benefit of doing so without being ravaged by taxes.

For example, assume that inflation is at 1.5% and your investments return 10% over the long term. Also assume that your tax rate is 27%. Your registered investments will be beating inflation by a rate of 8.5% (= 10%-1.5%). Remember! The money that is earned inside your TFSA and your RRSP grows tax-free so you need not concern yourself with your tax rate.

Money earned outside of the shelter of your TFSA and your RRSP is subject to tax. For this reason, you’ll still be beating inflation in your investment account but not by the same amount. The money earned in your non-registered investment account will be beating inflation by 6.205% (= [10%-1.5%] x [1-0.27]).

Disciplining yourself to stomach the volatility of the stock market will be very profitable for you. When the time comes to start living off your investments, they will have grown nicely. Your investments will be more than ample to cover the inflation adjusted costs of living. Ask your grandparents if, when they were in their 20s and 30s, they’d ever imagined a brand new car costing $35,000. Ask your parents if they’d ever thought people would pay $5 for a cup of coffee. Now imagine yourself 35 years from now at the grocery store and realizing that the price of a single loaf of store-brand bread is $9.

By investing in equities today, you will be taking a big step towards outpacing inflation. Start today by taking the following steps:

Open a TFSA, an RRSP, or a brokerage account.
Every time you’re paid, have a pre-determined chunk of your paycheque sent to your investment account. Do this by setting up an automatic transfer from your chequing account to your investment account, ie. TFSA, RRSP or brokerage account.
Leave the investment account alone to do its job.
If available, participate in the dividend re-investment plan. You won’t be spending the dividends. Instead, they will continue to be re-invested for the long haul.
Rest a little bit easier knowing that the long-term average return on your investments is higher than inflation.

You can take steps today to mitigate inflation’s impact on your life tomorrow. Just do it!

Cooking is your secret money-maker!

Last week, someone in the Twittersphere asked people to share their best money-making tip.

Mine was simple – cook at home more.

I’ve never hidden the fact that I consider my kitchen to be a magic money-maker. A few hours each week in the kitchen means that I’m not spending money on over-sized portions of food that might not be as healthy for me as the marketers would like me to believe. I have the benefit of eating whatever I want, and who wouldn’t love that?

At the same time, groceries are cheaper than eating out. Going to the grocery store instead of a restaurant or drive-thru window means that I can put more of my disposable income towards making my dreams a reality. Achieving the goals I’ve set for my finances while still eating well… that’s two birds with one stone, as far as I’m concerned.

So today, I’m sharing some of my favorite recipe sources with you. (Sadly, I can’t share all of them since I don’t want this to be 10,000 word blog post.) Put yourself into the mood to save some money by feeding yourself, then click on the links that follow.

First off, I have to mention Dinner Then Dessert. This is one of my favorite recipe websites. Lots of pictures – many useful tips – suggested recipes that are equally delicious! Most importantly of all, this blogger doesn’t waste your eyeball energy on scrolling through some back-story for her recipes. You can get right to it and start cooking!

If memory serves, Smitten Kitchen was one of the very first websites I started following for recipes. I liked the name because it rhymed a little bit, and because it featured desserts that reminded me of childhood. I’m still looking for one of my very favorite Bavarian apple tart recipes, but this one from SK’s website has very much piqued my interest.

Pinch of Yum is also a familiar favorite that I enjoy going back to time and again. The recipes on this website are packed full of vegetables so the dishes are colorful and drool-worthy. I always feel like these recipes deliver on all my daily mineral and vitamin requirements, which is something that is very, very important.

YouTube is a treasure trove of cooking tutorials. I have spent many an hour watching cooks, chefs, and everyone in between creating some of the most delicious things I’ve ever eaten. One of my newly discovered channels is called Cooking With Claudia. I followed her recipe for creamy garlic butter chicken and potatoes… The extra exercise is well worth the added calories of this dish. It’s divine and makes for very tasty leftovers the next day!

A couple of weeks back, I tried to make some pie dough… It did not go well. And while I managed to flatten it into a disc for the freezer, I’m sure I’ll have to doctor it with some more water and flour when I go to actually make a pie. I wish I’d found this video from Nana’s Cookery before I’d started my Pie Dough Project. Although, truth be told, I’ve lived long enough to realize that either you’re born with pie-hands or you’re not. There isn’t a “no-fail pie crust” in the world that has worked in my kitchen.

Fear not, Gentle Reader! I will continue to try my hand at making pie dough because, although my pie crusts aren’t perfect, they’re still very tasty.

Now another great video channel I absolutely adore is Babish Culinary Universe. This gentleman has in incredibly soothing voice. Watching his video about cinnamon rolls was a treat for the eyes. And I’m not embarrassed to admit that I was drooling as I watched his video about sticky buns. When the pandemic is over, I’m going to get together with several friends so that we can grow larger together while devouring these delicious delights. Not even I can justify eating 12 cinnamon or sticky buns by myself… and I haven’t yet found a recipe for making just one!

Maybe you’re a fan of carbs. (And who isn’t, really?) If so, then check out Savor Easy… where they bake up all kinds of delicious breads. One of my favorite aspects of this channel is that there’s very little talking. It’s all music and visuals…and delicious things for your tummy. Soft and fluffy condensed milk bread, anyone?

You need to eat. I suggest you eat well. It’s something you should be doing several times a day so it’s in your best interest to enjoy it. Get the maximum enjoyment of your food while stretching your dollars as far as possible! Start by cooking and baking for yourself.

We’re still in a pandemic, and it’s not always fun to eat alone as a Single One. I get it. Believe me when I say that I understand. Where I live, dining in restaurants is currently not an option. However, I have access to screens in my house. There’s always the option of a videochat over a nice meal. It’s definitely not the same, but it is way better than the drive-thru.

And look on the bright side. We are so very much closer to the day when the pandemic is in the rearview mirror than we were just a few short months ago. And I’m willing to get that you’ll agree with my prognostication that there will be an extraordinary level of socializing when we finally reach herd immunity. Use your pandemic-time to learn how to cook & bake. I promise that you’re going to love sharing all the recipes you’ve mastered with those nearest and dearest to your heart when the pandemic is finally over.