Single Money - Millionaire on the Prairie

Crunch Your Own Numbers

We are just over a week into a new year – hooray! I hope that 2020 is off to a great start for all of you.

What I love about this time of year is crunching my numbers. I track all of my expenses in two self-created spreadsheets, one for my monthly fixed expenses and one for my daily variable expenses. I add the monthly numbers together to figure out exactly how much I spent in the past year. Then I figure out how much cash my portfolio produced, whether dividends or capital gains. Finally, I determine how what portion of my annual expenses are covered by my portfolio’s cash flow.

For the first time ever, my portfolio covered 54% of my annual expenses. I was thrilled at this discovery! I’ve been building my portfolio since 2011. In only 8 short years, my portfolio has grown enough to cover all of my fixed expenses and a portion of my variable expenses. I’m not financially independent just yet, but I’m definitely headed in the right direction.

Know Where You Stand

Between you, me and the fencepost, you should crunch your own numbers too. It’s always smart to know where you stand with your money. How much are you taking home every month? How much is spent on your necessities – shelter, food, clothing – vs. how much is spent on the nice-to-have’s like Netflix, cable, eating out? If you have a portfolio, how much money did it passively create for you in the form of dividends & capital gains?

As a grown-up, you’ve got goals for your life. If real life were like cartoons and other TV shows, you could achieve all of them them without worrying about money. The reality is that money is often needed to achieve life’s goals.

So it’s up to you to crunch your own numbers. If you don’t, then how will you know if you’ll have the money to build the life that you want? Are you really satisfied with relying on hope to ensure that somewhere, somehow the money will land in your pocket so that you can pursue your your dreams?

Net Worth = Your Assets – Your Liabilities

Knowing your net worth is important too. If you want to see your net worth go up, and trust me when I say you do, then you need to know your starting point.

To figure out your net worth, do the following.

Add up your financial assets.
Subtract your financial debts.

Voila! The resulting number is your net worth.

To be clear, in my opinion a vehicle is not a financial asset unless you use it to make money. Non-income-producing vehicles depreciate in value every year and they cost money in terms of insurance, maintenance and gas. In other words, non-income-producing vehicles siphon money out of your wallet on a very consistent basis. As such, I’ve never understood how they can be viewed as financial assets.

On the other hand, a vehicle loan is definitely a debt. There’s no confusion on that point. If you had to borrow money to obtain your vehicle, then you most definitely have a debt, and debts are a factor that decrease net worth.

Track Your Expenses

Crunch your own numbers by tracking your expenses. You might find that what you spend on coffee in a month or in a week is enough to buy stock in the coffee company. Again, buying stocks – also known as investing in equities – leads to earning dividends and capital gains. Look at it this way. If you cut your expenses, you can increase your financial assets by using that money to increase your RRSP, your TFSA, and/or your investment portfolio. The invested money would then kick off capital gains and dividends for you.

Ideally, you’d choose to reinvest your dividends for years and then use the dividends to fund your retirement. However, I’ve heard it rumoured that some people spend their dividends as soon as they get them! Scandalous!!!

Hope is Not a Reliable Financial Plan.

Let’s say that you want to save money for the down payment on your next home. How much did you put towards that goal last year? How much do you intend to put towards that goal this year? Have you set up your automatic savings plan to dedicate money to your house fund? Are you tracking your expenses to identify which ones can be eliminated so you can pursue your goal?

Maybe you want to start saving 10% of your income for retirement. In order to do so, you need to know how much already spending and on what. Is your money already being spent on the survival expenses? Or are you ready to give up your $250 monthly cable habit to find the money to fund your retirement?

The new year is young! Take some time to do the following two things:

Figure out where you want your money to go. What priorities are most important to you right now? Are you satisfied with how much of your money is being directed towards your priorities?
Create a method for tracking where your money does in fact go. Are you satisfied with how your money is spent? Do your spending choices get you closer to or further from your priorities?

You are the person who benefits the most when you crunch your own numbers. When you are familiar with your own numbers, then you’re better able to determine how and why to spend the next dollar that comes into your life. You improve the odds of attaining and creating the life that will make your heart sing.

Ask yourself the following and be brutally honest in your response: Are you really and truly satisfied with working hard just so you can waste your money on things that don’t get you closer to fulfilling your hopes and dreams?

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Weekly Tip: Cook at home more often than not. Thanks to the wonders of Google and YouTube, any recipe that you could possibly want is online and someone, somewhere has made a video of themselves preparing it.

It Never Hurts to Ask

When it comes to money, it never hurts to ask for what you want.

Case in point – the mortgage on my rental property comes up for renewal this spring. For the first time ever, my bank sent me my renewal instructions 6 months before the renewal date. Usually, I get my renewal letter 3 months before I have to sign on the dotted line. In any event, I was somewhat surprised by their eagerness.

Naively, I’d thought they would be more than happy to renew at my same rate. For the past five years, I’ve been paying 2.79% on my mortgage. It’s a sweet, sweet rate and I’ve loved it. The mortgage before had been at 2.99%, so I’d gotten very comfortable with a rate of less than 3% for a 5-year term.

I girded my loins. I straightened my crown. I softly repeated my mantra to myself – “It never hurts to ask.” And I made the first strike.

Round One

My first call to my bank resulted in the perfectly-pleasant customer service representative telling me that the best my bank could offer was 3% for 5 years. I gently reminded him that I’d been a good customer for over a decade and that I also had a significant portfolio with their investment arm. Mr. Perfectly-Pleasant appeared not to be moved. We courteously discussed my ability to take my mortgage elsewhere, a move I was secretly loathe to make. We also discussed the fact that the Bank of Canada would be making four more rate announcements before I had to renew my mortgage.

(Of course, this means very little since the 5-year mortgage rate is far more heavily influenced by the bond market than it is by the prime rate. The prime rate has far more impact on short-term and/or variable mortgage rates.)

At the end of the call, Mr. Perfectly-Pleasant had stuck to his guns. My bank wasn’t going to offer me a 5-year rate at less than 3%. I’d asked and the answer had been “No”… which I’d chosen to interpret as “Not just yet.”

I’d been knocked on my bum and was no closer to my goal of getting another 5-year mortgage interest rate of less than 3%. Luckily for me, this wasn’t my first time at the Mortgage Rodeo. I knew that this was simply part of the dance that always exists when one wants to borrow money without enriching the creditor too, too much.

It never hurts to ask… but there’s never any guarantee that you’ll get the answer you want.

Round one went to the Bank… but, much like the Terminator, I would be back.

Attempt No.2

The second call to the bank didn’t go too terribly differently except for one incredibly distasteful detail – my bank now wanted to charge me 3.05% for a 5-year rate. Wait one damn minute – 3.05% is even higher than 3%!

I nearly fainted from shock!

How on Earth could my bank even consider charging me a higher rate than the one they’d offered before? Did they not understand that I wanted a rate of less than 3% for another 5 years? Had I not been explicitly transparent by stating “I’d like to have another rate of less than 3% for the next 5 years”?

It had never occurred to me that my bank would try to raise my mortgage renewal rate a second time! Was this some strange ploy to scare me by planting the seed that the rate would keep going up before my actual renewal date?

If so, their plan had failed miserably. I knew I was a great customer with a spotless repayment history and excellent credit. Let’s not forget that both my bank and I were well-aware that many other banks would be happy to have me as a new customer… and that they’d be willing to offer me their Shiny-New-Customer rates.

Still, finding another bank to finance my mortgage wouldn’t be exactly free. I’d have to pay an appraisal fee. Someone would be running a credit check. There was also the fact that I’d had to meet the requirements of B20 Stress Test, which I could easily do. There might even be fees associated with moving my mortgage from one bank to another since my bank would do what it could to extract money from me in lieu of all that mortgage interest they would no longer be getting from me. All of these were little hassles that I really didn’t want to endure if I could avoid them.

My bank was simply doing what banks do: trying to fleece me like they try to fleece all their customers. It wasn’t personal – it was simply business.

Sticking to my Guns

I refused to be deterred from my goal of renewing my mortgage for less than 3%. Just because other people were renewing at higher than 3% rates was no reason for me to do the same. If they jumped off a bridge, was I going to jump too? I think not – my parents had raised me better than that!

Ignoring the also-pleasant customer service representative’s statement that I could get a 5-year fixed mortgage of 3.05%, I asked her if there was any way that the rate could be lowered. Like my wise aunty has often said, them’s that asks are them’s that gets.

Ms. Also-Pleasant did her employer proud. Once again, she repeated that my bank was willing to offer me a 5-year rate of 3.05%. She said that her computer told her that this was the bank’s best rate of the day. Much like her predecessor, Ms. Also-Pleasant told me that I was free to check back in the future. She even added a teaser by stating that the rates might go down in the spring since a lot of people would be buying houses.

The trouble was, I didn’t want to have the task of renewing my mortgage hanging over my head until the spring. I wanted to get this chore crossed off my list, but I wasn’t going to renew unless I got a rate of less than 3% for the next 5 years. Why couldn’t they just give me what I wanted?

I held my tongue and I kept my cool. If I’ve learned anything during my few, precious years on this little Blue Ball of ours, it is this: The person who talks to the public is never the person who has all of the power. There’s no sense yelling or cursing at those on the front lines because they can’t override the decisions made by those who are higher up on the chain. However, they do have the power to put in a good word on my behalf to the people who make the decisions. And this means that it never makes any sense to be rude, mean, or un-kind to the front-line soldiers. (Also, they’re human beings doing a job so you shouldn’t be rude, mean or un-kind to them in any event.)

Again, I ignored the offer of 3.05% and I again asked – politely! – if there was any way for that rate to be lowered. You see, Life has also taught me that it never hurts to ask for whatever it is that you want. If anything, asking for exactly what you want exponentially increases your odds of getting it.

Ms. Also-Pleasant’s response to my polite inquiry thrilled me to the core. She stated that she could forward my request to the Pricing Department and see what they could for me.

Success!!! I had no idea what the Pricing Department was, nor did I have any clue as to what it could do for me. All I knew at the end of the second call was that I didn’t have to start shopping the market for another mortgage nor had I yet reached the point of calling a mortgage broker.

Round Two is what I’d like to call a draw. I hadn’t gotten what I wanted, but I hadn’t landed on my bum either.

Victory!

Phone call number three can legitimately be categorized as a late Christmas present. When I got back to my office after the holidays, my bank had left me a voicemail. Returning their voicemail resulted in unbounded glee for the rest of my first day back in the office.

The mysterious folks of the previously-unknown Pricing Department had finally understood what I wanted… and they’d granted me my wish. Finally, my bank was offering me a rate that I could live with for 5 years = 2.84%. My new rate from the Pricing Department was even lower than the rate my bank was advertising to its own Shiny-New-Customers.

Woohoo! This was more than I’d been paying, but still less than my acceptable upper limit. As much I’m not a fan of banks, even my bank should be allowed to make a wee bit of money from me. I truly feel that I’ve been quite generous by allowing my bank to increase my mortgage rate by the equivalent of 0.01% for each of the next 5 years. I’d allowed my bank to save face by charging me a slightly higher rate. My bank can still hold its head up and participate when all the banks stars talking trash about customers on the playground.

At the end of the day, I’d gotten exactly what I’d wanted. And the cherry on this particular sundae was that my name would not be flagged as a Problem Customer because I’d been polite during all of my interactions with everyone.

So you see… it never hurts to ask for what you want.

Could I have gone back to the Pricing Department and asked for a lower rate? Sure.

Would I have gotten it? Maybe…or maybe not.

Do I feel foolish for not asking for more of a discount? Not in the slightest. My life isn’t about looking to save every single penny. I had a goal and I’ve met that goal. Now, it’s time for me to direct my attention and my energy towards satisfying other goals.

After all, I was one of them’s that asked and now I’m one of them’s that’s gots! ;-}

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Weekly Tip – If you’d like to have $1,378 by the end of the 2020, then I invite you to participate in the 52-Week Savings Challenge. You can complete the weeks in order or however you see fit. Just make sure to make every required contribution then enjoy/invest/donate/whatever-you-want-do-with your money on December 31, 2020.

Start Planning Today…

A new decade starts 11 days from today. What do you want to accomplish next year? Which dreams are most important to you?

The key to getting things done is to start planning today. Time waits for no one, and not a single one of us is promised tomorrow.

Sure, there are those rare instances where you fall ass-backwards into exactly what you want. Those instances are few and far between, so they don’t make for a good use of your time, energy, and focus. It’s better that you figure out what you want, then start planning today so that you can get it.

Maybe you’re like I was 5 years ago. At the time, I was sick and tired of being someone who had never been to Europe. It seemed like everyone I knew had been overseas and I’d somehow missed the memo. Know what I did? I created a sinking fund for my travels. I made it a goal to get over to Europe. In the past five years, I’ve been to Italy, Spain & Ireland.

It’s now a burr under my saddle that I haven’t seen the cherry blossoms in Japan. I’m going to start planning today on how to move this particular Bucket List item from the “Hope to Do One Day” column to the “Did It & Loved It” column.

Goal? See the cherry blossoms in full bloom in Japan.
When? Before 2025.
How? Save money from every paycheque in my Travel Sinking Fund.

Sinking Funds are an Excellent Tool

Travel might not be your jam. It’s not for everyone – I get that. However, I’d be willing to bet dollars to donuts that there is something you’d like to have bought, seen, done, experienced by this time next year.

More likely than not, there’s a good chance that it’s going to cost you a bit of money.

Introducing…sinking funds! They’re a magnificent tool to help you fund your dreams, whatever those might be.

Imagine for a moment that you want to take a $500 cooking class next September. If you don’t have $500 kicking around with nothing better to do, then set up a sinking fund. This is going to be a savings account where you stash money every month until you have the $500 you need to pay for your class. There’s 8 months between now and the start of September, so you’ll need to stash away $62.50 per month. Or you can decide to stash away $100 per month for 5 months, or $250 for two months… I think you understand my meaning.

Once the sinking fund contains enough money for you to cash flow your particular goal, you can re-direct that monthly/bi-weekly/weekly savings amount towards something else.

There’s no limit to how many sinking funds you can have going at once. If you’re fortunate enough to have the extra disposable income, then you can fund more than one goal at a time.

What if you can’t think of something you really, really, really want? Well, in that case, you should still have a sinking fund that you’re filling with cash. You can call it your Dream Fund, or your When I Figure Out What I Really Want Fund. The point is to have the money in place so that you can cash flow whatever your heart eventually desires.

Automatic Payments are also an Excellent Tool

Maybe your goal for 2020 isn’t to buy anything. Perhaps you’re in debt and you simply want out.

If this is the case, sinking funds aren’t the tool for you. There’s no sense paying additional interest on your debt while money builds in a savings account. That’s a foolproof way of ensuring that you pay way more interest than necessary to your creditors. We definitely do not want that!

Let’s say that you want to pay down atleast $2500 against your debt. It doesn’t matter if it’s credit cards, a vehicle, student loans, whatever. I want you to set up an automatic payment that sends money directly to your debt every single month.

Pay attention to the following because this where the steak stars to sizzle. This automatic payment is over and above your minimum monthly payment. You’ll get out of debt way, way faster by making extra payments than you will by paying the minimum amount owed.

By paying the minimum amount owed, you’re guaranteeing that you’ll pay the maximum amount of interest to your creditors. If you can avoid doing that, then avoid doing that. Pay as little interest as you can to your creditors and keep your money for the things that make you happiest.

A New Year, A New Decade, A New You?

I’m never been one for New Year’s resolutions. To my mind, if a resolution is going to improve your life, then you should implement that resolution today. Waiting until some arbitrary date in the future always seemed counter-productive to me. Why keep doing less-than-optimal things in your life simply because of a date on the calendar?

That said, I know that many people imbue January 1 with a whole lot of importance. So I urge you to start planning today so that you improve your odds of making your dreams come true.

No-Spend Days

This week, I’d like to introduce you to the idea of keeping your wallet closed one day each week. I call these No-Spend Days!

Pick any day you want. It doesn’t matter. The purpose of this exercise is for you to give your wallet a break! Slow down your spending – keep your money in your wallet just a wee bit longer than you normally do.

How is this useful, Blue Lobster?

It’s been my experience that no-spend days mean that I’ve been more organized in the days prior. I’ve managed to cook some food, so I’ve had lunches to take to work and something tasty waiting for me at home for dinner.

No-spend days also mean that I’ve ingested fewer empty calories. I’ve avoided buying snacks at work or getting coffee throughout the day. Some of you might not be able to live without your daily cup of java, or something to tide you over from one meal to the next. Fair enough! I’m not asking you to be hungry or thirsty. I’m just asking you to find ways to satisfy your hunger/thirst pangs without opening your wallet.

I’m not a monster. I do indulge in sinfully delicious treats every once in awhile. They just happen to come from my own oven. Homemade baking, anyone?

These little darlings are a great reward for not spending money!

The third benefit of No-Spend days is that I keep my sweet, little ass at home. Between catching up with friends, reading for book club, tidying the house, doing laundry, cooking meals for the freezer, baking tasty things, and zoning out with a streaming service, I find that I can keep myself busy at home for hours on No-Spend Days. So many more of the daily chores of living get accomplished on my No-Spend days because I stay out of the stores.

If I leave my house, suddenly I’m at a store. Which one, you ask? Take your pick: the grocery store, the liquor store, the book store, the Things-I-Didn’t-Know-I-Needed-Until-I-Walked-Past-It-At-The-Mall store.

No-Spend Days force me to be organized. Like I said earlier if I know that I’m committed to not spending money on a particular day, then that means making some plans in advance.

No morning coffee run? Bring my coffee in from home.
No snacking during the day? Bring a bigger lunch, or bring some homemade treats. (I like cookies and muffins. You might like granola, or peanuts & raisins, or veggies with dip.)
No spending after work? Plan to get caught up on laundry, household chores, finishing books, watching a movie, cleaning the flowerbeds. There are many, many, many, many tasks to be done in and around your home when you commit to not spending money.
No online shopping? Go through your stuff and figure out what you can sell online to decrease your clutter while earning a few bucks.

It might take a few tries, but you should eventually be able to figure out how to give your wallet a break atleast one day each week.

An Unexpected Benefit

Committing to a No-Spend Day puts you in the same shoes as those shoe don’t have the choice about whether to spend money! If you’re fortunate enough to choose whether to spend money or not on a given day, then you have some disposable income kicking around. You’re not in the situation of having every dollar committed to the necessities of staying alive.

Depending on your disposition, committing to a No-Spend Day might make you more sympathetic towards those with less. It’s a privilege to have a choice about whether to spend money. Going without exercising that privilege will give you a taste of what life is like for those who aren’t as fortunate as you.

Renting vs. Owning

I’ve been a big fan of Garth Turner, who blogs over at Greater Fool, for a few years now. He’s a big proponent of creating cash flows for retirement. Towards that end, he has written many, many persuasive posts about why people should sell their homes, invest the equity, and live off the investment income.

It’s not necessarily a bad plan. For a very long time, I thought it was a great plan.

But…

Lately, I’ve come to question how feasible this plan is for everyone who owns a house. If you’ve been in Vancouver or Toronto for a few decades, then your house could likely sell for a high 6-figure amount, possibly even a 7-figure amount. And if you’ve been there for a few decades, then hopefully your mortgage is gone.

Take that sweet, sweet cash and invest it – in a properly balanced and diversified portfolio, a la Garth Tuner. Now you’ve got cash flow coming in from your investment portfolio to pay your rent. If you’re really fortunate, your investments might even kick off enough money for you to live on. Easy, peasy, lemon-squeezy!

Yet I still have doubts…

My only concern with Mr. Turner’s advice is that not everyone has a home that, when sold, will generate enough money to live on. If a person’s in that situation, and sells, then they face the prospect of ever increasing rents. While their portfolio is growing in the background (hopefully!), it’s quite conceivable that their rental increases outpace the growth of their investment income. In this situation, portfolio income isn’t enough to pay your rent. Mr. Turner’s plan no longer works.

Are people really in a better situation if they’re renting and their employment income has to go towards rent, instead of towards buying more investments, because their portfolio’s returns won’t cover the bills?

In that situation, isn’t the portfolio more like a part-time job than a reliable cash-flow on which one can live and eventually retire? And I use the term “part-time job” to convey the idea that, while the income from a part-time job nice to have, the annual amount of money generated isn’t enough by itself to keep body and soul together.

And if their employment income and investment income are both used to pay the rent, then what happens when the employment income goes away?

Then they’re without a home, and their portfolio’s not generating enough money to cover all that needs to be covered.

Renting might not be the answer

One of my greatest financial fears is being an elderly person who rents. Once employment stops, then all expenses have to be covered by pension payments and investment returns. Pensions are disappearing at an incredibly rapid clip. Investment returns aren’t guaranteed, even if you’re one of the lucky ones who managed build a multi-million dollar portfolio before retirement.

It seems to me that a paid-off home is a cornerstone of a secure retirement. People who own their own homes don’t have to be concerned with rental increases or eviction. They can stay in their homes for as long as their health will allow.

This is great!

And yet…

Houses are so damn expensive today! Even if you’re not in Vancouver or Toronto, a $350,000 house isn’t exactly cheap when you’re earning less than six figures. If it takes you 20-25 years to pay off your mortgage, and your employer isn’t promising you a pension, when exactly are you going to have that extra money to set aside in an investment portfolio?

If you’re not one of the people who earns enough money to pay off a mortgage while simultaneously saving for retirement, then maybe Garth Turner is right.

After all, you might avoid rental increases and eviction but let’s face facts. A paid-off house won’t help you buy groceries and heat and medicine in your dotage. Reality being what it is, a person cannot spend their house one doorknob at a time in order to buy what they need, when they need it. Only money can be spent on stuff. A paid for house represents locked-in money. It’s money that cannot be invested or spent unless the home is sold or otherwise mortgaged.

So what’s the right answer?

I have no idea. The older I get, the less I really know for sure.

For many people, housing is ridiculously expensive and it requires a paycheque-to-paycheque existence until the mortgage is gone. Funding one’s own retirement by creating a reliable cash flow is also ridiculously expensive, yet it’s a task that few of us can afford to ignore.

I can certainly see the allure of living off of investment income after liquidating the equity in your home. But so many things have to go right for a very long time for this plan to be feasible. One, you have to properly invest the money. Two, you have to hang on to your investments even when the market drops during a recession. Three, you have to know what to do when black swan events have a negative impact on your portfolio.

Yet, I can also see the hazards of spending most of your working life paying for a house. One, you don’t have significant retirement savings because it took so long to pay off your mortgage. You didn’t have enough time to re-direct your former mortgage payments towards your investment portfolio. Two, you’re making a long-term bet that you’ll always have an income over the 20+ years it might take you to pay off your mortgage. Three, you forever foresake the growth that your money could’ve provided had you invested it in a well-balanced & diversified portfolio.

Again, I don’t know what the right answer is. By way of this article, I simply want you to be aware of the options, the benefits, and the drawbacks. Start figuring out what’s best for you and for your future.

Whether you choose to rent or you choose to own, make that decision with your eyes wide open and fully aware of the opportunity costs of your choice.

Retirement is a Function of Money, not Age

I’ve been reading many articles about how people in their 60s, 70s and even in their 80s are still working because they can’t afford to retire.

Invariably, the statement is made that the government pension is not enough to retire on and to have a comfortable life.

For the record, I want it known that I believe retirement is a function of money and not a function of age. Once employers transferred the obligation of saving for retirement into workers, it became necessary for workers to realize that retirement wasn’t guaranteed with the passage of a particular birthday.

In order to maximize your chances of retiring comfortably when you want to, you must do the following things.

First, live below your means so that you can fully fund all of your registered accounts. These would be the Tax Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP) in Canada. You can contribute up to $26,500 to your RRSP for the 2019 tax year. As for the TFSA, the 2019 contribution limit is $6,000. These might be huge amounts for you, or they might be pocket change. Either way, contribute as much as you can as soon as you can. I promise you that you will need money in your dotage. These two accounts allow you to set aside money and to have that money grow without being taxed. Tax-free growth is awesome!

Second, continue to live below your means so that you can invest in you non-registered investment accounts. If you’ve got the money after fully funding your registered accounts, then don’t blow it on things that don’t bring you joy. Instead, put some of it away for your future. Non-registered investment accounts are also called brokerage accounts. Some people say to save 15% of your income. I advocate for saving until it hurts. The more you save, the longer your money has to compound and grow.

Third, stay out of debt to the greatest extent possible. Debt is a financial cancer. It puts a claim in your future income. Debt stops you from investing your money towards your own goals. Think about your debt as a claim on your time. More debt means staying in the workforce longer in order to pay off your creditors. Do what you have to do to eliminate debt from your life to the greatest extent possible. Make sure that debt doesn’t accompany you into retirement!

Fourth, get rid of your TV. The entire purpose of commercials is to get you to buy stuff. Every ad is designed to make you believe your life would be better if you opened your wallet. This is not true. Stop exposing yourself to so many damn ads! Bury your nose in a book. Go for a walk. Find a volunteer activity. A new year is about to start. Consider a resolution to eliminate television from your life, whether it be cable, Netflix, Crave, Hulu, whatever. Maybe the idea of going cold turkey on TV makes your heart race? Could you pick one day of the week to give up the consumption of commercials? Even seeing 1/7th fewer exhortations to spend will give your wallet some relief.

The size of your retirement kitty is dependent on how soon you plant and water your money tree. Save-invest-learn-repeat. Unless you’re living on 30% of your income, it’s going to take a good long time to save up a decent-sized retirement kitty. Start saving today!

You’re the one with the power to invest your money for long-term growth. You have the ability to learn about various options for your money. It’s on Today You to prepare as best you can for the arrival of Tomorrow You. Save yourself from the struggle of living on a government pension. The maximum pension payment in Canada today is less than $1200 per month. And you’re only entitled to that if you’ve worked for 40 years!!!

Even if you’re one of the fortunate ones who love their job situation, you must still think about having enough money to retire in your own terms. Ask yourself if you’d still love your job if certain conditions changes. A new boss? A longer commute? Fewer resources to do more work? A change in duties? Do you want to have the option to leave the world of work without financial worries if the job you love were to morph into one you despised?

Retirement is a function of money, not age. When you have enough money, you can retire whenever you want. Try to think about this every time you go to spend. Is your intended purchase worth another day at work?

Can I Afford It?

Such a simple question, isn’t it?

“Can I afford it?”

At first blush, it seems ridiculous to even ask the question. It’s a yes or no question. Either you have the money or you don’t.

Appearances can be deceiving. Having the money is only the first part of the equation…

Okay, Blue Lobster – just what in the hell are you talking about now?

The question of affording something is much larger than the question of whether you have money. Making the purchase is relatively easy. Take out wallet – hand over cash – get what you want. Easy-peasy-lemon-squeezy!

Nope. Actually being able to afford something means knowing what it is that you really, really want.

What are your priorities for your money?

Prioritizing your money means that you get to say “Yes!” to some purchases while saying “No!” to others. You won’t be able to buy everything you want unless you’re a multi-gazillionaire. And if you are multi-gazillionaire, please let me know so that I can follow you on Instagram.

Let’s say your Fur-Baby needs an operation that costs $1200. Your pet is not suffering and the operation isn’t a emergency, but it is necessary. You’ve got 75% of the cost saved up and you’ve calculated that you can save up the rest over the next 6 weeks if you set aside $50 per week into your dedicated Fur-Baby Fund.

And let’s say you happen to be at the mall with a friend after a year-long week at work. There’s a very nice item on sale for $50. You like the item and you have $50 in your wallet.

Can you afford it?

You tell me. Your pet needs an operation and if you spend the $50 on the mall item, then you won’t have that $50 to put towards the Fur-Baby Fund. You’re the only person who can determine which priority is more important to you. Do you want to pay for the operation or the item at the mall?

Going into debt isn’t an option. Debt put you in chains to your creditors. Debt means committing money you haven’t yet earned to someone else for purchases made in the past. Relying on debt to make consumer purchases is a very bad idea. As you’ve heard me say before, debt is a financial cancer. There’s no need to ask for cancer by whipping out a credit card. Old-fashioned savings and delayed gratification will get you to your financial goals.

Now, knowing that you have $50 to spend, you have to decide: can you afford it?

Saying “No!” is a good thing.

Though only two letters long, this one word is a powerful weapon in your financial arsenal. Though small, this little word is mighty. If used correctly, it has the power to keep you on track towards your dreams.

It’s more than okay to say “No!” when asked to spend money in a manner that doesn’t align with your priorities. You work hard for your money and spending it on non-priority items is akin to lighting it on fire.

To be fair, there are times when it’s perfectly okay to say “Yes!” to spending your money. Should you be so fortunate as to have gobs and gobs of leftover money after your priorities have been funded, then you can probably fritter it away on non-priorities while still meeting your goals.

For the rest of us, frittering is a luxury that should only be indulged in sparingly. The more frittering that is done, the longer it will take to achieve our financial goals. And the less money we have, the more deleterious an impact frittering will have on our money priorities.

Never, ever let anyone bully you into making spending choices that don’t reflect what you truly want. This bring me to the Others.

Don’t let the Others determine your priorities.

There are a great many people out there who are willing to step into your wallet and disperse your money. I call these people The Others. Sometimes, the Others are easily identifiable. You’ll recognize them as the Ad Man and his trusty sidekick, the Creditor. More often than not, the Others take the form of our friends and family. Every so often, co-workers fall into this category too.

The Others have no qualms whatsoever about telling you how to spend your own money. It’s been my experience that the Others think that I should spend my money on their priorities. The very possibility that their priorities aren’t the same as mine is an utterly foreign concept to them.

One time, a friend of mine told me that I could afford a weekend trip to Las Vegas. Truth be told, I was floored by her audacity in opining about what I could afford to do with my money. It would have never occurred to me to tell her how to spend her money. In all honesty, the same thing has happened with members of my family.

Over the years, I’ve learned to ignore the Others’ exhortations to spend money. When I’m feeling generous, I tell myself that the Others just want the best for me. Or that they believe spending money will make me happy. When I’m not so generous, well… let’s just say that I don’t ascribe such kind motives to their opinions. The bottom line is this: I know what my priorities are, and I have a plan for my money. I don’t expect the Others to agree with, understand, or share my priorities. The Others’ opinions of my spending choices are irrelevant to my goals. Since I’m okay with ignoring their “advice”, I always know if I can afford to spend my money on something.

So….can I afford it?

The answer to the question is as simple as 1-2-3. One, determine your financial priorities. Two, use the word “No!” as often as needed so that your money goes where you want it to go. Three, ignore the Others since they most likely want to spend your money on what’s most important to them.

Once this framework is in place, you will be extremely adept at answering the question of whether you can afford it, whatever it happens to be.

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.

Getting Ahead vs. Getting By

You have to earn money to even be able to save and invest a portion of it… by MI154 of ESI Money

There’s a silent assumption in the Financial Independence Retire Early world that is, in my opinion, at the root of the derision heaped on this community. And it is this: everyone has a little bit of extra money that can be invested somewhere.

My position is that this assumption is false.

I’ve no doubt that there are those who believe that they can’t live without unlimited data plans, gym memberships, annual vacations, spa weekends, second homes, and cable TV. People get used to their luxuries. They easily conflate their daily, monthly, or even annual wants with basic survival needs. It’s called acclimation.

And why not? Luxuries make life better.

However, there is precious little useful information for those who are already living without any luxuries. This is a fundamental flaw of the FIRE sphere. Many of the most prominent bloggers of the FIRE community are tone-deaf to this reality. They appear to assume that everyone has money that can be diverted towards investing.

This assumption is wrong. There are many people who are barely making it from one paycheque to the next. Almost half of the Canadian population is struggling to pay their costs of living. These people aren’t setting aside money and then not using it because they’d prefer to struggle. They’re using all of the money that they earn to get from one paycheque to the next.

Now, I realize that some of these people will have some flexibility in their budgets once they pay off their debts. Former debt payments can be re-directed towards investing, a la FIRE-philosophy. This is fantastic news!

Yet, I also realize that there are many people who aren’t in debt…and are still living paycheque-to-paycheque. These are the ones who don’t have the money to spare for investing. And for these people, the FIRE-philosophy is as foreign as breathing under water.

Cable and gym memberships were sacrificed years ago.
Vacations are only taken in the imagination.
Wifi hotspots – if one even has a mobile phone – are the only source of connectivity.
Roommates and multiple part-time jobs have been part of the picture for years.
Cooking at home isn’t optional – it’s a requirement to ensure that one eats on a semi-regular basis because outside food is out of reach financially.

There are huge swaths of people who have already cut their budget to the bone. What does the FIRE-philosophy have to offer those who have no money to spare?

You need extra money in order to get ahead. And when you don’t have any extra money, you’re relegated out of necessity to just getting by. The FIRE movement offers little instruction on how to go from one stage to the next beyond the simply admonition to earn more money. Now that I think on it, I’m sure that those in poverty’s grip have never even considered the option of earning more money! <sarcasm off!>

Having access to “extra money” is the foundation of building that cash cushion, creating the army of money soldiers, or planting your money tree. If there’s no extra money to be found, then time and focus must be spent on using the available money to simply survive from one day to the next. Without sufficient money, life’s about figuring out where the next meal will come from and how to handle the inevitable rental increase. Heaven forbid that you should get sick and not be able to work. There’s never been enough money leftover between paycheques to build that vaunted 6-month emergency fund.

I’m not pretending to have an answer to this situation. My goal with this post is simply to remind those who have that there are many, many who have-not. If you’re one of the ones who has the ability to get ahead, be grateful. And appreciate that you might only be one misfortune away from falling down the ladder of financial security.

The paths to FIRE are varied but they all start with having a little bit of extra money. Anyone who argues otherwise is blind to the reality of poverty’s vicious grip.

Consistency is One of the Keys

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

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

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

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

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

How in the hell did she do it?

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

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

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

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

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

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

Creating Wealth for her Family

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

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

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

Save. Invest. Learn. Repeat.

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

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

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

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

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