Category: Single Money

Credit cards everywhere!

Earlier this week, I went shopping at Canada’s last remaining national department store. I’ve been searching for black pants for the past few months and I had some time to kill between appointments so I took myself shopping, an activity that I normally hate very much.

To my very pleasant surprise, I found the pants that I was looking for and they were on sale for $29.99. Hooray for Blue Lobster! Exactly what I wanted at a price that I was willing to pay. Does it get any sweeter than that?

So I took my awesome find to the till…and the credit card tussle began.

The cashier asked me if I had a last-remaining-national-department-store credit card, which I’ll refer to as the LRNDSCC for simplicity’s sake.

I said that I did not.

She asked me if I wanted to apply for one.

I said “No, thank you.”

At this point, she gave a look that very nearly had me checking my shoulders to see if I’d grown another head.

The cashier doubled-down. She told me that I could save 15% on my purchase if I were to apply for a LRNDSCC that very moment.

Again, I replied “No, thank you.” And then I threw her for a loop. “I don’t need any more credit.”

I thought she would faint, but she held it together. That cashier indicated that it wouldn’t take but a minute and she repeated that I would save 15% on my purchase immediately.

Once more, and with a smile, I told her “I don’t need any more credit.”

At that point, she stopped pushing the credit card. I have assume that, during her cashier training, she’d been instructed to keep pushing credit until the customer had denied it three times.

She was so perplexed by my refusal that I almost felt sorry for her… until she asked me for email address. I told her I didn’t want any email. She started to tell me that providing my email would allow me to get notice of sales and special offers. I just shook my head. Still reeling from my denial of credit, that hard-working cashier simply gave up and rang up my purchase.

Why not accept the credit card offer?

I thought about this a lot on my drive home. It’s a bit more complicated than the fact that I don’t need more credit. Tis true – I don’t need more credit. I have plenty and it’s sufficient for my purpose. In a certain respect, credit is like dish soap. Why would I use more than I need?

The other reason I didn’t accept the offer was because I don’t believe that the reward was worth the risk.

Risk, Blue Lobster? What risk is there in accepting a store credit card?

Well, there’s the risk that my information will be compromised. The more cyber locations housing my personal information – name, address, social insurance number, salary, etc – the more opportunities for Bad Guys to steal it and engage in identity fraud against me.

Limiting the number of creditors with my information offers me some measure of comfort and control.

Check this out – 37,000 customers from Transunion have had their information compromised. This is not a good thing. I might already be one of those unfortunate customers, so I’ll have to keep a close eye on my credit cards to ensure that my financial identity remains safe. I suggest you do the same thing too.

On a purchase of $29.99, I wasn’t willing to increase the risk of identity fraud simply to save $4.50. Fortunately, I had the extra $4.50 in my budget to make the purchase without impacting my ability to pay for shelter, food & my bare necessities. My choice to spend the additional $4.50 means that I won’t be taking on the risk that Bad Guys hack into the credit card information of the LRNDS and steal my personal information.

The third reason why I didn’t accept the credit offer is simply because having credit in my wallet means being tempted to spend on that card. Why put myself in a position of temptation if I don’t have to?

The 15% discount was a one-time thing. Again, I would’ve saved $4.50 on a pair of pants if I’d accepted the offer. Yet, I would have a shiny new piece of plastic winking at me from my wallet. And the sole purpose of that new little item would be to put me into credit card debt.

So how many credit cards do I have?

I have two. They’re accepted everywhere. One is for my day-to-day, and the other is for travelling. Both of them are free. Both of them offer rewards that suit my lifestyle perfectly. Personally, I see no reason to get anymore credit.

While I’m willing to accept that credit cards are a convenient tool for many people, I still think it’s a great idea to limit one’s access to this particular tool. My rules for this tool are simple – pay it off, in full, every single month. If you can’t do that, stick to cash.

Physical currency will buy you the exact same things that credit cards will, and it provides the additional benefit of preventing you from ever going into debt. Cash is still king for a reason.

The next time you’re offered a retail credit card, be brutally honest with yourself. Think about whether you really need it. Will you be tempted to spend on that new credit card? Is the savings of that particular purchase worth the risk of someone hacking your information?

Why Isn’t Credit Card Math Taught in School?

Today, I checked my credit card statement and found out that I have to pay $191.13 by October 10, 2019. The box at the bottom informed me that if I were to make the minimum payment ($10) at my current interest rate, then I would pay off my balance in 2 years and 0 months.

WTF?!??! At $10 per month, it would take me 24 months to pay off $191.13. So, I’d be paying $48.87 (= $240-$191.13) in interest over 2 years. The interest of $48.87 is 26% of the outstanding balance of $191.13. Ridiculous!

I also have to remember that if I make any other purchase during that two year period, then the amount owing would go up. that would mean that my bank would charge me even more interest.

So why isn’t credit card math taught in school?

I remember learning how to add, subtract, multiply, and divide. There were lessons on algorithms, on calculus, on algebra. My teachers spent time on the subject of simple interest, compound interest, and how they differed. I very definitely recall word problems involving distance and time.

Yet at no point during my many, many years of schooling do I remember any lessons on how to calculate credit card interest. Sure – I know that if I don’t pay my bill then I’ll be charged 19.97% annually. But is that compounded monthly or annually on my outstanding balance? Does that rate apply to any fees that I might have to pay if I miss a payment?

Math lessons would have been that much more useful to my adult life if I’d been required to solve the following math problem:

Henry indulged in some retail therapy and charged $7500 to his credit card. If he only pays back the minimum monthly payment of $225*** while being charged a rate of 29.99% annually, then how long will it take Henry to repay his credit card? Secondly, how much interest will Henry pay on that credit card debt? *** The minimum monthly payment is equivalent to 3% of the outstanding balance.

Not My Parents’ Fault

I’m not going to blame my parents for this gap in my education. I’m fairly certain that credit cards weren’t a thing when they were in school. You can’t teach what you don’t know.

Credit card math was never an issue in my house when I was growing up. My parents had two credit cards between them. My dad had a gas card that he used when we took our annual summer holiday. My mom had a retail store card that was used to buy appliances for the house. What they taught me about credit cards is as follows: NEVER CARRY A BALANCE.

Full stop. This is what I learned from my parents’ example respecting the issue of credit cards. This is a basic lesson that pretty much works in all situations involving a credit card balance. Pay your credit card balance in full every single month.

Unfortunately, my parents’ example failed to explain how credit card interest will be calculated for those unfortunate folks who do not pay their balances in full each and every single month. Though incredibly useful and entirely admirable, the lesson from my parents taught me nothing about credit card math.

Surely the Credit Card Websites Have the Answers I Need

Let’s recap. My parents didn’t teach me credit card math at home. My schools didn’t teach me credit card math even though I was in their care and custody from the ages of 6 to 17. Despite receiving my undergraduate degree from the school of business, I never learned how credit card interest was calculated. For that matter, my business degree was also useless in teaching me about the nefarious death-grip of student loans or anything else related to personal finance.

The next logical place to search for answers is from the source. Surely the banks who issue credit cards would have a calculator dedicated to credit card math on their website. It would seem only logical that they would have some kind of online tool that explicitly shows how interest on credit cards is calculated and compounded. Customers would be able to enter their outstanding balance and the interest rate on the card then press a button to get a number representing how much interest would be owing on the outstanding debt.

CIBC offers a credit card calculator to encourage you to accumulate points. There’s not a single mention of how the interest is calculated if you don’t pay your bill in full. To be fair, the inquiry “How is interest calculated on my purchases?” results in a link to the cardholder agreement. Pages 6-7 of CIBC’s cardholder agreement set out how payments are applied to a credit card balance. Yet, there’s no calculator that allows borrowers to plug in their own numbers to see just how much interest they will pay if they don’t pay their balance in full.

I’m not picking on CIBC. I went to Scotiabank’s website too, and they didn’t have a credit card interest calculator either. Similarly, TD’s website was a bust. BMO has a variety of calculators for mortgages and savings, but does not offer any online calculators to help their customers figure out how interest is calculated on credit cards.

Maybe Canada’s biggest bank has what I want… RBC’s website isn’t perfect but atleast it offers an explanation, but not a calculator, of how interest is charged on its credit cards. Kudos to RBC for not making its customers wade through a cardholder agreement!

How disappointing… It’s almost as though the purveyors of credit cards do not want their customers to be able to figure out how much interest they will have to pay on their credit card debt if balances aren’t paid in full. I’m willing to go out on a limb here. I believe that credit card issuers don’t want their customers to understand credit card math.

Even the Gurus Can’t Answer my Questions!

If you’re not yet familiar with his teachings, then allow me to indulge for a moment. Dave Ramsey has created a series of Baby Steps to help regular people get out of debt and to achieve wealth. To be clear, I love the lessons about how to get out of debt by creating a debt snowball. If you’re ready to commit to a get-out-of-debt-plan, then start doing what Dave Ramsey says and keep doing it until all of your debt is gone.

Yet, even Dave Ramsey fails to explain how credit card interest is calculated. This is hardly surprising. He hates debt and he encourages people to never carry credit cards. Still, he’s been in the business of helping get out of debt for nearly 3 decades. I thought that maybe, just maybe, he would be the one to explain credit card math to folks…even if just to tell people that they’re stupid for partaking of it.

Government of Canada to the Rescue!

The good folks at the Financial Consumer Agency of Canada have a partial solution. Their website offers a credit card payment calculator that will tell you how much interest will be charged if you don’t pay your credit card off in full. The calculator lets you add in your current balance and your interest rate. The search results ably demonstrate the impact of paying more than the minimum monthly balance and how much interest can be saved.

So far, this is the best credit card math tool that I’ve found online.

I’m still in the dark about how to calculate interest on my credit card balance. So I will resort to my parents’ wisdom. I resolve to never carry a balance. The mystery of credit card math may or may not haunt me for the rest of my days, and that might be okay.

So long as I pay off my credit card balance every single month, I’ll never need to worry about the box at the bottom of my statement which tells me that it will take 24 months of my life to pay off an amount as small as $191.13 if I make the minimum monthly payment while never charging anything else during that time period.

Money Mistake – Not Buying Equities

I think I’ve made a money mistake.

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

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

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

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

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

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

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

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

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

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

What about the recession that’s coming?

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

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

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

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

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

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

When you know better, you do better.

The Money-Saving Magic of my Kitchen

I have to admit that it sometimes takes me a very long time to learn lessons that should be obvious. One of those lessons is how the kitchen can be used to significantly cut food costs. Today’s lesson, Gentle Reader, is about the money-saving magic of my kitchen.

At the end of last week, I found myself in the very happy position of having some extra money in my bank account. Hurray! Being the money nerd that I am, I promptly started reviewing my outstanding credit card charges and my surplus funds went to paying them off.

But I had to ask myself – where did that extra money come from? I’m almost always wondering how to stretch my remaining money at this point in my paycheque cycle. If my bank account were a gas tank, I’d characterize this point of the cycle as “running on financial fumes.” It’s not fun, but I’d also believed it was unavoidable.

I was wrong.

The reason for my unexpected largesse was the money-saving magic of my kitchen.

Clarification please, Blue Lobster – what in the hell are you talking about?

My kitchen is home to my fridge, an old-fashioned upright refrigerator with a handy-dandy freezer at the top. The weekend before last, I went grocery-shopping and purchased a bulk pack of chicken. I decided to cook several pieces for lunch. The rest of the chicken was rubbed in a lovely marinade, portioned into freezer bags, and set inside my freezer. I took my lunch to work with me four days last week, saving myself atleast $80 in the process.

In addition to my magnificent refrigerator and its freezer, my kitchen is also home to a working oven & stovetop. Again, I cooked some of the chicken and I also prepared some saffron rice for myself. After dinner, I portioned out the chicken and rice into several reusable containers. They were stacked in the fridge and I simply tossed one into my lunch-bag each morning before I left to catch my bus. No more scrambling to make a tasty lunch in the morning. I didn’t have to figure out which of the it-all-tastes-the-same-to-me dining establishments would have the privilege of serving me their food.

As I’ve written before, cooking at home is a money-saver. It’s healthier and often tastier than whatever you can buy at a restaurant or fast-food outlet. For the most part, you control the amount of sugar, fat and salt that goes into the food you cook because you get to adjust the recipe to suit your tastes. The cherry on the sundae is that your wallet stays heavy as you eat your own homemade food.

The beauty of using the freezer along with my range is that I minimized the amount of cooking and grocery-shopping that I have to do. For as much as I love eating good food, I really hate shopping for groceries. In my family, I’m an oddity. Both my mother and my brother love grocery-shopping. I chalk it up to them both being Pisces…

After a long day in the office, I’m not exactly excited to get into the kitchen and create a lovely meal from scratch. I’m far more likely to eat Triscuits with cheese, or enjoy a lovely bowl of breakfast cereal. These aren’t good meal options!

The awesome appliances in my kitchen minimize the drudgery of cooking every single day!!! I cook on Sundays, then – maybe – again on Thursday or Friday night. The marinated meat that I’d stashed in my freezer is ready to be put into the oven after having been safely thawed in the fridge. It doesn’t take long to cook some rice, to boil some potatoes, or to make some pasta to go with my meat. Add in a bag of salad or some veggies and voila! Dinner is ready to go relatively quickly. Again, there is no need to cook every day – make enough rice/potatoes/pasta/whatever-side-you-prefer to last for a few days.

No Fail Marinade Recipes

If you’re a fan of sweet-and-spicy, try this recipe for sriracha brown sugar chicken. It’s absolute delicious! I wish I could say that I created this recipe but I did not. It’s from the website Dinner then Dessert, one of my favorite places to find new recipes. I’m already salivating as I sit here thinking about how tasty my lunches are going to be this week!

Here’s another magnificent recipe for honey garlic chicken. Again, I can’t take credit for this recipe. I found it at Chef Savvy. What I can take credit for is creating a honey garlic marinade for the two packages of chicken thighs that are currently sitting in my freezer. They will be utterly scrumptious when I cook them for lunch in the future.

This particular recipe for sheet pan chicken tinga bowls has been on my mind since I first saw it on my Instagram feed. Again, the credit for this recipe has to go to the website called Pinch of Yum. Technically, this is a make-ahead meal but I think you could make the sauce, let it cool, pour it over the chicken, then freeze it until you’re ready to eat it.

So far, I’ve only used chicken with my marinades. This is because I love chicken in all forms, except feet & liver. Chicken liver = yucky! That said, I’m not adverse to finding marinade recipes for other meats. Ideally, I’d like to find an equally delightful marinade for pork chops that can be baked in the oven.

Learn it, live it!

I have learned my lesson. There is no way around my deep-seated fondness for eating. However, I do have the capacity to find recipes that will make my tummy happier. I’m smart enough to cook without starting fires. The internet is filled with recipes and You Tube is bursting with videos of people making those recipes.

I’ve learned my lesson – cooking once a week is grand. Marinating my meat in advance will save me trips to the grocery store and will save me some prep time during the week. My range & my freezer are my friends. I can eat well without whipping out my wallet on workdays.

Let me say it again – I love the money-saving magic of my kitchen! I have the tools at my disposal to create fabulous meals for myself while saving a boatload of money at the same time. When it comes to food, what could be better than that?

Give Yourself Some Credit

I want you to give yourself some credit – literally.

Allow me to back up a little bit, to give you some context. A year ago, my credit card number was stolen when someone booked a hotel with my information. Although it took a few weeks, my bank reversed the charges and life went on as normal.

One of the lessons that I took from this experience was to keep my authorized credit card limit at an amount I could pay off within 30 days. I was lucky. The thief only stole enough credit to book a hotel room. He or she could have racked up way more charges since my limit had been around $5,000. I’m not entirely confident that my bank would have made me whole if the stolen credit amount had been to the max of my credit limit.

Luckily, I’m the kind of person who checks all of my bank and credit balances every few days. That’s how I was able to catch this fraudulent transaction within 24 hours of it being posted to my account.

Protect Yourself with Lower Limits

After this unfortunate event, I lowered my credit card limits. I have two cards, although I use one more often than the other. The first card is for transactions like buying gas, dining with friends, tickets for entertainment, and my monthly bus pass. It’s the card I use for my regular life. The other card is for travel, so it has an even lower credit limit. Should my card be compromised while I’m away from home, the potential damage is much lower. There’s less credit for a thief to steal.

You may want to consider lowering your credit card limits if they’re more than what you could repay in a month. If a Bad Person uses your card fraudulently and you can’t report it right away, then you might have trouble convincing your bank to help you get those charges reversed. Until such time as they freeze those transactions, you might have to pay interest on them. I’m not an expert on how banks operate when people experience credit card fraud. Contact your bank and find out what they will do to help you if you find yourself a victim of credit card theft.

Sometimes, a Higher Limit is Necessary

However, there are circumstances where I need a larger credit limit. In my case, I’m getting some house renovations completed before winter. After 18 months of saving money in a designated account, I pulled the trigger and signed the contract. If I were to run the renovation cost through my credit card, there is no way that my limit would be sufficient. A five-figure renovation is more than my credit cards can handle.

So what’s the solution?

Most people would apply for more credit from their bank. This is a bad solution to this kind of challenge. The smart solution is take matters into my own hands by giving myself some credit.

Again, I already having the savings in place for this home renovation. The money is already in the bank. The solution of how to use my credit card to pay for my renovations is to front-load my credit card with the savings that are already in my bank account.

What are you talking about, Blue Lobster?

It’s really very simple. If it’s possible to make payments to your credit card, then it is similarly possible to front-load your credit card with cash. You essentially turn your credit card into a gift certificate.

  • Step One: The money is loaded onto your card, which gives you a positive credit balance on your card.
  • Step Two: You use your credit card as you normally would.

When you need more credit than is currently available to you, then you need to give yourself some credit by front-loading your credit card with cash.

Can I really do that?

Whether you make payments in person or online, you have the ability to apply cash to your credit card. In fact, this is precisely how you pay off your credit card balance each month. (And if you’re not paying off your credit card balance each month, then stop using your credit card. Make payments until the balance is $0.00. Lower your credit limit to $1,500. At that point, you can start front-loading your card with cash so that you can use your credit cards and simultaneously stay of credit card debt forever.)

There’s no law that limits how big that payment is. Front-loading cash onto your credit card results in a credit limit higher than the one given to you by the bank. The front-loaded money is available for you to spend but there’s no concomitant obligation to a lender.

The credit available to you from your bank via your credit limit results in a debt that you owe to the bank at the end of the billing cycle.

The front-loaded cash on your credit card does not yield any debt whatsoever. It is money that is spent for you to acquire whatever it is that you want without requiring you to pay any interest to anyone.

Do you see how my solution is way, way better than getting an increase to your credit limit?

Benefits of Front-Loading Credit Cards

I’m going to repeat myself – give yourself some credit. The benefits of using your own cash to increase your credit limit are awesome.

  • You don’t pay any interest on the money that you front-load onto your card. This is money from your bank account, which means that it is not money that you are borrowing from the bank.
  • You can eliminate the impact of fradulent transactions on your account. Only front-load your credit card a day or two before you’re planning to buy whatever it is that costs more than your credit limit. Do not carry an artificially-high credit limit at all times. That puts you at the same risk of having a high credit limit when your credit card gets compromised. Credit card thieves will steal your money just as easily as they will steal the bank’s.
  • You’ll be far less tempted to spend your savings on stuff that doesn’t matter. The reason you’ve front-loaded your card in the first place is because you’re spending the money on something that’s very important to you. It could be tuition, a trip, a celebration, a piece of art, jewelry, whatever. The point is that if you were committed enough to save up for that purchase, then it’s very unlikely that you will squander your front-loaded funds on stuff.
  • Your credit score is not impacted by the act of front-loading your credit card with cash.
  • Front-loading your credit card is the same as paying with cash without having to carry cash on your person. You are spending your own money, instead of the bank’s, but you’re doing so via plastic. Imagine if my contractor was actually willing to be paid $10,000 in cash. Neither of us would exactly be comfortable flashing a brick of $100-bills around. However, he has no problem accepting my money via a credit card.
  • Front-loading your credit card eliminates the need to pay a bank fee in order to buy a bank draft or a certified cheque. Even with e-transfers, there is a limit on how much can be transferred electronically.
  • Finally, front-loading your credit card prevents you from going into debt. Banks who lend you money want to make profits off of you. They do so by charging you interest when you can’t pay your credit balance in full. They want you to go into debt so that you’re in a never-ending cycle of paying them interest every month. While this is good for them, it’s very, very bad for you.

When you have a credit limit that can be satisfied by your monthly income, then you won’t go into debt. This is due to the fact that you’re in a position to pay off your balance every single month.

Keeping your credit limit low and front-loading your card with cash means that you’ll stay out of debt while still buying the things that really matter to you.

Don’t rely on the banks to control how much you can spend on your credit cards. Instead, give yourself some credit by front-loading your credit cards with your own money.

Minimize Your Vehicle Debt

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

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

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

… Wait – what?!?!?

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

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

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

Lever 1 – Buy a less expensive vehicle

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

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

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

Lever 2 – Get the lowest possible interest rate

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

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

Lever 3 – Increase your monthly payment

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

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

Making the minimum payment never benefits the borrower!

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

Lever 4 – Make a big down payment

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

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

Lever 5 – Make loan payments to yourself

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

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

Personal Finance – the Greatest Hits

This post is going to be short and sweet. If you’re new to the world of personal finance, the following gems are the building blocks of wealth. If you’re an old hat at the mastery of money, then I would ask that you forward these greatest hits on to anyone who might need them.

If I knew more, this post would be much longer. I don’t know as much as I wish I did, but I’m still learning. These old chestnuts will get you well on your way to a place of financial stability. I’ve written them down for you but it’s up to you to put them into practice in your own life.

Pay yourself first – always.

I don’t have too much more to say on this point. If you don’t pay yourself first, then you’ll never have money for investing. There might be money leftover after you pay everyone else, but it’s highly unlikely. Most of us don’t have anything leftover to save before the next paycheque rolls in. If you pay yourself first, then you can spend the rest and you’ll have the comfort of knowing that you kept a little something back for yourself.

Emergencies don’t make appointments.

(Credit for the insightful phrasing of this bit of wisdom goes to Patrice Washington.) You need an emergency fund so start building yours today. In my humble opinion, this kind of fund needs to hold atleast 6 months worth of living expenses. No one has ever regretted having too much money on hand during an emergency.

Automate your money.

This means setting up an automatic transfer to fund your priorities. Needs come before wants, but wants are prioritized too. You’ll need an automatic transfer to your emergency fund so that life’s little surprises don’t require you to live in your overdraft or to carry credit card balances from one month to the next.

The next automatic transfer you’ll need is to your retirement fund so that you’re saving for Old You. A portion of each paycheque must be saved for the day when you stop working. You cannot assume that you’ll be wholly in control of when you retire. Time flies and Old You will be here in two shakes of a lamb’s tail. Do what needs to done today so that Old You has sufficient money tomorrow.

Track your expenses.

Yes, you know where this is heading. I want you to keep track of your money. What gets measured, gets managed. This is an old adage that I heard around the office and it has always stuck with me. If you want to know where your money is going, then you have to keep track of it. You’re a Singleton so you’re the only person who’s spending your cash. If you don’t keep track of it, no one else will.

Invest in an equity-based exchange-traded funds.

There are low-cost investment products that allow you to put your money to work in the stock market. While you’re busy figuring out the”best way” to invest, your money might as well be working hard on your behalf in the interim. This is money that you’re setting aside for retirement and long-term goals. In other words, this is where you put the money that you won’t need for atleast 5+ years.

Never stop learning about investing. Don’t get cocky! You’re not an expert, and you don’t have a magic touch. Investing in ETFs is a way for you to get profitable exposure to the stock market, without relying on market timing or picking the next Netflix. There will be volatility and I want you to ignore it. Just keep investing and compounding your money over a long period of time while you continue to learn.

Only spend your money on what brings you the most joy.

Unless I’ve been seriously misled, each of us is entitled to have some fun & pleasure in our lives. This greatest hits list would be incomplete if I failed to acknowledge that money is also meant to be spent in order to create joy for ourselves and for others. I’m not talking about mindless consumerism or rote daily purchases.

I’m talking about the special treats, the little extra something that makes you feel special. It’s something different for all of us. Whatever yours is, make sure that you’re spending some of your money to acquire it.

So there you have – the short and sweet list of the greatest hits of personal finance according to the Blue Lobster. Do with it what you will!

Are the Lessons Still Working?

The older I get, the more I think about the ideas that have guided my life’s decisions up to this point. I ruminate on whether some of the ideas that I’ve held dear for a long time are still good enough to follow, or whether they’ve led me to a place that I’d rather not be. In short, I ask myself if those ideas are helping me or hindering me when it comes to achieving my dreams. One of those lessons that I ponder has to do with investing.

When I was younger, I read Dave Ramsey’s book – The Total Money Makeover. I immediately implemented its principles into my life. This book for put me on a very stable financial path. I was young and inexperienced, so this book helped me immeasurably when I was first getting started. And since I’m older than the Internet, I didn’t have access to the myriad of great blogs and websites that now exist to teach people about money.

Fans of Dave Ramsey will know all about the Baby Steps, which are designed to get you living a life that fulfills your dreams once you’re debt-free. If you’re not familiar with Dave Ramsey, get yourself to a library and borrow his book. You may not agree with him, or you may become a disciple. If you’re uncertain about where to start with your finances, his book is a good place to figure out what your next steps should be.

There is a lot to appreciate about the Baby Steps. I’m firmly in favour of getting out of debt. It’s a fantastic goal for just about everyone. I’ve yet to come across a situation involving revolving credit card debt and then think to myself “Wow! What a brilliant idea to pay 29% interest month after month, year after year! I wish I was doing that with my money!”

Nope! I have never once had that thought. When it comes to getting out of debt, I think Dave’s advice is pretty sound… for the most part.

Never refuse free retirement money

However… I’m not as dedicated to everything that Dave preaches as I used to be. Our beliefs about best practices for your money diverge when it comes to saving for retirement and building wealth. If you read his book, then you’ll know that Dave wants you to stop investing for your retirement until all of your debt except for the mortgage on your home is completely gone.

In my opinion, ceasing retirement contributions is a bad choice for a number of reasons. Firstly, people already have a serious problem with saving for retirement and building wealth. That problem generally takes the form of them not doing it! Secondly, the longer money is invested then the more time the money has to compound and grow in the market. It’s so vitally important to simply start investing so that your money starts to grow as soon as possible!

Thirdly, the debt burden to be paid off could be quite large and it might take several years to eliminate it. That’s several years of missed investing! If you’re an older person who’s suddenly decided that it’s time to clean up your personal finances, then you don’t have the luxury of waiting to invest for your retirement. Finally, if you’re getting any kind of retirement match from your employer, then you’re giving up free money when you stop making contributions to your retirement accounts at work. You should not say “NO!” to free money from your employer!

Why pay more for the same thing?

The second area where I disagree with Dave is in respect of where to invest your money. He is a firm believer in buying mutual funds, preferably ones that invest broadly in the stock market. He urges his followers to invest in mutual funds with long-term track records and which provide 12% return on investment. Since he’s from the USA, he encourages people to invest in the S&P 500. I have no quarrel with investing in the stock market. I just can’t figure out why he wants people to invest in mutual funds instead of exchange-traded funds.

For the most part, there’s an ETF out there that is equivalent if not identical to whatever mutual fund has caught your eye. Buying an ETF instead of mutual fund is less expensive than buying a mutual fund. This is because ETFs have lower management expense ratios than mutual funds do. If you want to contribute to a mutual fund that invests in the stock market, then find an ETF that invests in the stock market. Compare the two and then buy the one that’s cheaper. You’ll be investing in the same thing, for a much lower price. The difference between the MERs for the two investment products is money that will stay in your pocket.

Imagine your investment as a 2L carton of milk. You can pay $2.49 for the milk, if it has the mutual fund sticker on it. Your other option is to pay $0.75 for the milk, if it has the ETF sticker on it. One carton is vastly cheaper but you’re still buying the same milk. Why would you pay more for the same thing?

Until I hear a persuasive argument from Dave on why he prefers mutual funds over ETFs, I can’t ever see myself agreeing with him on where people should invest their money once they’re out of debt.

Investing 15% isn’t enough when time is short

The third area where I disagree with Dave is with the amount of money that he wants people to invest. Once you’ve reached Baby Step 7, Dave wants you to invest 15% of your income for wealth-building. Presumably, you can spend the rest of it in any way that you choose.

Woah… 15% of your paycheque isn’t a lot of money if you have no other debts. Personally, I think this number should be way higher. I’d like to see debt-free people investing atleast one-third of their take-home pay, and ideally half of it! My reasoning goes back to the fact that money needs lots of time to grow to significant sums.

If you don’t become completely debt-free until you hit your mid-50s, then you won’t have enough time to build a super-sized cash cushion. Maybe you’ve got a pension so you don’t have as much interest in building your own pot of gold. If you don’t have a pension, then you’re going to need to fatten both your RRSP and your TFSA as fast as you possibly can so that they can get you through your second childhood.

I think saving 15% is a good enough amount if you start in your 20s. This is because young people who aim to retire at 65 have 40 or more years to invest 15% of their income and watch it grow. However, if you’re starting in your 40s or 50s, then you need to save a lot more because you don’t have 40 years of growth ahead of you. There’s no guarantee that you won’t be a victim of downsizing or ageism once you hit your 50s. Dave likes to throw around a rate of return of 12% on mutual fund investments. The longer your time horizon, the better your odds of getting such a lofty return on your portfolio. If you’ve got a short time horizon, then the growth of your portfolio is going to have to come from your return AND your savings so make sure that you save more than 15%!!!

There’s no harm in saving more. Please do not misunderstand – I don’t want you to lead a life of deprivation while you build wealth. I’m not advocating that you deny yourself some of life’s luxuries in order to build mounds of wealth. Sacrificing all the things that bring you happiness and joy alone your journey simply to save for retirement isn’t a good way to live the only life you’ve got.

I just want you to consider saving more than 15% of your income.

If you have no debt and no mortgage, do you really need to spend 85% of your paycheque? Could you not stumble along on two-thirds of it and still do/acquire/experience most of the things on your want-list?

Beer vs. Champagne

Beer tastes on a champagne budget… This is the secret to riches! It’s a fancy way of saying that you should do what you can to live below your means.

This post is going to be short and sweet, Dear Readers. In a nutshell, if you can maintain your beer tastes once you’ve attained your champagne budget, then you will never go into debt, you’ll be living below your means, and you will always have money for investing.

You simply have to stick fairly close to your baseline. Oh, sure – you can increase your baseline by 10% each time you get a raise, or even more if you choose. So long as atleast 60% of all your increases go towards building your cash cushion, you’ll be just fine.

So what’s my Baseline?

Your baseline is where you are right now. Or your baseline could even be whatever income you had when you became interested in the topic of personal finance – this is your beer budget. You lived on this budget and you – metaphorically speaking – drank your beer. For whatever reason, you decided to learn more about personal finance. Perhaps you discovered the Financial Independence, Retire Early movement. Maybe someone close to you died and you realized that there’s more to life than working at an unfulfilling job. Or your reason could be as simple as you realized that you needed a way to fund your life when you stop working because you don’t have a pension waiting for you. There’s also the possibility that you realized that living paycheque-to-paycheque really, really sucks.

So you spend your time devouring any and all money-related topics and you get your act together. You’ve cut out the spending that doesn’t propel you closer to your life’s goals. You’re maxing out your registered plans – your Registered Retirement Savings Plan & your Tax Free Saving Account. You’ve funded a 6-month emergency fund. You’re cooking more meals so that you have money to invest in your non-registered investment account. You may have cut the cord in order as per the Physician on Fire to get to your goals sooner. You might even be acquiring your own army of money soldiers.

Getting to a champagne budget may take some time, but you’re committed to freeing yourself from the financial shackles that are preventing you from doing what you want with your life. A few years down the line, you realize that you’ve made significant strides. Your investment portfolio is kicking off a healthy 5-figure amount of dividends and capital gains every year. You’re a Smart Cat – you have those gains automatically re-invested and you continue to live on your beer budget.

You Will Be Tempted

At this point, the AdMan and his trusty fried, the Creditor, might start knocking on your door. It’s not hard to imagine them reminding you, ever-so-persistently, that you no longer have a beer budget. You’ve got some money now – you’re moving on up like George & Wheezy! You’re a person who can afford deserves champagne. And gosh-darn-it, you’ve got the money for it so what are you waiting for? You only live once, right?

The eternal question now looms before you: beer vs. champagne.

Do you increase your spending to match your new spending power? After all, you no longer just have your paycheque to spend. Now, you’ve got capital gains & dividends that can be spent too.

Hmmmmm….decisions, decisions!

Dear Readers, you’re grown! And I know that no matter what I say, you’re the one who’s going to make the final choice about how you spend your money. This is as it should be.

Does it really make sense to waste money just because you have it?

Like I said at the beginning of this post – the reason you’re in the position to make this choice is because you were living on a beer budget. Your baseline kept you going. You were never deprived. You spent your money on the experiences that brought you the most joy and happiness. The beer budget worked like a dream and it allowed you to save money until you’d created a champagne budget for yourself.

My simple suggestion is that you think long and hard before you choose to upgrade your baseline to the limit of a champagne-budget. Ask yourself what need will be served by giving up the beer budget just because you can afford champagne? What is it that you really, really want your money to do for you?