Category: Single 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?

Dollar Cost Averaging is a Great Tool

As the warm days of spring roll in and push harsh memories of winter to the recesses of your memories, you may find yourself enjoying the sunshine and asking yourself: What is exactly is dollar-cost averaging?

I’m here to tell you that DCA can be a powerful tool for investors.

In a nutshell, dollar-cost averaging is a method for systematically investing your money. Investors who use DCS invest the same amount of money into an investment on a regular schedule. That schedule can be whatever the investor choose – weekly, monthly, quarterly, annually, or any other increment. The purchase of the underlying asset occurs regardless of the asset’s price.

There are a few of good reasons to use this investment methodology.

Dollar Cost Averaging or Lump-Sum Investing?

Firstly, the DCA strategy facilitates quicker investment in the stock market. Investors can align their investments with their paycheques. Since one my guiding financial mantras is spend-some-save-some, I make sure that a part of my paycheque is promptly & automatically re-directed to my investment portfolio.

There’s a school of thought which says that lump-sum investing is better than DCA because the entire value of the lump-sum amount is put to work in the stock market all at once. If your plan is to invest a large amount in the market, the proponents of lump-sum investing recommend that you invest the entire amount at once. Check out this article from the wise fellow at www.fourpillarfreedom.com for a good discussion of the benefits and drawbacks of the two investment methods.

Theoretically, I have no quarrel with the lump-sum investment style. However, the practical reality of my life is that I don’t have large lump-sums of money lying around. I invest when I get paid because that’s when I have the money available. The money is deposited into my chequing account, then it’s shunted to my investment account, where it sits until it’s invested. For most people without large chunks of money at their disposal, DCA is a better option – in my opinion – because they can invest when they’re paid.

No Need to Time the Market

Secondly, DCA eliminates that temptation to try and “time the market.” Investors who time the market are trying to buy an investment at its very lowest price. Perhaps you’ve heard recent chatter in the system from economists about the impending recession?

What you will never hear from any of those experts is the exact date on which the recession will start. And absolutely none of them will tell you date on which the stock market will be at its very lowest point. People lucky enough to buy at the lowest point will have the best investment returns when the market recovers. Market-timers are always trying to pick the very best time to invest.

Like all investors, market-timers are trying to maximize the profits from their stock market investments. Unlike market-timers, investors following the DCA-method simply invest their money on a consistent basis. They do not bother themselves with trying to buy at the very lowest price. They’re not concerned with the very best returns. They understand that time in the market is more important that timing the market.

Automation Pairs Beautifully with Dollar Cost Averaging Investing Method

Thirdly, the power of automation complements the DCA investment strategy very nicely. If you intend to invest in the stock market, then automatically transferring money from your chequing account to your brokerage account is an excellent strategy.

Let’s say you decided to invest on the 15th of each month. Your automatic transfer will ensure that a chunk of money is in your brokerage account for the purchase. On the 15th of the month, you’ll buy as much of the asset as your funds will allow regardless of the asset’s price. Then you won’t think about investing again until the 15th of the following month. Maybe you want to invest quarterly? That’s fine too. Put the power of automation to work! Gather money in your investment account until it’s time to buy some assets. Never forget the DCA can’t work for you unless you’ve set aside some savings.

This is how I invest. Every month, I invest money into my dividend-paying investments. I don’t follow the price of my exchange-traded funds from one day to the next. Instead, I buy as many units as I can when it’s time to buy. Then I don’t think about my investments again until the dividends roll in.

Easy-peasy, lemon-squeezy – rinse & repeat!

I’ve been using the DCA method to invest my money since 2011. I wasn’t interested in learning to be a wizard at picking stocks. The DCA method was easy to implement and even easier to understand. Much like every other investment method, it’s not perfect and it’s not suitable to for everyone. However, it works for me. I’m confident in this method and I’ll continue to use it until something better comes along.

The Time Will Pass Anyway

I really hate delivering bad news, but there’s no way around this. You’re not getting any younger. Time is marching on. You can fight it all you want, but the time will pass anyway. The important thing to do is focus your time, attention and energy on answering the following question – are you doing what’s necessary today to create the life that you really want?

Happily, you’re the person who decides which of your dreams to pursue. You’re the one who knows what truly delights your heart, what always replenishes your soul. You get to decide which path to follow in order to achieve the goals that you have set for your life. Every day is an opportunity for you to better understand yourself and the way you interact with the rest of the world.

Whatever it is that you want to achieve, there’s a financial cost to it. I don’t care if you want to travel, start your own business, buy rental properties, take a sabbatical, race in the Grand Prix, go sky-diving, or spend a week at home unplugged from the rest of the world. It’s going to cost you some money.

Start Saving Today

Start saving for your dreams now, even if they aren’t fully fleshed out. It hardly matters where you are in the stage of making your dreams come true. When the opportunity arrives, you should have some money set aside to chase those dreams. I accept that there are situations where money should not be the factor holding you back, but I would encourage you to minimize those situations as much as possible.

When I was 16 years old, I got my first part-time job in a grocery store. It wasn’t glamorous, nor was I well paid. If I remember, I was earning $4.85 per hour. I didn’t work a lot of hours either, since I was in school and living at home. I had to open a chequing account to deposit my paycheque, since this job existed before the days of online banking.

Even though I was 16 and I didn’t know beans from potatoes, I knew enough to open a savings account at the same time that I opened my chequing account. At the time, I’d never heard of automatic transfers. Every two weeks, I would receive my paycheque, then I would deposit it into my account with the bank teller. I would then walk over to the bank machine and transfer $50 from my chequing account to my savings account. I have no idea why I didn’t just ask the teller to do the transfer for me while I was at her wicket. Maybe I was trying to increase my step-count? In any event, I went through this process every two weeks until I got a job at a different bank and learned how to make the online banking system work for me.

“$50? Big deal!”

You’re right, Dear Reader. On its face, $50 is hardly enough for a grown-up to get excited about. It’s the kind of money that would delight a 3-year old at the toy store, but hardly enough to generate glee in an adult with adult-sized bills.

Habits are the Game-Changer

However, the importance of my story isn’t the $50. I’m telling you my story to impart the lesson that saving money has been the key to funding my dreams. I saved $50 every two weeks for years and years. What was most important was the habit of savings, not the amount. As I got older, I earned more money and I increased the amount that was set aside every two weeks. The habit stayed the same, even though the amount changed.

And once the habit was in place, it’s never disappeared. My “little savings habit” has allowed me to travel internationally, fund my RRSP and TFSA, buy a home, build an army of money soldiers, and generally partake in social events with family and friends.

I’ll be forever grateful to my parents who taught me about having dreams, creating habits, and saving money. My parents’ dream was for us to go to school, and they found a way to fund that dream. Part of the funding efforts went on behind the scenes as they invested all out Baby Bonus money instead of spending those cheques each month.

The other part of funding their dream was overt. When my brother and I were little, my father had created the habit of giving each of us $10 every two weeks from his paycheque. We would carefully fold that money and put it into our piggy-banks. Twice a year, we would empty our piggy-banks. My father would sit us down and make us fill out deposit slips for our bank. I still remember unfolding the money and clipping it together with the deposit slip before taking it to the bank. That money would ultimately go towards buying Canada Savings Bonds. Eventually, that money paid for our post-secondary education.

The Power is Yours

Whatever you dreams are, you have the power to create the savings habit now. Whether you start with $1 per day, $10 per paycheque or $50 per month, just start setting the money aside. The habit is more important than the amount. Once the habit is in place, you’ll increase the amount as you pay off other debts, as you eliminate expenses that don’t bring you joy, and as your income increases.

Create an automatic savings plan for yourself. Divert this money away from the funds that you rely on for your day-to-day needs. Use the savings habit to ensure that your precious and limited time is spent on the experiences that bring you the most joy. The time will pass anyway.

Spend Some of Your Money

Wait – what?!?!?!

I know. It’s a shocking thing to say out loud, isn’t it? In the personal finance world, these words are damn near heresy!

Day after day, we’re constantly inundated by news stories, articles, and blog posts about how we’re not saving enough money or that we’re not saving enough for retirement and that we’re in debt up to our eyeballs!!! For the most part, I agree with those sentiments. However, I’ve learned that the journey is just as important as the destination. Everyone is entitled to find ways to enjoy the Now, instead of depriving themselves until happiness, joy and fun can be attained Later. Finding the balance is key.

Today, I want to say something different to you. You should spend some of your money on those things that make you the happiest. I’m suggesting that you really focus on and prioritize those little luxuries that you normally sacrifice but which, ultimately, make your day a little bit brighter. Once you’ve figured out which one of your luxuries is the most special and magical to you, I want you to go and spend some of your money on it.

The other stuff is still very, very important. I want you to take care of it first before you implement my excellent advice:

  • Money set aside for emergencies? Check!
  • Mortgage/rent payment good to go? Check!
  • Fridge stocked with healthy food? Check!
  • All bills paid as they come due? Check!
  • Retirement monies automatically skimmed from paycheque then being invested? Check, check, check!

Excellent work! Now it’s time to take whatever’s leftover and spend a little bit – not all of it – on something that makes your heart smile. It might be something as simple as a rich, decadent dessert at your favourite restaurant or pie shop. Perhaps travel is what sets your soul alight and you’ve been saving up for your next vacation. Or maybe you just want the soothing comfort that comes from a 90-minute hot stone massage. Might it be possible that you need to take a mental-health day to spend the afternoon at the ballpark watching your favourite team? Or sitting on a beach? Or whatever you want to do with your day off?

You work very, very hard for your money and you deserve to enjoy it. You owe it to yourself to pay cash for the little things – or the big things – that make you happiest. Once you’re taken care of the necessities, you really ought to be spending some of your cash on the flourishes that make your daily grind a little less burdensome. Life is meant to be enjoyed, despite its challenges! Sometimes, spending cash to experience that joy is perfectly healthy and utterly normal.

Notice that I said “cash”? I mean it! I want you to pay for your luxuries in cold, hard cash. (And if you absolutely must pay for them with your credit card, then I want you to have the cash before you make the purchase to pay off the credit card bill when it comes due.) Your luxuries – whatever they are – will be all the more sweeter if they don’t result in any regret later stemming from a debt hangover.

I want you to find the balance between Now and Later. It’ll be good for your soul to indulge yourself every once in a while. If you’re being responsible with most of your money, by setting aside funds for your necessities and your life’s goals, then it’s okay for your to be a teensy-weensy bit frivolous with a portion of your disposable income.

Go ahead! Indulge yourself a little bit. What do you want that you haven’t had for a long time? If you have the money, then go and get it!

Freeze your Credit Limit

Recently, I had a discussion with someone who was worried about credit card debt. For ease, Gentle Readers, I shall call this person Oscar.

Oscar’s niece owed over $10,000 on her credit card and Oscar was beside himself! It seemed that Oscar’s niece had been fleeced by an acquaintance who was not repaying the borrowed money and was in fact enraged with Oscar’s niece for not lending out even more money on her credit card.

While the whole situation was bothering Oscar a great deal, I learned that he was most troubled by the fact that the credit card company had increased his niece’s limit without verifying her salary. Oscar somehow believed that the credit card company had acted in an untoward manner! Oscar appeared to be under the impression that the credit card company was in a fiduciary relationship with his niece.

For my part, I was stunned that Oscar would be surprised by the credit card company’s behaviour.

Credit Card Companies make profits, not friends

In case you, Gentle Reader, believe credit card companies act in your best interest, please allow me to clarify the situation for you. Your credit card company has no duty to act in your best interest. Credit card companies are finance companies – they are in business to make money, not friends!!!

As profit-seeking entities, the credit card companies are not going to do anything to stop you from going into debt with their product. Please re-read my last sentence a few times before continuing. Let it sink in. To the credit card company, you are the goose and your feathers are money. They want to pluck you naked.

The credit card companies will increase your limit, charge you interest and fees, and harass you for payment if you don’t pay them back each month. They are finance companies. Their sole purpose is to earn profits for their shareholders by giving you credit so that you pay them back with interest and fees. That is the only service that they are offering you. To believe anything else is to naive and self-destructive. When you go into debt, they make more money.

More often that not, it makes sense for these companies to increase your credit limit beyond your ability to repay the full balance in a single payment cycle. They will do this at a drop of a pin because it’s a good business move for them. Doing so vastly increases the odds that you will be forced to carry a balance and thereby pay them interest at a double-digit percentage.

The credit limit increase is good for them. Conversely, the increase is bad for you. If you are using credit and not paying it off every single month, then you are living beyond your means!!! This situation is very bad because it means that you are living in debt and that you do not have any disposable income to put towards building your cash cushion.

Your Salary is Irrelevant to Any Increase

Credit card companies don’t check your salary before they increase your limit. When you apply for a credit card, you have to state your income. However, once you’ve been approved and issued a credit card, your salary need never be discussed again. The credit card companies don’t care if you earn $1500/month or $25,000/mth. They will continuously increase your limit as often as they can in the hopes that you eventually start paying them interest by carrying a balance from one month to the next.

My wisdom for you is this: your credit limit should never exceed the amount of money that you could repay in a single month. If you have an extra $1,000 per month after all your needs are met, then your credit limit should only be $1,000. You’ll be in a position to use your credit card up to its limit and still pay off the balance without incurring any interest. If you don’t have $10,000 in disposable income each month, then you don’t need a $10,000 limit.

A very smart friend of mine who introduced me to the Disposable Income Method of using credit cards. It’s ingenious and highly effective. I’m sure that the credit card companies hate it! If so, that’s means that you should love it and start implementing it immediately. Briefly, the Disposable Income Method requires you to set your credit card limit at whatever disposable income you have between paycheques. Every purchase can go through your card and you pay your credit card in full each time you get paid. Easy-peasy-lemon-squeezy!

Protect Yourself from Limit Increases

There are two ways to protect yourself from credit limit increases. The first method is to never have a credit card. This method is drastic and foolproof. In today’s world, it’s also quickly becoming unrealistic. Even I use credit cards on a regular basis. However, I never borrow more than I can repay when the bill comes due.

The other way to protect yourself from these increases is to phone your credit card company and to tell them the following: “Do not increase my credit limit without my express request to do so. I don’t need more credit than I have right now. I do not want my credit limit increased without my explicit permission. Please make a note of this conversation in your computer system.”

This conversation works – trust me. I do not want a 5-figure credit limit because I cannot repay a 5-figure debt in a single billing cycle. It has been several years since I’ve seen an increase in my credit card limit. By telling my credit card companies to freeze my credit card limit, I’ve eliminated some of the risk of carrying a credit card. I’ve pre-empted the possibility of spending more than I can repay.

So pick up the phone – call your credit card company – freeze your credit limit. Don’t feel bad or sad or guilty about doing so. Rest assured that the credit card companies will always be there to offer you more credit at very high interest rates. Fret not, Gentle Reader – you can always go into debt tomorrow!

Make Hay While the Sun Shines

This week, I was very sad after reading an article in the Walrus about how so many people in Canada go hungry on a regular basis.

The article reminded me that being able to eat every day is a privilege that I take for granted. I have enough money so I can go to various grocery stores and buy the food I need to eat three good meals each day. I have money to go to restaurants with my friends. I have sufficient funds to eat fast food when I’m too lazy or too disorganized to have done my meal prep. I have money and, therefore, I have food.

However, eating shouldn’t be a privilege accorded only to those with money. Without food, people die. It’s that simple.

There are many reasons why people don’t have money, why they can’t afford to feed themselves. Unemployment, mental health problems, evictions, rental increases, homelessness, family conflict… These are just a few examples that readily spring to mind. Regardless of the reasons for lack of money, that article from the Walrus made me question if we, as a society, are really willing to let people starve to death for lack of funds?

I don’t have the answer to that question, nor do I have any particular wisdom on how to eradicate the pervasive presence of poverty. My purpose with this article is to encourage you to think about what you can do today to minimize the risk of starvation becoming something that you have to face.

First things first – be grateful. If you have food, shelter, family, health, then you’ve already been blessed with what’s most important. Be grateful for what you have and never take your situation for granted.

After reading this blog for some time, you know that I’m a huge advocate of squirrelling away your money. Yes, it’s important to enjoy each day as it comes but not if it means spending every penny you have. You don’t know when the next emergency will hit, when you’ll get sick, when you’ll lose your job, etc…

The time to save for tomorrow’s emergencies is now. Money is the buffer between you and many bad situations. Money in the bank gives you options when you need them most. Having money in the bank means you can survive between employers, between contracts, between assignments, between paycheques. It means that you can continue to live somewhere with a kitchen and a fridge and a stove and a place to store the food that you will be cooking for yourself. Having money set aside means that you’ve created a bigger gulf between yourself and a situation where you don’t know when you’ll next have something to eat.

Once you’re in that situation, it’s very hard to get out of it because you’re too focused on daily survival to make plans for the future. Take my advice – start now!

I want you to calculate your personal per diem, ie. your daily cost to survive. Track all the money you spend in a month then divide that number by the days in the month. For example, if you spend $3000 per month, then your per diem is $100/day.

Then figure out how long you think it would take you to find another source of income if you lost your current one. Double that timeframe! Finding good paying positions – whether through freelancing, self-employment or working for others – isn’t easy. Be conservative! Assume that it will take longer than you expect and plan accordingly.

Then look at how much money you already have set aside in a savings account. How many days could you survive off what you’ve saved?

Having per diem money put away is your safety net. It should go without saying, but I’ll say it anyway, that the more money you have then the stronger your net.  Per diem money will help you to avoid the risk of starving if your income disappears for a time.

There is no perfect fix to the issue of poverty. However, there are steps you can take to lower your risk of falling into a poverty so deep that you cannot feed yourself.

As a Singleton, there isn’t another breadwinner in the home to supplement your income. It’s all on you, which is both a blessing and a curse. It’s a blessing because you don’t have to save as much money. It’s a curse because you do have to build and reinforce your safety net all by yourself. It’s my experience that the unexpected expenses of life still crop up while you’re building your cash cushion. It won’t always be easy but you’ll have to find a way to save money and also have funds to cover unexpected items without relying on debt.

The cash cushion won’t be built overnight. Depending on how much disposable income you have, it could take you weeks, months, or years to set aside a big ol’ bucket of money. Do not let that deter you! Trust me when I say that this is a goal worth pursuing – no matter how long it takes!

Never ever forget that money is the barrier between you and poverty.

A Simple Truth

“You can’t become financially independent with someone else’s money.” – Farnoosh Torabi of the So Money Podcast

The frankness of this statement amazed me.

While being interviewed by Jamila Souffrant at Journey to Launch, Ms. Torabi spoke of the need for women to control their own money. She posited that a woman without her own money could not truly be independent of someone else for her financial security.

I’ve been thinking about this idea for a while now, and I believe it wholeheartedly. A woman without her own money will always be dependent on someone else for her financial security – a parent, a spouse, the state. It’s not a great way to live, yet for millions of us it is a reality that we accept as easily as we accept that the sun rises in the east every morning.

Women who control their own money aren’t as rare as they once were but they’re not as common as they should be either. One of my friends was married to a very good-looking man who decided to stray. She decided that she wouldn’t tolerate that particular decision and they divorced. One of the reasons why she could make that decision was because she holds a professional degree. Her education allowed her to secure her own financial future – she could pay the mortgage, the nanny, the divorce lawyer, and all the costs associated with being a single mother raising babies. From a financial perspective, my friend was very okay because she was and continues to be financially independent. She doesn’t have to depend on anyone else’s money to live the life she wants to live.

Full disclosure – I’m a Singleton. While I hear about the debate between married people who share all of their money and the married people who keep things separate, it’s an academic discussion to me. I’ve never had to seriously consider whether I would share my money with another person.

Additional disclosure – the idea of sharing my money makes my stomach turn. And when I’ve considered why I’m so against the idea of co-mingling my money, it’s because I view that decision as increasing my risk instead of increasing my security. If I were a Singleton living paycheque-to-paycheque, or living in debt, then the idea of sharing another person’s wealth might be quite attractive. Similarly, if I could be certain that a partner’s views of money were compatible with my own and that he had also built up a nice-sized war chest while a Singleton, then the concept of a joint bank account wouldn’t cause so much anxiety for me.

Even without hearing it articulated, I’ve always known that having control of my money has meant that I retained the power to make independent choices about how to live my life. Since leaving my parents’ home, I’ve never had to ask for permission to spend a single dollar. I’ve never had to discuss a purchase with another person because the money was mine. I’ve never had to compromise with anyone about how to invest my money.

You see, I’ve always understood that having control of my money meant having more control over my future financial well-being. Even if I was married to the kindest, gentlest, most wonderful human being on the planet who took care of my every financial need, there’s no guarantee from anyone or anything that my Wonderful Human would be there forever. People die – people leave – people get kidnapped – people get sick – employment disappears – businesses fail – etc, etc, etc… If any of those things were to happen to my Wonderful Human, I would not want to be in a position where I had to worry about money while also dealing with the emotional grief that would inevitably accompany that loss.

By the same token, I always knew that I didn’t want to be forced to stay in a relationship just because of money. I didn’t want to be financially dependent on someone who was abusive to me, or who didn’t treat me kindly. I wanted to have the ability to walk away from any relationship that didn’t work anymore, or that wasn’t giving me what I needed. I never wanted to be financially dependent on anyone else because that would mean that they controlled my financial future. If they had the power to make the financial decisions for my life, then I would forever have to wonder when, or if, they would take away their financial largesse and give it to someone else.

I accept that there are no guarantees in life. However, I also accept that women can take steps with their money to build a solid financial foundation for themselves and that they should not look to others for financial security. Having money of her own means that a woman can make choices for her own best interests without worrying about how to accommodate the wishes of someone else. A woman with money can leave a bad situation, a bad job, a bad relationship without worrying how to feed, shelter, clothe herself. Money gives women the option to finance the basic necessities that they need without requiring them to depend on anyone else.

Ms. Torabi is right – you cannot become financially independent if you’re relying on someone else’s money.