Single Money - Millionaire on the Prairie

5 Simple Rules to Become a Millionaire

This week, someone asked me if I would consider writing a post about not drinking a daily coffee in order to become wealthy. I responded that I though the “daily coffee” is a red herring. By following a few simple rules up front, anyone will become a millionaire with enough time.

Rule #1 – Invest

Take 30% of net pay and invest it in well-diversified exchange traded fund. Do this every single time you get paid. If you get a raise, maintain that 30% proportion.

If you can’t start with 30% right away, then start where you can and increase the percentage by 1% every chance you get. I didn’t start at 30% right away either. However, after 30 years of investing, I’ve managed to hit a 40% savings rate. It didn’t happen overnight but it did eventually happen.

The more you can save, the faster you will hit the goal of becoming a millionaire or being financially independent. It’s important to start today.

I promise you that if you don’t invest any money today, then you will have very little of it when you need it the most later.

Rule #2 – Build an Emergency Fund

Some people recommend having 3-6 months’ worth of expenses set aside in your emergency fund. I’m a little more conservative than that. Personally, I would recommend 12 months’ worth of expenses. My personal mantra when it comes to emergency funds is as follows.

It’s better to have it and not need it, than to need it and not have it.

You know your own comfort level far better than I do. Ask yourself if you would rather have more or less money in an emergency fund?

Saving up this much money will take time, probably years. If it makes you feel any better, I’m still working on building up my emergency fund, and I’ve been tackling this project for a long time.

Rule #3 – Pay off your debt

Much like building an emergency fund, it may take some years to pay off all your debt. And I do mean “all” of it: vehicle loans, personal loans, student loans, credit cards, mortgage, etc… If you owe money, pay it off.

A mortgage may take decades to pay off. This is why I think it’s best to invest while paying down a mortgage and building your emergency fund. Should you get an inheritance, a lottery win, an insurance payout, or a huge raise/bonus at work, then maybe you can consider paying off the whole mortgage. There are a many factors to consider before this decision is made so consider it carefully and don’t make any hasty moves.

It might make more sense to invest the inheritance/lottery win/insurance payout/ raise-or-bonus in the stock market for long-term growth, then use the dividends generated to pay off your mortgage. That way, when the mortgage is gone you will still have a cash machine churning out an income for you. Check out this video for more details of this plan in action.

If you spend the inheritance/lottery win/insurance payout/ raise-or-bonus right away, then it’s gone for good.

Rule #4 – Use sinking funds

When there’s something you want to buy, save up for it first before you buy it.

Sinking funds force you to prioritize where you want your money to be spent. I believe that when you work hard for your money, it should be spend on the priorities that will make you happiest. Wasting money on the things that don’t bring you joy seems to be a poor choice. You will never get back the time and energy spent at work. Instead, you get a paycheque. It should be directed to building the life you really want because it represents your precious, precious time and energy.

I realize that our capitalist society does not encourage this way of life. The Ad Man and his trusty sidekick, the Creditor, are relentlessly exhorting everyone to buy everything they want immediately. My rule is about delayed gratification, not a popular choice for most folks.

However, if you want to become a millionaire, then it’s better to not send interest payments to creditors. It’s better that you invest that money so that you can reach millionaires status as soon as possible, if that’s what you really want.

Rule #5 – Spend your money

That’s right. After you’ve eliminated debt and you’ve funded your emergency fund, then it’s time for you to spend your money however you choose without going into debt.

Your investments are happily compounding in the background. Dividends are compounding each year on a DRIP, aka: dividend re-investment plan. You’re continuing to contribute 30% of your net pay even after paying off your debt and fully funding your emergency account. You’re saving up for everything before you buy it.

Keep investing. Stay out of debt. Maintain a fully-funded emergency fund. Rely on your sinking funds to meet your life’s goals.

If you’re doing these things, then you’re following the first 4 rules. Your day-to-day purchases will have no impact on your path to becoming a millionaire.

So spend the rest of your money however you want. Coffee? Travel? Brunch? Spa days? Pets? Hobbies? Wine club? Sporting events? Clothes? Shoes? Vehicles?

It doesn’t matter how you spend your money once the first 4 rules are being followed. Again, spend the rest of your money however you want so long as you stay out of debt.

A Woman Always Needs Her Own Money.

Single or not, a woman needs her own money.

Full stop. I’ll never be convinced otherwise so don’t even try. I’ve lived for a long time and I see the importance of having money in the bank. The only thing that money buys is options. The more money you have, the more choices you get to make about how to live your life. When you don’t have your own money, you’re living at the risk that someone else might take away access to shelter, food, transportation, and everything else that you need to have the life you want.

International Women’s Day was celebrated on March 8, 2024. Think about yourself and the women in your life. What are you doing to take care of your money so that it’s always in place to take care of you?

A good portion of self-care is having money. It’s never explicitly stated but money gives you the ability to walk away from situations that you don’t want in your life. Job sucks but you have money in your FU-fund? Then you can walk away and find another one without worrying about how to pay your bills. You want to move because your new neighbours blast their music until 3am every night? You’ve got the money for the damage deposit already sitting in the bank, waiting to be deployed. You want to take a sabbatical because you’ve been grinding for years and you’re simply burned out? Money in the bank means that your bills will be paid while you replenish your soul.

Always have your own money, Ladies! There should be atleast two bank accounts that only have your name on them. One account should be a chequing account, for day to day expense and monthly bills. The other account should be your investing account. You should be funneling money into your investment account from your chequing account every time you get paid. The money invested in the second account will be there to pay for your life once you’re no long employed. Money invested today funds the retirement of Future You, who will tire of going to work at some point.

You need an emergency fund to cover your life’s expenses if you and your income part ways. The emergency fund keeps financial vulnerability away. Trust me! It is far more precarious to depend on the kindness of strangers than it is to have 6-12 months of income in the bank.

A little bit of today’s money should be spent on those luxuries that bring you joy. You shouldn’t be at the mercy of someone else’s mood every time you want to splurge on something. Do you want to book a trip to Paris? Tokyo? Ghana? Maybe you want a weekend away in a ski chalet? Or maybe you’ve decided it’s time to buy that vintage car you’ve been eyeing. Whatever you little luxury is, you deserve to buy it for yourself without having to worry what anyone else has to say. If you’re dependent someone else for your money, then you’re in the financial position of a child and you need to wait for someone to give you spending money.

This week I heard someone say that money can’t buy happiness. What is equally true is that poverty can’t buy anything. If satisfying your hunger makes you happy, then you’ll need money to purchase food. Grocery stores and restaurants aren’t giving it away for free. Maybe you need medication for a chronic condition, or even a one-off medical concern? If so, then you need money to buy the medicine you need. Camping and homelessness both involve living outside yet one costs money while the other one doesn’t. Tell me honestly – wouldn’t you prefer to say “I went camping” rather than “I am homeless”?

In honour of International Women’s day, I encourage all women to do what they must to get their own money. It is the one tool that can be used however you want. You need money to create the life you want and to pursue the opportunities that come you way. Money amplifies your ability to make choices without needing someone else’s financial permission. Every woman should have that.

Have You Decided How to Spend Extra Money?

Most of us dream of winning the lottery, but there are times when smaller lump-sums come into our lives. What should be done with that extra money?

In my humble opinion, you should split that extra money in the following way:

50% to your investments
30% to your debts (if you have any)
10% to your emergency fund
10% to whatever you want

Investments need to be funded.

My advice is to invest money when you have money. Your Tax Free Savings Account and your Registered Retirement Savings Plan will not fund themselves. It’s up to you to put the money into both of these accounts. Once you’ve made the contributions to your TFSA and RRSP, you have to invest that money so that it can grow over a long period of time.

If you’ve already maxed out your TFSA and RRSP contribution room, then put the money into your non-registered brokerage account. The government taxes capital gains and dividends earned in your brokerage account less than it taxes income received from your employer. This is a very good thing.

So when that “extra money” lands in your bank account, invest half of it.

Pay down your debts.

In an ideal world, you don’t have any debts.

Most of us don’t live in an ideal world. Debt is a part of many people’s lives via student loans, credit card debt, medical debt, mortgages, car loans, etc… I view debt as a financial cancer. Debt prevents you from building your own financial cushion. It prevent you from accumulating wealth. When you send money to your creditors, then you’re unable to invest those same dollars for Future You. Debt limits your ability to make life a little bit easier for Today You.

So when extra money comes your way, send atleast 30% of that amount to your debts. If you want my opinion, pay off any debts that can be paid in full. I subscribe to the Debt Snowball method of repayment because it feels good to get rid of debt. Positive psychological boosts are generally good motivators, so I’m a fan.

Top up your emergency fund.

It takes a very long time to build up an emergency fund. While some people are comfortable with a smaller one, my goal is to work my way up to 12-months worth of expenses. I’ve yet to meet this goal and I’m still working towards it. Thanks to my automatic transfers, I’ll get there eventually.

In the interests of transparency, I’ll tell you that I recently had to pull money from my emergency fund. Accordingly, refilling my emergency fund has moved up my priority list for my money. I need my cushion to be replenished as soon as possible because there’s no way to know when the next emergency will arrive.

When extra money comes your way, it’s an extremely good idea to put atleast 10% of that money into your emergency fund. You don’t know when that emergency is going to land. There is a high likelihood that there will be a financial component to your emergency. Right now, there’s no way for you to know how big that financial hit will be. Trust me when I say that you will be very happy to have some money salted away the day that you have to deal with your emergency.

Spend the rest however you want.

That’s right. I want you to spend the last 10% of your extra money however you want.

While I firmly believe that it’s important to save for the future and to get out of debt, I realize that one of the main benefits of money is buying those things that will make you happy today. Is it a nice dinner out? Maybe a day on the links? Or you need to refill your wine-rack? Perhaps you want to upgrade your phone or your computer? Is there a getaway that you’ve been wanting to do?

Whatever it is, make it happen with the remaining money without going into debt.

Let your priorities guide you.

It’s your money. You’re the one deciding how to spend your extra money. My suggestion allocation of how to use that money is for those who might need help in figuring out what to do with their extra money.

Now, the allocation suggested above is just my preference. Other people might have different priorities for their extra money. Some people might want to put all that money towards paying off their debts. There are others who will put the whole amount into their investments. Of course, there are also those who will see this as “found money” and will choose to spend the entire amount on whatever they want at the moment.

Do what makes sense for your life. Having a plan for your extra money ensures that your priorities are met, and that you’re not left wondering where all that money went.

Procrastination is the Thief of Time.

Truer words have never been spoken. When it comes to investing your money, procrastination is also robbing your wallet.

See – it’s like this. If you invest $0 today, then you’ll definitely have $0 tomorrow.

On the other hand, if you invest something, then you’ll have way more than $0. The more you invest, the more you’ll have. It’s a simple, direct relationship between the choices you make today and the outcomes that you’ll have tomorrow.

First lesson – invest your money. Start with what you can and work your way up. I suggest increasing your investment contribution by 1% every year. When you get paid capital gains and dividends, re-invest them.

Keep an eyes on your management expense ratios. The MER is the amount of money that is fleeced from your account. I look at it this way. The businesses that offer the investment products need to get paid too. That’s fair. What is not fair is me paying 2% per year instead of 0.35% (or less) for the same product from someone else.

Play around with this investing fees calculator for a little bit. It shows you the impact of MERs on your investment account. The longer you keep your account, the more money is siphoned away to someone else. By choosing good investments with lower MERs, you’ll be keeping more of your returns in your own pocket.

Second lesson – understand the impact of fees. Canada has a reputation for having some of the highest MERs in the world. The longer you pay higher MERs, the less money you’ll have for Future You when you really need it. Try to pick investment products with low MERs.

Don’t be afraid to make mistakes. You’ll always learn more from your mistakes than you will from your successes. Make your mistakes. Learn from them. Don’t make the same one over and over again. Your goal should be to earn-save-invest-learn-repeat. It’s a pattern that should never stop. As you learn better, you’ll do better.

Trust me. I started out investing in mutual funds with one of the Big Six banks. I wasn’t paying a 2% MER, but it was around 1.75%. I didn’t know any better. The Big Six bank didn’t even have a way for me to automatically deposit to my mutual funds every month. I did it in person, which got weird very quickly. So I went to an investment firm. I loved that investment firm, and I got wonderful service every time I called. Unfortunately, while the MERs were lower, they were still pretty high. But I didn’t know any better so I stayed with them.

Eventually, I started hearing about something called exchange-traded funds, or ETFs for short. They offered the same diversification as mutual funds but with MERs that were much, much lower. By the time Vanguard came to Canada, I couldn’t move my accounts fast enough.

Third lesson – make your mistakes fast so you can learn fast. No one is perfect at investing, and everyone makes mistakes sometimes. The key is to learn from your mistakes so you don’t repeat them. The biggest mistake that you can make when it comes to investing is to never start.

If you’re not yet investing, start today. If you’ve started and your MERs are too high, then move your accounts to equally good and less expensive options. If your MERs are low already, then work on increasing your contribution amount by 1%. Make sure you’ve turned on the dividend re-investment plan feature on all your investments. If your brokerage doesn’t allow for a DRIP feature, then move your accounts to one that does. Trust me on this. You most certainly want to have the DRIP in place so that your investment returns compound as fast as possible.

You’re smart enough to learn how to do this. The fact that you’re here, reading my blog, means that you have an interest in attaining financial security at some point. That’s the seed that’s needed to plant your Money Tree. By starting today, you’re preventing procrastination from stealing any more time from you.

10 Ways to Increase Your Wealth in 2024

I’ve been learning about wealth-building and personal finance for awhile now. Allow me to save you some time by sharing the methods that helped me to reach my own financial goals. If you want to increase your wealth, then implement as many of the following strategies as you can. Don’t be discouraged if you can’t do them all at once. Much like becoming proficient in any area of life, it takes time to get good with money.

1. Live Below Your Means

This maxim is the bedrock of succeeding with money and increasing your wealth. Your “means” is your income, so never spend more money than you bring in. Spending more than you earn translates into debt payments to creditors. It also put you in the position of never having disposable income for investing and building an emergency fund.

Say the word “No” to yourself and others until you’re able to live below your means.

2. Pay Yourself First

Whenever money hits your bank account, take 10% off the top and invest it. In other words, send the first 10% that amount to your TFSA, RRSP, or investment account. The sooner the money is invested, the sooner it’s working 24/7/365 to replicate itself for your benefit. This 10% is the money that must be properly allocated to Future You before it is spent on the present wants and luxuries of Today You. Believe me when I say that 10% is the absolute bare minimum that you must invest it for your future.

After you’ve sent the first 10% to your investment account, spend the remaining 90% of your money however you want without incurring debt.

Ideally, I’d like to see everyone invest 20% or more but this isn’t always feasible. And if you can’t start with 10%, then start where you are and work your way up to 20% or more.

Strive to increase your savings percentage by increments of 1% as often and as quickly as you can.

3. Build Up Your Emergency Fund

To start, I want you to get $1,000 in your emergency fund. This isn’t enough for a lot of emergencies but it’s better than nothing.

In the perfect world, you’d have 6 months of income in the bank. That takes a very long time to accumulate because it’s not a small amount of money. Set up an automatic transfer so that a portion of your paycheque goes to your emergency fund every time you’re paid. Once you have a 6-month emergency fund, then your emergency fund contribution can be re-directed to paying off debt and/or investing for the care and feeding of Future You.

If you have to use your emergency fund, then re-filling it has to become a priority again.

4. Pay Extra On Your Debt

Debt is a wealth-killer. If you’re committed to handing over great swaths of your paycheque to your creditors, then you simply cannot use those funds for investing.

I don’t care if you use the snowball method or the avalanche method to pay down your debts. Just get rid of them! Here are some methods to get find the money to make extra payments over and above your minimum amounts due:

Work another job and devote that paycheque to your debt.
Cancel some of your subscription services and re-direct that money to your debts.
Sell things that you no longer need, use, or want and put all that money towards your debts.
Downgrade your car for awhile to get out from under your car payments, and use your those former payments to pay down your debt.

Once you’re out of debt, stay out. If you want to buy something, save up the money first then buy the item outright.

5. Fund Your TFSA

The Tax Free Savings Account is a magnificent tool for building your wealth. Do not be intimidated by the maximum annual contribution limit. For 2024, that limit is $7,000. Contribute what you can!

Invest your TFSA contribution for growth. Do not use your TFSA as an emergency fund or a savings account. The name is misleading. Think of your TFSA as a way to build a tax-free river of cash that will pay for your living expenses once it grows large enough. That’s right. The money grows tax-free. If you invest it in growth instruments and let your investment compound for a long time, the dividends and capital gains earned inside your TFSA can be withdrawn tax-free to fund your living expenses.

6. Fund Your RRSP

Much like the TFSA, money inside your Registered Retirement Savings Plan will grow tax-free. The main difference is that withdrawals from your RRSP will be taxed. As such, investments in your RRSP are properly characterized as tax-deferred.

Again, stuff your RRSP to the best of your ability. Create an account at the Canada Revenue Agency so you can see exactly how much you can contribute to your RRSP. As with building your emergency fund and filling your TFSA, it might take you a long time to max out your RRSP contributions. Don’t let that stop you from starting.

7. Contribute to Your Brokerage Account

Once you’ve maxed out the contributions to your TFSA and your RRSP, they will continue to take priority each year when you have to consider where to invest your money.

However, there will come a point where you will still have money to invest after you’ve contributed to those registered accounts. At this point, you should open a brokerage account and continue to invest. The dividends and capital gains earned in your brokerage account will be taxed, but at rates much lower than the income you earn from your employer.

8. Throw Money Into a Slush Fund

A slush fund is simply there to be a buffer. If you get a parking ticket, then use the slush funds to pay for it. Let’s say you need a last-minute hostess gift, then that’s where the money comes from.

I’ve had my slush fund for a few months, and it’s come in handy. I pay some of subscriptions annually, and the money has come from my slush fund. Every money, I transfer $25 to this account. Once it hits $500, then I’ll stop doing the transfer since I’m not looking to build another emergency fund. My slush fund is meant to fluctuate up and down as unexpected yet-not-emergency-fund-worthy expenses crop up during the month.

9. Pay Off Credit Cards in Full Every Month

Use your credit cards – just pay them off in full every month. If you only pay the minimum balance owing, then your issuer will charge you interest. That interest will compound every single month until the debt is paid.

And if you can’t pay off your credit cards in full every month, then stop using them and pay for your purchases with cash. When the cash runs out, you’ll know to stop spending until your next paycheque comes in. The real beauty of cash is that it forces you to prioritize your purchases. Only you know what’s most important to you today… and which purchases can wait until later.

10. Invest From Every Paycheque Until You Retire

This is key. You need to pay yourself first consistently until you stop earning money. Every paycheque is an opportunity for your to improve Future You’s financial comfort. Don’t squander that opportunity on purchases that you won’t remember in a month. Scared that you’ll make a mistake and choose the “wrong” investment? Feel the fear and do it anyway. The reality is that you learn more from your mistakes that your successes.

Every time you’re paid, take atleast 10% – or whatever amount you can start with – and invest it for your future. (If you’re still building your emergency fund, then split that 10% in half and send 5% to your emergency fund. The other 5% will be invested as follows – TFSA first, then RRSP, then brokerage account. If you have debt, then split that 10% three ways and send 3% to your debts as an extra payment over and above your minimum payments, 3% to your emergency fund, and the remaining 4% to Future You.)

The less you spend on things that don’t bring you joy, the more money you will have for Future You. Track your spending for a period of time, then go back and assess how you felt after each purchase. Identify those expenditures that didn’t make your life better, and then resolve not to make them again in the future. Zip-zam-zoom! There’s a little bit more money that can be invested.

So there you have it – my list of 10 ways that you can increase your wealth in 2024. There are no guarantees in life, but these 10 methods will get you closer to the financial comfort that we all desire to have in our dotage. You start where you are and you make progress each day. Trust me when I say that other people have figured out how to do this. You can figure it out too.

I Love My Cash Machine!

Happy New Year! I hope that you 2024 is off to a great start for you.

I’m happy to report that my cash machine hit a new milestone in 2023. After crunching all my numbers and updating all of my spreadsheets, I was quite pleased. For the first time ever, my cash machine generated more dividends in my non-registered account than the amount of contributions that were made. Woohoo! I’ve waited a very long time for this to be the case, and I can tell you that this achievement is sweet.

When I first started investing in dividends, I was doing it just because my parents had been investors and they’d bought some bank shares for me. Naive as I was, I simply loved the idea of dividends. My thought process in choosing my investment strategy had been… shall we say… unsophisticated. Passive income? Money sent to me just because I owned some shares? Even more money sent to me through the power of dividend re-investment plans? Where do I sign up?

I was hooked on dividends from the word go! At first, I barely earned $50 per year. The first time I earned $1K in a year, I smiled to myself. It dawned on me that I might one day earn $5,000 in dividends in one year. And the first time I earned five figures in dividends, well… let’s just say that was a very good day. Without a shadow of a doubt, I know that if I continue to invest wisely then I will one day hit six-figures per year in dividends. Yay, me!

So even though it wasn’t the best way to invest, I continued to buy more and more dividend-producing securities. (Looking back, I should have contributed to equity-based securities. I would’ve benefitted from the bull-run and likely be several years closer to retirement by now. Oh, well – coulda, woulda, shoulda!)

If I absolutely had to, I could live on the dividends produced by my portfolio. It wouldn’t be a lavish existence by any means. I’d have to cut out a few things – like travel and theatre – and I’d definitely have to watch my nickels & dimes more carefully. But, I’d be able to do it.

It’s amazing to me that I’m in this position. I have made so many investing mistakes. Like I alluded to earlier, I invested in dividend-paying securities instead of equity-based securities. In hindsight, the biggest money mistake I made with my portfolio was choosing passive income over growth. Given that I started investing at age 21, I see now that I’ve made a huge mistake with my portfolio! I wasn’t terribly knowledgeable about investing at that tender age, and my parents weren’t experts in the area either.

They taught me to stay out of debt, to live below my means, and to invest in banks and energy stocks. That’s not bad advice, and I really didn’t go too, too wrong. However, they didn’t teach me about the differences between growth investments vs. income-generating ones. They didn’t teach me most of what I now know about investing. To be clear, I’m not blaming them because you can’t teach what you don’t know. Had they known, they would have stuffed it into my head just like every other life lesson they imparted to me.

And the internet was nascent when I was young. Today, there are blogs and websites and many, many, many online platforms for self-directed investors. The knowledge is literally at everyone’s fingertips so long as they have a device and an internet connection. Anyone with disposable income has the ability to create their own cash machine and watch it grow over time.

Had I been smarter sooner, I would’ve tweaked my investment plan sooner. My cash machine would’ve been kicked into high gear even sooner. Instead, I believed that a person had to stick to one investment strategy forever. This belief was another huge mistake that I made with my investment portfolio. Still somewhat begrudgingly, I have come to realize that tweaking things isn’t always terrible.

For example, I tweaked my investment plan back in October of 2020. As you’ll recall, that’s when the stock market started to recover from the devastating impact of the pandemic. I decided to start buying units in VXC. From that point one, I decided that all contributions to my non-registered portfolio and my RRSP would go towards buying VXC. That was a very smart decision on my part. I can happily report that my returns since 2020 in those two accounts reflect that my tweaking was the right move.

This year, I’ve decided to tweak my TFSA account. (Why didn’t I do this back in 2020? Honestly, my failure to course correct in my TFSA can be chalked up to ignorance about the tax implications of owning securities where I’d pay a withholding tax.)

This year, my TFSA contribution went towards buying units in VGRO. I’m getting a bit more bond exposure in my overall portfolio while also adding some needed equity exposure. Since I plan to hang onto my TFSA for a very, very, very long time, this is the perfect place to add a growth-oriented investment product. There will come a day when I might want to start drawing out tax-free money from this account, so it’s best to tweak my TFSA holdings today. If I’m burdened with too much money, then it’s a cross I’ll have to bear.

So what are my future plans for my cash machine? Well, I’m hoping that it will soon kick off more dividends than the amount I contribute to both my brokerage account and to my TFSA. There’s a chance that might happen by 2026, but only time will tell. By the time I retire, I hope that it generates enough for my basic needs and for my nice-to-have’s. In short, I want my cash machine to generate six-figures of income. Wouldn’t that be nice?

A Gift For You – A Step-By-Step Plan for Your Money in 2024!

There’s only 1 week left until we say “Welcome!” to 2024. My gift to you this holiday season is a step-by-step plan for your money. As always, take what you want and leave the rest.

First off, I want you to open atleast 3 bank accounts. Each of these will have a very specific purpose. You can add more if you want, but you need atleast three.

First Account – Your Chequing Account

This is the account that will be the center of your financial life. You will deposit your paycheque money into this account. You will deposit your tax refunds into this account. If you get birthday money, it will go into this account. In case I’m not being clear, all of your money will flow into this account.

Next, all of your automatic transfers will flow out of it. These are the transfers for plumping up your emergency account and for sending money to your investment accounts, aka: the Care and Feeding of Future You accounts.

Once the automatic transfers have been completed, you can spend the remaining money in your chequing account however you see fit. As you know, I’m not a fan of budgets.

If you see a need to budget whatever’s left over after your transfers have gone through, then more power to you.

Second Account – Your Savings Account

This account will hold your emergency fund. These are the funds that you will rely on in a true emergency, which I’ve defined as the loss of your income. If your paycheque goes away, then you will use the money in your emergency fund to pay for your life until such time as you get another paycheque.

How much should you have in your emergency fund? Well, I’m quite traditional on this subject. I think you should have between 6-12 months of take-home pay in your emergency fund. If you can replace your paycheque quickly, then it’s okay to have closer to 6 months of take-home pay. However, if it would take you longer to replace your income, then aim for the higher amount.

Don’t expect that building an emergency fund is going to be easy or quick. It’s simple to create one. After all, the only thing you need to do is set aside money from every paycheque and then not spend it. However, as we can all agree, it’s not always easy to keep our mitts off a growing pile of money.

Easy or not, you still need to do it. Set up an automatic transfer from your chequing account to your savings account. Make it for $100 (or whatever amount you can reliably handle) and send that money to your savings account every time you get paid. The higher the amount, the faster you fill your emergency fund.

Trust me when I tell you that absolutely no one in the history of the world has ever complained about having too much money during an emergency.

Third Account – Your Investment Account

This is the account where you’re going to invest money for Future You. As I’d mentioned above, Future You is still going to want food everyday and warm place to sleep once you’ve stopped working. You owe it to your future self to start investing for tomorrow.

By now, you know the drill. Set up an automatic transfer from your chequing account to your investment account. I would advise that the transfer amount be atleast 20% of your net, take-home pay. If you’re under 25, then it can be 15%. And if you’re older than 25, aim for 30%. Again, if you can’t hit these targets right now, then set the automatic transfer amount for whatever you can afford. Then, work up to the target percentages as your income grows and as your debts are paid off.

You can hold your investment account with your current financial institution, with an online brokerage, or with an investment company. In the interests of transparency, I hold my accounts with an online brokerage where I do a single trade, once a month, to buy more units in my exchange-traded fund of choice.

Once your transfer goes through, do not leave the money sitting around. Invest it! The only way to make your money grow is to invest it. I recommend exchange-traded funds for the following reasons:

they’re less expensive than mutual funds and offer the same level of diversification;
they’re way less risky that picking individual stocks;
they allow you to invest in hundreds of companies at once and in different countries; and
they permit you to benefit from dividend re-investment plans immediately.

When you go to buy exchange-traded funds or mutual funds, pay attention to the management expense ratio. You should never be paying more than an MER of 0.40% without a damn good reason. MERs paid to someone else are money that is leaving your pocket. The higher the MER, the less money that you have invested. The MER shouldn’t be the only reason that you pick an ETF or a mutual fund, but it should be a factor that’s given a lot of weight when you decide where to invest your money.

Next, your ETF or mutual fund should have a DRIP feature. The dividend re-investment plan is one of the tools that’s going to help you stay invested. You see, at first your annual dividends are going to be very small. Think dollars… or cents. But within 2-3 years, you’re going to be receiving hundreds and then thousands of dollars on an annual basis. With a DRIP, those dividends are automatically re-invested while you, Dear Reader, are spared the temptation of spending them. The dividends don’t land in your investment account. Instead, they promptly re-invested before you ever get a chance to consider withdrawing them and spending them.

Finally, keep investing no matter what. The pandemic taught many of us that the stock market can plunge deeply within the span of a few weeks. And 2022 was no picnic either for investors. Even today, the Talking Heads of the Media are expending a lot of chinwag on “the recession”.

Listen.

No one knows when the recession will get here, how long it will last, nor how bad it will be. The only thing that they can all agree on is that it won’t last forever. When the recession is over, the stock market will start going up again. It’s what the stock market does, and what it has always done. If you’re not invested, then you won’t benefit from the stock market recovery.

So invest. And stay invested. Do not stop contributing to your investment account. Transfer your money to this account and continue to invest your money so that it can grow. Future You will thank you for doing so.

Additional Accounts – Your Sinking Funds

These accounts are where you will accumulate funds for both un-sexy stuff (car insurance, annual property taxes) and irregular payments that make your life better (travel, theatre subscriptions, concerts, fine dining, etc…)

In short, you will prioritize your short-term goals and set aside money to pay for them. I can’t tell you how much easier it is to pay may insurance premiums when I know that there’s money sitting in a bank account just for that purpose. The same goes for my annual subscription to Broadway Across Canada, my vacations, my property taxes, etc, etc, etc… You get the drift. If a certain item or service has made it onto my priority list, then I have an account set up to pay for it.

You should do the same. Sinking funds force you to allocate money to the things that are most important to you getting closer to your dream life. And one of the keys to a dream life is not having to worry about how to pay for the things that you want.

That’s the Plan.

Those are the steps. Everything else is a detail. I admit that it’s not glamorous, nor particularly snazzy, but I can assure you that this plan works. I’ve been following it for most of my adult life, and I’m pretty satisfied with the outcome. I’ve made mistakes along the way… many mistakes… but sticking to this plan for my money has tempered their impact on my financial life.

Scared of Making Investing Mistakes? Do It Anyway.

You learn a lot from failure. It’s a more instructive teacher than success.

Everyone makes mistakes with their investments. Warren Buffett started investing when he was 10. Do not let anyone convince you that every investment he’s made in his entire life was a winner. If I had to guess, I’m sure that he’s made a really bad investment or two in his time. No one picks a winner every single time, not even Warren Buffett.

The reason he became super-rich is due in part to the fact that he never gave up investing after making his mistakes. You shouldn’t either.

The fact that Mr. Buffett has been investing for the past 83 years also hasn’t hurt him. Take a page from his book. Once you’ve started down the investing road, don’t stray from the path. Invest – err – learn – repeat. That’s the key to getting good at anything.

You need to start investing today. My inexpert & amateur recommendation is that you start investing into your TFSA. Don’t be misled by the name – Tax Free Savings Account. This account is best used for investing your money, not saving your money.

If you invest $0 this year, then you’ll only be harming yourself. Procrastination is your enemy when it comes to investing your money for long-term growth. Think of how far ahead you’d be with your investing knowledge if you’d started 10 or 15 years ago. Let that be your impetus to stop dawdling and to start doing.

Start with $1/day. That’s $365 going into your TFSA. If you can swing $2/day, then that’s $730 working for you on a tax-free basis. And if you think anything less than $1,000/year isn’t worth attempting, then all you need to set aside is $3/day to have $1,095 working hard for you.

Invest your money…and learn from your failures. No one is expecting you to be perfect the first time out. As a matter of fact, it would be downright weird if you never made mistakes with your money. I’m not suggesting that you make money mistakes on purpose. I just don’t want you to be so paralyzed with fear of making mistakes that you never invest.

If you could remember when you learned to walk, then you’d remember how many times you tried and fell down. Each time, you got back up and you tried again. Your first forgotten lesson was that you couldn’t move both feet at the same time. You next lesson was probably that holding onto something made walking a lot easier. Couches, tables, a bigger person’s fingers – whatever was steady and handy was good enough. Next, you figured out that you could do it on your own but leaning too far back or too far forward resulted in toppling over. It took a bit of time, but eventually you got very, very good at walking. Now, you do it with barely a second thought.

Bottom line is that you mastered walking. The same can be said for investing. Try – fail – learn – repeat. You’ll make errors. So what? Make them quickly, learn from them, then never make the same one twice. Learn from others’ mistakes too. That’s a perfectly valid way to learn a lesson. Re-invest your dividends. Increase your automatic transfer amount as you’re able to do so. Max out your TFSA. Then max out your RRSP. Then open a brokerage account and invest money there too. It doesn’t have to, and very likely won’t, happen quickly but it will happen. So long as you start today.

If you’re 18 or over, open your TFSA. It’s easy. Every financial institution has made it a seamless process to open your TFSA online. Do you have one already? Great! Set up an automatic savings transfer. Every time you get paid, money goes into your TFSA. I would suggest $24/paycheque since we’re going into 2024. You can pick your own number, whatever your budget can bear. In 2024, the maximum TFSA contribution is $7,000. Don’t beat yourself up if you can’t put in the maximum contribution. Anything more than $0 is fantastic!

And if you’re under 18, you can’t legally open a TFSA. That shouldn’t stop you from opening a savings account at an online bank. (Most youth accounts at brick-and-mortar banks are free too, but don’t use a bank where you have to pay fees.) Put your money into your savings account. When you turn 18, open a TFSA then transfer the money over.

Everyone starts somewhere. Your journey won’t be the same as everyone else’s but you do need to start. And once you do, don’t stop. Keep that investment train chugging along by investing a portion of every paycheque for long-term growth.

Automatic Savings Plans Perform Better Than Promises.

Another year is quickly barreling towards its expiration date, and that means it’s time for me to assess what I’ve learned about money and my own behaviour towards it. And this year, the big thing that I’ve learned is that automatic savings plans perform better than promises.

For the most part, I have the same financial goals every year:

Max out my TFSA & RRSP contributions.
Have a sinking fund for my annual property taxes and insurance premiums.
Take a trip, whether domestic or overseas.
Renew my Broadway Across Canada subscription.
Contribute money towards the education funds of younger family members.
Pay off my credit cards in full every month.
Invest a big chunk of every paycheque for my retirement years.
Buy birthday and holiday presents for family and friends.

These are my priorities each year. Some are long-term goals for my money, while others are very definitely short-term goals. I generally have sinking funds for each of them. These little pots of money make it super-easy for me to pay for big expenditures every year without worry.

That said… yet there is one goal that I set for myself that is just as un-finished as it was at the start of 2023. That goal relates to my emergency fund. You see, I had promised myself that I would add atleast $2,000 to my emergency fund this year. It didn’t happen.

And why didn’t it happen?

Dear Reader, the answer to that question is very simple. Promises about money don’t work as well as automatic savings transfers. Had I spend 2 minutes in January setting up a transfer of $100 every payday from my chequing account to my emergency fund, I would’ve easily hit my goal. Instead, I promised myself that I would send any “leftover” money to cover my future emergencies.

Do you want to take a guess of how many times I actually transferred that leftover money?

Zero. That’s right. Over the past 346 days, I haven’t made a single deposit to my emergency fund.

Ask me what I’ll be doing on the morning of January 1, 2024. You guessed it! I’ll be setting up an automatic savings transfer of $100. Knowing myself as I do, I cannot count on myself to abide by financial promises. Instead, my most effective route to achieve my goal is to use the power of automation and allow inertia to do the work for me. Once I’ve put an automatic savings transfer in place, I’m loathe to interfere with it. Increasing the transfer amount is permissible, but cancelling the transfer is unfathomable to me. This is how I know that creating another transfer to increase my emergency fund will be extremely effective in getting me to my goal.

The part that really chaps my cheeks is that I use automatic savings plans for nearly all of my other financial goals. My cherished sinking funds aren’t funded by well-wishes and good thoughts. Nope! I have automatic savings transfers in place. My chequing account is fat and juicy for roughly 25 minutes on payday before steadily being eroded by my various transfers.

Relying on automation has been one of the most effective methods I’ve used to build my investment portfolio. I don’t have to choose to invest when I get paid because the computers are doing the heavy lifting for me.

So why am I so backwards with my emergency fund? That’s a very good question, but I don’t have any good answers. Here’s the key though… I don’t need to have a good answer before I rectify the problem. I can ponder that problem for as long as my heart desires after I’ve set up the automatic savings transfer to my emergency fund. The questions about why I didn’t do what I should have done can linger for as long as my brain wishes to dwell on them. I don’t really care about the answers. What I have to do is set up a system to save myself from my own bad choices and habits.

In this case, it’s another automatic savings transfer for the win!

What are Your Money Goals for 2024?

At the time of his point, there are 26 days left in 2023. Hard to believe that this year will be done in little over 3 weeks, but that’s the reality we’re living in. Maybe you should take a few minutes to think about 2024 and your money goals for the upcoming year.

If you don’t have any, that’s okay. I’ll lend you one of mine. It’s simple and straighforward:

My money goal for 2024 is to live below my means and invest a nice chunk of my take-home pay.

Now, this isn’t my only money goal. And this one needs a bit of polish because it’s a bit vague. After all, what does “a nice chuck mean”?

For me, it means investing $1 out of every $3 that I bring home. You can choose a different percentage if you want. Maybe you’re hardcore and you want to invest atleast 50%. That’s fine. Or perhaps you’re just starting out and you want to go small, with something like 5% or 10%. It’s not ideal, but it’s definitely a way better than investing 0% of your take-home pay.

The next area that needs fleshing out is the part about investing. After all, money sitting in a bank account is not invested. It’s an emergency account, or maybe even a sinking fund. However, it is most definitely not invested for growth. And I want my money grown big and strong!

For me, investing my money means filling my TFSA and my RRSP with equity-based exchange traded funds. Equity-based ETFs allow me to buy small pieces of a great many companies that are listed on the stock-exchange. As these companies grow, so do my investments in them. At some point, those companies will pay out dividends and capital gains. In a nutshell, this is passive income that is taxed much more lightly than my paycheque. For the record, I love earning dividends and capital gains!

Living below my means is a simple shorthand phrase that means I won’t spend every penny I make. Oh, I’ll definitely spend some of my take-home pay. I just won’t spend all of it. After all, if I spend it all then I’ll have nothing left to invest. Without anything to invest, I’ll have no way of ensuring that my dividends and capital gains grow large enough to replace my paycheque. And that would be a shame.

What about you?

Think about your life. Determine whether you want something different. Either way, carefully consider if the money you have is being used to make your life just the way you want it to be.

And be ruthlessly honest with yourself. Are you spending to impress others? Do you have things just because other people have them?

For myself, I cancelled one of my streaming services today. It wasn’t that I couldn’t afford it. Rather, my motivation for cancelling was that I simply didn’t want to pay for it anymore because it wasn’t making my life better. It doesn’t matter that others have that service. That’s their choice and, hopefully, it brings them great joy. For me, this expense won’t be missed. The money can go towards something else.

Do you have expenses like that in your life? Are you still paying for something even though it no longer brings you happiness? If yes, then what’s stopping you from cancelling that service?

Never forget that you should always be the one in control of your money. You’re a Single Person, which means that you don’t have to consult anyone else about how to spend your money. This is one of the superpowers of being single. Every penny you earn is yours to do with as you please.

Don’t give away your superpower!

Next Steps on the Path

Perhaps you’ve already set up your sinking funds, your DRIPs, and your automatic savings plans. You’ve already done everything to make sure that your money is working hard and churning out those sweet, sweet dividends and capital gain. Congratulations!

What is the next step? Well, I would have to say that your next step is figuring out how to best spend your the rest of your money.

While I’m a huge proponent of savings and investing, I also know that we have to live in the present too. There’s no sense getting to dotage and not having anything to reflect back on. Also, no one is promised tomorrow. That’s why it’s so vitally important to live in the present once you’ve set up systems to have your money automatically invested.

Is there a class you want to take in 2024? If yes, then put it on your list. Are you interested in travelling beyond your city, province, country? If so, then jot that down too. What about moving? Replacing a vehicle? Taking another job? Joining an amateur sports league? Starting a garden?

Whatever it is, write it down. That’s the first step. And then, you prioritize which goals absolutely have to be done in 2024 and which ones can roll over a little bit longer. For example, let’s say you want a new car but your current vehicle works just fine. That’s okay. You can still want another vehicle. All you need to do is take advantage of the fact that your current one is running just fine. Start a sinking fund and throw a “car payment” in there very month. Assuming all goes well, your current vehicle will run until you have enough money to buy the next one.

See how that works? You wrote down a money goal and you came up with a plan to get what you want. By creating a sinking fund and using an automatic transfer plan, you won’t have to go into debt. Maybe it will take a few years to save up for this big of a purchase but so what? If something bad happens to your current vehicle, the money will be there as a down payment on the next one and your car payments – shudder!!! – will go to your financing company instead of your sinking fund.

Let’s go back to the example of you taking a course. Maybe you’ve always wanted to take a culinary tour in Italy. Food and travel combined – what could be better? Write it down. Is this very, very important to you? If yes, then start a sinking fund today for this trip so that you need not rely on debt to achieve this goal. Once your automatic savings plan is in place, the next step is to visit Google and get a list of websites for companies that offer these kinds of tours. While you’re building the stash you need to move this money goal from your Want-To-Do list to your One-of-the-Best-Things-I’ve-Ever-Done list, you’ll be learning about what it takes to get the most out of this kind of trip.

Living the Life You Want Is Achievable

So long as you control how your money is spent, you can achieve all of your money goals. The first step is defining what your money goals. The second step is sticking to your plan. The final step is living the dream life that you’ve created for yourself.

Don’t delay anymore. Decide what you want then go and get it!