Wealth Creation - Millionaire on the Prairie

Best Time to Invest in the Stock Market

Most investors are interested in a definitive answer to question of when is the best time to invest in the stock market. And for good reason. After all, no one – and I mean no one – ever wants to lose money. We work very hard for our paycheques. It stands to reason that you would want to buy at the very best time in order to ensure that your investment realizes the maximum return.

For my part, I’ve been investing in the stock market since I was 21. My method isn’t perfect, and I’m sure that there are other ways to do things. However, I’m going to share my 3-question strategy with you and let you decide for yourself if it will work.

Question 1 – Is the stock market heading down or dropping?

If the answer is yes, then I invest.

Here’s my reasoning. When the stock market is dropping, that means stocks are on sale. My exchange-traded funds are comprised of stocks, so my the price of each unit in my ETF is lower too. In other words, I can buy more units in my ETFs when the market is down than I can when the stock market is up.

It’s akin when my favourite coffee is on sale at the grocery store for $4.99 instead of its regular price of $8.49. I stock up when the price is lower because I know the price is going to go back up! I need my coffee and it’s best to buy it a lower price.

The same principle can be applied to investing in the stock market. I need the capital gains and dividends that my investments generate each year. Those returns are consistently re-invested for compound growth. When I retire, my portfolio will continue to generate capital gains and dividends. At that point, I can stop re-investing them and use the money to fund my retirement.

To re-cap, if the stock market is down, I invest and take advantage of the sale on stocks.

Question 2 – Is the stock market going up?

If the answer is yes, then I invest.

Let me explain why. Bear markets are when stock markets are going down. Bull markets are when stock markets are going up. If we’re entering a bull market, that means the value of my ETFs unit will be going up and it also means that the value of my overall portfolio is going up. Companies within my ETFs might decide to increase their dividend and capital gain payments, which means my ETFs will pay me more money each month.

In order for me to benefit from those increased dividend and capital gain payments, I will need to own as many units as I can in my ETFs. One of the only ways to own more is to buy more. The other way to own more is allow my dividend re-investment plan to buy more units each month. However, I think you’ll agree that buying more with my monthly contribution + relying on the DRIP-purchase means that I’ll acquire more units more quickly than by relying on the DRIP-purchase alone.

So when the market is on its way up, I want to invest so that the value of my portfolio also benefits from the increase in the stock market value.

Question 3 – Is the market going to go up or is it going to go down?

This is just a trick question. Whether the answer is “yes” or “no”, I invest.

See, I’m not a professional stock trader. I don’t spend my days staring at the stock market screens or doing in-depth stock analysis. I’m just a Blue Lobster who likes spending time in my flower garden, cooking tasty things, playing with my littlest family members, going to theatre & dinner with friends, traveling at home and abroad, reading good books, and getting enough sleep.

I have no inclination to learn about stock market fluctuations, nor to track them day-to-day. I would rather invest monthly into an equity-based, broadly diversified ETF and let time do the rest. (For the record, I still have my dividend ETFs, but I’ve been investing my monthly contributions into VXC since October of 2020.)

My strategy for finding the best time to invest in the stock market is very, very simple. I invest in the stock market every 4 weeks, which works out to 13 transactions in a year. My next step is not sell what I buy. It’s what’s called the buy-and-hold strategy. I buy – I hold – I re-invest – I repeat. This is how my strategy has resulted in very nice, very passive cash-flow that’s equivalent to an entry-level, full-time job. My dividend ETFs continue to pay me a 4-figure amount every single month, and that amount is continuously increasing. My equity-based ETF pays me a 4-figure amount each quarter. All of my ETFs pay me capital gains at the end of the year.

The way I see it, the best time to invest in the stock market is when I have the money in my bank account to do so. Up, down, or sideways – my portfolio is paying me cold, hard cash on a regular basis. When I automatically re-invest that cash and add it to my monthly purchases, I’m effectively giving myself a licence to print money. Each month, I earn a few more dollars in dividends than I earned the month before. It’s a wonderfully passive way to grow my portfolio, without having to worry about picking the “best time to invest”.

There You Have It

This is my 3-step strategy for picking the best time to invest in the stock market. Your mileage may vary. I’m humble enough to admit that there may be better ways than mine to decide when to invest. What I can tell you from personal experience is that my method works. I’m a self-taught amateur investor who has managed to create a portfolio that will comfortably support Future Blue Lobster. I continue to read and learn. Some tips I like. Some, I don’t. The one constant theme in everything that I learn about investing is that you have to invest your money. It’s the absolutely most important step you simply must make to successfully grow your investments.

When someone asks if this is best time to invest in the stock market, the answer is “Yes!”

Making Easy Money With Dairy Cows and Steers

Yay! The time has finally come. You’ve opened your brokerage account and you’re ready to start filling it with money-makers. It’s time to ask yourself if you want dairy cows or beef cattle?

Steers are grown to become beef. You buy the calves, grow them up, then send them to slaughter. If you’re very lucky they grow nice and big while you own them, then return a good price to you once sold. Of course, between buying the calf and selling the steer, you’re going to have to hope that it doesn’t get sick or getting into any kind of accident that damages its value. You’ll have to wonder about the kind of feed its getting and whether the rancher is taking good care of it on your behalf. And you most definitely don’t want the animal to die, since that means you’ve as good as burned your money in a pyre. Raising a calf to a full grown steer entails a lot of hope that nothing goes too terribly wrong between buying and selling.

On the other had, dairy cows produce milk. Good ones produces 9 gallons each day! Such a cow is never sold, just the milk that’s produced. So long as you own healthy and productive dairy cows, you’ll get paid when the milk gets sold. It’s reliable, steady income – all you had to do was buy the cow. Easy peasy, lemon squeezy.

So which one do you think you’d prefer to own in your brokerage account?

Blue Lobster… what’s wrong with you? Why are you talking to me about cows?

For some newbie investors, thinking about cows is easier than thinking about financial products.

Since this blog is simply a collection of my rambling thoughts about money, I’m using an analogy that I heard this week. Investments that produce dividends are like dairy cows that produce milk. However, growth stocks are like beef cattle. You want to buy these stocks when they’re cheap (young & small) and sell them when they’re expensive (big & strong) so that you can reap the increased value.

For my part, I was a staunch believer in dividend-paying exchange-traded funds, i.e. the dairy cows. I still love watching dividends pour into my brokerage account every month.*** Every month, a modest 4-figure amount of money flows into my account and is automatically re-invested into more ETF units. It’s a wonderful self-perpetuating cycle that generates more and more dividends every month.

That said, I’m learning more and more about growth ETFs and mutual funds. They might pay dividends or capital gains, but they might now. These are products that are focused on growth companies. Generally speaking, they are way more volatile than my dividend-paying products. Their returns are higher and their losses are deeper, but over the long run they are probably the better bet for long-term investors. Again, I’m suggesting – not guaranteeing – that investing in a broadly-diversified, equity-based ETF will give you higher returns over 10+ years. If you’ve got a long investing horizon, then that’s where you should put your money.

I want to make another thing very, very clear.

I do not invest in individual stocks.

Before continuing, please go back and re-read the last two sentences. I don’t want there to be any confusion whatsoever. I do not invest in individual stocks.

I’m not interested in learning how to master that art, but I can see the benefits for those who do. If learning how to buy individual stocks is something you’re interested in, then visit Tawcan’s blog. He buy individual dividend-paying stocks and is earning a very impressive amount of dividends each year. Let’s just say that his herd of dairy cows is sizeable! I’m pretty sure the same analytical principles can be applied to buying growth stocks too, but that’s not my field of expertise or interest so enjoy yourself. I’ll stay here and stick to ETFs since they’re cheaper than mutual funds and easier for me to understand. Also, I’m a bit lazy and don’t mind paying minuscule MERs to someone who’s already done the work for me.

Finally, there’s no rule saying that you can only have one and not the other. Maybe you want a bit of both. For my part, all of my new money is going into VXC with Vanguard Canada. I switched to buying steers when the market was on the upswing in 2020. Had I been paying attention, I would’ve started buying steers in March of 2020 when the market was at its bottom. Oh, well – better late than never! I wised up and switched my investments to growth-oriented ETFs. It was the right move for me.

Keep in mind, I didn’t sell my dairy cows. In other words, I kept my dividend-paying ETFs. After nearly 10 years of faithfully investing part of my paycheque, the dividends from those ETFs are going to comfortably support me in my retirement.

So nearly 3 years after the stock market was pummelled at the start of the pandemic, my portfolio is the healthiest its ever been. You have the power to do the same thing with your portfolio. Despite the doom and gloom of the headlines, you’re in this for the long haul. Like investors who came before you and who didn’t sell at the bottom, you can make money over the long haul. All you need to do is add some dairy cows, or some steers, or a little bit of both, to your portfolio. Invest a little bit of every paycheque you earn and do so no matter what. Don’t spend your dividends and capital gains. Instead, re-invest them every year and let time do the rest while you go about building the life that you want for yourself.

It may not always be easy, but it really is just that simple.

*** For the very first time ever, I’m on track to receive enough total annual dividends to cover all of expenses for the year barring any big financial emergencies! It’s a very good feeling.

Not all advice is for all people

As I’ve gotten older, I’ve had to realize that some of the nuggets of wisdom that I hold dear won’t work for everyone. Even my cherished belief that everyone should live below their means is flawed. It is literally impossible to follow the LBYM edict if you most basic needs – food & shelter – outstrip your take-home income. Advising everyone to “live below your means!” is tone-deaf to the reality that not everyone has sufficient means to survive.

Another bit of wisdom that I’ve always questioned comes from the blogger behind GreaterFool. Prior to the pandemic, this blogger encouraged everyone to sell their home, invest the proceeds in the market, and live off the dividends and capital gains. Quite wisely, he took the position that cash flow is more important than net worth. Beneficiaries of outsized tax-free capital gains on their home would be smart to sell it and invest the proceeds in a diversified stock-and-bond portfolio. In turn, the portfolio would churn off enough money to pay rent to a landlord somewhere.

The blogger explained how landlords were effectively subsidizing their tenants. In his view, home prices were going to drop drastically so homeowners would be better off selling their home at high price points and becoming tenants. Before the pandemic, market rental rates were less than the landlord’s expenses to own and operate rental units. The landlord couldn’t increase the rent too much or the tenant would walk away and find somewhere else to live. At the higher end of the rental market, this was a serious concern.

So if a homeowner could sell their home, and their proceeds could cover the rent of a comparable rental property, then it would make sense to sell. The homeowner-turned-renter would realize the tax-free capital gains of their home and move into a landlord’s property. According to the blogger, their invested proceeds would generate enough dividends and capital gains to cover the cost of market rent. The landlord would cover the difference between the rent received and the costs of owning the unit. The homeowner-turned-renter could then cover the rest of their expenses with income from their employment.

The first time I heard this financial advice, I was really impressed. It sounded like a very good thing, but then I started asking questions:

what if there was a dividend cut or the capital gains dropped?
what if rents went up faster than growth on the invested portfolio?
what if the portfolio was compromised somehow?
what if the portfolio’s generated returns weren’t enough to rent in the first place?

These are the questions that would keep me from sleeping well at night. Never worrying about how I’m going to pay for my shelter is one of the very best benefits of having a mortgage-free home. Others may feel differently.

I’ve no doubt that the blogger’s proposed financial path would work for some people. After much careful reflection, I realized that I wasn’t one of them.

This advice never sat well with me, even though I own a mortgage-free home. Yes, selling my own home would give me a six-figure sum to invest. In my case, the resulting dividends and capital gains wouldn’t be enough to cover rent for a comparable property in my city. I would have to keep working way beyond my intended retirement date. It would be years and years and years before my portfolio would be generating enough money to cover all of my expenses.

Once again, I’d be sharing walls with strangers and living without those little extras a house brings to one’s life: added privacy, extra room, green space. Undoubtedly, my rent would increase every year and I’d be without any guarantee that my investments would churn out enough money to cover those rising costs. Finally, if I was living off my dividends and capital gains, then I wouldn’t be able to have them automatically re-invested. In short, I’d lose the benefit of compound growth.

Nope. This blogger’s advice was not for me. There were too many drawbacks and too few benefits given my preferences and how I want to live my life.

That said, I could certainly see this advice working for people whose homes were worth over $3,000,000. At a conservative 5% return, there would be $150,000 of favourably-taxed income to spend every year. With that many millions to invest, there might even be enough money to cover inflationary pressures and rising rents.

In my humble opinion, an investment portfolio of less than $3,000,000 wouldn’t work for me. That’s not to say it wouldn’t work for someone else. Again, not all advice is for all people. In my head, going into my dotage while still paying rent to a landlord is rarely a wise course of action. Rents tend to go up. Without the benefit of compound growth over the long term, my dividends and capital gains would eventually become insufficient to cover rising rental rates.

For the record, my house is not worth an amount anywhere close to seven-figures. Investing its proceeds might generate $1000 per month. In my city, that’s currently not enough for the average 2-bedroom apartment. Why would I move from a comfortable-for-me-sized house to an apartment with half as much space, no yard, and less privacy?

With my own paid-off house, I benefit from compound growth of my dividends and capital gains while I’m still working. Yes – I still pay property taxes, insurance and repairs for my home. However, those aggregate costs are far less than what I would pay in rent to a landlord, year-in-year-out. When I eventually stop working, I don’t have to worry about rental increases because I own my home.

The only benefit I see to the blogger’s proposed course of action is immediate lump-sum investing. Someone following his advice would be able to invest a big chunk of money today and benefit from long-term growth. The stock-and-bond portfolio would grow over time and possibly make the homeowner-turned-renter wealthier that someone like me. I rely on consistent bi-weekly contributions from my paycheque to dollar-cost my way into the market. In short, my chosen path was to pay off my mortgage in under 5 years then build an equity-based, buy-and-hold investment portfolio. I’m making contributions but I’m not going to receive the benefits that come from investing a huge lump-sum immediately. This is because it’s always better to invest as much as you can, as soon as you.

The blogger in question is writing for a wealthier audience. I’ll still visit his blog to learn things and to get a perspective on how some of the Wealthy handle their money. I’m seasoned enough to know that I won’t agree with everything this blogger writes. Those best-served by his views are those who have a considerably higher level of wealth than I do.

As you continue to learn about personal finance, you’ll come across many suggestions about what to do with your money. Think carefully! Every money mistake can be undone, given enough time. Yet, wouldn’t it be nice to avoid those mistakes in the first place? Just because something is a good idea or it’s works fabulously for someone else doesn’t mean that it’s the right move for you. It never hurts to remind yourself that not all advice is for all people.

Eating Your Way to Wealth

It’s long been my belief that there is money to be made in the kitchen. Maybe you start a profitable food blog like Delish D’Lites, or maybe you bake cakes for weddings as a side hustle. For most of us, the money-saving magic of the kitchen comes from eating most meals at home and packing lunches/snacks for the office. I like to think of this as the eating your way to wealth option. You have to eat, but that doesn’t mean you can’t get wealthy while doing so.

When I got my first Grown-Up job twenty-odd years ago, I knew that one of the hallmarks was buying coffee and a muffin every morning before work. There was also a mid-morning coffee, eating lunch at a nearby restaurant or kiosk, and an afternoon coffee. It was a lot of money. Granted, back then I was only paying $1 or $1.50 for each coffee… yet I was earning less than a third of what I earn now. Everything’s relative, right?

After a few years of eating so much food away from home and learning about FIRE, I decided to eat breakfast in my own kitchen every morning. It took a few years, but now I rarely ever go to the coffee shop before starting my day. Once breakfast was under my belt, I started cooking more dinners at home so I’d have leftovers for lunch the next day. That switch took a much longer time to make, much to my surprise. However, I’m doing a lot better.

Back in 2014, I found a darling neoprene lunch bag in a souvenir shop and couldn’t stop myself from buying it. As silly-looking as mine is, I happily fill it with my mid-morning snack and something tasty for lunch then carry it with me to and from the office every day.

I’ll go to my grave believing that cooking my own food and taking it with me to the office has helped me get into the Double Comma Club. Now, I’m not trying to convince you that eating from my own kitchen was the most important part of my Make-Blue-Lobster-Wealthy Plan. It wasn’t, not by a long shot! Staying out of debt and turning my former mortgage payments into investment contributions for the past 15+ years were the main drivers underpinning the success of my plan. If I had to guess, I’d say that maybe 15% of my success came from eating my own food. The money that was spent at grocery store went a lot farther than it would have if I’d spent it in restaurants and fast-food places.

Being the First Born Daughter of My Mother means that I make up a lot of my own recipes. I call them head-recipes. I don’t really write them down, which is too bad. No matter how delicious one of my head-recipes is, I know that I’ll never taste it the same way again because I never write down how much I use of any particular ingredient. It’s different every time. Lasagna, brussel sprouts, hamburgers, and meat sauce immediately come to mind. Every time I make these, they taste slightly different than the last time. One of my favourite head recipes to mix leftover rice with golden raisins and walnuts, then heat it up the microwave for 60-90 seconds. Delicious!

It pains me to admit this but it took me years to learn how to make pancakes. One day, I was walking down the grocery aisle and saw box after box of frozen waffles and pancakes. I realized that if a pancake could be mass-produced and frozen, there was no reason why I couldn’t make them for myself. (For the record, my parents did make pancakes but only very occasionally. We were more of Cream of Wheat family when I was growing up.

However, there are other recipes that I never would have created in my wildest dreams. In case you’re curious about what I’ve been eating over the years, here’s a list of a few of the recipes I’ve found online and have made more than once. They’re my go-to’s when I’m doing meal prep on the weekends, or when I’ve offered to bring a dessert or appetizer to a potluck or a party.

Here are some of my favourite recipes that came from online sources:

Eating your way to wealth is one of the best ways to get there. If you can’t cook, start small. Toast and peanut butter is not hard. You don’t need to “know how to cook” to operate a toaster. Get up a few minutes earlier and have breakfast before you leave for work. Myself, I like instant coffee but my mother and best friend swear by their French press machines. Bottom line, drink your first cup of coffee of the day at home. The same applies to tea.

Lunch is the next logical meal to master in your kitchen. Sandwiches aren’t hard to make, nor are they cumbersome to transport. Get yourself a lunch bag and start filling it with food for the day. When you make dinner, ensure there’s enough prepared for leftovers. I enjoy a good lasagna every now and then. One lasagna leads to 10-12 meals, depending on the size of each portion. I don’t eat it for days on end. I have some for dinner and some for the next day’s lunch, but the rest is frozen and put in the freezer for another time. Most pastas in meat or tomato sauces will freeze beautifully and make for delicious meals.

You can eat extremely well in your own home. Take the time to learn how to feed yourself. It will taste so much better than most of what you can buy through the drive-thru. You deserve to eat your way to wealth, so start today!

Just Start Today

This is going to be a short post. I want you to start funding your dreams today.

Yes. Today. Start today. Don’t wait until tomorrow. If you’re reading this post on your computer or your phone or your tablet, then you’re capable of going to your bank and opening an account. Or you can go to a different bank and open an account. It truly doesn’t matter.

Open the new account. Set up an automatic transfer to fund the new account. Start with a $1 per day. That’s a weekly transfer of $7, or a bi-weekly transfer of $14. If $1/day seems ridiculous, then start with $5/day. Again, that would be $35 per week or $70 every two weeks. Again, the choice of how much to transfer every day is yours but you have to start today.

If you’ve been here for any length of time, you know that I like to preach that you should identify your priorities first. I’m starting to waver on that. Priorities are extremely important, but many people have a lot of trouble identifying what they hold most dear. If you’re a person who doesn’t know what they want, then you should still be saving and investing your money. It might take you 5 years to figure out what you really want, and that’s okay. Waiting 5 years to start saving and investing is not okay. That’s 5 years of time that you will never get back. It’s better that you’re saving and investing while also trying to figure out what you want.

Start today… even if you don’t know everything. You’ll learn along the way. Personal finance isn’t too hard for to you learn. You can learn as much as you want and at your own pace. Once the automatic transfer is in place, you’ll be setting aside money on a regular basis. As you learn more, you’ll make more informed choices for your money. You’ll grow confident in your ability to make wise decisions with your cash. Don’t wait until you feel that you’ve “learned it all” before you start saving and investing. Speaking from personal experience, I can assure you that you will never feel that you’ve learned everything there is to know.

The better route is to start today, never stop learning, and put what you learn into practice. As you know better, you’ll do better.

No one has ever regretted having a little money set aside. Life will throw challenges your way. Having money in the bank means that you can deal with the financial side of those challenges with a certain amount of ease. The time to build the ark is before it starts to rain. So just start today. Open the account – set up the transfer – keep learning about yourself and what you want your money to do for you. That’s it. Everything else is details.

I Need to Work on Getting Better at Budgeting!

Earlier this year, I decided to try my hand at budgeting. Some of the bloggers I follow online repeatedly state that having a budget is integral to managing your money. I’m always willing to learn and improve how I handle my own money. Since I work hard for it, I don’t want to waste a single nickel if I can avoid it. After hearing about OhhYouBudget, I watched a few of her videos on Instagram and TikTok before purchasing the budgeting dashboard. It’s been 3.5 months now, and I’ve learned a few things.

Budgeting is very definitely not the same as tracking your expenses. I’ve been tracking my expenses since 2016. That was the year I created 2 spreadsheets – one for my household/recurring expenses and another one for my day-to-day variable expenses. I would spend money, record my expenditures on the appropriate spreadsheet, and go on with my life. At the end of the year, I had a pretty good idea of how much I’d spent and what percentage of my annual spending was covered by my dividend income.

It’s a whole different ballgame with a budget. You see, the budget requires me to say in advance how much I’m going to spend in the categories of my choosing. Then I’m supposed to spend only that amount of money in each category. This where I face a serious challenge.

Never in my life have I limited myself to spending a certain amount in a given category. My #1 rule for spending my money was to never spend more than I earn. My #2 rule was to spend however I wanted after my automatic transfers sent funds to pre-determined destinations. You know – the emergency fund, the sinking funds, and the investment/retirement accounts. So long as I only spent whatever was leftover after the transfers went through, it didn’t matter to me under which category the money was spent. I honestly and truly believed that I was pretty good at managing my money.

Enter the budgeting dashboard to show me that I might need to change my perspective.

I suck at budgeting.

To say that it is not going well for me would be an understatement.

First off, I consistently overspend in the groceries category. I’m doing more meal prep, which means taking a list when I go grocery shopping. Not to brag too much, but I don’t waste food. I eat what I cook. I freeze various things for later use. Since I really hate cooking every day, I portion out my meals so that there’s always something tasty to take for lunch or eat for dinner. Yet somehow, I am always going over my budgeted amount for groceries.

Secondly, my MISC category is a wildcard. I allot a decent amount to this category. Some months, I spend nearly nothing. Yet the next month means that I’ve spent way more than planned. How does one predict MISC expenses? Am I not using that category properly? I have an emergency fund and multiple sinking funds for large, anticipated purchases so rest assured that my MISC fund is not being used for those kinds of expenditures.

Thirdly, I have to admit that I don’t say no to myself except when it comes to dining out. Planned meals with friends is one area where I don’t skimp. I have money allocated for that. Stopping at the drive-thru on the way home from work is verboten. I’ve stopped doing that because the reality is that I have food at home, and the stuff at home is healthier for me.

In order for this budget to work, I need to limit myself. I really, really dislike this aspect of budgeting.

Up until I started using this budget, I was very proud of myself. Automatic transfers funded my priorities from each and every paycheque. Whatever I had left over, I spent however I wished and my credit card bill was paid in full each month. I felt very good about how I handled money.

Then I decided to try and use a budget! Man, oh man! I’ve really been knocked down a peg or two. Every time I update that dashboard and see all the red, I feel badly about myself. This budget is telling me that I’m doing money wrong. I’ll admit that it’s a burr under my saddle. How is it possible that I’ve been doing money wrong all these years yet I’ve still managed to create a 5-figure dividend cashflow and to become a member of the Double Comma Club?

A Few Key Take-Aways

Even though I suck at budgeting, I’ve learned a few things about myself and how I handle money.

There is no perfect budget. Each month, I get to tweak my numbers as I see fit. The budgeting dashboard that I use comes with various graphs and charts, and I really do love them! They’re easy-to understand, visual representations of where I spend my money each month. I can tell you that a vast majority of my money goes to savings and investment accounts. And if I simply cut back on those contributions, I wouldn’t be going over-budget my other categories.

It only took two months of seeing lots and lots of red for me to ask myself the following: “Am I going to cut back on my monthly savings & investing?” And the answer I’ve arrived at is: “No, I’m not going to do that.”

While I might hate being in the red in multiple categories on my dashboard, the bottom line is that I am not going into debt every month. The credit card bill gets paid in full every single month, and that’s what matters most to me. Should there come a time when I have to choose between earning 5%-6% on my investments and paying 29.9% to my credit card company, then I’ll cut back on my monthly savings and investing to pay that debt. After all, it makes no sense to pay 30% to a credit card company if I’m only earning 6% on my investments!

Even though I spend too much in a few categories each month, there are some categories where I spend considerably less than I’d planned. Surely that signals that I’m getting pretty good at budgeting certain things.

Another thing to be noted is that my budge has nothing to do with my new worth. I’m only tracking my paycheque income on this budget, not my entire income. I also earn dividends and capital gains from my investments, but that money is separate from my salary income. My dividends accrue in another account, but I don’t use those to pay for my current expenses. They’re on a dividend re-investment plan (DRIP). If I absolutely had no other choice, I could use my dividends to supplement my paycheque. Even though I can’t get my budget to balance every month, I’m still earning passive income and my net worth is increasing over time.

I think that being good at budgeting is helpful to building wealth, but I don’t think it’s essential to doing so. Other factors are so much more important when it comes to increasing your net worth and benefitting from long-term investments. In my humble opinion, a budget is an excellent tool in forcing you to articulate where you want to spend your money. Reviewing your budget at the end of the month is equally important. Doing so forces you to admit to yourself where your weaknesses are and whether you have properly identified your priorities. Sometimes, people think they want one thing when they really want something else. That’s okay. There’s no harm in learning what you truly want and spending your money in a way that allows you to obtain it.

One Week Closer to Your Dreams

Well, the first week of 2023 is in the bag. Either you’re one week closer to your dreams or you’re not. No need to share your response with the class, but which one is it?

Personally, I don’t do New Year’s resolutions. Any day of the year is a great time to make beneficial changes to one’s life. January 1 doesn’t hold any special power when it comes to setting priorities for how you want to live the rest of your life. That said, I do use the sentiment of season as incentive set and re-assess the goals for my life. (Since this is a personal finance blog, I’ll only discuss my personal finance goals.)

Some of my financial goals are long-term, i.e. retiring ASAP, while others are in my near future, i.e. maximizing my RRSP contribution in May or June. I find that January of each year is a good time to figure out what goals are most important to me. This way, I can focus my spending in ways that get me closer to the life I want to live.

So far, and in no particular order, my goals for 2023 include:

paying cash for Christmas 2023 (no credit card hangover in January for me!)
contributing to my TFSA and RRSP
taking myself to the spa for my birthday in August
upgrading my iPhone
increasing my dividend cashflow by 10%
using my newly-creating slush fund (shout out to Bridget Casey of Money After Grad)
taking lunch to work more often than not
doing more meal prep so there’s less motivation to choose for fast food
maintaining my contributions to my non-registered account
beef up my emergency fund to account for inflation

These are the financial concerns that are currently most important to me. And since it’s my list, I’m the only one who gets to add, amend, or remove items. By the same token, I’m the person who has to fund them too.

How I Meet My Goals

Unsurprisingly, I’ll be using sinking funds for many of my goals. As I get paid, various chunks of money will be saved in various sinking funds until it’s time to spend the money. Most banks allow you to create nicknames for your various accounts. I love this feature! Nicknames are the perfect reminder of which priorities are being funded with my money. Should I ever need to withdraw money, then I know exactly which priority is being sacrificed for some other purpose.

Let’s use Christmas 2023 as an example. I get paid bi-weekly so I have 26 paycheques coming to me this year. My sinking fund will see contributions of $50 bi-weekly, which will give me $1300 to spend on Christmas in 12-months time. Now, if I think Christmas is going to cost more than that, then I can bump the amount up to $75 ($1950) or $100 ($2600) to cover my anticipated expenses. Thankfully, my family is nearby so I don’t have to cover huge transportation costs. We’re also not too big on gifts and prefer to focus on the food, playing with the kids, and playing board games. The lower amount of $1300 should be more than sufficient to cover the anticipated costs.

By starting to save for Christmas 2023 now, I won’t be scrambling for $1300 in 11 months time. I’ll have been saving throughout the year in small chunks. When the time comes, I can spend on gifts, food, and decorations without wondering where the money will come from to pay for everything. The money will have been tucked away just for this purpose. Easy-peasy-lemon-squeasy!

Automatic transfers take a good many money-decisions off my plate every year. They allow me to fund my priorities with the least amount of stress. I achieve my goals and get what I want by following this simple 3-step formula:

My employer deposits money into my account on payday.
Automatic transfers whisk a good chunk of it away to fund the things that are most important to me.
Whatever’s leftover is spent on the day-to-day expenses of living: shelter, groceries, utility bills, entertainment, and other little nice-to-haves.

I never have to ask myself if I’m going to transfer money from my chequing account to my various savings and investment accounts. Thanks to the power of automation, the money is siphoned away before I have a chance to spend it.

51 Weeks Left

The first week of 2023 is in the history books. Hope it was a good one for you and that you’re one step closer to living your dreams. And if you didn’t get any closer to your dreams, then take a few minutes to figure out why. Ask yourself the following questions:

How are you going to spend your money over the 51 weeks left in 2023?
Are there any financial obstacles that are preventing you from getting what you want?
If yes, what would it take to remove them?
Are you willing to bear the consequences of removing money impediments from your life?

I get it. Change is hard, and I’m not terribly fond of it either. Still, life has taught me that sometimes changes have to be made in order to get what I want. Other people will always have opinions about how I’ve chosen, or not chosen, to spend my money. Guess what? They’ll sleep just fine with their opinions, but I’m the one who has to live with my choices. I’ll consider their opinions, before I do what I think is best for me.

You’re in the same boat. My opinions on this blog are mine. You know your financial situation way better than I do so you have to make choices based on the facts of your life. After all, you’re the one who is going to be saddled with the consequences of every choice you make. Life is a series of choices, after all.

When it comes to your money, I’m suggesting that you be the one to choose what happens with it. Don’t let anyone else spend it for you. Never let anyone else put you into debt! No one else knows what is most important to you. At the end of the day, your choices with money will affect every aspect of your life. This is why you should put in the effort to articulate what you want most then craft a spending plan to achieve it.

This is the very best way for you to move closer to your dreams, and to seeing them come true.

I’m not an expert but….

I am not certified by any governing body to tell you how to spend your money. My words of advice were earned at the School of Life, a place where all of us are students. I’m telling you this so that you realize that I’m not an expert, but I’ve still learned a thing or two. If you do what I did, you’ll do fairly well with your money over a lifetime. Here are my tips to acquiring a heavy wallet.

Don’t spend every penny you earn.

First off, I’ve yet to meet anyone who’s been harmed by living below their means. Spending less than your take-home income has no downsides, as far as I can tell. The difference between your net income and your expenses is called “savings” and savings can always be stashed away for various things.

Emergency Funds are not optional.

Secondly, life without an emergency fund is an invitation for financial trouble. There’s an emergency in your future. You simply have no way of knowing when it will show up. I promise you this though. No one in the history of the world has ever lamented about having too much money set aside to deal with the inevitable emergency. If you don’t have an emergency fund, start one immediately and set up an automatic transfer from your paycheque to fund it.

It’s going to take a bit of time to build up a decent emergency fund. That doesn’t matter – just start building it. When the emergency hits you smack in the face, you’ll be quite grateful that you won’t have to worry about the financial side of dealing with it.

Investing for Tomorrow You isn’t optional either.

Thirdly, start investing your savings. Yes – some of your saving will go to building an emergency fund. The rest of your savings should be split between your short-term, medium-term, and long-term goals.

One your most important long-term goals is how to feed, shelter, clothe, and entertain yourself when you’re too old to work. Tomorrow You still needs money to survive until the very last day of your life. The steps you take today to invest your savings will increase Tomorrow You’s chances of having a financially comfortable life once employment is over.

You need to start funding your retirement accounts – namely the Tax Free Savings Account and the Registered Retirement Savings Plan.

If you have to choose between filling the TFSA or the RRSP, my recommendation is to fill up the TFSA first. The TFSA contributions do not generate a tax refund, but the money invested inside the TFSA will grow tax-free and can be withdrawn tax-free.

Should you be so fortunate as to have sufficient money to fill both your TFSA and your RRSP, then do so.

If you still have savings After you’ve filled your retirement accounts, then open a non-registered account with an online brokerage. Invest your remaining savings to earn capital gains and dividends. The money earned in your non-registered account will be taxed every year. The upside is that the taxable rate on your capital gains and dividends will be less than the taxable rate on your earned income.

Inflation isn’t going away anytime soon.

Fourthly, inflation is running high. No one knows when it’s going to go down, so assume that things will be increasingly expensive for the foreseeable future. There are no simply answers to this problem, so my advice to you is to cook more of your own food. I love socializing over food as much as the next person. And I do sometimes yield to the incessant call of the fast food window or the food delivery app. However, inflation running at 7%-8% has forced me to be a lot more disciplined. I’m heading to the grocery store instead of tapping out an order on an app. I’m slicing and dicing, mincing and sautéing, frying and baking in my own kitchen. One of these days, I’ll even master the art of meal planning for the week instead of simply for the next 3-4 days.

My advice to you is learn to grocery shop then spend more time in the kitchen. If there’s something you want to learn to make, there’s someone on the Internet who has a recipe and a video to show you how. I can promise you that $60-$80 spent at the grocery store will yield you a ton more food than the same amount spent at a restaurant, fast food outlet, or food delivery service.

Stay out of debt

For whatever reason, our society has decided that it’s a good idea to put people into debt. The scope and manner in which any one person is able to go into debt is truly breathtaking: student loans, vehicle loans, mortgages, credit card debt, etc…

There’s no legal limit either. It’s not like there’s a law which says “No person is permitted to carry more than $650,000 of debt at any one time.”

So long as there is a creditor who is willing to extend you credit, you can dig a deep a hole as you choose. Even after a creditor stops extending you new credit, the hole still gets deeper thanks to the power of compound interest and the piling on of fees.

Do yourself a favor. Don’t go into debt. If you’re already in debt, then work very hard to get out of it.

You know those savings that I was talking about at the start of this post? Take 25% of them and throw them at your debt. You can use the snowball method or the avalanche method to make extra debt payments over and above your minimum payment.

I really don’t care, which method you choose. Just start making those extra debt payments and get yourself out of debt as soon as possible.

Again, I’m not an expert.

I’m just a person who has learned a few things about money from my own experience. I’ve also observed the financial choices and outcomes of others. Getting out and staying out of debt has done wonder for my financial life. Spending less than my net income has allowed me to set aside money for my retirement while also fulfilling most of my short-term and medium-term goals. Cooking at home has definitely contributed to a heavy wallet. My emergency fund helps me sleep well at night.

Even though I’m not an expert, some of these tips might help you too. Take what you need – leave the rest.

Easy money… Why You Should Give a Hoot about Organic Dividends.

Save. Invest. Learn. Repeat.
Blue Lobster

So this blog post will fall under the “Learn” category. It’s just a tidbit of information about organic dividends to add to your investing armamentarium. Do with it what you will.

Long-time readers know that I’m a huge fan of dividend ETFs (exchange-traded funds). Since the start of my investment journey, I’ve relied on DRIPs (dividend re-investment plans) to re-invest all of my dividends automatically. I time my investment purchases to take advantage of each ETF’s ex-dividend date. I felt very smart about dividends. As always, the universe has much more to teach me.

Lately, I’ve been coming across the term “organic dividends” more frequently. Every time I see this term, I ask myself questions: What are these? Do I need them? If so, how do I get them?

First question – what are organic dividends?

From what I’ve gathered, organic dividends are the dividends that are generated when the dividend-issuing company raises the dividend-payout per unit. If I have 1000 units that pay me $0.10/unit in dividends, then I earn $100 in dividends. Fantastic! Those aren’t the organic dividends though.

When the company raises the dividend payout to $0.15/unit, then I get to benefit from organic growth in my dividends… My dividend increase directly as a result of the increased dividend payout. That $0.05 increase in the payment – from $0.10 to $0.15 – results on my dividend payment increasing to $150, without any effort on my part.

Instead of buying 500 more units to get that $150 dividend payment (=1500 units x $0.10/unit), I earned more dividends per unit simply because I own the units. Yay, me! In other words, I didn’t have to invest any money increase the amount of my dividend payment. Instead, my dividend grew organically because the dividend-payout increased. Essentially, I earned more money without doing any more work.

Mind blown! Organic dividends are as wonderful as my DRIP for increasing my dividend cash flow.

Second question – do I need organic dividends?

The short answer is “Hell, yes!”

My portfolio benefits anytime one of my dividend-paying companies raises its dividend payout. I can’t imagine a situation where organic dividend growth would be bad for me. Again, I earn more money without doing more work. Obviously, I’m going to like this fantastic feature of organic dividend growth.

Even if my taxes go up, so what? Dividends are taxed so much less than earned income. Getting an increase in my dividend payments, via organic growth, is similar to getting a raise at work. The organic dividends are way, way better than the raise, because the raise is taxed much more than the dividends are. The tax treatment of dividends is much better. If you want more details, talk to a tax professional.

If you’re fortunate enough to benefit from both organic dividends and a raise at work, then count your blessings, pay your taxes, and go on about your day.

Third question – how does one get their hands on organic dividends?

Well, my sweet… we have to go back to first principles to answer that question.

First, you live below your means. If your spend every nickel you earn, then you won’t have any money to invest. You need to have some disposable income to direct towards wealth creation.

Second, you automatically transfer a portion of your paycheque to your investment account every single time you are paid. Start where you’re at and increase that amount over time. I started with $50 every two weeks from my first part-time job. Now, I’m investing twice that much every day… on top of the monthly dividends that are automatically re-invested.

Third, you buy dividend-paying investments. I like to buy dividend ETFs, but there are also dividend-paying mutual funds and dividend-paying index funds out there. (Never forget that mutual funds are far more expensive than ETFs and index funds so you’re paying more to own them. You should probably stick to ETFs and index funds.) You can even buy stock in companies directly, if you think that’s best.

Four, set up a dividend re-investment plan so that your dividends are automatically re-invested for you every time you are paid.

You continue to live below your means so that you always have money to invest. The dividends will start as a trickle, then compound over time. Eventually, they’re a virtual waterfall showering you with money every year. The more you invest, the faster your dividend payouts will grow. When the dividend-issuing companies increase their dividend payout amounts, each of your ETF units (or stock) will pay you more money.

You cannot benefit from organic dividends without first having dividend-paying products in your portfolio. Never, ever forget this.

That’s it. That’s the post. Organic dividends are a great way to increase your passive cash flow. You cannot control when they’ll show up, but you can definitely control whether you’re positioned to receive them. Do with this information what you will.

Life Gets in the Way

I’ve enough life experience to know that life gets in the way of the best laid plans. And since this is a personal finance blog, I’m going to try and expound on this idea as it impacts your money decisions.

It’s easy to tell people to invest consistently. Showing others how to set up automatic transfers to a brokerage account is a matter of a few graphs and maybe some one-on-one coaching. Reminding people of the importance of always living below their means is a simple task. Wanting to do those things is as easy as falling off a log!

The reality is that doing those things is NOT EASY. Ideally, everyone would be able to invest money from every single paycheque, without fail. Being able to do so for years and years requires that a lot of things go very right for a very long time.

First of all, you need to earn an income that has room for saving. If every penny you earn is spent on shelter, food, transportation and utilities, then where is the “investing-money” going to come from? Are you willing to cut back to only eating twice a day? Maybe you won’t bother paying for electricity during the summer months? Maybe you wouldn’t mind only showering once a week to save on water?

My point is that there is an income level at which it is unrealistic to expect someone to save. They would be living a life of deprivation, such that their basic needs are not being met. It would be cruel and perverse to expect that they would deprive themselves even more.

So let’s say someone is making enough to cover all of their needs and most of their wants. They might even have enough for a luxury or two. These are the people with “investing-money”. They can live below their means and still live a comfortable life.

However, life can get in the way of their investing plans too. What if a family member needs financial help? Or what if a vehicle needed to commute to work is totaled and the insurance payout isn’t enough to buy a replacement in cash? Maybe the parents’ retirement income isn’t enough to keep the lights on so they need a few hundred dollars every month to keep from being hungry? What if an employer goes bankrupt and another position isn’t to be found for another 8 months? What if illness prevents one from ever working again?

My point is that you can only invest month-in-month-out if everything goes well all the time.

This isn’t the reality for most. For the majority of us, there are always expenses that crop up and demand that we make a choice. You can personally make all the right personal finance moves then have your life upended by a motor vehicle or workplace accident that requires months, maybe years of rehabilitation. No one chooses to be hurt in this fashion. Being a great employee won’t save you if your employer goes bankrupt during a recession and no one else is hiring. Similarly, that status won’t help you if the only jobs you can find are minimum wage or just above that level. Let’s be honest. You cannot invest what you don’t have.

Even if you have an emergency fund, there’s no universal law stating that your emergency will cost as much as or less than what you’ve socked away. Similarly, there’s no prohibition against you experiencing more than one serious emergency at a time. And if you are “lucky enough” to have an emergency that falls within the capacity of your fund to handle, then you’re in the position of having to replenish your emergency fund.

So unless you’re income has increased, you’re faced with the choice of using your money to invest or to replenish your emergency fund. After all, you only have a finite amount of money. You owe it to yourself to make the best use of it. Having an emergency fund is a cornerstone to taking care of your financial needs. Yet, investing for the Care and Comfort of Future You is also extremely important.

It’s called personal finance because it’s personal. There is no one right answer for everyone. With each passing day, I am convinced that it’s a rare few who can invest without fail over a lifetime. While many have the intention, the vagaries of life can sometimes impede the implementation of such a plan.

Do me a quick, free favor. If you’re doing your best to save for your future, then pat yourself on the back. You still have to survive today. And if that means lowering your investment contribution to $10 per month, then so be it. I am not going to suggest that you starve today so that you can eat tomorrow. If you’ve used your emergency fund, replenish it. If you don’t have an emergency fund, start one. If you’ve lost your income, then preserve your money until you’ve secured another source of income. If your family needs help to avoid ending up on the street, then make the decision that lets you sleep well at night.

Life gets in the ways of the best laid plans. That doesn’t mean you stop planning. It means that you adjust and tweak your investment plan as necessary, without abandoning it completely.