Wealth Creation - Millionaire on the Prairie

RRSP Season is Back!

It’s once again the season to talk about your Registered Retirement Savings Plan – otherwise known as RRSP Season!

Between Christmas and the end of February, there’s generally a plethora of advertising about the importance of funding your RRSP. So I’m putting my $0.02 into the mix too!

An RRSP is a tax-deferred way to grow your money. An RRSP is a registered account. This means that once you’ve opened an RRSP, you can deposit money into it and watch that money grow without taxes until you take it out. The point at which you withdraw your money is the point at which you’ll pay the taxes owing. In other words, your taxes owing on the growth inside your RRSP are deferred until you take that money out.

The deadline for contributing to your RRPS for the 2019 tax year is March 2, 2020. Our dear, sweet government gives you an entire year + 60 days into the following year to contribute to your RRSP. Whatever you don’t contribute in one year will rollover into the following year’s contribution.

In an ideal world, you would contribute your maximum every single year. Your RRSP would be chock-full of the perfect investment earning you a return of 15%, year-in-year-out! It would be a world of sunshine and lollipops, rainbows, puppies and kittens galore! Who wouldn’t want to live in the kind of world?

Most people do not make the maximum contribution to their RRSP every year.

So what to do?

Contribute what you can. If that’s $50 per week, then that’s $2,600 per year. If it’s $50 per month, then that’s $600 more than $0. Find a way to squirrel away as much as you can into your RRSP. The sooner you start contributing your RRSP, the sooner you can start investing your money within this registered account. Consistency is one of the keys to building wealth over time so start as soon as you can.

If you open an account with Canada Revenue Agency, you’ll have access to your personalized RRSP contribution limit. If this amount is more than you can contribute in one year, then figure out how much of a contribution you can make. Take that number, divided it by the number of times that you’ll be paid and set up an automatic transfer so that a portion of your contribution is sent to your RRSP every time you get a paycheque.

Let’s say you can afford to put away $3200 in 1 year and you’re paid bi-weekly. That means you’ll get 26 paycheques in one calendar year. This works out to $123.08 per paycheque, which is equivalent to less than $10 per day. Set up an automatic transfer of $123.08 from each paycheque and you will have found the money for your RRSP contribution.

And if you can afford more, then I would suggest that you contribute more. I’m still of the view that stuffing your RRSP full of money is a far better option than retiring with an empty RRSP. And since I’m not a tax professional, I’m going to recommend that you do your due diligence – which is a fancy way of saying do your own homework – and learn about RRSPs, their benefits, and how they can work to minimize poverty in old age.

How do I invest in my RRSP?

The automatic transfer ensures that you’re saving money so that you can contribute to your RRSP. Once the money is inside your RRSP, you still have a responsibility to yourself to invest it. The money can stay inside your RRSP until your 71 years old so you have may have several decades before you’re forced to withdraw it. An investment period this long is best used by investing in equity products that offer the best likelihood of higher growth.

You can invest in index funds, exchange-traded funds, mutual funds, individual stocks, bonds, guaranteed investment certificates, and high-interest savings accounts. To be very clear, it’s my personal opinion that GICs and HISAs are inappropriate for your RRSP money. The rates of interest offered on those products will not keep up with inflation. By failing to keep up with inflation, your RRSP money will consistently lose purchasing power over the years. This is a very bad thing!

In my opinion, you’re going to want to invest in index funds and exchange-traded funds that are equity based, which means that they invest in the stock market. If you don’t know where to start, check out the Canadian Couch Potato website and the model portfolios that are discussed.

Once the money is in your RRSP, do whatever you can to leave it there. Your RRSP is not a savings account. Do not treat it as an emergency fund! Life has a way of getting the way of plans, but I want you to do whatever you can to leave your RRSP money alone to grow over the years between today and retirement.

What if I get a tax refund?

Remember how I said that RRSP contributions are tax-deferred? That means that you get a tax deduction for contributions that you make to your RRSP. Depending on your tax situation, you might be entitled to a tax refund after you’ve contributed to your RRSP.

This is your money to be spent however you see fit. Yet… if you’re looking for ideas of the best use of this tax refund, here are my suggestions.

Pay off or pay down outstanding credit card balances, student loans, or any other debt you may have.
Put the tax refund right back into your RRSP, so long as doing so won’t take you over your maximum allowable RRSP contribution limit.
Put the money into your TFSA so that you can maximize your contributions to all of your registered accounts.
Contribute the money to non-registered investment account.
Use the money to treat yourself to something nice – a day at the spa, a weekend road trip, travel, whatever you want.

At the end of the day, what you do with your tax refund is entirely up to you. After all, it’s your money and personal finance is indeed quite personal so you get to spend your money in any way that you think is best.

The RRSP is a Gift

Speaking from personal experience, I can tell you that from the tiniest little seed does a mighty oak grow. I started my own RRSP over 25 years ago. Each year, I contributed as much as the CRA would allow. Today, this portion of my retirement kitty is over six figures. My money is invested in a mix of exchange-traded funds – split between bonds and equity. Slowly but surely, the money is growing and I should have a nice little cushion when it’s time for me to hang up my gloves.

Use your RRSP to save for your future. It’s one of the best tools available for growing your money. When you’re old, you’ll be quite happy that you have money set aside for your dotage.

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Weekly Tip: Always re-invest the dividends and capital gains that your portfolio earns. This is where the magic of compound growth makes a huge impact. Use Dividend Re-Investment Plans whenever you can. Relying on a DRIP along with consistently saving and investing a portion of every paycheque is one of the tools I used to build my Army of Money Soldiers.

It’s Okay to Keep Your Money

If you’re not already aware, then let me be the first to say the following: it’s okay to keep your money! You don’t have to spend all of it.

Now, you probably shouldn’t keep all of it either. After all, doing so means you won’t eat, nor have a roof over your heard or clothes on your back. Keeping every single penny of what you earn causes just as many problems as spending it all! A balance should be found as soon as possible.

Today’s post is based on my observation that there’s a goodly number of people out there who appear to operate on the belief that they simply must ensure that their expenses are equal to their income. I’m here to tell that such a belief is simply not true. It’s a formula guaranteed to keep you running in a hamster wheel for your whole life. Without keeping a little bit of your own money, you’ll never have the option of quitting whatever it is you’re paid to do now so that you can do whatever it is that you really want to do with your time.

You’re More than a Conduit

From what I’ve seen on a daily basis, there are many people who are little more than conduits between their paycheques and various retailers. These are people who work hard for their money, possibly at jobs they love and possibly not. They leave the comfort of their homes when they’d rather not. Nearly all are giving up time otherwise spent doing what they truly enjoy so that they can go to work and earn a paycheque. They’re foregoing sleep and health and time with friends & family all so that they can meet work obligations!

And then they turn around and spend every cent they’ve earned with barely a thought about the effort expended to earn it. I find this behaviour utterly baffling!

My comments are directed at those of you whose income don’t keep you on the absolute edge of solvency. I’m targeting those of you who can live well away from the edge yet you choose to put yourselves there. You work so hard for your money and you choose to spend it all.

Has no one told you that you don’t need to spend your money this way?

Again, it’s perfectly okay to keep your money.

Contrary to what the AdMan and the Creditor tell you every waking moment of your day, you’re not obligated to spend everything you earn. I will admit that the advertisements are enticing. Beautiful people are selling me everything from toothpaste to Tesla’s. Their sparkling white teeth and full heads of shiny hair inspire confidence that the products they’re hawking will complete my life. All I have to do is hand over my money and my life will be perfect.

It’s a seductive message.

Sadly, it’s also completely false! If we learned one thing from the Grinch by way of Dr. Seuss, it is this: happiness doesn’t come from the store!

Your Dreams Won’t Fund Themselves

So I say it again – it’s okay to keep your money! Put a portion of it away in an investment account so you can fund those years when your paycheque goes away. Create a few dream accounts! These are the accounts where you save up for those things that make your heart dance with joy. Maybe that’s a fancy cooking class. Perhaps it’s a trip to Greece. It might even be a fancy cooking class in Greece! You alone know what your truest desires are.

Yet, you won’t be able to fund those dreams and desires if you consistently spend every penny as fast as you can. The Hair & Teeth of Marketing aren’t going to help you achieve your goals. Their only objective is to persuade you to open your wallet. You have to believe me when I tell you that it’s okay to save your money for the things that you really want.

To be very clear, I’m not talking about people who have to devote their entire paycheques to rent and food. If you’re keeping it all together on a shoestring, then more power to you! The ones I’m talking about are those who have disposable income. They have some slack. If they had to take a pay-cut at work, they’d be able to stay in their current home and eat what they currently eat. Maybe they’d have to give up a few subscriptions, annual travel, and their plans to replace a 3-year old vehicle. Bottom line is that they would still have enough money to meet the survival expenses of food, shelter, and basic clothing.

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Weekly Tip: The 2019 RRSP contribution deadline is March 2, 2020. Make sure that you contribute something to your RRSP so that you have some cushion for your retirement years. Do not get trapped in analysis-paralysis. Make an RRSP contribution, preferably in an exchange-traded fund. Then leave the money alone for a long-time. While your RRSP-money is growing & compounding, your duty to Future You is to continue learning about investment options by reading books, blogs, magazines, websites, forums, stickies, and post-it’s. Learn as much as you can about this because it’s very, very important. Save-invest-learn-repeat.

What If…

When I talk about financial independence and wanting to retire early, many people look at me as if I’d sprouted a second head right in front of them.

“I love my job!” they say. “I don’t want to retire!”

Great! Wonderful! You’re being paid to do what you love – that makes you one of the Lucky Ones!

Take a moment and consider what it’s like for those of us who aren’t so blessed as to love our livelihoods, those of us who dream of a day when we can do what we want with all of our precious, precious time. Most of us work because we have to, not because we love what we do. And a good number of workers don’t actively hate their jobs. They simply don’t love them and would rather be paid to do something that they enjoyed.

And if you’re wondering why we don’t just find jobs that we love and do those instead, please gently hit yourself in the head with a hammer. Take it on good authority that we have tried to find jobs that we love as much as you love yours. There just aren’t as many of those ideal positions going around so not all of us are going to get one.

Instead, I’m going to ask you Lucky Ones to put yourselves in the shoes of the rest of us. That way, you might gain some insight into why some of us are working so hard to achieve financial independence and, possibly, early retirement.

Lucky Ones, ask yourselves the following: What if you didn’t love your job? And what if the job you love today turns into one that you don’t love tomorrow?

What if any of the following things happen?

The boss you love retires…and the new boss isn’t to your liking.
Your best work buddies move away.
You have to take on duties that make you stressed and irritable.
You’re passed over for a promotion that you know you earned.
Others are laid off, which means your workload goes up.
Harassment, sexual or otherwise, creeps into your daily workday.

There are many, many things that can happen in one hot minute to turn a job-you-love into a job-you-hate. Spend an hour or two at Ask-A-Manager to see what I mean. If half of the people writing to Alison had built up enough money to leave their jobs when they wished, then she’d have so much less to write about!

Or maybe your job never causes you to shed a tear, yet you lose it anyway. For example, your company is bought by another one, or there’s some kind of re-organization. For whatever reason, your job is eliminated. It happens to a lot of people. Those who don’t have a financial cushion are the ones who will be stressed and desperate to find something else. People who’ve been working towards financial independence have the luxury of taking some time to figure out what the next steps are going to be.

What if you had enough money to walk away from your job when it stops making you happy? Or what if you had a great, big cushion of money to land on if you were kicked to the curb due to downsizing or ageism?

That’s the beauty and power of financial independence. When your job stops being one that brings you joy, being financially independent gives you the choice to walk away.

I want to be explicitly clear – you don’t have to retire early just because you’re financially independent. Money = choices. Having money doesn’t remove your choice to keep working. It simply gives you the choice to do something else when your current position stops bringing you happiness.

So make hay while the sun shines! Get in touch with your inner squirrel and start gathering that sweet, sweet cash for the day when you’ve simply had enough. You won’t regret having the options that only money can buy when the time comes.

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Weekly Tip: Pick one day a week to be the day that you don’t spend any money. Most of us spend a little something every single day. Did you know that it only takes $27.40 per day to spend $10,000 in one year? Challenge yourself to keep your money in your pocket atleast one day out of every 7.

Doing First Things First

Go ahead, Gentle Reader – you’re on the air.

Blue Lobster, I’ve got a question for you… I’ve saved up some money. Where do I invest it for long-term future growth?

Great question! And one that I’d love to answer… but first things first. I have to state the following:

I am not a financial advisor nor am I in any way certified or qualified to give tax advice. The following post is based solely on my life’s experiences. I can tell you what I did, but I’ve made mistakes over the years. My choices were based on my particular circumstances which means that my choices might not be right for you. If you want professional advice, then I’m going to strongly recommend that you find a professional person to give it to you. I’m not a professional financial advisor so you rely on my opinion at your own risk.

Now, with that out of the way, let’s get back to your question. I like to call the following my Order of Investing Money.

First Things First

In my opinion, the best place to first put your money is into a Tax Free Savings Account (TFSA). The TFSA was created in 2009. If you’ve never contributed any money to your TFSA, then your cumulative contribution room as of January 1, 2020 is $69,500.

The TFSA does not generate a tax deduction. The money that goes into the TFSA is after-tax money. Whether you’re in the highest tax bracket or the lowest tax bracket, your money goes into the TFSA after you’ve paid taxes on it. If you invest it in equity products and you earn outsized returns, then all of the initial contribution and the growth generated can be withdrawn without any kind of tax penalty.

Allow me to be repetitive so that the following point is not lost on anyone reading this post. All money that goes into a TFSA grows tax-free. When you take it out of the TFSA, the money is not taxed by the government.

Whatever you take out of your TFSA can be contributed back into your TFSA in the following calendar year. This rule is applicable even if your withdrawn amount is higher than the amount that you’ve contributed over the years. In other words, you can withdraw both your initial contributions and the growth that has accrued, then you can contribute those amounts back to your TFSA the following calendar year.

So if you’ve invested the maximum to your TFSA, i.e. $65,000, and it’s grown to $110,000, then you can withdraw the full $110,000 whenever you want. You simply can’t put any of that money back into your TFSA until January 1, 2021.

Should I put my money anywhere else?

The next best place to save your money, in my humble opinion, is in your Registered Retirement Savings Plan (RRSP). However, there are a few major differences between the RRSP and the TFSA that you need to know about.

Unlike the TFSA, money inside your RRSP will grow on a tax-deferred basis for as long as it stays inside the RRSP. The taxes that are owed on the money that accumulates in your RRPS are deferred. You don’t pay those taxes now – instead, you will pay those taxes later. To be precise, you will pay taxes on that money when you withdraw it from your RRSP.

Contributions to your RRSP are tax-deductible. If you put money into your RRSP, then the Canada Revenue Agency will refund you the taxes that you paid on that money when you earned it. This is great!

If you’re in a high tax bracket when you contribute to your RRSP and in a lower tax bracket when you withdraw from your RRSP, then you’ll save money on taxes when you withdraw it.

If you’re in a low tax bracket at contribution and then a higher tax bracket at withdrawal, then you’ll pay more in taxes. This sounds bad but keep in mind that you’ll have had years of tax-deferred growth within your RRSP if you’ve seen good returns on your investments.

Paying taxes on money is far, far better than having nothing set aside for retirement.

And if I’ve maxed out my TFSA and my RRSP?

Gentle Reader, you’ve done me proud! If you’re in the very fortunate position of having maxed out both your TFSA and your RRSP, then I salute you. Reach over and give yourself a pat on the bat. You’ve done well!

Your next step is to open a brokerage account, aka: an investment account, and start investing your money. You’ll be contributing after tax dollars to this account. Your growth will be taxed as you earn it, but you’ll be investing your money instead of squandering it on frivolities that don’t add to your life.

Throughout this entire order of investment priorities, you should be taking care of your present and future financial needs by practicing the 4-step process for financing your dream life: save-invest-learn-repeat.

You’re going to have to take some time to learn about TFSAs, RRSPs, brokerage accounts, and the various investment options available to you.

Do not let analysis-paralysis stop you from starting. Similarly, it mustn’t prevent you from making investment decisions. You won’t make perfect decisions, but console yourself with the truth that no one does. This is why learning is such an integral part of the 4-step process.

Maxing out my accounts is impossible!

Stop fretting! No one said you have to max out all your accounts.

If you can, then great.

If you can’t max out all your accounts in one shot, then contribute as much as your budget will allow and get on with the rest of your life. The only “bad” contribution amount is $0. Anything over and above $0 is progress. Find ways to cut expenses or find ways to increase your income. The option is yours, but so is your obligation to yourself to contribute as much as you can towards the Care & Feeding of Future You.

As you learn more, you’ll earn more. And when you earn more, you’ll contribute more. It’s that simple.

Please do keep in mind that simple isn’t the same as easy. I’ve yet to find that “easy” way to earn money to contribute towards my investments. Every dollar has been hard-earned.

My advice is to start with first things first. Begin by fully funding your TFSA. Once you’ve done that, max out your RRSP. When that task is done, set up an automatic transfer to fund your brokerage account. And if you decide to not follow this Order of Investing Money, then I beseech you to continue learning about money so that you’re confidently investing for your future in a whatever manner that best suits you.

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Weekly Tip: Open an online savings account. Get one that pays higher interest than what the brick-and-mortar banks are offering. Consider EQ Bank. (I’m not being paid for mentioning this bank.) This savings account should be separate from your daily chequeing account. Set up an automatic transfer of money from your paycheque to your online savings account. This transfer should fund – in order of priorities – your emergency fund, annual bills, short-term goals, and luxuries for yourself.

Progress need not be Perfect!

When you know better, you do better…
from one wise soul to another, Maya Angelou to Oprah Winfrey

No one is born knowing how to invest. This is awesome news! It means that anyone can learn how to invest if they take the time to practice the skill. It also means that progress need not be perfect.

Much like walking, playing the piano, and mastering Candy Crush, the skills of investing must be practiced and honed before one becomes proficient at them.

I’m a huge fan of YouTube. As I was perusing the millions of videos on that platform, I came across one that was called “Vanguard or Fidelity – Which one is Better?”

And do you want to know something?

Yes, Blue Lobster. Please, tell us what you’re thinking.

My initial reaction to that post’s title was to scroll right past it. I’ve learned a little bit of wisdom on my relatively few revolutions around the sun. And one of those bits is that it’s best to just start investing, regardless of where you do so. Progress need not be perfect in order for you to achieve your dreams. Think of it this way – every journey starts with a single step but not every journey to the same destination requires the same number of steps. If a person needs to take a few extra steps to where she’s going, then she still gets there.

Focus on progress, not on perfection.

For example, we will look at the situation of an investor named One. Let’s say One decides to invest with Fidelity. (To be frank and open, I invest with Vanguard Canada. And no – I’m not being compensated for mentioning them in this blog post.) One sets up an account at Fidelity and creates an automatic transfer to have a fixed amount invested into an exchange traded fund every time One gets paid.

Superb! One has taken the very first steps towards investing for One’s own future.

Did One make the absolutely best choice for an investment account? It’s hard to say without knowing if One spent hours doing the research to determine the management expense ratios, various fees, product offerings, and account features from all of the investing companies that One could have chosen.

What we do know with certainty is that One did not delay her progress by staying in the quagmire created by analysis-paralysis. One made the smart choice by focusing on progress, rather than trying to achieve perfection. One is taking action by accepting the maxim that progress need not be perfect.

There’s no doubt in my mind that a perfect, best account does exist somewhere out there. I’m just not certain that it makes sense to waste more than 3-4 hours looking for it. The ultimate objective is to start investing your money; it’s not “to open the perfect, best investment account.” Keep your eyes on the prize! No one is going to pat you on the back for opening the absolute best and perfect investment account if it takes you 2 years to find it after sifting through all the options. The best and perfect account doesn’t actually help you if you never actually open it and make an investment.

Again, progress need not be perfect. I know a baby who has just started to walk. He’s only been doing it for a few weeks, but he’s focused on progress, not on perfection. At first, he could only stand and would fall down every time he moved his head. A week later, he could walk ten steps unaided. The next time I saw him, he would walk slowly…and drop down to crawl if he had to get somewhere quickly. (The kid’s got a great big brain and understands that sometimes speed is of the essence!) The last time I saw him, this kid was very nearly walking like a champ – moving his head, going further distances, turning around without falling down too much. In another six weeks, crawling will have long been forgotten as a preferred method of travel.

The first time you walked, you fell down after a few steps. You didn’t let that stop you, did you? No, you didn’t! Instead, you tried again and again and again and again until you could do it. Without knowing you personally, I’m willing to bet that you’re now quite a proficient walker. The same principle applies to investing.

Always be learning while making progress.

Be like a baby – save and invest your money with the perspective that progress need not be perfect!

You see, there’s nothing stopping you from continuing to research investment accounts once you’ve started investing. Save-invest-learn-repeat. You are free to keep learning after you’ve made an investment.

Again, full-disclosure, I invest with BMO Investorline. And, again, I’m not getting compensated for mentioning them. Yet just because I invest with BMO Investorline doesn’t mean that I haven’t also research Scotia I-Trade, Questrade, RBC Direct Investing, or any other investing platform/company. (I’m not being paid for mentioning these platforms.)

Further, I have no idea if BMO Investorline is the ultimate, best and perfect option for me. It doesn’t matter. What does matter is that I am automatically investing in very inexpensive exchange traded funds and earning big dividends every month. And even though I’ve been with BMO Investorline for years, I would switch my investment portfolio in a heartbeat if I found a platform that better suited my needs for a lower price.

If One discovers that Vanguard Canada offers a more suitable range of investments products than Fidelity, then One is not in any way prevented from moving One’s investment account from Fidelity to Vanguard Canada.

Procrastination is the enemy of progress.

When it comes to investing your money, procrastination is extremely detrimental to achieving your financial goals. The reason why it is so bad is because you have a finite amount of time in which to grow your money. Money needs to be invested so it can compound. And compounding is most effective over long periods of time. Ergo, start investing your money right now so that it has as long as possible to compound.

Don’t let analysis-paralysis stop you from taking action today!

Your progress need not be perfect in order for you to reach your goals. Lord knows that my investment path hasn’t been smooth, nor will it ever be exalted as the absolutely correct path to take. If anything, my investment story should be viewed as a cautionary tale for fellow investors. However imperfect my journey has been, the fact that I started when I was 21 and have consistently invested my money for the past 2.5 decades has been a key factor in me pursuing and achieving my goals.

Neither you nor I can get to where we want to go without making some kind of progress. So we have an obligation to ourselves to keep moving forwards. Whether that’s listening to a podcast, reading a book, following a blog, or using trial-and-error, doing any or all of these things will lead us closer to taking action. And taking action is how we will progress towards making our dreams come true.

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Weekly Tip: Don’t pay for memberships or subscriptions if they’re no longer making your happy. As much as we might like to believe it, peer pressure didn’t end when we graduated from high school. Review your monthly expenses. How many things are you paying for simply because your friends are paying for them? If those things are no longer bringing you joy, then stop paying for them.

Crunch Your Own Numbers

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

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

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

Know Where You Stand

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

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

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

Net Worth = Your Assets – Your Liabilities

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

To figure out your net worth, do the following.

Add up your financial assets.
Subtract your financial debts.

Voila! The resulting number is your net worth.

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

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

Track Your Expenses

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

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

Hope is Not a Reliable Financial Plan.

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

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

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

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

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

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

******

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

Book Review – Quit Like A Millionaire

Two people I’ve been following online for the past few years – Kristy Shen and Bryce Leung – wrote a fabulous book called Quit Like a Millionaire. You should read it sooner rather than later. (And let me be very clear, right up front – I am not being compensated by anyone for this review.)

Kristy and Bryce are also the masterminds behind the magnificent blog called Millennial-Revolution. And while some of the tidbits of the book have been disclosed on their blog, I can assure readers of MR that there’s so much more to their story that they haven’t already divulged online.

Their story is great for a variety of reasons. To start off, Kristy came from poverty. Her parents immigrated to Canada when she was young and she’s worked very hard to achieve her current success. I can’t tell her story as well as she can. However, this is a very accomplished woman whose initial idea of wealth was having a single can of Coca-Cola. Kristy has worked her ass off to earn her wealth!

Another thing I love about Kristy & Bryce’s story is that it’s a great example of how living below your means and wisely investing in the market can propel you to financial independence very early. Despite the volatility that they faced during their initial years, they stuck to their plan to invest in equities to achieve their goal of early retirement. Did I mention that they retired at age 31?

I’m not trying to blow smoke. Their means were more than adequate. Both of them graduated with engineering degrees and, together, they were earning a six-figure income within a year of graduating. Unlike the majority of people who start earning big-money after graduating, this dynamic financial duo chose to save very large chunks of their paycheque and to invest it in the stock market.

Show of hands – are you saving big chunks of your disposable income? Or have you made the choice to spend every penny you make?

Do what you want! It’s your money after all. I’m simply going to tune you out when you complain that you don’t earn enough to do what they did. You’ll need to show me your expenses and your income if you want to convince me that you can’t live below your means and invest for long-term growth. Knowing where your money goes is the first step towards controlling it.

That’s another beautiful element of Quit Like a Millionaire! Kristy and Bryce tracked their expenses for years, and then they disclosed them in the book. In other words, they laid bare the money choices they made each year to live the life they wanted while pursuing financial freedom. Not every blogger does this so I give them kudos for being so transparent. Even though they were making bank as DINKs, they never lived on more than $51,000. And you want to know what’s even crazier?

They spent $51,000 shortly after graduating from their engineering program. Every year after that, their annual spending went down while their incomes continued to go up!!! This is a couple who understood the perils of lifestyle inflation and fought against it, hard. They continued to live cheaply while still traveling, investing, and enjoying life with their friends. Kristy and Bryce didn’t become hermits or give up anything that really, really mattered to them. They prioritized their goals and made sure that their money was funding their dreams of attaining early retirement.

Kristy and Bryce also made the wise decision of finding a crusty but trustworthy financial advisor who helped them invest their money when they decided not to follow the herd’s example. Kristy and Bryce earned their early ticket to financial freedom, in part, by not yoking themselves to a huge mortgage. (Again, I’m not endorsing Garth Turner. No one is compensating me for mentioning him or his blog. I’m just stating the facts as I understand them. If you want to work with a financial investor, then I encourage you to do your due diligence to ensure that you pick the right person for the job.)

Another magnificent feature of this book lies in the appendices. Kristy & Bryce teach you the formula for creating a spreadsheet that tells you when you’ll reach your own Financial Independence number.

Oh, come, Blue Lobster! Everyone already knows how to do that!

Well, excuse me! I’ll be the first to say that I didn’t know how to create such a spreadsheet. However, I know now and that means a little bit more knowledge to help me reach my goals. I was contemplating using some of my savings to pay off my rental property, but thanks to Kristy and Bryce’s formula I now realize that doing so would set my retirement date back by a couple of years. As they do on their blog, Kristy and Bryce’s Quit Like a Millionaire will teach you stuff that you might not already know.

A new year starts in a few days. Much ado is being made about the fact that a new decade also starts in a few days. So, if you’re looking to make some changes in your financial life, then you should do yourself a solid. Take a few hours to read this book and figure out for yourself how to Quit Like a Millionaire.

No-Spend Days

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

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

How is this useful, Blue Lobster?

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

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

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

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

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

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

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

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

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

An Unexpected Benefit

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

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

Retirement is a Function of Money, not Age

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

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

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

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

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

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

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

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

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

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

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

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

Getting Ahead vs. Getting By

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

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

My position is that this assumption is false.

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

And why not? Luxuries make life better.

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

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

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

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

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

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

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

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

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

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