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TFSA contributions do not generate a tax refund, but the money invested inside the TFSA will grow tax-free and can be withdrawn tax-free.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.

Sinking Funds – Making the Most of Your Money

I’ve written about sinking funds before. They’re pools of money that are meant to be filled then emptied, as many times as you want, for as many goals as you have. You prioritize what you want to accomplish then you decide how much money goes into each one. Sinking funds are to be held separately from your emergency fund, your investment account, your retirement account, and your daily chequing account. These funds are where you hold money for your short-term goals:

  • annual premium payments & subscriptions;
  • holiday spending, birthdays & celebrations;
  • travel;
  • tuition and annual fees;
  • house down payments;
  • renovations;
  • vehicle purchases & maintenance;
  • furniture purchases;
  • annual taxes;
  • RRSP & TFSA contributions.

Sinking funds allow you to save first, then spend your money. In case you were unaware, they are highly effective at keeping you out of debt while allowing you to still earn points/cash for using your credit cards. Let’s imagine that you’re planning to take a culinary tour in 2024. Dedicate a sinking fund to that expense and start saving for that trip today. When the time comes to book it, you use your credit card, collect your points, and pay off the credit card bill in full. You can enjoy your trip without wondering how you’re going to pay for it. Sinking funds are simply fantastic!

I have to confess that it took me years to set up all of my sinking funds. The truth is that you can’t save what you don’t earn. Early on in my career, I had a lot more debt and ridding myself of loan payments was top priority. The only sinking fund I could manage to fill was the one for my annual vehicle insurance and annual property taxes.

Monthly Payments Aren’t For Me!

I’ve always hated the idea of someone being able to withdraw money from my bank account every single month. I want to be the one in charge of when money leaves my bank account. The idea of a business accidentally withdrawing a payment twice and then having to fight with that organization to get my money back makes me furious and queasy. As a result, I’ve always chosen annual payments for my insurance premiums and tax payments. My first sinking funds were for those two expenses. Any other goals were funded from my bi-weekly paycheque via automatic transfers.

Once my student loans and vehicle loan were eliminated, I re-directed those payments to other sinking funds. My next big priority was travel! Every two weeks, a chunk of money went into my travel account up to a pre-determined amount. When it was time to book a trip, the money was there. It was awesome!

Did I stop setting aside that chunk of money once it was no longer going to the travel sinking fund? No! Instead, that money was re-directed towards my next highest priority until that pre-determined amount was met. In this way, my sinking funds were funded every year and I had the money set aside to pay for what I wanted.

Homeowners Need Sinking Funds.

Eventually, I moved from my first condo to a house. Woah!!! Anyone who owns a home will agree that it’s a money-pit. There’s always something to be fixed, replaced, maintained, or updated. As soon as I moved into my house, I realized that it was definitely time for a few more sinking funds dedicated to renovations and maintenance. Since being in my house, my sinking funds helped me to do the following:

  • renovated the basement and downstairs bathroom,
  • pour a new driveway, garage floor and walking paths,
  • have trees removed,
  • have landscaping work done,
  • change my main bathroom,
  • install carpet,
  • replace windows, eavestroughs & siding,
  • pour insulation;
  • buy new furniture & electronics;
  • install a new water heater & furnace;
  • remove a shed;
  • install a sprinkler system.

Believe it or not, there are still many other things that I want to do around here. If I hadn’t created my sinking funds when I first moved in, I would be neck deep in debt and stuck on a payment treadmill. Planning out my purchases in advance allowed me to plan out my money too.

It Can Take a Few Years.

For as much as I love my sinking funds, I was never able to fill all of them at the same time. I simply didn’t have enough money. There was no way my paycheque could have paid for everything all at once when I first started. As my income grew, so did the amount that I could allocate to my sinking funds.

Some funds had to be replenished every year, so they went into a dedicated account. Insurance and property taxes come to mind. They need to be paid every 365 days so I group them together in one sinking fund. It has been filled then emptied on a regular basis for the past 30 years. Once that sinking fund is filled, my money goes towards filling my other ones.

Other sinking funds have been for one-time purchases. Trust me – it’s highly doubtful that I will be cutting down the same trees more than once. The monies for one-time purchases goes into an account where the nickname could be changed as needed. “Tree Removal” would become “New Tire Fund” or “BAC Subscription” or whatever else happened to be next on the priority list.

Finally, there are the sinking funds that were put aside due to global events. During the pandemic, I discovered a love of my own backyard. Literally! The summer of 2020 and 2021 were spent in my own yard, tending to my annuals and watering my lawn. International travel fell to the bottom of my priority list. It still kind of blows my mind that it’s been over 3.5 years since I’ve been inside an airport!!!

My point is this. You may have more priorities than money. So what? Use sinking funds to maximize the enjoyment of your money. Ensure that it’s dispersed in ways that will allow you to live your best life. Like I said before, I didn’t start out with enough money to do everything that I wanted. International travel took backseat while I fixed up my house. Fixing up my house took backseat until I was out of debt. Getting out of debt was secondary to stuffing my RRSP as best I could on my entry level salary.

The bottom line is that I had to get a few pay increases under my belt before I could increase the amount of money going to my sinking funds.

If it takes you a few years to set up all of your sinking funds, then so be it. That’s completely normal. Only the privileged can do it all at once. The rest of us have to do more strategizing. The time will pass anyway so you might as well be using your time and your money in ways that get you what you want most.

Know Your Own Numbers

You need not be obsessed with personal finance but you do need to understand it.

Wisdom from the Internet

It’s long been said that information is power. This maxim is just as applicable to your money as it is to anything else. The more you know about your own finances, the better decisions you can make to create the life you want.

In the past few months, I’ve started following a channel on YouTube where people are interviewed about their money. They all have debt, which they say that they want to eradicate. Each of them says they want to live on their own, or start a business, or buy a house. Invariably, all of the interviewees reveal that they don’t know how much money they earn each month. Of the interviews I’ve watched to date, nearly all of the interviewees are paid hourly. Most of them have received a paycheque yet none of them know how much they bring home in a month. None of them!

It’s astonishing to me that they don’t know the most basic information about their financial lives. And it’s not an age thing. The interviewees I’ve seen have ranged in age from 19-32. These aren’t all fresh-faced high school graduates who’ve just left the nest. Most of them live with roommates, so they’ve had a taste of the adult responsibility of paying rent & making sure the lights stay on while putting a bit of food in the fridge.

If you’ve stumbled upon my blog for the first time, welcome! I hope you like it here and I hope you come back. Most importantly, I want you to know your own numbers. This is foundational knowledge. You need to have to this information when setting financial goals for yourself.

*** If you’re already a person who tracks their income, then the rest of this post might not be for you. ***

In order to build the life you want, you need to know your own numbers. I’ve written about the importance of tracking your expenses. The same importance should be placed on tracking your paycheques.

At the very least, know how much money you’re bringing home in your paycheque. This is your net income, aka: money you keep after taxes and deductions. When you spend less than your net income, then you have money to build an emergency fund and to invest for your goals. If you spend more than your net income, then you’re living in debt. This is a bad situation and it needs to be curtailed immediately. If your expenses are exactly equal to your net income, then you’re living paycheque-to-paycheque. Just like being in debt, this is a bad situation because you have no wiggle room. Any unexpected expense will push you into debt because you don’t have an emergency fund. You also don’t have any extra cash flow coming in from your investment portfolio in the form of dividends, capital gains, and interest.

I’m always baffled when people say they don’t know their net income. How can you make financial plans for yourself when you don’t know how much you have to work with?

Nearly everyone has a cell phone. They all come with calendars. Go into your phone, set up alerts to tell you when you’re getting paid. When you get your paycheque, track that amount. You can use a pen and paper, a spreadsheet, or an app. It doesn’t matter. You just need to know how much money will be in your pocket until your next paycheque.

Once you have that number, you can start subtracting your expenses from it. I would suggest that you always allocate money to your needs first. After that, every other expenses is a want. You’re human, therefore food and shelter are your top priorities. Given that you’re working for a paycheque, you’re probably not independently wealthy. So that means your next priority is paying for transportation so you can get to work. Life offers no guarantees. You need to put some money aside in your emergency fund.

Do you still have money leftover after paying for these four critical items? Great! Get busy figuring out which one of your many, many wants is the next most important to you. Cell phone or clothing? Gym membership or gifts for loved one? Pet care or charitable donation?

When your expenses have exhausted your paycheque on paper, then you stop spending. Wait! Are there still things that you want but can’t be covered by your net income?

Then you’ve learned something! You’ve discovered your shortfall amount, aka: the amount of money that you need to earn to pay for all the things you want to buy. Your next step is to figure out how to make more money to cover the shortfall. Maybe you get a promotion. Perhaps you sell some things that you no longer need or use. You could find a better-paying job or get a promotion with your current employer. Maybe you pick up a part-time job or offer your services to people who need them.

Again, information is power. It’s up to you to know your own numbers so that you can figure out what it will take to build the life you want. If you start today, then you’re one day closer to making your dreams come true.

Take Action Today – Don’t Wait for New Year’s Eve!

As you may know, I’m not a fan of New Year’s resolutions. To my mind, if something is good for me, I should start doing it today if it’s in my power to do so. Waiting for some arbitrary date on which to implement something beneficial seems a little… stupid. Delaying means that I’m continuing with something not-good instead of making my life better as soon as possible.

But that’s just me. You do you as you see fit.

There are exactly 6 weeks left in 2022. You might to cast a thought or two towards the status of your money and how it’s done in the past 10.5 months. Are you happy with how you handle money? Do you think that there are areas where your habits & choices could be tweaked? If you could go back in time, would you make the same choices?

Most importantly, what have you learned about yourself from the way you use your money?

Emergency Fund

How’s your emergency fund? You really should be plumping it up. Inflation is still a bear and interest rates are going up. When the emergency lands, you’ll be grateful that your emergency fund is on the larger side. Make sure you’re adding a few dollars to your emergency fund every time you’re paid. It takes quite a while to get it to a five-figure size. Even if it’s only $5, start there and work your way up. More is usually better when it comes to having money in your emergency fund.

I have yet to hear anyone complain about having “too much money” when they’ve lost their job, or had to repair the vehicle they need for work, or had to wait for their sick leave benefits to kick in. An emergency fund is supposed to replace your income for a short-term period until you’re working again. No one really ever knows how long they’ll be out of work, so more is better when it comes to having money set aside.

And since no one ever knows when something will happen that will threaten their income, it’s best that you take action today. Do not wait for the next calamity to arrive before you start funding your emergency fund. Think of the people who lost their jobs when COVID-19 arrived in 2020. Want to bet that many of them wished they’d had an emergency fund in place to cover their bills while they were unable to earn their income?

Funding your retirement – TFSA and RRSP accounts

Maybe you’ve got a pension. Maybe you don’t. Either way, you should be saving for your own retirement. After all, a pension is simply a promise. Sadly, promises get broken. Just ask the pensioners who worked for Sears and Nortel. Those retirees did not get the money that they were promised. In short, these workers held up their end of the bargain by working for their employers for decades with the understanding that they would be paid a pension amount every month. To put it mildly, the employer did not come through on that promise.

Don’t let this happen to you! Start saving money for your own retirement, over and above whatever your employer has promised you. Every time you’re paid, shuffle a little bit of money into your personal retirement account. If you’re fortunate enough to have money for both, start with your Tax Free Savings Account and fill it up before you move on to contributing to your Registered Retirement Savings Plan. Despite their names, do not leave money in your TFSA and your RRSP in savings accounts. Invest your money in the stock market by using exchange-traded funds or index funds that are equity-based.

The sooner you invest, the sooner your money can start to grow. Take action today.

Once you’ve invested your money, leave it alone. If you’re more than 5 years away from retirement, then you’re investing for the long-term and you can safely ignore the Talking Heads of the Financial Media. The THFM are there to generate ratings for their media platform, not to give you a personalized assessment of your current financial situation. If you want that kind of attention, then hire a fee-only financial planner. You’ll pay the bill and you’ll have the assurance that her or his opinion is about your money circumstances. Again, hire a fee-only financial planner. Anyone else is probably just a salesperson who get a commission when you buy a recommended product.

Track Your Expenses

Where does your money go? How many automatic expenses go through your bank account or your credit card? How much do you spend with cash?

It’s my belief that knowledge is power. In order for you to be powerful with your money, you need to know how you spend it. Start tracking your money. Use an app. Fill out a spreadsheet. Pick up a pen and put it to paper. I don’t care what method you choose. The bottom line is that you need to know where all of your money is going.

Armed with that information, you’ll be able to figure out if your spending choices align with your life’s priorities. In other words, are you spending your money in the best way possible to get what’s most important to you?

Right now, we’re in an inflationary period. Everything is more expensive!!! The same dollar buys less today than it did last year. Given that reality, it’s vitally important that you’re satisfied that you’re spending choices reflect your goals. Unless you get a raise, it’s not like you have more money available for daily life. Winning the lottery, inheriting lots of money, and getting an insurance payout are not reliable or predictable ways to obtain more money. For most of us, we work – we get paid – we spend-and-invest our paycheques. Unless our paycheques increase, there’s precious little flexibility to get more money.

You give up time doing whatever-you’d-rather-be-doing to work and earn money. Respect your efforts enough to know where that money is going. Take action today and become intimately familiar with how, when and why you’re parting with your hard-earned money.

Slay the Debt Monster

We all know that it’s incredibly easy to get in to debt. Credit is everywhere! A few clicks on your phone, tablet, or computer and some creditor will be sending you a credit card in moments. Credit and debt are two sides of the same coin. You cannot go into debt unless someone has extended you credit. Alternatively, you can’t be in debt if you don’t use credit. See how that works?

If you have debt, then do what you can to get out. Maybe you take a second job and the paycheque from that job goes straight to your debts. Perhaps you start selling things that you don’t need or use anymore. Money from those sales goes straight to your debt. Do some batch cooking so you can cut back on eating out. There’s always the option of giving up subscriptions for a few months. Do you need all of your streaming services right now? Could you live with one of them for 2-3 months, then switch to a different one later? While they’re still only less than $20 each, if you have more than 5 streaming services then you’re spending close to $100 per month.

Take that $100 per month and throw it at your debts. Pick the smallest debt – pay it off first by adding the $100 to your minimum payment on that debt. Take that former payment and add it to the $100. Apply that payment amount to the minimum payment on the next smallest debt and pay it off. Now two debts are gone. Take those two former minimum payments and add them to the $100. Apply that amount to the minimum payment on the third smallest debt and pay it off.

This method works. You’re making minimum payments on all of your debts, except for the one that’s getting the extra money.

That’s it – that’s the post.

Hopefully, you’re doing okay. No one can predict the future, but I can promise you that tomorrow’s challenges will be easier to handle with money in the bank. Take action today and make the money moves that will help you to make your dreams come true.

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.

You Need Not Spend It All – Leftover Money

The third wave of personal finance is about living your best life. New books and blogs are coming out that encourage people to figure out how they want to spend their time once they have achieved financial independence. The personal finance realm is no longer solely about working super-hard for a fixed number of years in order to retire as soon as possible. This new era is focused on determining how you want to live your life once your time is your own.

Recently, a new perspective has emerged. It’s about spending your money, all of it, in order to live your best life. There’s a book called Die With Zero that encourages people to spend all their money before they shuffle off the collective mortal coil. I’ve read the book. I’ve thought about the book. My conclusion is that it’s not for me.

I fully expect that this blog post will appeal to a very slim margin of people who read it. And that’s fine. I’m okay with the fact that I’m not everyone’s cup of tea. I’m sharing my thoughts because I can’t be the only one who believes that you need not spend it all to be happy.

Am I an advocate of saving every nickel? Squirreling away every dime for an uncertain future? Hoarding currency with the sole goal of acquiring “more”?

The answer is “No”. Life is meant to be enjoyed. So many people don’t have any option other than living paycheque-to-paycheque, or by depending on charity. Not everyone has the disposable income to live life the way they would prefer. However, there are many others who do have the funds to craft the life that they truly desire. I’ve always encouraged those people to prioritize their spending in a fashion that allows them to achieve their heart’s desire and fulfill their lifelong dreams. We each only get one life, so we should do what we can to make that life as good as it can possibly be.

My position is that I don’t believe that spending all of your money is always necessary. Let’s say you’re fortunate enough to earn enough money to pay for all your needs, you’ve paid off your debts, and you can easily purchase all of your wants too. After you’re done paying for that, you’ve still got money leftover at the end of the month.

Leftover Money

Do you really need to spend the leftover money in order to acquire more happiness & joy? After all, you’re already acquiring everything you need and want. Your creditors are distant memories. You’re already living the life you want. Will spending even more money bring your more joy and happiness?

What are you supposed to do with the “leftover” money? According to DWZ, you’re supposed to just spend it on something. The premise of the book is that dying with leftover money means that you did not maximize your joy when you were alive.

That’s where I take issue with the book. In my view, you shouldn’t spend your money simply because you can. That’s wasteful. I’m also not convinced that spending money just because it’s there will bring you any greater amount of joy. There are many awesome and incredible experiences in the world. You should only pursue those that appeal to you, and you’re already smart enough to figure out what those are. Once you’ve done everything you want to do, then I’m certainly not going to tell you how to spend your remaining money.

If you’re already spending your money = on everything that you need and want, and you’re out of debt, then why do you need to spend more? Once you’ve reached the very desirable goal of living your life as you wish, then what will you achieve by spending more?

Money buys options. Of this, there is no doubt. With money, you can pay for your food, shelter, clothing, transportation, communication, entertainment, medical care, travel and various other miscellaneous things. There is no doubt that having money can make your life much, much easier. Yet, I’m still not convinced that spending money when you don’t particularly want to is a good thing.

You’re allowed to keep it.

One of the lesser-discussed aspects of money is that you don’t have to spend it. It’s true. You can have it and just keep it wherever you want – in a savings account, an investment portfolio, or in your sock drawer. Allow me to repeat it more loudly for the people at the back. You don’t have to spend your money if you don’t want to!

This is where I take issue with DWZ’s premise. I don’t think that people need to spend every penny before they die in order to have lived a great life. Once you’re out of debt, and you can spend freely on both your needs and your wants, then anything that’s leftover shouldn’t be viewed as a problem to be solved. Your fortunate financial position will still have allowed you to spend money during your lifetime pursuing your dreams and having the life you wanted. So what if there’s some money leftover?

Bottom line is this. You need not spend it all. You shouldn’t be pressured into spending money if you’re already living your dream life. It’s okay to not spend even if you have the money to do so. Live your best life and spend your money doing so in the way that makes you happiest. If you decide to increase your spending, that’s fine. And if you decide not to increase your spending, that’s fine too. The ultimate decision lies with you.

Some Random Thoughts About Money

Never let it be said that I’ve ever held myself out as a money expert. Truth be told, I have no formal training in financial planning. I’ve read lot of books and lots of blogs, but I’ve never been certified to give financial advice to anyone.

With that said, I’d like to share some random thoughts I’ve had about money over the years. It’s been my observation that there are general principles about money that will work for most people. Here are the ones that I want to share with you. And if you don’t agree with me, that’s fine. I’m not arrogant enough to think I know all the answers or that my way is the only one that works. Take what you need and leave leave the rest.

Take care of your emergency fund

First of all, it’s always a good idea to have an emergency fund. Larger is better, but any amount is better than nothing when the emergency hits. There will be an emergency at some point – it’s not a matter of “if”. It’s a matter of “when”. Do yourself a favor. If you haven’t started an emergency fund, start one today. And if you do have an emergency fund, try to bump it up by 10%. Inflation has been on a tear so whatever emergency you have in your future, it’s going to cost you 6%-8% more due to inflation.

By its very definition, an emergency will not give you a heads-up. It’s on you to prepare for its arrival by setting some money aside for the financial aspects of whatever emergency is headed your way.

No new debt

The next thing you’re going to want to do is avoid going into more debt. If you’re not in debt, then great. Keep it that way. However, if you have debt, then seriously consider working your way out of it. Cook at home more to save money. Eliminate a streaming service or two for a few months and re-direct that money to your creditors. The fact is we’re heading into – or are already in – a recession. Not everyone is going to keep their job, or have an easy time finding one should the need arise. If that might be you, it would be very, very smart of you to minimize the strain that debt payments put on your paycheque.

After all, any money that doesn’t have to go to your creditors is money that stays in your pocket.

Invest for the long-term

Third thing – don’t stop your investment program. If you’ve been here for awhile, you know that I strongly suggest that everyone invest in the stock market. My non-expert recommendation is that you invest for the long-term in a diversified, equity-based exchange traded fund. For the past year, the stock market has been trending down and it’s been extremely volatile. Big deal! The long-term trajectory of the stock market is up and to the right. Over time, the stock market make money for investors. You need not concern yourself with daily movements.

If you’re investing in diversified, equity-based ETFs, don’t stop. Keep investing! However, if you’re investing in individual stocks, then God be with you. I have no idea how to pick winners and wish you the best of luck in your efforts to do so! If you’re not investing in anything, it’s time to start. You cannot participate in the stock market’s recovery if you’re not investing in the first place.

Use your tax shelters first. This means, put your ETFs in your TFSA first then into your RRSPs. Once you’ve filled up those tax shelters, you can invest in a brokerage account. Since TFSA and RRSPs are tax-shelters, the money will grown inside them tax-free. When the money comes out of your RRSP, you’ll pay taxes on the withdrawal. When money comes out of your TFSA, you will not pay any taxes on the withdrawal. Got it? Good. Don’t believe me? Talk to an accountant.

Once your tax shelters are maxed out, then continue to invest via ETFs in a brokerage account. The capital gains and dividends earned will be taxed each yet, but at a preferential rate. This means that they will be taxed at a lower rate than that tax rate you’ll pay on your earned income.

Again, talk to an accountant for professional tax advice.

Quick review:

  • Emergency fund? Check!
  • Debt paydown? Check!
  • Investing for the future? Check!

Now what?

Well, if you’re fortunate enough to still have money leftover, you’ve got many good options.

Might I suggest some sinking funds? The new year is less than 10 weeks away. If there are any particular dreams you want to realize in 2023, then now is as good a time as any to start planning on how to pay for them.

  • Do you want to travel in 2023?
  • Will you be taking some new course(s)?
  • Is it time for that home renovation you want?
  • Do you want to make more or bigger donations next year?
  • Are there any big celebrations or anniversaries that will happen in 2023?
  • Is there a chance you’ll be taking a sabbatical?
  • Will you need to purchase or replace any equipment for your business or side hustle?

Creating sinking funds and filling them up via automatic transfers is a good way to ensure that your priorities are funded. It’s been my experience that my money is frittered away when I don’t have a plan for it. Sinking funds have been a godsend for me since they ensure that money is in place when I need it. Chances are, they’ll serve the same purpose for you if you decided to use them.

And finally…

Remember to enjoy today. So much of financial planning and money management is about the future. While it’s good to take care of Future You, it’s just as important to live in the present. Wishing away your life is no way to live it. Count your blessings and enjoy them while you can. Today won’t ever come again, and tomorrow is promised to no one.

Money Habits Ought Not to Be Underestimated

When I first delved into the world of personal finance, I came across the idea that savers have trouble spending their money. Basically, the belief is that those who have saved all their lives are incapable of reversing their behaviour and spending their savings once they retire. I pooh-poohed that point-of-view. After all, how could being fiscally prudent be a bad thing? Or result in a bad outcome?

I promptly dismissed a perspective that I considered nonsense and happily continued along my own path of saving and investing. Save some, spend some seemed to be a far more intelligent way to use money IMHO. I worked my way up to saving a third of my paycheque for retirement. The rest of my take-home pay was spent on travel, concerts, home renovations, the daily Care-&-Feeding-of-Blue-Lobster, gifts for & celebrations with family & friends, and various other things. Surely I had it all figured out in my 30s didn’t I? Why should I even considered another way of seeing things when it came to how to spend money?

As they say, with age comes wisdom. It’s been many years since I discarded the notion that I would have trouble spending money when the time comes. Lately, I’ve been reviewing my own beliefs and taking another look at my own money habits. For more than 20 years, my method has been to rely on automatic transfers to fund my investment account. Rightly or wrongly, I picked out several mutuals funds then moved on to exchange-traded funds and invested my money into those investment products every single month.*** Every dividend earned has been re-invested through a dividend re-investment plan (DRIP). When I received raises, my contribution amount was increased too. A portion of each raise was invested for the future and the rest went into increasing my day-to-day comfort.

I’d thought I was doing most things right. Earn – invest – spend the rest. Looking back, I know that I didn’t pick the perfect investment products for my goals. (I’d been investing in dividend ETFs instead of equity ETFs. That “little mistake” was corrected in October of 2020.) With the benefit of hindsight, I see that I could have made better choices earlier in my investment journey but c’est la vie!

Today, I’m quickly approaching my anticipated retirement date. I’m quite happy about getting 100% of my time back. My work is mentally challenging and my colleagues are fantastic. I’ve been very fortunate in many aspects of my career. In spite of all of that, working at my current job until I take my last breath has never been a goal that’s made it onto my Bucket List. I’m very much looking forward to retirement. However…

I must confess that I’m feeling much more than slight trepidation about the idea of spending my money. The paycheques will stop and I will have to turn to other cash flows in order to continue paying for my life. And after a lifetime of money habits to save-save-save, it’s going to be a challenge to spend instead. My youthful self’s pooh-poohing is coming back to bite me in the butt.

Two years ago, I finally attended a meeting with a fee-only financial advisor. He told me that I was doing very well, and that I would have plenty for my retirement. He even told me that I could retire 2 years earlier than I’d planned! My financial advisor set up a withdrawal system for me… and that’s when it hit me. I would have to spend my money. Not all of it, and not all at once, of course – but I would have to spend some of it every year until my death.

Truthfully, the realization left me more than a little shaken.

Since then, I’ve also started listening to Ramit Sethi and his view on how to create a rich life. According to Mr. Sethi, who I do admire, I am not living a rich life because I haven’t yet defined what that would look like for me. In his estimation, I’m not using my money in the best way possible. While I’ve never been dissatisfied with my money choices, it would appear that I might not have been asking myself the right questions.

In addition to Ramit Sethi, I’ve started following Bridget Casey. She is another proponent of living a rich life. Now, she’s a few years younger than me so her life circumstances are very different than mine. However, she’s asking herself the questions now that I should have been asking myself when I was her age. Ms. Casey is also a fan of Ramit Sethi, so she’s building her rich life today. There’s a small part of me that wishes I had learned about this concept earlier.

So the question is the following: do I regret my money habits?

I wish I had a simple answer to that question. My money habits are going to allow me to retire 2 years earlier than planned. I will never regret that! At the same time, my money habits – particularly the one about never borrowing money to travel – prevented me from attending a wedding in Paris. I had just gotten home from Italy (or Spain?) when I received the invite to head back to Europe in a few months for a cousin’s wedding. My sinking fund for travel was empty and I didn’t have the funds to pay for the wedding trip in cash. So I declined the invitation. Do I regret that decision? Yes, but only a little bit.

Abiding by my money habits for so long has crippled my ability to make most decisions without considering the financial implications. Now, one of the biggest financial goals of my life is going to force me to amend my money habits. Firstly, I don’t need to save and invest anymore. I’m still not certain that I will stop completely or that I’ll ever feel comfortable turning off my DRIP. (My financial advisor said I should stop the DRIP when I retire.) Life without an automatic transfer into my savings/investing account is unimaginable to me, although I’m well aware that the vast majority of people do not save and invest regularly. That’s their choice and their choices aren’t my business, but if I’m not doing it – saving and investing – for myself then I start to feel rather anxious.

I’m very glad that I’m learning this about myself today, instead of after I retire. There’s time for me to start making some changes. One of those changes has been to decrease the amount of money that goes into my various sinking funds. I’ve redirected a few hundred dollars towards another goal, but I still need to get some advice from my accountant. Once I’ve spoken to her, then those few hundred dollars will probably go towards little day-to-day luxuries like a 4-6 hot-stone massages every year and a monthly housekeeper. My “rich life” might not be as grand as those of Mr. Sethi and Ms. Casey but that’s okay. Their priorities aren’t mine.

So I take it from me. Money habits should not be underestimated. Once you’re in a particular groove with your money, it’s going to be challenging to change them. While I’m still a fierce proponent of saving and investing, I’m going focus the next few years on figuring out how to spend my money too. I want my spending to bring me just as much comfort, joy and happiness in the next phase of my life as my saving-and-investing has brought me up to now. There’s a way to ensure I’m living my own rich life in retirement and I’m determined to find it.

*** There was an unfortunate 4-month hiatus during the most severe period in the 2008 recession. I could’ve been buying equities when the stock market was at its lowest, but I got scared and stopped my contributions. Trust me – I have since learned my lesson. We’re in another stock market downturn right now (2022) and I’m turning over the seat cushions to find money to invest in the stock market before this recession is declared over.