A Few Basic Tips for an Era of Rising Interest Rates

According to the Talking Heads of Financial Media, the central banks will continue to raise interest rates. This means that credit will continue to get more expensive. In other words, it’s going to cost you more if you need to borrow money for a house or if you have a line of credit. I’ve yet to see anyone talk about whether credit card interest rates will go up as a result of central banks’ increases. Let’s just say that I wouldn’t be surprised if credit card rates increased too.

So what are you going to do about it?

You do you. Take my words with a grain of salt. You know your numbers better than I do. Take what you need from this blog post and leave the rest. It won’t make any difference to me.

Invest

First, don’t stop investing. The stock market is down. In my opinion, which is both very inexpert and completely amateur, the stock market will continue to be extremely volatile for the next 12 months. This means that you should be buying and holding for the long-term. The stock market will recover, but absolutely no one knows when. Buying now means buying low. You want to buy low.

When you do buy, don’t sell. Stock markets are volatile right now. That means the value of your investment will go down on some days, then creep up a few days, then go down again. If you’re buying diversified exchange traded funds and mutual funds, you’re in it for the long haul. The price will gyrate, sometimes wildly. Do not check the price everyday. Invest regularly and believer that, over decades, the stock market’s trajectory is up. When you are investing for the long term, day-to-day price movements are inconsequential to your overall investing plan.

If you’re buying individual stocks, then you’d better know what you’re doing. I don’t invest in individual stocks because I don’t have sufficient knowledge to make wise choices.

No New Debt

Second, don’t borrow any money. This one might be tricky. Again, you know your situation better than I do so do with this suggestion what you want. Don’t borrow any money. If you’re bored with your vehicle and want another one, keep driving your vehicle. Being bored is way less expensive than paying 7.99% to a dealership. (Keep in mind that’s the rate they offer to people with good-to-great credit. I can only imagine the rates offered to those with less-than-stellar credit scores.) Do not finance another vehicle since interest rates on car loans are also increasing. If you simply must replace whatever you’re currently driving, then pay cash.

Maybe you’re ready for a vacation. Great! Pay cash. Perhaps a little self-care is in order? Do what you need to do. Pay cash. The new Bright-and-Shiny has finally been released and you’ve been waiting for it for a very long time. Fantastic and congratulations – go & get it! Pay cash.

It is not a good thing to go into debt when interest rates are going up. And they are going to keep going up for the next little while. Do yourself a favour and pay cash so that you don’t have to worry about them.

Eliminate Current Debt

Third, work on paying off any debt that you’re already carrying. I have no tips on how to change the past. If you’re in debt, then there are precious few ways to get out.

One method has two parts. First, don’t acquire more debt. In other words, start paying for things with cash or debit. Two, pay off the remaining balances on the debt you already have.

Have the money come out of your account as you pay for your purchases. Believe me when I say that you will naturally decrease the number of purchases you make. Fewer purchases results in having money available to make extra payments on your outstanding debt. Sending extra money to your outstanding debts results in those debts being paid off sooner rather than later. Once the debts are eliminated, creditors no longer have a claim on your money. This is a very good thing.

That’s it. That the 2-step method for getting out of debt. While this is a simple plan, it is not easy to implement. Never confuse simple with easy.

The other method to eliminate debt is bankruptcy. If you need to go that route, then talk to a bankruptcy trustee for expert advice. Bankruptcy trustees know the process and can offer you expert advice on how to deal with your situation.

Emergency Fund

Keep your emergency fund as full as possible. If you had to use it, then focus on replenishing it. Now is not the time to be on the high-wire without a safety net, financially-speaking. While you have a paycheque, ensure that a portion of it is diverted to your emergency fund until you have 9 months of expenses in there.

In my inexpert view, the recession is here although it might be nascent. People’s jobs aren’t as secure as they might like. When paycheques disappear, the emergency fund has to be there to take its place. (In an ideal world, everyone could live off the dividends and capital gains from their investments. We do not live in an ideal world.) If there’s a chance your job could disappear, then you need an emergency fund.

If you have an emergency fund, and you haven’t had to use it, then you’re in a great position! You should still consider padding it a little bit more though. Maybe adding another 10% to what you already have in there. No one has every complained about having too much money during an emergency.

Breathe

You’re doing your best. No one is perfect with money. Everyone’s situation is different, and you’re the only person who has to live with your financial decisions. Your money isn’t limitless and you’re making the best choices available to you with the funds you have. The fact that you’re even reading personal finance blogs is evidence that you care about making good choices with your money. You want to live your best life with the money you have.

Good on you! Take things one day at a time. Save-invest-learn-repeat. As you know better, you’ll do better. You can do this!

It’s Time to Start Thinking about 2023 Goals

Wow! The first week of October 2022 is in the history books. That happened quickly, didn’t it? This is a good time to start thinking about what you’d like to achieve in 2023, which will be here in two shakes of a lamb’s tail.

For us Canadians, this weekend is Thanksgiving. If you can, find a few minutes to start thinking about what you want from 2023. Have your priorities changed? Are you on track to meet the goals you’d set for 2022? What do you need to make your goals a reality? Do you have new goals for 2023? \

You need not hammer out a complete financial outline for 2023, but you should definitely start thinking about it. The Talking Heads predict that central banks will continue to raise interest rates in order to stifle inflation. The fact remains that rates will not go up forever. At some point they will level out and then start to drop. Central banks might stop raising rates in late 2023, or early 2024. Who knows? They certainly don’t.

Bottom line – you still have to plan your spending so that you can obtain the life you really want, so that your heart’s truest desires are achieved, so that you can maximize the joy you experience in your life. Start thinking about it now.

For my part, I’d like to start travelling some more. Those of you who’ve been around for a while know that I’ve visited Italy, Spain & Ireland. I’d like to make a few more trips to Europe, then get to Africa and Asia at some point too. If time permits, I’ll also go to Australia & New Zealand. While the travel deals flung my way via email are certainly tempting, I haven’t yet saved the money for my next big trip.

I’m still a save-now-buy-later kind of person. There’s not a chance in hell that I will ever start to love debt. It’s simply not part of my DNA. But for a few unexpected large expenses during the pandemic, I would’ve had the money in the bank to take advantage of the travel deals I’m receiving. Sadly, those unexpected expenses involved the CRA and my house. My travel-priority plummeted down the list of priorities. I’d rather stay home a little bit longer than have to replace the foundation of my house, or to have the CRA take an excessive interest in me.

One of my financial goals for next year is to re-build my travel account. I’m vaccinated and I’m ready to head back to the airport. While I love my home, it’s time to see a bit more of the world while I have the health to do so. And since I haven’t yet won a lottery jackpot, I have to save up some money before I can indulge my wanderlust.

Another goal for next year is to upgrade my wardrobe. I’ve been fortunate enough to work from home since April 2020. My employer has changed its mind about my work location. Accordingly, I am hearing into the office for part of the week. Thankfully, my pre-pandemic clothes still fit. However, I think it would be wise to add a few new pieces to my wardrobe for those days when I’m working with others.

Not every financial goal for the upcoming year is going to be a fun one. In my case, some of my goals for next year are most decidedly not-fun.

I’ve also had to start thinking about replacing expensive things in my house when the time comes. I’ve nicknamed those things “Household Appliances”, “Furnace” and “Hot Water Tank”. They won’t last forever. I’m happy with what I’ve got right now so I won’t be replacing them before they give up the ghost. Instead, I’m going to start squirreling away money into a sinking fund for their replacement.

Remember what I said about not having debt?

Well, even I know it’s not always possible to avoid it. Where I live, a furnace isn’t optional. If mine should happen to die in the middle of winter, then I will be forced to take on some debt. However, if I start building that sinking fund now, then I’ll have a big down payment on that furnace loan. A bigger down payment always minimizes the amount borrowed. And if the Furnace Gods smile on me, mine will last until I’ve completely funded its replacement. Fingers crossed!

Obviously, you know your own goals better than I do. Since you’re on this website, you care about learning how to achieve as many of them as possible. At the time of this post, there are 12 weeks left in 2022. Find the time to review your priorities and goals. Confirm that they haven’t changed due to other changes in your life. Then take a look at your money. Ideally, you’re spending your money in ways that get you closer to the life you really and truly want rather than further away from it. Should you discover that tweaks need to be made, then make them now. Get yourself on track to entering 2023 with a firm plan in place so that you can create the life that you truly want.

Happy Thanksgiving!

We’re in the Final Quarter!

As hard as it may be to believe, there are roughly 90 days left in 2022. Does anyone else feel that life resembles a roll of toilet paper? In that the closer it gets to the end, the faster it goes? Honestly! It seems to me that we were just starting summer about 3 or 4 days ago .

Yet, here we are in the final quarter of 2022. We’re heading into Halloween, Thanksgiving, Eid, Hanukkah, Kwanza, Christmas & New Year. And for some segment of you, there are various birthdays and anniversary celebrations thrown in there too. It’s the time of year that I’ve taken to calling the Shopping Season.

You may call it something else. No matter. My only question for you is: how are you going to pay for it?

I’m hoping that your upcoming celebrations and festivities will be funded by your money pots, aka: sinking funds, rather than by your credit cards. And if you do use your credit cards, please have the money already set aside to pay the bill in full. As you know, I love my credit cards and gleefully collect points each month. However, I would shred my cards in an instant if I didn’t already have the cash on hand to pay the bill in full each and every month.

Create a plan of attack for the Money Vultures coming for your cold, hard cash … I mean, draft a strategy that allows you to enjoy the Spending Season as you want to. Retailers are still trying to make up for those sales that were lost during the pandemic’s lockdowns. They will be particularly inventive and persuasive as they try to convince you that spending is the only way to show your love. I’m not telling you that you can’t spend your money. What I’m telling you is that you should be smart about how you do so. What things are most important to you? Who are the people who deserve to stay on your gift-list? Is there anyone who should be removed from your list? Are charitable donations important to you? If so, how much do you want to donate this year?

These are the questions that you should answering as we start the final quarter of the year. If you’re paid bi-weekly, there are only 6 or 7 paycheques left in the year. Take the time to figure out how much of each will be spent on the various events that you know will be coming up before 2022 rolls into 2023.

I know people who are absolutely enthralled by Halloween and acquire the most amazing costumes every year. Other people put lots of time into decorating their homes for Christmas. There are those who have to do a significant amount of travel in order to be with their loved ones over the holidays. The Spending Season is chock-full of opportunities to spend-spend-spend on everything for everyone!

It can be a financial disaster that derails all of your other money goals. You don’t have to let that happen. Nope! You have the power to decide how you want to spend your money during the next 90 days. Do not let the AdMan and the Creditor convince you that the only way to appreciate your loved ones is to bankrupt yourself. It’s not true. The people who really and truly love you do so because of who you are, not what you buy them.

Can You Save Too Much Money?

This question recently came up, and I’ve been noodling on it ever since. My whole adult life, I’ve been following the habit of maxing out my RRSP, my TFSA, and saving another chunk of my paycheque in my non-registered investment account. However, yesterday, someone asked me what I was saving it all for and whether I would still be able to achieve my retirement goals if I saved slightly less and spent more money in my day-to-day.

Mind blown!

In all honesty, I have never seriously considered that possibility. When it comes to my own money, I’m very rigid and allow for little, if any, deviation from my money rules. I wanted to hit certain savings targets in my life, and I’m pleased to say that I’ve hit them. It simply never occurred to me that doing so would mean that I would be saving too much money.

Bridget Casey, Ramit Sethi, and Bill Perkins are three people whom I’ve started following online in the past few years. Each of them, in their own way, discusses the importance of operating from an abundance mindset instead of a scarcity mindset. All of them encourage their readers/followers to live a rich life today and to avoid putting off today’s happiness to save for tomorrow’s.

It was brought to my attention that, though I read those books, there’s a very, very, very teensy-weensy, itty-bitty, little chance that I might not be putting their advice into practice. It’s quite possible that I’m operating from a scarcity mindset. Maybe I’m operating out of a place of fear that I won’t have enough, despite all the evidence to the contrary? A very wise and very good friend has suggested to me that I’m in a position where I have enough invested for the future. (Truth be told, I’ve heard that same message or a variation thereof from other people who love me.) The suggestion was made that continuing to save for tomorrow will prevent me from having what I want today. My friend’s words threw me for a loop and I’ve been thinking about them ever since she uttered them.

So again, my question is can you save too much money?

This question leads me to more questions. According to calculations I trust, I will die with several million dollars in the bank if I stick to my current Rigid Rules. I’m a Single. No spouse, no kids. Strictly speaking, I have no natural heirs of my own issue. Does it make sense for me to die with that much money when I don’t have my own children? Isn’t there the slightest possibility that I could cut back on my saving right now and let my current investments ride? After all, I would still die with a nice fat cash-cushion, but I could have a little more fun along the way if I spent more of my money day-to-day.

Yet that viewpoint leads me to the next question that I think is important. Am I unhappy with how I currently spend my money?

My honest answer is that I’m not. In all honesty, when I want something, I buy it. Do I save for it first? Generally, yes – saving comes before spending. Do I stop or reduce my investment and retirement contributions to spend money? No, never. Is this a bad choice?

Until yesterday, I would have emphatically said “No – it’s not a bad choice.”

Today, I’m not so sure. If my retirement will still be quite comfortable, even if I spend a little bit more today, then does it make sense to continue with the same savings habit? Alternatively, should I be forcing myself to spend more money today just because I can?

The goal of life isn’t to simply die with a whole lot of money. Even I can appreciate that such a life is a wasted one. I don’t feel that I’m wasting my life by following my Rigid Rules. Right now, I go out with my friends. I travelled a lot before the pandemic. I spend a lot of time with my family. Buying what I want, when I want isn’t an issue. Could I spend more money on stuff for the sake of doing so? Sure, but I don’t want to fill my house with stuff that I don’t need or won’t use.

My whole life, I’ve been a money planner. I’ve been saving since I was a small child. My parents started us on an allowance. When I started working, I kept up the habit. Never once did I question whether I was doing the right thing by saving something from every paycheque. As my paycheques grew, so did the percentage that I saved and invested. Lifestyle inflation was never a problem for me. Living below my means has always be my guiding financial principle. I created a very large buffer between myself and the financial edge.

Now, I’m entering the second half of my life. The lessons that got me here might not be exactly the right ones to get me where I really want to be. It’s time for me to consider the possibility that I’ve moved into the “and” stage of my life. Up until now, I’ve always believed that I have to choose between various options. However, it’s starting to come to my attention that maybe there are situations where I don’t have to choose. Maybe I’ve reached a point where I can have both.

I can spend money today and still retire comfortably. It might be time for me to force myself to spend, in just the same way that I forced myself to save. Maybe I can cut my daily saving amount and still reach my financial goals. I get one life, and I want it to be as good as I can possibly make it. This means that I need to get back to assessing if what I’m still doing will continue to be the right choice. The strategies that I employed when I was younger may not be the strategies that will benefit me going forward.

Can you save too much money? The question will stick with me for a good while. I’m happy with how I live my life, but I have to consider the possibility that I could be happier. There’s a chance that I could be spending my money in a way that brings me more joy today while still ensuring that I’ll be taken care of tomorrow. And that’s the goal that I should be striving to fulfill.

Fixed Rate Mortgages Offer a Measure of Safety

Last week, I wrote about the challenges of having a variable rate mortgage when mortgage rates are increasing. This week, I’d like to discuss how fixed rate mortgages (FRM) offer a measure of safety. Depending on when your FRM is up for renewal, you have some breathing room to figure out how to handle the increased mortgage payments that are coming your way.

The generational low mortgages, i.e. rates below 3%, are pretty much gone for good. For very brief blip of time, you could get a discounted 5-year rate for 1.39% in 2021! That’s an incredibly low mortgage rate for a 5-year term, one I doubt that I will see again in my lifetime.

Even if you were able to snag a 5-year rate lower than 3% in early 2022, I can pretty much guarantee that you’ll be paying atleast 2% more when you renew in 2027. For my money, I think you should take the following steps to prepare yourself.

Gather information

First of all, start playing around with mortgage calculators. Plug in your own numbers so you can see the difference that a higher rate is going to have on your mortgage payment. It should be obvious that a higher rate on your FRM means that the payment is going to go up. The mortgage calculator’s job is to inform you of the size of that increase.

Armed with that knowledge, you can start making a plan on how to pay for your property when your mortgage costs go up. The last thing you want is to be surprised by a $500 increase in your mortgage payment, or to face a future foreclosure because you can’t pay your mortgage debt.

Build a lumpsum payment

Secondly, start saving the difference between what you’re currently paying on your FRM and what you anticipate paying at renewal. How you save the money is up to you. Here are a few suggestions:

  • Get a part-time job.
  • Bring in a roommate.
  • Cut your expenses.
  • Obtain a promotion or raise at work.
  • Start a cash-flowing side-hustle.
  • Use an insurance payout or inheritance.
  • Sell things you no longer use.
  • Take transit to save on parking fees.
  • Cook at home most days of the week.
  • Save your tax refunds and work bonuses.

Open a separate bank account for this money. Set up an automatic transfer so the money goes into the new mortgage account without any further decision-making on your part. Remove the temptation to spend this money – do not get a bank card for this account! If it’s your priority to be in a position to handle your increased mortgage payments, then you should not be touching whatever’s in this account.

This money is meant to be in place so that you can make a lumpsum payment against your mortgage at renewal time. Lumpsum payments decrease the amount of money being borrowed. Applying a lumpsum to your outstanding mortgage balance will lessen the impact of the higher interest rate’s impact on your mortgage payment. The more of the principal that you pay down, the less money you have to borrow from the bank to pay off your remaining mortgage debt.

Increase your mortgage payments

Thirdly, you can increase your mortgage payment. When I had a mortgage, my bank allowed me to increase my mortgage payment by up to 20% every year. It was a fantastic feature, and I used it religiously. Of course, my initial mortgage payment was something like $300 bi-weekly, so it wasn’t a hardship to find an extra $60 every two weeks. A friend of mine took a different path. Every two weeks, she determined whether to make a lump sum payment against her mortgage. Since her expenses were far more variable than mine, she needed that flexibility. However, the both of us managed to pay off our mortgages way earlier than the 25 years that our lenders had allotted to us.

Your mortgage payment might be over $1500-$2000-$2500, so a 20% increase will pinch a bit harder. However, if you can increase it by any percentage, then do so. The sooner you repay the principal balance owing, the lower the balance that you have to renew. A lower renewal balance results in less of an increase in your future mortgage payments.

Renew now instead of later

Finally, determine if you can lock in a mortgage renewal rate today. This step is for people whose FRMs are coming up for renewal in the next 90-days. Most lenders allow people to renew their mortgages early, usually within 90-120 days from the expiry of the mortgage term.

While it’s not a 100% guarantee, you can confidently assume that the Bank of Canada will be raising the prime interest rate again on October 26, 2022 then again on December 7, 2022. When they do, lenders will take the opportunity to increase their mortgage rates. If you lock in a renewal rate before these dates, you should definitely do so.

A Measure of Safety

I’ve always relied on fixed rate mortgages. I think they’re great for allowing borrowers to know the fixed costs of their shelter for a defined period of time. Having a fixed mortgage payment goes a very long way towards understanding where your hard-earned money must be allocated. My father once told me that, when you know the cost of your shelter, you can build the rest of your budget around it. He was right. Having a place to lay your head is a fundamental necessity so paying for it must always be top of mind.

Assuming that you do not want to sell your property or lose it to foreclosure, it would behoove you to start thinking about how much your mortgage payment is going to be upon renewal. Knowledge is power so use knowledge to your advantage. In this post, I’ve shared a few tips with you on that steps you can take to minimize the impact of increase rates that are headed our way. You will need shelter until the day you die, so please do not procrastinate. Take steps today to ensure that you can shelter yourself tomorrow.

You Need to Know About Trigger Rates

As I understand things, people with variable-rate mortgages should be very worried about their minimum mortgage payments increasing. They are facing trigger rates on their mortgages. These rates force people to make higher minimum mortgage payments.

A variable rate mortgage (VRM) payment covers interest and principal. However, when the mortgage rates increase on VRMs, the portion of each payment going to interest increases too. This leaves a smaller portion of the payment going to the principal on the mortgage loan. Let’s say your payment is $500 at X-interest rate, and $300 goes to interest while $200 goes to principal. When the interest rates goes to X+Y%, then your payment stays at $500 but now $375 goes to interest and only $125 goes to principal. If Y is high enough, then you’re in deep doo-doo because all of your $500 payment will be going to interest.

I’ll say it louder for the people at the back. If the mortgage rate on a VRM gets high enough, then the entire mortgage payment is going towards interest on the debt. None of the payment is going towards mortgage principle. This is a very bad situation because it means that the mortgage balance is not being paid down at all.

Enter trigger rates. These are the mortgage rates on VRMs which trigger an increase in the mortgage payment on a VRM. The increased mortgage payment ensures that atleast some of the new, higher mortgage payment goes towards the principal. In other words, the borrower will be paying down the mortgage balance instead of seeing their entire payment going to interest. Once the trigger rate has taken effect, borrowers are now legally required to pay the higher mortgage rate. If borrowers fail to pay the new, higher mortgage payment, they face the prospect of foreclosure.

If you have a variable rate mortgagee, talk to your lender about trigger rates. Find out if you’re close to yours. The lower your variable-rate mortgage is, the more likely you are to see an increase in your minimum required mortgage payment. You need to do two things at this point. First, find out from your lender what you new mortgage payment will likely be. Second, ensure that your budget can handle the increased payment.

Should your mortgage payment be on track to increase, then there are a few things you can do to stave off foreclosure. The first one is to start making extra payments on your mortgage to bring down the principal balance. Do not deplete your emergency fund to do this! Instead, pick up a part-time job or start a side hustle. Put all of that money towards your mortgage. If you earn a promotion at work, apply your additional take-home pay to your mortgage balance. Should you receive a lump sum of money, put it against your mortgage balance.

A second good option is to cut the extra fat from your budget. Eating at home more often will reduce costs since the food you make for yourself is generally less expensive than restaurant & take-out. Maybe you give up some monthly subscriptions. Perhaps you start hosting more potlucks. If possible, perhaps you switch to transit for your commute to work if working from home is no longer an option. Assuming that keeping your home is a priority, the money to pay the higher mortgage payment has to come from somewhere.

Your third option is to get a roommate & apply their rent to your mortgage. When it’s time to renew your mortgage, carefully consider the option of a fixed rate mortgage. (In the interest of transparency, I will tell you that I’ve always had fixed rate mortgages on my properties. I paid a little more in interest but the peace of mind was worth it to me. You may make a different choice.)

Fourthly, get rid of your mortgage completely. Pay off your mortgage, if you can.

Finally, sell your house before you’re underwater on your mortgage. If you don’t think you can pay the new, higher mortgage payment, then you can always sell your home before the bank does. A foreclosure will do significant damage to your credit rating. It stays on your credit report for seven years. If you sell your home, then there’s no foreclosure and you can preserve your credit. I’m not suggesting that you do this if you don’t want to but I want you to know that it’s an option.

The impact of trigger rates are just slowly seeping into the collective consciousness of those with mortgages. For the past 20 years, mortgage rates have simply been falling. No one has had to worry about their minimum mortgage payment increasing if they held a variable rate mortgage. Trigger rates were a theoretical idea – they simply didn’t impact anyone.

Today, the mortgage landscape is much difference. Those of you with VRMs are likely facing trigger rates. You need to start calculating how your budget is going to accommodate the higher minimum mortgage payment that is likely in your future. Be proactive and gather the knowledge you need to make an informed decision about your next steps.

You Should Always Be Saving Money!

There is no way around it. You should always be saving money – some way, some how. Life is expensive, and it only gets more so. Name one essential thing in your life that has gotten cheaper over the years. Food? Nope. Rent or housing costs? No! Gasoline? Not a chance. Utilities? Not a bit. Transit? Slower increases but increases all the same.

Even if you have a fixed mortgage on your home, the cost of borrowing money will go up when you renew. The central banks are on a tear because they want to get inflation under control. That means mortgages are more expensive. Even with a fixed mortgage, the other costs of home ownership have gone up over the years.

While it’s important to live in the present, I would argue that you owe it to yourself to resist the incessant urging of the AdMan and his trusty sidekick, the Creditor, to always be buying. You need to save money for Tomorrow, and there’s a good chance that you don’t know exactly how much you’ll need.

For example, if you own a house, then you should definitely be saving. At some point, your house will need an expensive repair or costly maintenance. It could be a new furnace, a new hot water heater, new windows, new roof, or a new foundation. It’s unlikely you’ll be able to buy another of those things for less than $100. And while a new hot water heater doesn’t cost nearly as much as a new roof, it’s best that you have the cash-money on hand to buy it outright. Your water heater should not be the reason you’re paying interest on your credit card.

And while a new roof is likely going to run you 5-figures, the same principle applies. Start saving money now so that you have the cash in place in 10-15-20 years when you’ll need to replace your roof. Much like successfully saving for retirement, owning a home requires long-term financial planning. I love my home but I’m the first to tell everyone that it’s a money pit.

Saving for retirement should be obvious. Your bills won’t disappear until you die. In other words, you may have parted ways with your employer but don’t assume that means that your bills will have parted ways with you. Whether 25, 45, 65 or 85, you’ll still need to eat and have shelter. Society still demands that you be clothed. No matter how old you become, you will need money for the basics.

You need to invest today so that Tomorrow You will be okay financially. Remember that most people don’t have pensions, i.e. their employers are not saving for them. It’s up to you to save and invest. For those few who do have pensions, there’s a chance that your pension is not indexed to inflation. This means that your employer will pay you a fixed amount when you retire, but that amount will never go up since it is not indexed to inflation. Prices will continue to increase but your pension amount will be set in stone until you die. This is not a good situation to be in if your retirement is going to last a long time. And since very few us know our expiry date in advance, it’s best that you start investing your money ASAP and ensure that your portfolio mix is built for growth.

Maybe you own your vehicle. You should definitely be saving. Oil changes, brakes, tune-ups, various repairs, insurance, registration – all of these things cost money. Ideally, you’ll pay cash for your car. And if you can’t pay cash, then pick the least expensive vehicle you can find that will do the job so that your financing costs are as low as possible. Once your loan is done, continue to pay that loan amount into your Next Car Fund. When the wheels fall off your current vehicle, hopefully you will have enough in your Next Car Fund to pay cash. Then repeat the cycle. This method works best if you can get 5 years or more between vehicle purchases.

Do you have loved ones with whom you like to celebrate things? Are they the people you call when you want to do things? Concerts? Sports games? Picnics? Wine tastings? Movies? If the answer is yes, then you should have some fun-money set aside for those times together. It doesn’t have to be a lot, but every paycheque should see $40-$50 going towards these outings. Life is better when it’s shared with those we love. And while there are free things that you can share with loved ones, there are also times when you might want to spend a little bit of money on them too.

One of the very best benefits of always saving your money is that you can live in a state of debt freedom. Your entire paycheque, after taxes, is completely yours. You need not send any of your hard-earned money to a creditor for a purchase made in the past. You get to keep your money! This is an exceptionally good thing considering how hard you’ve worked for it.

So just remember to always be saving. Whatever it is that you want, try to save for it in advance then pay cash. You won’t ever regret depriving your creditors of interest payments. Trust me on this one!

Life Gets in the Way

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Money Mistake #1027 – Finding My Community

As I’ve mentioned a time or two, I’ve made many mistakes with my money. One of my biggest money mistakes involved how I went about finding my community. When I first started to learn about financial independence, early retirement and investing, I made two mistakes based on arrogance. First, I mistakenly assumed that everyone was as interested in it as I was. Second, I believed that I was right.

So I would talk about money with everybody and give them unsolicited advice about how they should save and invest. I cringe when I think back on how I interacted with friends and family over this topic. While I still believe my intentions were good, the truth is that I had no business giving anyone unsolicited advice. I should not have been telling anyone what to do with their money!

As hard as this may be to believe, I failed to contemplate the extremely faint possibility that other people’s priorities and dreams weren’t exactly the same as mine!!!

If you’re here reading my ramblings, then I assume that you have some interest in personal finance. After all, I’m constantly talking about using money as a tool to build the life you want. Money should be allocated in a way that allows you to obtain your heart’s truest desires, atleast the ones that can be obtained with cold, hard cash. I exhort you to only spend your hard-earned money in ways that get you closer to your highest priorities, your most important goals.

In the real world, my family and friends were not willing to talk about money with me. They viewed my discussion of the topic crass, impolite, and – probably – judgmental. Save for one or two people, they were not my money community.

It took me a long time to accept that I couldn’t discuss a topic near and dear to my heart with those I was closest to. Truthfully, I felt hurt because I thought I was offering them help. Again, arrogance played a part in my hurt feelings. I have to admit that I thought my example of how to structure money was worth emulating. After all, that was one of the main reasons why I was sharing my thoughts about money. Despite the arrogance, my hurt feelings were also rooted in the belief that I couldn’t be my true self around those I loved best. I had to hide this side of my life, this part of my personality if I wanted to be with them.

I couldn’t be real with them. That sucked.

I set about finding my community, the ones who would allow me to be authentic in this area of my life.

Time has passed, and I like to think I’m a little bit wiser. Unless specifically asked for advice, I hold my tongue when other people bring up the topic of money. One of the fastest ways to alienate others is to make them feel judged. Sadly, I admit my guilt. I did judge people’s actions with money. I had too little respect for financial viewpoints that differed from my own. Now, I keep my mouth shut unless someone asks me what I think.

And when I am asked for my thoughts, I strive to be supportive when I share. Just because I don’t share someone else’s priorities and goals doesn’t mean that they aren’t entitled to pursue them just as ardently as I pursue mine. Racing in the Indiana 500, climbing Mount Everest, or becoming the world’s best potter might not be my dream, but I will help you figure out ways to fund it if that’s what you need from me.

Thankfully, I have learned. For some people, money is to be spent on the Now because it will create joy today. For them, spontaneity demands that one be willing to spend. Other people simply view life as completely unpredictable and that tomorrow will take care of itself. Everyone brings their own history to every money decision that they have ever made. I’ve known people whose illnesses were never disclosed to me, but they have lived far longer than they’d been told they ever would. For them, planning for retirement was not in the cards because they weren’t expected to live past age 35. What would be the point of saving for a future that they would never see?

Looking back now, it is easy to see why my exhortations to save fell on deaf ears. Everyone was coming at money from their own perspective, one built on their own goals and priorities. It wasn’t for me to change their mind. However, the onus rested on me to change my own viewpoint and to find the space where I could discuss these things.

Enter the internet. I’m old enough to remember chat rooms, so that’s where I started. Then I moved on to blogs, and stumbled upon the grand-daddy of them all – Mr. Money Mustache. And down the rabbit hole I went. Though there have been many wonderful blogs over the years, I don’t remember them all but here’s a quick list of the ones that stick with me:

Finally, I had found a place where others were talking about one of my favorite topics – money. The anonymous posters of the world wide web didn’t want me to shut up when I asked questions about how they invested. I didn’t feel that they were judging me for being curious about this part of life. If anything, I felt like I’d found my tribe, such as one can on this particular platform.

So I read more and more, learning a lot about so many things related to money: CoastFI, real estate investing, the housing bubble, geoarbitrage, early retirement, investment styles, crypto, income inequality, etc… I even found blogs that spoke to high income earners and opened my eyes to how their concerns differed from mine. The blogs that really got me thinking were the ones looking at the intersection of money and social justice. Once your personal needs are met, aren’t we ethically obliged to make the world a better place instead of engaging in further consumerism?

These were things that I could never have discussed with 98.5% of the people in my real life. It felt good to have found my community, even if it was online.

If it had to do with personal finance, I probably spent a fair amount of time reading about it and figuring out if it would work for me.

Finding my community online also helped my relationships in real life. I knew there were others I could talk to about money. That meant I could talk about everything else with family and friends. There was space for me to wonder why they weren’t interested in early retirement, automatic savings plans, the management expense ratios of mutual funds vs. exchange-traded funds. I was able to unload my thoughts about money elsewhere, with people who shared my financial point of view. That meant I didn’t have to work so hard to persuade my inner circle to share it too. I listened to them instead, and learned how they wanted to approach their finances.

And you know what? It was good for me, for our relationships. Their viewpoints helped me to improve my money-choices. I loosened the reins a tiny bit. An impromptu ice cream cone at the park wasn’t going to result in an impoverished dotage. However, it would create a great memory about a summer afternoon with loved ones. Watching how my family and friends spent their money, and the joy it brought them, forced me to question my own choices. Slowly, I realized that I had to find a balance between today and tomorrow.

Finding my community has been fantastic! I need not agree with everything every person posts online, but I have found like-minded people with whom to have discussions. As I’ve gotten older, I’ve also found people in real life who share my interest in money. I no longer need to change the hearts and minds of my family and friends on the topic of money. Finding my community has allowed me to be my authentic money-self without alienating those whom I love best.

Money Should Work Harder Than You Do

One of things that I’ve always understood about investing is that money works harder than people are able to. Money never gets tired, sick, distracted, or unmotivated. It literally works around the clock once it has been invested. People can’t do that. People need food, rejuvenation, sleep and time with loved ones. Those items are vitally important to being a healthy person and to living a good life. They also take people away from doing their jobs.

The trick to being healthy, living a good life and earning lots of money is to send your money out to work. Go back to the title of this post and believe what it says. Money should work harder than you do.

There are a few ways around this particular fact, but most of us have to do the initial work to get money. We exchange our labour (aka: life energy) for a paycheque. The paycheque may be from an employer, from our clients, or from our own business. It doesn’t really matter. We give away our life energy and receive money for our efforts.

The purpose of this post is to remind you that you can work towards a situation where you still earn an income to support your lifestyle without having to earn a paycheque. I’ve written before about how your income and your salary are not the same thing. Your salary is part of your income, but it’s not the only element. There are ways to fund your lifestyle without having to earn a paycheque. One of the ways to do this is by increasing your dividend and capital gains income. Dividend income and capital gains income are what I like to call passive income. As far as I’m concerned, passive income is wonderful.

Dividends and capital gains are monies paid to shareholders when companies make a profit. Your goal, should you wish to increase your income, is to invest in companies that pay dividends and capital gains. There are a number of ways to do so, but I strongly recommend exchange-traded funds and index funds. If you want to do individual stock-picking, then more power to you. That’s not my cup of tea because I don’t know how to do it.

Sadly, there is no way around the fact that you likely won’t earn life-changing amounts of dividends and capital gains at the start of your investment journey. Let me be clear. Your invested money will earn passive income. However, it will take some time before your passive income is enough for you to live on. This is one of the reasons why it’s important that you consistently invest each and every time you get paid. Secondly, you should aim to increase the amount you invest. Start with whatever amount you can commit and increase that amount over time.

You have to invest your money in order for it to work for you. The simple idea of investing has never generated a single nickel for anyone. Ask me how I know this. One of my biggest money mistakes was to not start investing my former mortgage payments as soon as that particular debt was gone. Instead, I spent years thinking about starting a dividend-heavy portfolio. I earned nothing while I was, in effect, procrastinating. The month after I stopped thinking and actually started doing, I earned my first dividend. I haven’t looked back since.

Remember how I said that your money should work around the clock? I wasn’t kidding. I set up a dividend re-investment plan, often called a DRIP. This way, my dividends are automatically re-invested into more units of my chosen ETFs and index funds. The dividends don’t sit in my bank account, and I’m not tempted to spend them. They are immediately put to work for the sole purpose of making even more passive income for me. It’s a highly lucrative feedback loop.

If you wanted, you could do the same thing.

Now, even though I’m a big fan of the Financial Independence Retire Early (F.I.R.E.) movement, I’m a super-huge fan of the FI part. I firmly believe that everyone who earns a paycheque should be working towards financial independence. If you part ways from your employer, or are otherwise unable to earn your keep, having a cushion of cash that’s funded by passive income is your safety net. The passive income can replace your earned income, if you choose to go back to work, or it can fund your retirement if you decide that working for a living no longer turns your crank.

Early retirement is not everyone’s goal. Some people love their jobs. There is no reason why they should stop doing what they love. The same cannot be said for financial independence. The best of both worlds is loving what you do and having financial independence. Most of us won’t have the former but all of us can work towards achieving the latter.

However, the money won’t start working for you, nor be there when you need it, unless you start investing part of your paycheque today. So start today – stay consistent – increase the amount you invest as you’re able to – achieve financial independence – live life & be happy!