Taking Stock & Making Tweaks As Necessary

One of the ways to ensure that you meet your goals is to review your progress along the way. Doing so involves taking stock and making tweaks as necessary. No journey is perfect for all people in all circumstances. That’s simply not possible. As a matter of fact, there is no such thing as a perfect journey for anyone. There will always be challenges along the way.

That said, I’m equally convinced that there are some universal mistakes. These mistakes have the power to derail everyone’s path for a very long time if not rectified as soon as possible.

Atleast once a year, you should be assessing your progress. The gyrations of the stock market are out of your control so don’t worry about them. Continue to invest into the market through dollar-cost averaging (my personal preference) or through lump-sum investing. However, you should be taking stock of the things that are in your control and tweaking them as necessary.

  • Have you increased the amount you’re investing from your paycheque?
  • Did you set up an automatic transfer from your paycheque to your investment account?
  • Are you eliminating subscriptions that you never use so that you stop wasting money?
  • Do you track your expenses so that you know exactly where all your money is going?
  • Have you ensured that the MERs you’re paying are all under 0.5%?
  • Are you using a no-fee online bank account so that you don’t have to pay service charges?

In addition to controlling what you can, you should also assess whether you are making any of the following mistakes. And if you are making them, then take the necessary steps to stop. Eliminating these mistakes from your life will allow your money to grow faster so that you can live the life you want.

Again, this is a personal finance space so I try to stick to personal finance topics. Here we go.

Mistake #1 – Never Getting Started

It’s hard to build wealth if every nickel is spent. In order to invest, you need to live below your means and send a portion of your paycheque to your investment account. You can start low and work your way up.

When I was still living in the bosom of the family home, I was able to send $50 to my savings account every 2 weeks. My parents were paying for the big stuff, so I had a leg up on that front. Once I moved out and started working, it was far harder to save that $50 every two weeks. However, I was used to it so I kept doing it even though all of my expenses were on my shoulders at that point. The savings habit had been ingrained.

Start today, where you are. If you can only set aside $5 for investing, that’s better than $0. You’ll increase the amount as you’re able. When a debt payment is finally gone, direct 80% of it to your remaining debts and send the other 20% to your investment accounts. There will come a day when all your debts are gone. Those former debt payments are yours to invest and spend as you see fit.

Mistake #2 – Paying Higher MERs Than You Should

Should is one of those words that invokes judgment. Good. You should be ashamed of yourself for paying more then necessary for your financial products. If there’s a mutual fund that charges a 2% MER and an ETF that charges 0.35%, and they’re both invested in the same things, then use the ETF to build your investment portfolio. Paying an extra 1.65% seems unimportant but it’s a serious blow to your ability to build wealth for Future You. Higher MERs compounded over long periods of time result in the eventual loss of hundreds of thousands of dollars from your portfolio. Money that could have been left to compound over decades was instead paid to someone else via MERs.

Mistake 3# – Failing to Master Your Credit

This one is tricky. Everyone needs credit at some point, but staying out of debt is extremely important if you want to build wealth. It’s extremely hard to invest money if those same dollars have to be sent to a creditor for a past purchase. Maybe you have student loans, credit card debt, veterinary debt, car loans, personal loans to family & friends. It doesn’t matter.

You need to get rid of it. Credit is a tool. It’s also the only way to go into serious, crippling debt if it’s not used properly. Always be very, very cautious about using credit. Pay the bill in full every month. If you can’t do that, then don’t use credit. Get a promotion to increase your income. Find a second job. Start a side hustle. Sell your stuff. Eliminate the fat from your budget and only spend on needs. Do what you have to do to pay cash.

Getting into serious debt is very easy. Getting out of it is very, very hard.

Mistake #4 – Ignoring Your Priorities

Just like the rest of us, you have one precious life. How do you want to spend it? Is there something that’s very important to you? What do you want to accomplish, experience, see & do before you shuffle off this mortal coil? How do you want to spend your time?

Once you have answers to these questions, you’re better able to plan how to spend your money.

Here’s the thing. It won’t always be easy to stick to your plan due to the influence of others. You have family and friends. They love you and they want to spend time with you. So they invite you to do stuff with them – concerts, travel, sporting events, poker night, whatever. And you love your family and friends so you want to be there with them too.

I’m not suggesting that you always say no to invitations, but I am warning you that it won’t always be easy to stick to your priorities. If you’re trying to get out of debt, others in your life might not understand why that’s important to you. Maybe you’re saving to pay cash for a used car. Others might try to persuade you that “everyone” has a car loan so why are you trying to be different?

Now You Know

When you know better, you do better. If you see yourself making mistakes, stop making them. They’re only harmful or fatal to your financial goals if you allow them to continue. Once you’ve rectified them, then you’re moving closer and closer to the life you want for yourself.

You’ve got nothing to lose by spending a few minutes each year taking stock and making tweaks as necessary.

Your Income and Your Salary – Not the Same Thing!

There’s a distinction between your income and your salary. They are not the same thing, although you’ll routinely hear the words used interchangeably. I’m going to spend a few minutes telling you why I think they are different animals.

Your salary is based on what your employer pays you. I’m only aware of 2 ways to increase your salary. First, you can increase your salary at work by getting promotions. Generally, a promotion will come with an increase in your salary. Second, you can go work for another employer who will pay you a higher salary than your old employer. From what I’ve seen and read, the second method is more effective in getting you a higher salary. Your new employer might offer you 10% – 15% – 20% more than your current employer, depending on how badly they want you. Your current employer already “has” you and is more likely taking you for granted, therefore your raises are unlikely to be in the double-digits percentage range. After all, why would they pay you any more than the bare minimum when they know that you’re going to stick around anyway?

But I digress. That’s a topic for another post.

Your income is all the money you earn, including your salary. However, you have a lot more agency over your income than you probably give yourself credit for. That’s why you should think of them as two distinct things. Your income could be a lot larger than your salary, if you want it to be.

There are many ways to earn income, including but not limited to the following:

  • get a part-time job
  • start a profitable side hustle
  • own cash-flowing real estate
  • start a blog about something you love
  • write a book/song/script and earn royalty income
  • invest in securities that will pay you dividends and capital gains

I’ll concede that getting a part-time job means working for someone else and earning a salary. If you’re not working that PT-position, then you’re not earning any money. But go back to the first sentence of my previous paragraph. Your salary is only one part of your income. It need not be all of it. Whether your income remains equal to your salary is within your control.

A side hustle is self-employment while holding down your 9-5 position. If your side hustle is lucrative enough, you can turn it into your fulltime job or live off the income it generates. Alternatively, you can continue to work your 9-5 job if you wish and let your side hustle income accumulate to your heart’s content. Earning additional income doesn’t force you to leave your 9-5 job. All it does is provide you with extra money to buffer the expenses of life.

Content creators have the opportunity to create passive income. They have to put in the hard work up front, but the resulting product might pay them for years afterwards. Think of authors, song-writers, and script-writers. They wrote something that was a huge hit. They will get royalty income every single time their book is purchased, their song is played, or their movie is streamed. The hard work at the front end resulted in passive cash flow on the back-end. Some of these creators are even able to multiply the income earned from their product when it becomes an equally big hit in another format. Ready examples that come to mind are The Firm or The Client, two movies based on books by John Grisham. In the same vein, every so often a song becomes a musical and a movie. Think of Mamma Mia, which which was one of ABBA’s greatest hits.

Food bloggers always come to mind when I think of content creators who make oodles of cash. The hard work is done at the front end, but that work only needs to be done once for each recipe. The bloggers need to create and edit the videos for the recipe. They have to write the blog posts. They need to keep their website up to date and interesting. (And much love to the bloggers who use the “Jump to Recipe” button! You walk among God’s angels.) They ensure that the recipe is posted to Pinterest, TikTok & Instagram. They upload their videos to the internet, where it is viewed and possibly shared many, many, many times over. And I’m sure there are multiple other steps that need to be taken before a video is a success with viewers. Bottom line, food bloggers have the chance to make passive income off that one recipe for a very long time.

When I think of very successful food bloggers, these are two of many who come to mind – Delish D’Lites and Binging with Babish. As a matter of fact, Mr. Babish has figured out how to make money off of his “mistakes” in the kitchen. Check out this video about cinnamon buns. Have you ever seen a more mouth-watering mistake than these?

If you like real estate, then you can earn income by owning cash-flowing properties. At the time of this post, the Talking Heads are predicting a crash for the housing market. Time will tell if they’re right. If you’ve always wanted to be landlord, then perhaps you should start making some plans. It’s not my cup of tea, but to each their own. I prefer to earn my income with the least amount of effort.

My favorite way to increase my income is through the stock market. I love my dividends! Long-time readers know that I invest a portion of my paycheque every month. The result of my consistency has been a nice 5-figure annual cash flow of dividends & capital gains. This is truly passive income. Much like content creators, I had to do the work up front to earn my paycheque. Unlike content creators, there is far less chance that my efforts will be for naught. A book/song/script might not sell. A blog or video might be ignored in the vastness that is the Interwebz. My dividends are nearly guaranteed. They might be cut but they have never been eliminated. I’ve always received capital gains at the end of the year.

Increasing your income through dividends and capital gains is true passive income. It’s the set-it-and-forget-it way to earn more money, aka: Lazy Person’s Way to Make Money. Instead of sending my body into the work place to find a part-time job, I’ve sent part of my salary out to work. Once invested, my money makes money and that money makes money. I’ve created a beautiful money-making cycle that will continue as long as I’m alive.

Think about what you do with your time when you’re not at work, earning your salary. I’m going to suggest that you always have the time to earn additional income. Even if you’re swamped with other responsibilities and commitments, you can take advantage of the Lazy Person’s Way to Make Money. You only need to complete the following 4 steps:

  1. Decide how much of your paycheque you’ll re-direct to your investment account.
  2. Set up an automatic transfer of that amount from your chequing account to your investment account for each time you get paid.
  3. Buy as many units you can in a well-diversified equity based exchange-traded fund.
  4. Repeat step 3 without fail.

However, if you find yourself with several hours of Netflix/Amazon Prime/Hulu/Disney or any other kind of TV watching each day, then maybe consider using an hour or two to create something or start a side-hustle. Trust me. The “entertainment” can always be watched or consumed later, but your time cannot be recouped. If you want more income, then you’ll have to use your time wisely. Bear in mind that nothing is stopping you from using the Lazy Person’s Way to Make Money while also pursuing a side hustle or creating content for mass consumption.

Again, your income is not your salary. While your employer controls the salary that you receive, you have options for increasing your income. Govern yourself accordingly.

The Boring Middle

The boring middle… I’ve come across this phrase several times in the past two years while perusing various personal finance sites. It refers to the period of time between setting a long-term goal, such as financial independence or retirement, and achieving that goal. From my own experience, it’s an apt term to describe the slog.

Ideally, I would’ve decided to retire early and then won a lottery jackpot a few weeks later. Goal set – goal met! Easy-peasy-lemon-squeezy!

That has not been my reality. It’s been 15 or so years since I set the goal of early retirement… and I’m still working towards it. I’m still in the boring middle! That lottery win hasn’t happened yet, despite my best efforts, so I’m stuck with relying on my paycheques and investment income to build my portfolio. Even after a decade and a half, I still don’t have enough of a cash cushion to amicably part ways with my employer.

Now, that’s not to say that your experience is going to mirror mine. Some people are able to start a successful business and get there much faster. Check out Yo QuieroDinero‘s story of a lady who was able to quit her corporate job in under 10 years and is now living my dream life of travel funded by passive income. She also owns the food blog, Delish D’lites. Here’s the story of a man who was able to get it done in 5 years. The internet offers many, many, many such stories.

I’m not an entrepreneur nor have I had any wildly successful business ideas. I’ve dabbled in rental properties, but my real love is dividend income & capital gains. They’re truly the most passive income out there. In my humble opinion, the only drawback is the amount of time that it’s taken me to build a decent 5-figure income stream from these sources. For me, the boring middle is going to be around for a very long time.

Staying Motivated

Truth be told, I’ve never wavered in my desire for early retirement. Staying motivated hasn’t been a problem. My career has been very rewarding in some aspects, but I don’t love it enough to extend it further than absolutely necessary. It’s not my passion. Unlike Garden Answer, I’m not making a decent living doing what I love. By the way, if you’re an amateur gardener, I’d suggest watching her videos. The flower pictures on this blog are from my yard & others I’ve worked in. I used to be scared to try new things. Now, I’ve got the confidence to tackle larger projects!

So how have I stayed focused during the boring middle?

Firstly, I have many interim goals. Pre-pandemic, most of those revolved around travel. I managed to visit Europe three times in 5 years. For a person whose family did mostly road trips when I was growing up, it’s almost embarrassing to admit that I have no idea how many times I’ve been on a plane. I’ve managed to visit 6 different countries so far. Once the airlines are fully staffed and running with their pre-pandemic efficiency, I’ll be back in the air and visiting more new places. Until then, I’ll be doing roadtrips in my own country and seeing all those homegrown places that are still on my want-to-visit list.

Secondly, automation does a lot of the work for me. I have automatic transfers in place to move my money around each time I get paid. It’s not up to me to remember to send money to my investment portfolio. There’s never any temptation to spend that money on something else, just this once. The result is that I can go about my day-to-day life without having to worry about whether I’m moving closer to or further from my goal of early retirement. I don’t have to focus on the boring middle because automation is doing 97% of the money-moving work for me. Once a month, I buy more units in my chosen ETFs and then I’m done.

Thirdly, I enjoy the present. It’s summertime! And that means I get to indulge in my amateur gardening skills. Yay! I spend late winter and early spring planning out what I want to buy and where I want to plant things. After the long weekend in May, I get shovels & trowels into the dirt. I’ve decided that I’m only going to put perennials in the ground. All of my annuals will go into containers. This choice makes things way easier on my lower back and knees, neither of which are getting any younger.

Time with family and friends helps me in the boring middle. I realize that focusing solely on money and retirement isn’t healthy. I need to have good, solid relationships with others too. Spending time with my family friends creates and nourishes the truly important bonds in one’s life. As I’ve said before, you cannot have a relationship with money. So while I’m in the boring middle, I don’t have to have a life that’s boring. I’m building relationships. I’m reading, cooking, baking, traveling, gardening, etc… There’s a lot of life to be lived outside of financial goals. I don’t want to miss any of it.

Day By Day

Set your goals and make a plan. The boring middle lasts as long as it lasts. Maybe you’ll figure out a way to shorten it. If so, good for you! If not, that’s okay too. Don’t spend your life wishing it away. Focus on your priorities. Live below your means. Drink enough water. Be present when you’re with family and friends. Build strong relationships with people who are worthy of your time and energy. Invest your money consistently. Time will do the rest.

Time to Take a Breath

Welcome back! How are you doing? What’s been troubling you financially? Maybe it’s time to take a breath?

It’s been kind of a crazy time for the past few months, hasn’t it? All the headlines and media platforms are screaming about inflation and debt and financial turmoil. No fun for anyone, right? They’ve amped up the financial fear to the next level, and it’s normal to be troubled by that.

I want you to take a breath, maybe even take two breaths. Turn off the media and news reports for 24 hours. Trust me. The bad news will still be there tomorrow. If you miss one day of it, you’ll be helping yourself and no harm will come to the one delivering the bad news to you. Take a breath – relax.

Get Back to Basics

You cannot change the interest rates, and you’re not going to single-handedly bring down the rate of inflation. Those things are out of your control. However, you do hold the power to pay attention to your own financial situation. Focus on your sphere of influence.

Start by ensuring that you’re still living below your means. If you’re not tracking your expenses, start. And if you’re already tracking them, keep doing so. It’s the only way to know where your money is going. Make sure that you’re not spending every nickel. Whatever you don’t spend should split between your emergency fund, debt repayment, and investing for long-term growth.

Inflation is problematic for all of us. What can you do to limit its impact on your life? If you have the space, try bulk buying of staples. Switch to a cheaper grocery store. Try the generic products and see if they’ll do. Cut back on the number of streaming services.

One of the best ways I’ve found to save money is to stay at home. And I know this one might be tough, considering that we’ve just emerged from 2-years of pandemic-related lockdowns and limitations. However, the reality is that staying at home helps me to not spend money. I’ve got the entire library available to me on my tablet, so I can read to my heart’s content. I watch movies on my streaming services. My neighbours are friendly so I get a chance to chat with them while tending my garden. And my garden is a delight since everything is in bloom.

Obviously, I don’t know where you live or what your circumstances are. However, I’m still going to suggest that you consider staying home a tiny bit more than you already do and assess whether this step will keep a touch more money in your wallet. And if doing so doesn’t work for you, then go out. (Please wear a mask though – as of today’s post, the pandemic isn’t over!)

Get Out of Debt

Like I said above, you can’t control the interest rates. Banks are quick to raise rates in line with increases from the central bank. This means that you’re paying more for your variable rate loans – things like your line of credit and variable rate mortgages. I haven’t yet heard of credit card companies jacking their interest rates, but it wouldn’t surprise me if they did.

Again, take a breath. Relax.

Go back to what I said about tracking your expenses. Find the extra money, and apply a portion of it to your debts. You’ll have to make your minimum monthly payments, just like you were doing previously. The extra money will become an extra debt payment.

Very importantly, don’t take on any new debt. This might not always be possible, but you’d be doing yourself a very huge favor if you moved Heaven and Earth to avoid acquiring any new debt.

Whether you use the debt snowball or the debt avalanche is up to you. Both of them will get you out of debt. Once you’re out, stay out.

Build Your Emergency Fund

Your emergency fund probably needs to be bigger.

Relax – take a breath. You can do this too. It won’t happen overnight but it will happen in less time than you think.

Take a portion of that extra money and automatically send it to your emergency fund. I really don’t care how much you contribute. I’d suggest $50 per week, but start with what you can and work your way up. There is an emergency in your future and the odds are very, very good that it will have some kind of financial component.

The time to prepare for it is now. So take a breath. Review your automatic transfer to your emergency fund. Can you increase that amount? Even by $1? The more you can save today, the more grateful you will be tomorrow when you need the money.

As your debts are paid off, use a quarter of those former debt payments to fund your emergency fund. (The other three quarters will be re-directed towards the other outstanding debts, as per the debt snowball or debt avalanche method.) Your debts will eventually disappear, and your emergency fund will be growing at the same time. This is a very good thing.

Invest for Long-Term Growth

The third part of that extra money you found is going to be invested in the stock market for long-term growth.

You’re going to ignore the media. Over the long term, the stock market goes up. Full stop.

You’re investing for decades, not for weeks or months. What happens in the short-term is almost irrelevant. Again, you’re investing for decades. So set up your automatic contribution to your investment portfolio, re-balance it every year, and go on about the rest of your life. Compound interest works best with a long time horizon and steady, consistent monetary contributions.

In the interests of transparency, I can say that I started to focus on my investment portfolio in 2011. I chose to invest in dividend-paying exchange-traded funds. I’m happy to share that I’m on track to earn $30,000 in dividends this year, barring dividend cuts. I’ve learned to ignore the Talking Heads of the Media and to focus on ensuring that I did my part, i.e. using automatic contributions to fund my investment portfolio. Had I known then what I know now, I would’ve invested in well-diversified equity-based ETFs and I would’ve benefitted from even higher returns.

I’m strongly urging you to set up your investment portfolio. If you’ve already done so, then continue to make consistent contributions. So long as you don’t add new ones, your debts will go away. There will come a point when your emergency fund holds 6-12 months’ worth of expenses. At the point, you can use re-direct two-thirds of the former debt payment & emergency fund contributions to investing. The other one third can be used to pay for the nice-to-have’s.

Take a Breath.

Step back from the news for a day, maybe two. The chin-wag of the media isn’t tailored to your personal finances, so you ought not give it too, too much attention. You have a plan for surviving today’s turbulent times. Focus on what’s within your power to control.

Relax.

The Other Side of BRRRR.

There’s a subset of FIRE adherents who religiously follow the BRRRR method that has been made famous by the good folks at Bigger Pockets. BRRRR is an acronym which stands for Buy Renovate Rent Refinance Repeat. Essentially, an investor buys a property, renovates it, and puts a renter in it. Renovations increase the value of the property. The investor withdraw the new equity by refinancing the property with the bank then goes on to find another property in order to repeat this process.

When the BRRRR method works, real estate investors make very good money. The investor only undertakes renovations in the belief that they will increase the value of the property and extract equity. If they don’t believe they can do that, then they have no motivation to buy the property in the first place. New tenants are generally found to pay the new, higher monthly rental and that should be enough to pay off the mortgage over time. Good cash flow also puts profits into the investor’s pocket. Refinancing the property at the higher assessed value means the investor can withdraw money to fund the purchase of the next property and start this process all over again.

Great plan for the investor! Great plan for the bank!

Not so great a plan for the people who lived in the property before it was renovated. The previous tenants may not be able to afford the new rental prices. It stands to reason that the investor would not have bought the property and poured money into renovations if she didn’t believe that higher rents could be charged to offset the costs. In other words, the goal is to acquire higher-paying tenants in each unit.

What happens to the renters who cannot pay the new, higher rents?

This is the other side of BRRRR… and proponents of this method never discuss the issue of what happens to the poor people. Some people in society simply cannot afford to pay more for their accommodation. What happens to them?

Again, under the BRRRR method, rents increase after the renovations are done. Existing tenants are always welcome to stay in their units if they can afford the new, higher rental rates. Even those who moved out during the renovations are welcome to return… if they can afford the new, higher rental rates.

Adherents to the BRRRR method don’t talk about what happens to the poor people, or those who have otherwise lost access to a rental unit within their budget. (Maybe the adherents do talk about this privately, but never publicly?) When implemented as designed, the BRRRR method necessarily pushes the poorest renters to the margins. They lose their homes because they don’t have enough money to pay the higher rents. Perhaps it’s naive of me to wish that proponents of the BRRRR method acknowledged this, and maybe consider taking slightly less profit by letting a few of the poor tenants live in the renovated units at their former rental rates.

I don’t have any easy answers for the people profiled in the attached CBC article. The bottom line is that the renters profiled in that story need money to pay higher rents. Hopefully, they get it from someone. Rents are not going down any time soon. It’s difficult to build a nest egg when every penny of income has to be spent on the daily costs of living.

And the solution is…

Presently, I do not have any solutions for people who are already caught in poverty’s trap. Most of my suggestions are aimed at people who have some disposable income, aka: fat to cut from their current spending habits. It’s trite but true – you need money to make money. You might not need a lot to get started, but you do need a little something. You cannot invest $0 because $0 is not enough to buy anything.

For my part, I encourage people to have emergency funds and passive income so that they have a buffer of sorts. Passive income bolsters any money earned through the sweat of your own brow. And if you have enough passive income, then it’s the equivalent of a second salary. Should you choose to rent your accommodation, having passive income increases your odds of always being able to pay for the inevitable rental increases.

Ideally, your regular job pays for your all of your expenses before retirement, while your passive income builds a cushion for you. To be extremely clear, you should also view investing for Future You as an expense to be paid from current income. If your investments do very, very well, then your passive income will continue to grow while also paying for the expenses of your retirement. This will allow you to absorb the increased costs of living after your working years are over. Inflation won’t stop just because your employment income has.

For myself, I love receiving income from dividends and capital gains. Money from my day-job buys me shares in dividend-producing companies. Every month, a little bit of dividend money is automatically re-invested to buy more shares in dividend-producing companies. At the end of the year, I receive capital gains. I’ve been doing this for a very long time. So far, my passive income is almost equivalent to a full-time job at minimum income in my province. It’s not enough to live on, but it’s certainly a good amount to re-invest every year.

The past cannot be changed.

I was fortunate enough to read the book, The Wealthy Barber by David Chilton, when I was a newly-minted adult. That book set me on the path of learning about personal finance. (I think you can still get this book from the library.)

Unfortunately, no one can go back in time and make different choices with their money. The renters in the article need help today. Regretting past decisions won’t help them with their current problems. The impact of the BRRRR method is forcing them to seek new shelter now. The limitations of their funds are preventing them from acquiring a new home that they will like as much as the one they had to vacate. Wondering what could have been done 20 or 30 years ago does not help them today. They are facing the very real risk of losing their homes as a result of the BRRRR method.

My question to you is this. Do the investors following the BRRRR method owe anything to the people that they displace?

Is it Better to Invest or Pay Off Debt?

One of the perennial questions in the sphere of personal finance is whether it is better to invest or pay off debt. The answer is nuanced and there is no one right answer for anyone.

Money has to be invested in the stock market for as long as possible. Time is required so that capital gains and dividends can be accrued and re-invested on a consistent, long-term basis. In other words, compound growth works best when given a long time horizon. These facts favour paying the absolute minimum on your debts while investing money into the market.

On the other hand, paying debt for longer than necessary means that you’re sending interest payments to creditors. Consumer debt can have double-digit interest rates. Unless you’re paying 0% interest on your debt, you can be guaranteed that you’re paying interest to someone for the privilege of having borrowed their money. Debts have a way sticking around much longer than we’d like. From that perspective, it makes sense to pay off debt as fast as possible and to delay investing.

Both good options. Which one is best?

This is where nuance must be applied. Each person’s situations is different. Yet, the following remains true. Dollars spent to repay money owed to creditors cannot be invested in the stock market for long-term growth. If you devote 5 years to pay off non-mortgage debt, aka: consumer debt, then that means you’ve lost 5 years of compound growth for your investment portfolio. It might take longer than 5 years to eradicate your debts. The bottom line is that your money needs to be invested today, preferably yesterday, so that it can grow as quickly as possible.

Why not do both simultaneously?

As I’ve matured and gained wisdom, I’ve started to ask myself why the choice has to be so stark. Is there a really good reason why a person cannot do both? Why not invest and pay down debt at the same time?

Presumably, you are not living paycheque-to-paycheque. This means that there’s some extra money in your budget. If there wasn’t, then this question wouldn’t even come up in the first place. The reason you’re asking the question is because you want to make best use that extra money.

Let’s say you have an extra $250 per month. Why not send half to your investment portfolio and send the other half to your debts? I call this the Half-and-Half Method.

If you invest on no-commission platform, then you’ll be investing $125 each month for the Care and Feeding of Future You. This is a respectable start. (As you earn more money and pay off your debt, this amount should be increased.)

The other $125 can be put towards your debt as an extra payment. Some people apply extra money to the lowest balance, in order to get rid of it faster – the Debt Snowball Method. Other people choose to direct extra money to the debt with the highest interest rate, in order to pay as little interest as possible – the Debt Avalanche Method. Personally, I like the snowball method because it delivers a sense of accomplishment sooner rather than later.

Remember that nuance I was mentioning earlier? Well, there are two factors that I look at in any situations. There are probably more, but I’ve yet to ponder them sufficiently to discuss them with you in this post.

Age

The younger you are, the longer the time horizon. For this reason, I think you can devote slightly more to your debt repayment than your investments. If you’re under 30, then I’m okay if 60% of your $250 goes to debt repayment while 35% goes to investments.

Every compound growth chart out there shows that younger people can invest much less money each month to achieve the same final amount as someone who starts investing at later ages.

That said, I don’t want you to think that investing $0 is acceptable. It is not. You should be aiming for atleast $100 per month when you’re in your 20s. Again, as you pay off debt and/or increase your income, you’ll need to increase this amount.

If you’re 30 and older, definitely use the Half-and-Half method. You don’t want debt payments in retirement, especially if you’ll be living on a fixed income. However, you’ll also want to build a nice cash cushion for your retirement. The Half-and-Half method allows you to do both.

Length of Time To Pay Off Debt

This one appears to contradict my Half-and-Half method. Still, I do like the sense of accomplishment that it provides. If you can knock out a debt in 90 days or less, then commit the entire $250 to doing so and forego contributing to your investments for 3 months.

The caveat here is that this is a one-time option. I don’t want you to delay investing for 90 days, then delay investing for another 90 days to knock out another debt, and then delay investing again. Serially focusing on paying off one debt at a time is simply focusing on paying off debt. If you pay off a 90-day debt only to incur another debt that can be paid off in 90 days, then you’re better off using the Half-and-Half method. Clearly, debt is going to be a structural feature of your life so you need to be investing atleast some of your money for the Care and Feeding of Future You.

Too Long, Didn’t Read!

Is it better to invest or pay off debt?

The answer is to do both at the same time. The need to provide for Future You does not diminish just because you’re paying off debt. Contribute to your investment portfolio while you’re paying off your debts. Eventually, your debts will go away and there will be a nice cash cushion waiting for you later on down the line. It’s the best of both worlds.

Learning from my mistakes & doing better

You need not make every mistake yourself. There’s always the option of learning from my mistakes, or others’ mistakes, and doing better. It’s one of the better aspects of being a sentient being who can learn from the world around them.

Back in 2008/2009, there was a recession. I got scared and I stopped contributing to my investment portfolio. This was a huge mistake! (And I’ve made many mistakes over the years when it come to my money.) There’s no way to go back in time and change my choices. So, this time around, it’s incumbent on me to not make the same mistake.

Though the experts haven’t yet called it such, I’m pretty sure that we’re in the very beginning of a recession. The stock market’s gains from 2021 have been wiped out. My investment portfolio has suffered a 6-figure loss! I’ve stopped checking its value because it’s too alarming to see the numbers continue to drop day-by-day.

When my portfolio suffered losses in 2008/2009, I made a big mistake. My error was to stop investing my money while the stock market was on sale. The stock market, as a whole, was falling in value. That means it was on sale! I should not have stopped contributing money from every paycheque. Instead, I should have stuck to my plan and continued to buy units in my selected mutual funds. (At the time, I had not yet switched over to cheaper-and-equally-effective option of buying exchange-traded funds.)

Do not make this mistake with your own investment portfolio. Continue to invest your money!

This time around, I’ve stuck to my plan. A portion of every paycheque is still being re-directed to my selected ETFs. Since the unit price of my ETFs is down, I’m buying more units with the same amount of money. And when the unit price goes back up, which it will, the value of my portfolio will benefit from having bought the additional units at a cheaper price.

If you haven’t started, now’s the time.

If you haven’t started investing in the stock market, now is a great time to do so. Everything is down, which means everything is on sale. Don’t ever believe that the stock market only goes up. Its nature is to go up and down. This is normal. Right now, it’s going down. It will go back up at some point, but you need not worry when.

In my inexpert opinion, money that you don’t need for a long time should be funnelled into the stock market. I used to believe that a person had to be completely debt-free before investing. My views have become more nuanced. If you’re in your 30s, 40s or 50s, and you haven’t yet started investing, I would not suggest focusing solely on your debts. Even if you can only squirrel away $50 each month for investing, do so. As you pay off your debts, you can use 75% of your former debt payment to increase the size of the initial $50 contribution.

Your $450/month payment is finally done? Great! Add $337.50 (= $450 x 75%) to your $50 so that you’re now contributing $387.50 per month to your investment portfolio.

Time in the market is necessary for your portfolio to grow. Starting to invest during a recession is a good thing for you. It means you’re buying when prices are low. The more you buy now, the better your upside when the stock market starts growing again.

Also, you’ll have to develop a thick skin to deal with the volatility of the market. Remember, stock market investing is a long-term play. This won’t be the last recession that you’ll have to endure. Starting in a recession today will make the less volatile times ever so much more pleasant. You’ll also be that much more experienced when the next recession rolls around.

Stick to ETFs to keep your MERs as low as possible.

Learning from my mistakes and doing better means you can avoid paying higher-than-absolutely-necessary MERs. I used to invest in mutual funds. Canada has some of the most expensive mutual funds in the world, which means that people who own mutual funds pay more in management expense ratios that people who own ETFs.

When Vanguard Canada became an option for me, I compared their ETFs to the mutual funds in my investment portfolio. The ETFs were comprised of the same companies that were in my mutual funds. In other words, I could still invest in the same companies for a much lower MER.

I used to pay 1%-1.5% in MERs on my mutual funds. When I only had an investment portfolio of $10,000, the MER shaved off $100-$150 every year. That’s not a horrible amount of money. However, I knew that I would be investing for another 20 years or so, and that I wanted my portfolio to grow much larger than $10,000. The question was whether I wanted the investment company to siphon away more of my money every year. After all, whatever monies weren’t eaten by the MER would stay invested in my portfolio and have the chance to grow over time.

Put yourself in my shoes. Would you rather pay $15,000 or $3500 for nearly-identical investment products? What makes the mutual fund worth an additional $11,000 per year?

Today, my portfolio is brushing up against the Double-Comma Club of $1,000,000. It makes no sense to pay $10,000-$15,000 in MERs each year when I can pay MERs of 0.35% or less.

Save yourself from another one of my mistakes, which was needlessly paying too much in MERs for my investment holding. Invest in ETFs instead of mutual funds. If you’re currently in mutual funds, find a comparable ETF and move your money to the ETF.

Stock-Picking is not for me!

My suggestion that you invest in the stock market while it’s down is NOT for those of you who want to buy individual stocks.

I don’t do stock picking. Personally, I find it takes too much of my time and it’s a very good way to lose money. I don’t have the expertise to understand any given industry, nor how any one company can guarantee dominance in its industry. The only individual stocks I own are the ones my parents bought for me when I was a baby. Again, I don’t do stock picking. I choose to only invest in ETFs because they have built-in diversification and I’m not committing my money to any one company. ETFs allow me to invest in a variety of industries and a much larger number of companies than I ever could otherwise.

To me, stock-picking requires a level of expertise and commitment that I simply don’t care to develop at this stage of my life. There’s always a chance that will change. If you want to do stock picking, then do your research first and make sure you know what you’re doing.

In a nutshell, don’t stop investing in the stock market just because we’re going into a recession. If one of your money mistakes is that you haven’t started to invest, then this is a great time to rectify that error. The stock market is down, which means investment products are on sale. You need to get your money into the stock market, and you need to leave it there to grow over a long period of time. Don’t procrastinate any longer – start today!

Time for a Mid-Year Check-up!

Tempus fungit. It’s a Latin phrase that means “time flies”. Truer words have never been spoken, in any language. It’s already the middle of 2022. How is your money doing? Are you on track to meet your financial goals? If you don’t know the answers to these questions, then it’s time for a mid-year check-up.

Emergency Fund

You need not share your answer with the class. However, you definitely have to be honest with yourself. Have you had to dip into your emergency fund this year?

If yes, then I hope you’re taking steps to refill it. Trust me when I say you’ll have another emergency at some point in the future. Emergencies don’t do your the courtesy of giving you fair warning. They happen unpredictably so you need to replace any monies that you’ve used from your emergency fund this year. Make it simple on yourself. Set up an automatic transfer so that you’re sending $50 or $100 (or whatever your budget will allow) to your emergency fund every time you get paid. If you already have an automatic transfer in place, increase it by $50-$100, or by whatever amount your budget will allow.

If no, then add another $1000-$3000 to your emergency fund. In case you’ve been living on another planet for the past few months, allow me to be the first to say “Welcome back! We missed you! Oh, and you should know that inflation is up 7%-8%. This means that your emergency fund needs to be a little bigger since paying for your emergency just got a little bit more expensive.”

Achieving Your Goals

Cast your mind back 5.5 months to early January. What were your financial goals for 2022? Are you on track to achieving them?

Assess your spending for the past 6 months and determine if your money choices got you closer to, or further from, meeting those goals. Congratulate yourself if you’ve met some or all of those goals already. You did the work so you deserve some recognition of your efforts.

On the other hand, maybe you haven’t been able to meet your financial goals. Do you have any idea why? To answer this question, you must assess your spending to date. The most efficient way to complete this assessment is to review your expenses.

I hope you’ve been tracking your money, whether on a spreadsheet, via an app, or with a pen & paper. Myself? I’m a spreadsheet person. The method really doesn’t matter. Tracking your expenses clarifies whether your spending habits are aligned with your priorities.

And if you haven’t been tracking your expenditures until now, then you should start. Every time a nickel leaves your wallet, record its destination. No one has ever been harmed by knowing where their money goes. Information is power. Seeing a written record of where you’ve spent your money will assist you to align your money with your most important objectives. At the very least, you’ll be able to determine if you’re sacrificing your goals by spending money on that which you’ve decided is less important to you.

You can only spend each dollar once – either it goes to your goals or it goes to your not-goals. The choice is yours.

Check your subscriptions

Summer is here. And it will be gone far too soon. Maybe you’re spending more time outside. If that’s the case, maybe you want to eliminate some of your subscriptions for the next few months. I cut the cord several years ago, but I continue to use other streaming services. Now that I’ve got my garden going, and have many little chores to attend to after work, I could probably cut those services from my budget for a few weeks. It wouldn’t hurt me. I’m very, very, very confident that the service providers will happily take my money in the fall when I move back inside.

You know yourself better than I do. Could you live without some of your subscriptions for a few weeks? No one is telling you to give them up forever. I’m simply suggesting that you live your life without them for a few weeks while you’re doing other things that don’t involve staring at a screen and scrolling endlessly for something to watch. Again, it’s your money so you get to decide how to spend it. I’m simply nudging you to consider whether it’s a waste of money to pay for those subscriptions during the summer if you’re going to be outside soaking up the nice weather while it’s here.

Cut yourself some slack.

No one is perfect. And this goes doubly so for money decisions. You’re doing the best you can with what you know. There are other things going on in your life and they’re probably taking up a lot of your time, energy, and attention. It’s not always easy to pay attention to your money, even though you know it’s important. I get it. I’ve been there too. However, I promise you this – when you know better, you do better.

This mid-year check-up is meant for you to identify any areas that might need some effort. If you’ve veered off-path, then you can course-correct sooner rather than later. Make tweaks as needed, then go back to the business of building the life that you truly want for yourself.

Invest your money bit by bit until you’re rich.

Look… I’m not an expert on the economy. I don’t have crystal ball, nor can I tell the future. I’m in the same boat that you are – inflation is way up, house prices are crashing, mortgage rates are increasing, stock markets are wildly volatile.

What does all this mean from one day to the next?

I don’t know. And neither does anyone else.

During these economic challenges, my financial goal is to stay on track. I can’t control the stock market, but I can control whether I continue to invest. For a very long while, I’ve shaved off a good chunk of my paycheque and have automatically invested it into my various exchange-traded funds. When the market was going up, I was investing. And when the market was going down, I was still investing. Right now, the market is correcting. Guess what? I’m still investing my money, bit by bit.

My advice to you is that you should be investing too. Start where you are right now. Pick a broad-based equity fund and automatically have some of your money invested into it every time you get paid. Start with $1/day. When you’re able, increase that amount to $5/day – then $10/day – then $20/day. And if you want to invest even more than that, be my guest. The more money you invest, the better.

You start where you are, and you do what you can. I’m not going to promise that it will be fast or easy, but I can assure you that the formula is quite simple. Consistently investing some of your money on a regular basis will work.

The Talking Heads of the Financial Media should be ignored. They cannot tell you your future because telling the future accurately is an impossible thing to do. Their job is simply to talk about what might happen. Listening to them will not calm you down. I would even venture to say that one part of their job duties is to increase ratings & views. Right now, there are enough economic shocks and global catastrophes to keep their doom-and-gloom chinwag flowing for a very long time.

Again, you should ignore them. Concentrate on your own goals.

You need to focus on that which is in your control. Despite how it may seem, you have more power than you may think where it comes to your money. Firstly, you can control how much you choose to invest from your disposable income. If you invest $0 today, then you’ll have $0 tomorrow. The more you invest and the longer you leave it to grow, then the more money you will have. It’s that simple.

Secondly, you get to control whether to listen to the Talking Heads. Go back and re-read what I just wrote. They are to be ignored while you stick to your knitting. Quick refresher! Your “knitting” equates to consistent investment in equity-based ETFs or index funds over a long period of time, regardless of whether the market is up or down.

Thirdly, you are in control of ensuring that you choose to re-invest the dividends and capital gains to increase the power of compounding your returns. Dividends and capital gains are money that you didn’t have to sweat for. You lived without them before you earned them. Continue to live without them and just re-invest them. At first, they’ll be worth pennies and maybe a few dollars. After a few years, you’ll be earning thousands. They will continue to get larger so long as you re-invest them for further growth.

Finally, you and only you control whether you start today or whether you allow procrastination to flourish. It should be obvious by now that I want you to stop procrastinating. Do not let analysis paralysis stop you. Start investing today. You won’t make a “perfect” decision, and that’s okay. Nobody else is making “perfect” investing decisions either. Just start today.

From here on out, I want you to be investing bit by bit until you achieve your financial goals. Start today. Keep going when it’s hard. Don’t stop until you’re rich. That’s it – that’s the plan. Implement it.

Money well-spent is never wasted!

I am an amateur gardener. Essentially, this means that I don’t know what I’m doing but I do it with enthusiasm. Each year, I pick my tried and true favourite annual – petunias – and then I buy new plants that I want to try. My winters are spent watching various gardening channels on YouTube and making lists of what I think will grow well for me.

Last year, I tried coleus for the first time… and I completely fell in love with this gorgeous, vigorous plant. It’s the only thing I’ve ever paired with petunias that could match the petunias’ growth habit. Take a look at this container. There are only 3 coleus plants, and three petunia plants. Those little splotches of pink and orange near the edges are flower from two of the four begonias that I planted with the coleus and the petunias. A little tip from me to you – begonias cannot keep up with petunias and coleus.

Coleus side vs. Petunia side of same planter!

This year, the “new” annual is verbena. So far, I’m very happy with my 2 verbena plants. If they can handle the hot, hot summer sun that’s due to arrive in July and August, then I will be adding verbena to my yearly list of favorites. Take a peek at these little beauties.

In addition to coleus, petunias, and verbena, I also selected geraniums, marigolds, sweet potato vine and begonias to fill up my planters. It’s been a week and, so far, everything is still a live. My goal is to keep it that way!

And while I’m not an expert, I’ve learned a few things over the years. Firstly, it’s much cheaper to plant perennials in the ground and save the annuals for my containers. While they might cost more at the front end, a healthy perennial will come back year after year. They’ll flower beautifully, though for a shorter period of time. I enjoy feeling accomplished when they come back each year. It means that I managed to properly care for them – not too much fertilizer the year before, the right amount of water, a perfectly selected spot with light they found most pleasing.

Perennials make for good investments. I’ve learned this with my hostas. I transplanted three last year, but only two came back. I’m not sure what I did wrong with third one but something clearly went awry. No matter – I’ve already replaced the dead one. Next year, I expect all three of them to come back and fill in a very awkward little spot I have near my garage door.

This year, my shed came down. There’s now a 6′ x 6′ patch of dirt in my yard that’s in desperate need of something green. As I already have a very large yard, I refuse to plant anymore grass. I have too much as it is. Again, this nearly cleared patch of land is in a strange spot. The shed was nestled under two healthy, large lilac trees. As a result, this spot sits in shade except for roughly 3-4 hours in the afternoon. So I think it will be a shade garden… once I figure out what can live in the shade and survive the hottest sun of the day.

Ahem… Blue Lobster, this isn’t a gardening blog. Yes, Gentle Reader, you’re right – it’s not. This is a place where I share my thoughts about money and encourage you to spend yours in a way that will make your dreams come true.

I’m talking about plants today because they take my mind off of my money. Yes – I said it. Sometimes, it’s good to not think about money. Obviously, I need money to buy my plants. I needed money to buy the worm castings and potting soil. Money definitely facilitated the purchase of my new containers this spring. There’s a good chance I’ll need money to pay for the water that’s used between rainfalls to keep my plants alive and happy.

Coleus, sweet potato vine, begonias, geraniums… love them all!

Yet, when I look at my wee little plants, I don’t see money. Instead, I see pretty flowers. One of my annuals was planted as a Hail Mary. I don’t know what happened but this little petunia was lying on its side, unlike the other plants in the six-pack, and refused to remain upright. It wasn’t dead though, and the roots were still attached to the crown. I had a small spot in my self-watering container so I dug a hole, carefully inserted Little Floppy, and watered gently. That was a week ago. Today, I discovered that Little Floppy has doubled in size and is already pushing buds. I expect to see a flower by this time next week.

My plants calm me. There’s nothing I can do about inflation. Volatility in the stock market will rock the value of my portfolio. More often than not, world events make me sad. So I turn to my plants. They offer me respite from an irrational amount of worry about things that are out of my control. Every day, I can step outside for some fresh air and watch the magic of nature up close.

And since this is a blog about money, here are some numbers. So far, I’ve spent about $250 on my plants this year. Most of it went to annuals, but some of it went to perennials too. Specifically, this year I’ve purchased a new hydrangea bush, my replacement hosta, and a second hosta for a different location. The shed-spot needs more plants, so I expect to be spending another $100-$200 to get sufficient plants to create the shade garden I want.

The few hundred dollars that I’ve spent, and will spend shortly, on my plants will make me happy for a very long time. All things considered, I view it as money well-spent.

Like I’ve said before, not every expenditure is going to put a smile on your face. I don’t know anyone who’s excited to pay for parking tickets or property taxes. Nonetheless, you should be spending atleast some of your money in ways that make your heart sing. For me, it’s plants. What is it for you?