Super Powers

FU Money and being FI are super powers…

Dave from www.accidentalfire.com

I’ve written about FU Money before. It’s the money that you have set aside for those instances when you need to tell someone to “make love and go”. It’s not your emergency fund money. It’s not your retirement money. It’s not even your car replacement fund. Nope. Your FU Money consists of those funds set aside for giving you options when you don’t want to work anymore, when you just can’t handle another pointless meeting, nor one more inquiry from your micro-managing boss. It’s the money that will tide you over while you re-group and figure out the next step after you’ve left a situation that was driving you mad.

And long-time readers know that I encourage everyone to become FI, aka: financially independent. Being FI is great because it gives you even more options than FU money. Once your portfolio is kicking off enough capital gains & dividends to pay for your life as you’re currently living it, then you’re financially independent. And you want to know a secret? You don’t have to give up working just because you’re FI!

One of the options is to keep working, if you want to. You need not give up your employment just because your money is making more money for you. Once you’re FI, you no longer need to work but there’s also no need for you to quit your employment either. Again, for the cheap seats in the back, being financially independent gives you the option to work without needing the job. How cool is that?

I’d love to quit. As I’ve mentioned before, I have a great job. I work with very smart people on interesting problems that are mentally challenging. Before the pandemic, I travelled for work. My employer invests in training and I have opportunities to advance my career. I’m good at my job. There are many, many good things about my current position… Yet, it’s not what I want to do for the rest of my life. I want to quit.

So I’m working on developing my superpowers. Do I have enough FU money? Probably. Will I pull the trigger and use it? Probably not. Re-read my last paragraph. My position is pretty good so I don’t foresee a situation where I will be so incensed with my employer that I just walk out the door while giving someone the finger. Unless something changes drastically, I expect my departure to be mutual, respectful, and drama-free.

Still… I have my FU money in place, just in case I’m wrong.

I’ve spent the last 10 years working on developing the second super-power, i.e. becoming FI. It hasn’t always been easy and I’ve made my share of mistakes. However, I’ve learned from them and corrected them when needed. I’ve always believed that it’s okay to make a mistake. What’s not okay is making the same mistake more than once.

Do I still have learning to do? Of course I do! There’s this new thing called Bitcoin that everyone seems to be chattering about incessantly. I owe it to myself to figure out what that’s all about so that I can make an informed decision about whether to invest in it or not.

Despite my mistakes in investing over the years, I have to say that I’m far closer to being FI than I would have been had I not started. Investing money from every paycheque for the past 10 years has done wonders for getting me so much closer to my goal.

Maybe you wish you’d started 10 years ago too. It doesn’t matter. Start today. The time will pass anyway, so you might as well take the steps to build your own super powers. Don’t dwell on what you haven’t done yet. Make a plan to actively put a plan in motion to achieve your dreams. You get one life and you deserve to live the best life possible. If that means having a buffer between you and the Edge should you need to part company with your paycheque, then create that buffer. No one else is going to do it for you. And if you want to remove the golden handcuffs, then build a portfolio whose cash flow can replace your employment income. That way, if you decide to stay at your job, it’s because you want to be there. You won’t be shackled to the paycheque.

Super powers won’t solve all your problems. Life doesn’t work that way. What they will do is give you a financial cushion when you need one the most. They can alleviate the fear of not knowing how you’ll feed/shelter/clothe yourself without your employer’s money. The super powers will give you the confidence and comfort of knowing that you can survive even if you must part ways with your employer, for whatever reason.

Priorities Are Personal

Every day that you wake up offers you the chance to move closer to, or further from, your priorities. You can spend your life’s energy, time, and money in ways that are making your dreams come true. You can just as easily spend your resources making someone else’s dreams come true. One way or another, you will be spending our life doing something. It’s up to you to decide what that “something” is.

As the title of this post states, priorities are personal. There’s a very good chance that your priorities are not going to be the same as anyone else’s. Sure – there are general themes that apply to all of us. We all need food and shelter every day. Yet, some people will only eat organic while others will never learn to cook more than toast. Some people want a water view from their bedroom balcony, while others need easy access to the slopes and mountain trails in order to feel at peace.

The distinctions are in the details. And since this is a personal finance blog, I’m here to encourage you to spend your hard-earned dollars in ways that permit you to achieve your life’s priorities.

Most of the time, the things we want cost money. In the Before Times, I travelled every single year. In 2016, I had started travelling overseas. A big chunk of my annual spending was devoted to this priority – flights, hotels, food, souvenirs, excursions. It added up to $5,000 – $7,000 per year. Travel was one of my priorities so I was willing to give up other things. I ate breakfast at home instead of buying it at the coffee shop before work. I learned to cook more recipes in my own kitchen, instead of relying on the good folks of the restaurant industry. Spa treatments were curtailed. Concerts were foregone in favour of Spotify or CDs. Each of these littles choice allowed me to save between $100-$150 each week in order to fund my travel priority.

You can do the same thing.

List out everything that you want. Whether you cap the list at 10-20-30 things or experiences that you really want is entirely up to you. This is your list of priorities. Once you’ve completed the list, move to step two.

Put this list in order of importance. Is getting a pet more important to you than season’s tickets to a sporting event? Would you rather save for a down payment or go to a weekly happy hour? Does retirement matter more than upgrading your vehicle?

Once you have your priorities in order, you turn your attention to the money. How are you going to pay for all of your priorities?

Honestly? You can’t pay for everything at once. If you could, then there’d be no need to prioritize. You list is meant to help you choose where to allocate each dollar. As each priority is funded, the dollar can move to the next one.

For my part, my priorities are well-defined. Some of them will take a long time to pay for, but others can be funded in less than two years. Priority number one is paying for the annual expenses that will only stop when I do – property taxes and insurance premiums. I know in my heart of hearts that the day I don’t pay my insurance premiums is the day that my house burns down while my car is in the garage. I have an automatic savings plan in place so I can accumulate the money to pay these annual bills when they come due.

Retirement is priority number two. Sadly, I am not a member of the “I Love My Job” Club. My job is challenging, interesting, and well-compensated. I work with very smart people and am part of a well-functioning team. However, I’m not gleefully jumping out of bed every morning in order to do my job. I’m looking forward to retirement so I don’t have to do those parts of my job that I don’t enjoy.

As you may have surmised, travel is priority number three. In the Before Times, I’d be planning my next trip on the flight home. The world is a big place. I might not always have the physical ability to see it. Ideally, I will see as much of the world as I can while I still have the ability to walk, stand, sit, and maneuver without too much difficulty. However, we’re currently in pandemic times so travel is taking a back-burner.

Fixing up my house is priority number four. And by “fixing up”, I don’t mean replacing furnaces and water heaters. Those are things that fall under “maintenance/repair/replace”. No – I’m talking about landscaping projects. I’m taking about new carpet, new paint, new cabinetry. The stuff that has made HGTV so incredibly successful! There’s a good chance that I will be in my house for a very long time, so I want it to be comfortable and to my taste.

Priority number five…

Well, truth be told, there really isn’t one. Maybe replacing my SUV in the next 5 years? Whatever isn’t spent on priorities 1-4 sits in a slush fund, accumulating until such time as there’s something that I really and truly believe will make my happy.

It’s up to you to do the same with your money. From this day forward, think about your priorities before you spend your money. A simple way to do this is to set up automatic transfers to fund your priorities. Hive off part of your income into a savings account – for short term goals only – so that the money is there to pay for your priority. Long-term goals like retirement need to have their allocations invested in the stock market – RRSP and TFSA for registered monies and investment accounts for non-registered monies.

Keep Your Money!

I want you to keep your money. Yes – that’s right. You should put yourself in a position to keep your money.

Obviously, you can’t keep all of it. When you get paid, you have to give away some of your money. It has to go towards shelter, food, utilities, a basic wardrobe, and transportation. These are the necessities. Everything else is a nice-to-have. Beyond necessities, purchases are Wants. If they’re expensive enough, they might even be called luxuries.

Before you spend your money on the Wants & Luxuries, put some money aside to fuel your money-making machine. Ideally, you would pay yourself first, then pay for the necessities, and then pay for the Wants & Luxuries last. Many people don’t do this, and their reluctance to do so befuddles me. Truly, I’m befuddled by this behaviour. When you work so hard at a job that possibly might not fill your heart with joy and gladness, you should save a little bit of that money for yourself so that you can fund your dreams.

The first step to keeping your money is to plan your spending. If you don’t know how much you spend on shelter, food, utilities, transportation, and a basic wardrobe, then keep track of how much you spend. You can do this old school, with pen and paper, or you can use one of the fancy apps available for your phone. Either way, you need to know how much you spend living your current life.

Though I wish this did not need to be said, I’m going to say it anyway. If your monthly spending exceeds your monthly income, then you’re in a bad situation. You are living in debt, and this is a bad situation. It can lead to bankruptcy, homelessness, and other very unpleasant outcomes. If your monthly spending is less than your monthly income, fantastic! This situation is called living below your means. You have money to re-direct towards your money-making machine.

Once you’ve tracked your expenses, then you can plan how your next paycheque is to be allotted. I want you to think about the spending you did on your Wants & Luxuries. How happy were you with those purchases? Did the happiness last a long time or was it fleeting? If you hadn’t made the purchase, how would it have impacted your life? Any chance that you’d consider culling your future Wants & Luxuries purchases to only the ones that bring you joy and fond memories when you think about them?

I would never suggest that you limit your spending to necessities and savings. That’s no way to live. Everyone needs a little bit of frivolity once in awhile. What I am going to suggest is that you carefully evaluate why you made the expenditures that you did. Necessities? Obviously, you spend in this category so that you don’t starve to death a naked homeless person. I want you to focus on the Wants & Luxuries categories. If the purchase didn’t bring you joy, then why did you make it? Was it an impulse purchase? Did that impulse arise from a feeling of guilt? A need to self-soothe? A desire to be liked and included? Once you know why you spend, then you’ll know what triggers to avoid in order to keep your money in your pocket so that you can fund your most important dreams and priorities.

Keep the W&L expenditures that bring you true and lasting joy. Discard all the others. Use those savings to fund your money-making machine. My machine is an army of little money soldiers. Every month, I’m paid dividends from my investment portfolio. I’ve set up a Dividend Re-Investment Plan so that my dividends are automatically reinvested in my divided-paying exchange traded fund. This means that I’ll receive even more dividends the following month. It’s a sweet system!

Your money-making machine need not be the same as mine. You might want to get into rental properties. (And if the talking heads are to be believed, interest rates in Canada are going to go up. This may lead to a slew of foreclosures as people cannot service their mortgages at a higher renewal rate. Should that happen, property values will fall. If you have the money, and the desire to own a home, you may be able to buy a duplex or a triplex or multi-family property and start house-hacking.) There are some fantastic websites out there that can teach you how to do this. It’s not my preference but you should explore all of your options and decide for yourself.

Another money-maker is starting your own business. The entrepreneurs that I know are doing quite well for themselves. They work extremely hard, and are reaping the rewards of their efforts.

Don’t worry if you don’t know what your money-making machine is going to be. You can figure that out while you’re diligently finding ways to keep your money. Trust me! You don’t want to discover some fantastic opportunity and not have the money in place to take advantage of it.

You get one life! Keeping a part of your income from every paycheque is the most reliable way to have the money in place to fund your most important dreams and goals. It makes no sense to spend your life working hard for your money only to then disburse your life’s energy on things that don’t bring you lasting joy. It would be an absolute shame if you wind up regretting the choices that you made because they didn’t get you closer to fulfilling your dreams. Keep your money and build the life that you truly want!

Owning vs. Renting…decisions, decisions!

In the interests of complete transparency, I’m going to say that I am a homeowner. I’ve owned my current home since 2004, and I bought my first home in 2001. I only ever rented for a few years – maybe 2? – before I got my very first mortgage and jumped on the property ladder.

Things have changed drastically in the past 20 years… Damn! I hate typing that out, but facts are facts. Twenty years ago, I was able to buy my first place for $74,000. Fortunately, I bought just before prices in my province went crazy.

I’ve listened to both sides of the own vs. rent debate, and both sides make good points. Personally, I still prefer to own. Why?

When I’m old, I want to have the option of selling my home to pay my bills. Renters do not have that option.

I’ve spent years reading Garth Turner’s advice at the Greater Fool. He strongly advocates that people who own sell today, if not yesterday, so that they can take advantage of the incredibly high housing prices that we are currently seeing in various parts of Canada. He exhorts them to invest their tax-free capital gains, to create a cash flow that will pay for their living expenses, and to become happy, carefree renters. Mr. Turner has written numerous blog posts about the costs of home ownership, and how people routinely discount the costs of maintenance, repairs, taxes, land transfer fees, and all other expenses that come with owning a home. Paying the mortgage is least of a homeowner’s concern. There are so many other ways that a house becomes a financial albatross!

Mr. Turner advocates for becoming a renter, allowing the landlord to subsidize your housing expenses, and investing the difference between rental payments and mortgage payments. I will admit that this perspective is compelling. Having owned my home for years, I am known to refer to it as a money pit. There’s always something that needs to be paid. Renting and living off my investment portfolio does have a seductive ring to it.

…Until I start thinking about whether my portfolio is big enough to handle 20 to 30 years of rent increases. I don’t want to be 75 years old and facing yet another rental increase that means I’ll have to move to a smaller, less desirable location. I know the stock market has returned 10%-12% on average over very long periods of time. That’s all fine and good. Yet, we know that this is an average. Some years, the stock market drops.

If I have a $200 per month rental increase in a year where my portfolio has taken a hit, then don’t I have to liquidate some of my principal to pay my rent? And doesn’t that mean that I’m cannibalizing my portfolio’s capital right when I shouldn’t be touching it? Once the money has been withdrawn to pay rent, it’s no longer able to recover and grow. Selling during a downturn means I’d be decreasing the size of my portfolio at the worst possible time in order to keep a roof over my head.

That is precisely what I should not be doing in my dotage. Remember, the ideal scenario is that my portfolio will always churn off enough capital gains and dividends to cover my living costs.

But what if it doesn’t? What if my portfolio isn’t big enough to churn off sufficient funds to pay for my living expenses once I’ve stopped working? Then what happens? Who comes to my rescue as my portfolio dwindles over the years?

With a house, I believe that I have a few more options. Once it’s paid for, there’s no longer any risk that the bank will foreclose on it. Whew! It’ll still cost me in upkeep and repairs. Those are just a fact of life. However, my house lets me participate in house-hacking if necessary. I can take in a roommate. I can rent my house to someone who needs the space while I live somewhere else. If I needed to, I could sell it and use the money to pay for my long-term care. Or I can die in my own home, secure in the knowledge that no one ever forced me to leave a place where I wanted to live.

I’ve yet to see the pro-renting advocates address the fact that not everyone is able to build a portfolio that is large enough to cover ever increasing rents, and the other costs of living. Mr. Turner’s suggested course of action works wonderfully for people who bought in Vancouver 25 years ago and are now sitting on millions in equity. I’m not as easily persuaded that it works for people who don’t already have a boatload of equity to invest in the stock market. It’s true that a house cannot be sold one doorknob at a time to pay for one’s bills. However, it can be sold all at once and hopefully the money lasts as long as needed.

Life has taught me that there is no one right answer for every situation. If you can build a portfolio large enough to sustain you, then I see no problem with renting. It’s the situation where a large portfolio isn’t in the renter’s future that troubles me. In those circumstances, it’s very difficult for me to believe that renting is better. If the portfolio isn’t sufficiently large to cover life’s expenses, and there’s no home to sell, then what is the renter to do to find additional money?

I will think on it some more. Stay tuned.

Start Today

When I started investing, I had no idea what I was doing. It’s true.

I was in my early 20s, and my local newspaper had a column about personal finance. I’m older than the internet, so I grew up reading newspapers. I’ll never forget a column about David Chilton’s book The Wealthy Barber. That book changed my life. I bought it, read it from cover to cover, and decided that I knew enough to start investing. So I promptly took myself to the bank and I opened my RRSP when I was 21 years old.

I had the right idea, but I certainly had more confidence than knowledge at that point. After opening my RRSP, I went on with the rest of my life. Every year, I dutifully contributed to my RRSP… which my parents’ accountant told me wasn’t particularly smart since I was a student and my tax rate was super-low. However, he did tell me that I could eventually take advantage of the the RRSP Home Buyer’s Plan so I kept investing. I didn’t know what I didn’t know, so I didn’t ask the right questions in my 20s.

I got a little bit smarter in my late 20s. By then, I knew enough to stop buying GICs. Rates were no longer super high as central banks got a hold of inflation. And there’d been some chatter in the system about something called mutual funds. Great! That was where I’d put my money. So I did. I opened an investing account at one of the Big Banks and dutifully contributed money into it from every paycheque. I even met with the same banking officer each time, thinking that I was “building a relationship” with a financial advisor. After our third meeting, she told me that I didn’t have to personally make deposits with her each time.

Message received! Obviously, I was wasting that bank’s time so I opened an account at Phillips, Hager & North, now known as PHN. They helped me arrange for an automatic transfer of funds that coincided with my paycheque. I picked a few funds and barely thought about my investments unless I received a statement in the mail. I loved PHN! And would have little hesitation in going back to them if I had to leave my current brokerage.

The only reason I moved is because, sometime in my early 30s, I learned about exchanged traded funds and how they have way cheaper management expense ratios. The MERs at Vanguard Canada were much lower than the MERs I was paying on my mutual funds at PHN… so I moved my money again. Similar investment products for a lower price made more sense to me. Why pay more if I didn’t have to?

By the time I’d hit my mid-30s, my house’s mortgage was paid off and I’d heard of something called the FIRE movement. There were tales of people who pursued something called Finance Independence, Retire Early. It was an idea that spoke to my heart. Several years of working had disabused me of the belief that everyone grows up and is lucky enough to work at careers they love. Early retirement sounded like a brilliant idea!

Some how, some way, I stumbled across Mr. Money Mustache and I fell into a deep, multi-year dive into the world of personal finance blogs. It was intoxicating! So many people who had transformed their dreams into reality. Some of them were a decade or more younger than me, but so what? They had the knowledge that I wanted to have so I absorbed as much of their message as I could.

And I learned so very much! My perspective changed from wanting early retirement to wanting financial independence. In my mind, being financially independent is necessary. Being FI is a way to control your time, your autonomy over your life. It gives you the power to say “No!” to whatever it is that you don’t want in your life – atleast the things that can be controlled with money. Early retirement is still something I want, but it’s an option that becomes available to me (and to anyone else) as a result of financial independence. So many of the bloggers I followed used their FI-status to start working at things that they loved. They still made money, but they did so via endeavours that meant something to them. Unlike working for a boss, they were no longer fulfilling someone else’s dream but were busily and happily fulfilling their own.

Eventually, my self-tutelage led me to the sad realization that my dutiful bi-weekly investment contributions were going into the wrong type of investment. I love dividends! Passive income makes me dreamy. So a steady 4-figure monthly cashflow seemed like a marvelous thing…until I realized that I hadn’t taken proper advantage of the bull-run that existed between 2009 and March 2020. I would have seen much higher returns if my money had been going into equity ETFs instead of dividend ETFs! Had I been investing “properly”, I could have retired by now.

(Big sigh goes here.) There’s no sense crying over spilled milk. Once I realized the error of my ways, I corrected my path. All new contributions are going into equity investments. The longevity charts tell me that I have another 40-50 years***, so I still have a fairly long investment horizon. My course correction cannot change the past, but it can certainly prevent me from continuing what I perceive to be a big mistake.

Why am I telling you all of this?

Simply because I want you to start where you are and build from there. Would it have been better to have started 20 years ago? Sure, but you didn’t so stop dwelling on it. You have today so start today. The information is out there. And, no, you won’t understand all of it at first. So what? No one understands all of anything at first. Have you ever watched a baby learning to walk. Poor little buggers can’t figure out that they can’t move both legs at the same time. The slightest twitch of their heads means they topple over. And the first few steps are always quite wobbly. You know what happens? They always figure it out.

It’s the same with money. Start with setting aside some of your money in a savings account. Then move it to an investment account. Pick a product that has a low MER and invest in it for the long term. Don’t be afraid of the stock market’s daily volatility. You’re investing for years, and the market has always gone up over the long term. Keep learning about investing. Tweak your investing strategy if you have to, but try to keep those tweaks to a minimum. Save – invest – learn – repeat. Start today.

*** Never forget that you need your money to work hard for you, even after you retire. Don’t believe that you can stop investing in equities just because your old age security payments have started hitting your checking account.

Invest to Beat Inflation

The chatter in the system is that inflation is coming.

Hardly surprising. I would venture to say that inflation is already here. Groceries are more expensive than they were a year ago. Gas prices have risen in my corner of the world. Friends who need lumber are sharing horror stories about the price. There’s not a doubt in my mind that inflation has arrived…and it’s going to get worse before it gets better.

I’m going to suggest that you invest to beat inflation.

First of all, you need to know that I’m not an economist. I am not in any way certified to give you an opinion on how to invest. I know what has worked for me in my circumstances. There are no guarantees that my strategy will work for you in yours.

Secondly, I’ve been around long enough to know that paycheques don’t rise in line with the increased cost of living. It sure would be nice if they did, but they don’t. Your take-home pay will stay the same even though the prices of what you want to buy will continue to go up. In other words, your paycheque has to stretch farther just so you can continue to live way you want. This is inflation at work.

There are several ways to fix this. You could get a raise, or find a higher paying job. Great. If your employer chooses to pay you more money, then pat yourself on the back. Keep in mind that there’s no reason for your boss to give you a raise if she doesn’t want to. I mean, you could be replaced, right? And maybe the next person would do your job for less money… Trust me – this thought may have crossed your boss’ mind a time or two.

If a raise isn’t an option that your employer is willing to pursue, then you can always search for a higher paying job. Should you be lucky enough to find one, hooray! The higher take-home pay can now go towards paying higher purchase prices for all those things that are more expensive today than they were yesterday.

A third, less palatable option to combat inflation, is to cut out all the things that are now too expensive for your still-the-same-size-paycheque. That might mean giving up your gym membership, extracurricular/educational courses, cable, streaming services, books. You might have to move in with roommates, or stop eating out, or give up buying new clothes. There are many ways to cut back, but you can only cut back so much. There comes a point where there’s no more fat to trim.

I don’t want you to get to that point.

What I want is for you to invest to beat inflation.

How does that work, Blue Lobster?

Investing in equities over the long-term results in returns that are higher than the rate of inflation. Equities is a fancy way of referring to the stock market.

You cannot invest in GICs at the bank that only pay you 1.6% and expect to beat inflation. For one thing, inflation may be higher than 1.6%. Secondly, interest is fully taxable at your marginal tax rate. If your marginal tax rate is 27%, then you’re not earning 1.6% on that GIC. You’re only earning 1.168% (= 1.6% x [1-0.27]). Thirdly, GICs lock up your money for atleast a year. The main benefit of GICs is safety. Unfortunately, the cost of safety is too high because your money will be ravaged by inflation. You will effectively be falling further behind financially since you’re only keeping 1.168% of your GIC’s return while inflation is increasing prices by 1.7%.

Investment returns > inflation rate. Good.

Inflation rate > investment returns. Bad.

To avoid the second scenario, invest in the stock market through diversified equity-based exchange traded funds and/or index funds. Consistently save and invest your money into stocks via these investment vehicles then leave it alone to grow. Do not check it every day. The stock market is volatile. In other words, the value of your account will go up and down but the trend over the long term will be upward. If volatility bothers you, then the answer is to not check your investments every day. Avoiding the stock market is most definitely not the solution to your aversion to the unpredictable nature of the stock market.

Stuff money into your TFSA and RRSP and buy equity-based ETFs and index funds. It might take you a few weeks to max out your contribution room. It might take you a few years. That doesn’t matter too much. The important thing is to start today. Get your money working for you immediately. Once you’ve maxed out your registered investment accounts, then keep investing your money in your brokerage account, aka: your non-registered investment account.

How do my investments beat inflation, Blue Lobster?

Over the long term, your investments will earn a return that is higher than inflation. Your registered investments will have the added benefit of doing so without being ravaged by taxes.

For example, assume that inflation is at 1.5% and your investments return 10% over the long term. Also assume that your tax rate is 27%. Your registered investments will be beating inflation by a rate of 8.5% (= 10%-1.5%). Remember! The money that is earned inside your TFSA and your RRSP grows tax-free so you need not concern yourself with your tax rate.

Money earned outside of the shelter of your TFSA and your RRSP is subject to tax. For this reason, you’ll still be beating inflation in your investment account but not by the same amount. The money earned in your non-registered investment account will be beating inflation by 6.205% (= [10%-1.5%] x [1-0.27]).

Disciplining yourself to stomach the volatility of the stock market will be very profitable for you. When the time comes to start living off your investments, they will have grown nicely. Your investments will be more than ample to cover the inflation adjusted costs of living. Ask your grandparents if, when they were in their 20s and 30s, they’d ever imagined a brand new car costing $35,000. Ask your parents if they’d ever thought people would pay $5 for a cup of coffee. Now imagine yourself 35 years from now at the grocery store and realizing that the price of a single loaf of store-brand bread is $9.

By investing in equities today, you will be taking a big step towards outpacing inflation. Start today by taking the following steps:

  1. Open a TFSA, an RRSP, or a brokerage account.
  2. Every time you’re paid, have a pre-determined chunk of your paycheque sent to your investment account. Do this by setting up an automatic transfer from your chequing account to your investment account, ie. TFSA, RRSP or brokerage account.
  3. Leave the investment account alone to do its job.
  4. If available, participate in the dividend re-investment plan. You won’t be spending the dividends. Instead, they will continue to be re-invested for the long haul.
  5. Rest a little bit easier knowing that the long-term average return on your investments is higher than inflation.

You can take steps today to mitigate inflation’s impact on your life tomorrow. Just do it!

Err on the Side of Caution

There are few among us who really and truly find deep life satisfaction from our paid employment. If you are one of these Fortunate Few, then you are truly blessed. For the rest of the good people reading this little blurb, I would urge you to err on the side of caution.

Whatever do you mean, Blue Lobster?

Gentle Reader, do your Future Self a good turn. Even if you love your job today, always invest part of your paycheque for long-term growth. Start small if you must – $1/day – but just start. There’s no guarantee that you will still love working tomorrow. You may wake up one morning and want to do something else with your life. Yet, if your only source of cashflow is your job, then you’re a little bit stuck. Doing what you love may not pay the bills, and that can impede your ability to shelter, feed, and clothe yourself. No one wants to be impoverished.

Recently, I hit something of a milestone – 20 years with the same employer. Not many people can say that these days, so part of me is kind of impressed with this achievement. However, another part of me is counting down the days until retirement. While I’ve been at my job for a long time, I’m not as enthralled with it as I was when I first got here decades ago. Time has flown by in the blink of an eye! Had I known then what I know now, I would’ve made some different choices.

From my vantage point, the message of investing for the future is not sufficiently impressed upon the new or younger employees. Bright-eyed and bushy-tailed, clutching their newly-minted credentials, eager and excited – these newbies rush headlong into the new careers and probably enjoy the challenges and responsibilities that come with their first grown-up job. And that grown-up job probably comes with a grown-up paycheque, or atleast one that’s bigger than the part-time jobs they may have held up to this point.

Throw in a little pent-up demand and it’s the perfect recipe for the start of paycheque-to-paycheque living. It’s also a great way for employees to become beholden to their jobs. Monthly payments come in a wide variety of flavours: mortgage/rent, vehicle payments, student loans, streaming services, memberships, subscriptions, etc… What do they all have in common? They all take little bites of your paycheque. Each one allows you to make life a little more comfortable today. They very definitely prevent you from seeding your investments to ensure your future financial comforts. And they keep you tied to a job.

I’m lifting my voice and urging the young or new Eager Employees to just take a breath. Contrary to the “advice” of the Marketing Machine, there’s no requirement to commit every penny to spending. In other words, you need not spend it all now. I’m here to spread the message that it is perfectly okay for you to slice off some of that brand-new paycheque and invest it for the future.

Why consider doing this?

Take a look around. Are there any… ahem… senior employees lurking about? Do they seem filled to the brim with passion and energy about their current positions? Perhaps they are less enthused about devoting 2 or 3 decades of their lives to the workplace. Is there even the slightest possible chance that very deep down in their hearts they would leave their jobs if they had the money to do so?

If the answer might be yes, then ask yourself if you want to in their shoes when you hit your 20th year of working for someone else. Wouldn’t you rather have the option of working because you want to and not because you have to?

Err on the side of caution. Create a stream of cash flow from your investments. How? By buying investments that pay dividends and capital gains. Instead of spending those investment returns, re-invest them consistently. The more you invest today, the faster your investment returns will compound. If you want an excellent example of someone who has put together a solid investment plan by investing in dividend paying stocks, check out Bob Lai’s story at Tawcan. He regularly updates his investment portfolio returns and tracks his dividend growth. If I understand him correctly, he will be relying on a steady stream of dividends to fund his retirement. Another great blog to follow is that of Mark Seed at My Own Advisor. I’ve learned a lot from both sites, even though I may not have adopted and followed every single one of their recommendations.

Allow me to very clear – your investment portfolio should be working harder than you do. Invested money works 24 hours a day, 7 days a week. It doesn’t get sick, take vacations, or need time off to attend to personal matters. The sooner you put your money to work, the better. Investments can work magic for you but they do need time to grow.

And when the time comes when you no longer want to work for a paycheque, your investments should be able to fund your lifestyle.

Think about Future You and err on the side of caution. If you love your job in 20 years, then you’ll be happy at work with a generous cash cushion on the side. Nothing wrong with that! However … if there’s a chance that you won’t be so enamored with working every day, then you should be taking steps now to create the option of leaving if working become unbearable. I strongly urge you to do the following:

Your investments will give you options when you’re ready to part ways with your employer. You won’t have to worry about the axe falling, since you’ll have a nice, big cash cushion upon which to land. Your investments can be arranged so that they replace your paycheque. How nice is that?

And if you find yourself among the Fortunate Few who still love their employment after 20+ years, then so much the better. You’re doubly blessed – a job you love AND an investment portfolio that churns out dividends & capital gains. It’s the best of both worlds.

Cooking is your secret money-maker!

Last week, someone in the Twittersphere asked people to share their best money-making tip.

Mine was simple – cook at home more.

I’ve never hidden the fact that I consider my kitchen to be a magic money-maker. A few hours each week in the kitchen means that I’m not spending money on over-sized portions of food that might not be as healthy for me as the marketers would like me to believe. I have the benefit of eating whatever I want, and who wouldn’t love that?

At the same time, groceries are cheaper than eating out. Going to the grocery store instead of a restaurant or drive-thru window means that I can put more of my disposable income towards making my dreams a reality. Achieving the goals I’ve set for my finances while still eating well… that’s two birds with one stone, as far as I’m concerned.

So today, I’m sharing some of my favorite recipe sources with you. (Sadly, I can’t share all of them since I don’t want this to be 10,000 word blog post.) Put yourself into the mood to save some money by feeding yourself, then click on the links that follow.

First off, I have to mention Dinner Then Dessert. This is one of my favorite recipe websites. Lots of pictures – many useful tips – suggested recipes that are equally delicious! Most importantly of all, this blogger doesn’t waste your eyeball energy on scrolling through some back-story for her recipes. You can get right to it and start cooking!

If memory serves, Smitten Kitchen was one of the very first websites I started following for recipes. I liked the name because it rhymed a little bit, and because it featured desserts that reminded me of childhood. I’m still looking for one of my very favorite Bavarian apple tart recipes, but this one from SK’s website has very much piqued my interest.

Pinch of Yum is also a familiar favorite that I enjoy going back to time and again. The recipes on this website are packed full of vegetables so the dishes are colorful and drool-worthy. I always feel like these recipes deliver on all my daily mineral and vitamin requirements, which is something that is very, very important.

YouTube is a treasure trove of cooking tutorials. I have spent many an hour watching cooks, chefs, and everyone in between creating some of the most delicious things I’ve ever eaten. One of my newly discovered channels is called Cooking With Claudia. I followed her recipe for creamy garlic butter chicken and potatoes… The extra exercise is well worth the added calories of this dish. It’s divine and makes for very tasty leftovers the next day!

A couple of weeks back, I tried to make some pie dough… It did not go well. And while I managed to flatten it into a disc for the freezer, I’m sure I’ll have to doctor it with some more water and flour when I go to actually make a pie. I wish I’d found this video from Nana’s Cookery before I’d started my Pie Dough Project. Although, truth be told, I’ve lived long enough to realize that either you’re born with pie-hands or you’re not. There isn’t a “no-fail pie crust” in the world that has worked in my kitchen.

Fear not, Gentle Reader! I will continue to try my hand at making pie dough because, although my pie crusts aren’t perfect, they’re still very tasty.

Now another great video channel I absolutely adore is Babish Culinary Universe. This gentleman has in incredibly soothing voice. Watching his video about cinnamon rolls was a treat for the eyes. And I’m not embarrassed to admit that I was drooling as I watched his video about sticky buns. When the pandemic is over, I’m going to get together with several friends so that we can grow larger together while devouring these delicious delights. Not even I can justify eating 12 cinnamon or sticky buns by myself… and I haven’t yet found a recipe for making just one!

Maybe you’re a fan of carbs. (And who isn’t, really?) If so, then check out Savor Easy… where they bake up all kinds of delicious breads. One of my favorite aspects of this channel is that there’s very little talking. It’s all music and visuals…and delicious things for your tummy. Soft and fluffy condensed milk bread, anyone?

You need to eat. I suggest you eat well. It’s something you should be doing several times a day so it’s in your best interest to enjoy it. Get the maximum enjoyment of your food while stretching your dollars as far as possible! Start by cooking and baking for yourself.

We’re still in a pandemic, and it’s not always fun to eat alone as a Single One. I get it. Believe me when I say that I understand. Where I live, dining in restaurants is currently not an option. However, I have access to screens in my house. There’s always the option of a videochat over a nice meal. It’s definitely not the same, but it is way better than the drive-thru.

And look on the bright side. We are so very much closer to the day when the pandemic is in the rearview mirror than we were just a few short months ago. And I’m willing to get that you’ll agree with my prognostication that there will be an extraordinary level of socializing when we finally reach herd immunity. Use your pandemic-time to learn how to cook & bake. I promise that you’re going to love sharing all the recipes you’ve mastered with those nearest and dearest to your heart when the pandemic is finally over.

Emergency Funds – Income vs. Expenses

“Wow! I had way too much money to tide me over when I was unemployed and had bills to pay!”

– said No One Ever

By now, you may heard that it’s best to have 3-6 months of income in your emergency fund. You know your finances better than I ever will, but it seems to me that it’s better to have 6-9 months of expenses socked away for the inevitable rainy day.

Did you see what I did there?

If not, go back and re-read it… there you go! See? In my world, income does not equal expenses when it comes to funding your emergency fund.

The Majority

For a good number of people, the words are interchangeable. It matters not whether they’re saving 6 months of income or 6 months of expenses because the monthly income and monthly outgo are the same number. And who are these good folks? Well, they are the ones who spend every penny that comes into their hot, little hands. They’re people who literally feel money burning holes in their pockets. These ladies and gentlemen will move heaven & earth to spend their money as fast as they can. It matters not if they’re earning a little or a lot – every penny is spent!

These are people who do not live below their means, for whatever reason. For this group, income is equal to expenses.

The Others

However, there is another group of people out there. They are the ones who pay themselves first. Their expenses are less than their income. They’ve managed to create some breathing room in their budget. They have funds that aren’t spent right away. For this second group of good folks, they only need to save 6-9 months of their actual expenses.

There is no point having money sitting idle in an account while waiting for an emergency when it could be sent out to work.

If you’ve been reading my ramblings for any length of time, then you know that I’m an ardent advocate of investing a good portion of your paycheque for long-term growth. This is what I mean when I say that the money not spent on your day-to-day survival should be sent out to work. When your expenses are less than your income, the difference between the two should be invested.

Allow me to be very, very clear. The money that is meant to cover your expenses during an emergency should never be invested for long-term growth. You need not run the risk that the stock market suffers its worst historical drop on the very same day that you lose your job and have to pay the mortgage. Your emergency fund needs to be sitting some place that is both boring and safe, like in a savings account at an online bank. When the emergency happens, you will need to access the funds quickly. You also need to be certain that they will be there. The volatility of the stock market offers no such certainty.

So whatever amount is needed to cover expenses should be in a boring, old savings account.

Money over and above your 6-9 month emergency stash should be sent elsewhere.

Personal Experience

For the sake of transparency, I will confess that what isn’t spent on the Care and Feeding of Blue Lobster is divided into two pots. There’s the long-term pot where I keep my retirement money. That pot is brimming with equity investments that pay me capital gains and dividends every year. Hooray! Then there’s the medium-term pot. This is where I stash the money to pay for things that will happen in the next 1-5 years. This pot pays for the un-sexy necessaries like insurance premiums and taxes. It also covers the fun stuff like vacations, concerts, and gifts.

The bottom line is that these pots are filled with the difference between my income and my expenses. In my case, my emergency fund covers 9 months of expenses. I can now use my money to fund long-term investments and medium term goals, all while knowing that my emergency fund is safely tucked away until I need it.

Why 9 months instead of the minimum of 6? That’s easy. I’ve always believed that it’s better to have more money than needed during an emergency.

A little something else to consider…

Expenses generally include debts. Take your pick – student loans, vehicle loans, mortgage, credit cards, medical, personal loans, veterinary loans, etc… If you’ve used credit, then you have debt. Chances are you’re paying off that debt each month, so your debt payments must be included in your expenses.

Debts don’t disappear just because your job has. That means your emergency fund has to be big enough to cover your debt payments should your income disappear.

But what happens to your emergency fund once your debts disappear?

The necessary minimum size gets smaller!

Excuse me, Blue Lobster? What are you saying?

Let’s say that your monthly expenses are $3500 per month. Part of that is a $1000/mth mortgage (or rent) payment and a $500/mth payment on your vehicle. For the sake of this example, your monthly expenses include $1500 in debt payments.

If you’re building a 6 month emergency fund, you need to have $21,000 set aside to cover your monthly bills in the event of an emergency.

However, once you’ve paid off your debts, then your monthly expenses are only $2000 per month. (This assumes that you don’t replace your former $1500 debt payments with new ones!)

Now, your emergency fund need only be $12,000 to cover six months of your expenses.

Will it take you less time save up an $12,000 emergency fund? Yes – yes, it will.

Getting out of debt means you don’t have to spend as much time building your emergency fund. In this example, the extra $9000 (= $21,000 – $12,000) can be invested for long-term growth that much faster. Ideally, Mystery Person learns to spend cash and doesn’t go back into debt. While Mystery Person goes to work, the $12K sits quietly in an account and the former debt payments are re-directed towards long-term investments.

Saving 6 months will take a long time!

Please go back and re-read the quote at the start of this post. No one promised that saving up an emergency fund would be a quick process. The fact that it takes a long time in no way diminishes the importance of creating one!

Start saving for your emergency fund today. Set up an automatic transfer from your paycheque to an online savings account. Do not get a debit card for this account. Once the money goes in, forget about it. This money is not to be touched unless your livelihood is threatened or gone.

Trust me when I say the following. You won’t want to be worrying about money in the middle of your emergency. Having an emergency fund to pay for things will be a comfort during an emotionally awful time.

Buy Yourself Some “No!”

Every time you get paid, I want you to buy yourself some “No!”

Whatever are you talking about, Blue Lobster?

It’s simple. When you receive your paycheque, endeavour to not spend all of it.

Now, I know that there are those who are barely surviving from one payday to the next due to a low income. It’s very tough to survive when you don’t have enough money. It must be an awful and harrowing way to live. If I had a simple solution to solving the poverty problem, then I would shout it from the rooftops… sadly, I don’t.

For everyone else, there’s enough money to buy the option of saying “No!” to what you don’t want in your life. You may have heard of this concept by its more traditional phrase – pay yourself first. This is incredibly good advice! And I’ve yet to hear of anyone suffering any kind of adverse consequence by ensuring that they feathered their own nest before dispersing the rest of their income to Everybody Else.

When you save some of your paycheque, you’re buying a quantum of power. That power is related to your ability to buy back some of your time. Think about whether you love your job. Are there days where you just don’t want to work, whether “at the office” or from home? When you’d rather garden in your own backyard or spend the day enjoying the fresh spring air?

Or how about that vehicle payment? The financing company has you over the barrel. If you stop sending them several hundred dollars every month, they’ll repossess your vehicle. How nice will it be to stop sending them money every month? What else could you be doing with that payment?

Whatever your monthly payment is for, does the payment bring you joy? Are you excited and thrilled to see the money leave your bank account every month?

No? I didn’t think so.

Cruel Ironies

You can make more choices about how to spend your time when you’re not as dependent on working for an income. The cruel irony is that there’s no incentive for your employer, your creditors, or the Ad Man to explain this to you. As you’re already aware, your employer needs your labour to enrich the corporate bottom line. This means that your employer has little incentive to encourage you to save for the time when you have enough money to re-direct your labour to your own life’s desire.

Your creditors just want you to continue paying them interest, since they make money off the financing and not the doodad on which you spend their money. (And make no mistake – it’s their money. If it had been your money, then you wouldn’t be paying interest on it.)

Finally, the AdMan is paid by the companies that sell you whatever shiny object that has currently caught your attention. The AdMan really doesn’t want you to save any of your paycheque, because then the AdMan hasn’t convinced you to buy stuff…which is how the AdMan gets paid.

Stop Spending All Your Money

I understand how capitalism works. I really do. Yet, the older I get, the more I also understand that unbridled spending and the yoke of debt are impediments to a happy life.

Want a foolproof plan for getting a tax free raise? Stop going into debt.

Once all your payments are done, then more of your paycheque stays in your pocket. No more $700 monthly vehicle payment? Transfer that $700 to your RRSP. No more $400 student loan payment? Invest that $400 in your TFSA. Mortgage payments gone? Awesome! Start contributing the money to your non-registered investment portfolio. Credit cards all paid off? That’s great – save that money in the bank so that you can pay cash for the next thing that you want.

And a funny thing will happen. When you’re finally out of debt, you’ll really, really enjoy the absence of debt payments.

“Wish I was still sending money to my credit cards!” said No One, ever…

All of that money that was being siphoned off to debt payments can be used to buy yourself some “No!”

That Will Take Too Long!!!

I’m not a magician! And I never said it would happen overnight. It’s going to take as long as it takes. The more debt you have, the lower your income, the longer it will take.

The question is how long you want to continue being indebted to Others. You’re the only person who can decide if you’re willing to make the short-term sacrifices necessary to buy back some of your time freedom.

Alternatively, you can keep your current spending patterns yet still buy yourself some “No!” through increasing your income. You could get a side hustle and devote all income earned from that source to saving and investing. (Back in my day, a side hustle was called a part-time job.) You could invest in real estate and start house hacking. You could start buying dividend-producing exchange traded funds, set up a DRIP system, and just watch your dividends compound over time. You could bust your ass at work and get a promotion, whether with your current employer or with a new one. Either way, your promotion should come with a raise. So long as you don’t spend that raise, you’re heading in the right direction.

You Get to Decide.

Yes – that’s right. The choice is yours.

  • When your current vehicle is paid off, are you going to drive a paid-for car or are you going to go back into debt?
  • Do you need all the streaming channels right now? Could you pay for one for a few months, then switch to another one later?
  • When the pandemic is over, is your gym membership really necessary? Maybe you could walk outside instead of on a treadmill?
  • Is being able to live without a paycheque for a few years worth learning how to cook?
  • Is the hamster wheel of living hand-to-mouth bringing you joy? Would you appreciate a lot more wiggle room in your budget?

Money buys you the option to say “No!” to what you don’t want in your life. Harness its power by investing a chunk of your income every time you’re paid. The sooner you start, the sooner you’ll be able to walk away from situations that no longer serve your purpose or no longer make you happy. You’ll have the peace of mind that a financially firm foundation allows. You’ll be able to walk away from employment that no longer aligns with your values…without wondering how to feed/shelter/clothe yourself. You’ll have the comfort of knowing that you’ll be alright even if it takes you a little while to find your next job, if you even want one.

And believe you me… the more “No!” you have, the less often you have to do un-desirable things. I’ve yet to meet anyone who hated having control over how to spend their time and energy. Unless you’re already quite wealthy, the only way to obtain this power for yourself is through carefully investing your own income until your investments allow you to be independent from a paycheque.