Start Planting Your Money Tree

Everyone wants their very own money tree. Financial problems would be so much easier to solve if you could just pick money off a tree and pay whatever needs to be paid. Well, I’m here to tell you that you do have the power to do this. All it takes is a little bit of disposable income, a plan, and time.

By keeping such a magnificent type of fauna alive and at your disposal, you’ll reap the rewards of the harvest for a good long time. The key is to plant the moeny-seeds. In layman’s terms, you have to start investing your money. Then you have to consistently continue to invest your money. The sooner your money-seeds are planted, the sooner they will grow into an orchard of money trees. And who wouldn’t like an orchard filled with money trees?

Planting Seeds Leads to an Orchard

Each time I invest a portion of my paycheque, I’m planting seeds. They’re simply money-seeds, or atleast that’s how I like to think of them. They’re deposited to my portfolio account so that I can buy more units in my exchange-traded funds. Those ETFs are on the dividend re-investment plan. When the ETFs pay me dividends and capital gains, those monies are automatically re-invested into more units of the same ETFs. This creates a perpetually growing dividend-and-capital-gains-paying cycle.

I liken this cycle to the growth of the tree. In other words, my money tree gets bigger and bigger each month as my dividends and capital gains are re-invested.

When I retire, I can let the cycle continue to grow month-in-month-out, or I can stop the cycle by cancelling the DRIP. The dividends and capital gains will still be paid out every single month. Instead of being re-invested, they’ll go towards making my retirement just a wee bit more comfortable. You know – flying first/business class on my travels, monthly massages, grocery-shopping without scrutinizing the prices, whatever little extras my heart desires…

Money I Didn’t Have to Sweat For

Planting money-seeds leads me to earning money that I didn’t have to work for. Dividends and capital gains are passive income. Once I’ve laboured to earn the money-seeds, my labour stops once I’ve invested them. Thirty years ago, I opened my first RRSP and invested my contribution. That investment is still generating money for me… and I haven’t had to lift a finger.

Most of us work hard for our money. In colloquial terms, we have to sweat for it. Some of us have to bleed for it. Wouldn’t it be nice to earn money the easiest, legal way possible? Can you imagine having money just flow to you every single month?

There is a way to do it, and it’s called investing. You put in the work up-front and invest part of every paycheque that you earn. The third step is to sit back and watch the money roll in.

I will be very honest with you. Dividend investing takes a very long time, unless you have 5-figure sums to invest every month. If you do it long enough, you’ll be earning amounts every month like this Anonymous Fellow. In the interests of transparency, I’m willing to admit that it’s taken me 12 years to get to an annual dividend amount that would sustain my current lifestyle. However, I’m an amateur dividend investor. Had I made smarter choices way back when, then I would be in a much better situations. No sense dwelling on it now because I cannot go back and change things.

What I can do is give you some suggestions of people to learn from if you have any interest in learning how to plant a money tree for yourself:

Tawcan

Dividend Dream

My Own Advisor

And I’m sure there are many others out there. These are just the people whose stories I’ve followed for the past few years. They’re teachers. They’re transparent. They’re honest about the challenges they’ve faced and the mistakes they’ve made. I’ve learned a lot from them and I wish they’d bee around when I started my own investment journey. But since I’m almost older than the internet, I won’t blame myself too, too much for not having found them sooner.

Choices Have Consequences

We’re all old enough to know that there are consequences for everything we do… and don’t do. It’s no different with investing. If you invest consistently & profitably, for a decent period of time, you’ll have a nice cushion of cash waiting for you in the future. Planting your money tree today is one of the very best things you can do for Future You.

It’s always a good idea to choose yourself. Unless you’re a child, you’re the only one responsible for identifying what you want from you life and how to make your dreams a reality. Doing so will take some planning, a fair amount of time, and definitely a little bit of money. And as one dream made real, you’ll be able to set your sights on make another one come true. In the words of Ramit Sethi, you need to know how to build your Rich Life.

And if you choose not to invest, well… then you’ll have to depend on the kindness of strangers, your family & friends, or a job for the rest of your life. You’ll need money until the day you die. Pretending otherwise is foolish and short-sighted. At the end of the day, it’s better to take control now and take the steps necessary to build up a cash cushion that will keep Future You fed, warm, and happy. And don’t you want that for Future You?

Making Easy Money With Dairy Cows and Steers

Yay! The time has finally come. You’ve opened your brokerage account and you’re ready to start filling it with money-makers. It’s time to ask yourself if you want dairy cows or beef cattle?

Steers are grown to become beef. You buy the calves, grow them up, then send them to slaughter. If you’re very lucky they grow nice and big while you own them, then return a good price to you once sold. Of course, between buying the calf and selling the steer, you’re going to have to hope that it doesn’t get sick or getting into any kind of accident that damages its value. You’ll have to wonder about the kind of feed its getting and whether the rancher is taking good care of it on your behalf. And you most definitely don’t want the animal to die, since that means you’ve as good as burned your money in a pyre. Raising a calf to a full grown steer entails a lot of hope that nothing goes too terribly wrong between buying and selling.

On the other had, dairy cows produce milk. Good ones produces 9 gallons each day! Such a cow is never sold, just the milk that’s produced. So long as you own healthy and productive dairy cows, you’ll get paid when the milk gets sold. It’s reliable, steady income – all you had to do was buy the cow. Easy peasy, lemon squeezy.

So which one do you think you’d prefer to own in your brokerage account?

Blue Lobster… what’s wrong with you? Why are you talking to me about cows?

For some newbie investors, thinking about cows is easier than thinking about financial products.

Since this blog is simply a collection of my rambling thoughts about money, I’m using an analogy that I heard this week. Investments that produce dividends are like dairy cows that produce milk. However, growth stocks are like beef cattle. You want to buy these stocks when they’re cheap (young & small) and sell them when they’re expensive (big & strong) so that you can reap the increased value.

For my part, I was a staunch believer in dividend-paying exchange-traded funds, i.e. the dairy cows. I still love watching dividends pour into my brokerage account every month.*** Every month, a modest 4-figure amount of money flows into my account and is automatically re-invested into more ETF units. It’s a wonderful self-perpetuating cycle that generates more and more dividends every month.

That said, I’m learning more and more about growth ETFs and mutual funds. They might pay dividends or capital gains, but they might now. These are products that are focused on growth companies. Generally speaking, they are way more volatile than my dividend-paying products. Their returns are higher and their losses are deeper, but over the long run they are probably the better bet for long-term investors. Again, I’m suggesting – not guaranteeing – that investing in a broadly-diversified, equity-based ETF will give you higher returns over 10+ years. If you’ve got a long investing horizon, then that’s where you should put your money.

I want to make another thing very, very clear.

I do not invest in individual stocks.

Before continuing, please go back and re-read the last two sentences. I don’t want there to be any confusion whatsoever. I do not invest in individual stocks.

I’m not interested in learning how to master that art, but I can see the benefits for those who do. If learning how to buy individual stocks is something you’re interested in, then visit Tawcan’s blog. He buy individual dividend-paying stocks and is earning a very impressive amount of dividends each year. Let’s just say that his herd of dairy cows is sizeable! I’m pretty sure the same analytical principles can be applied to buying growth stocks too, but that’s not my field of expertise or interest so enjoy yourself. I’ll stay here and stick to ETFs since they’re cheaper than mutual funds and easier for me to understand. Also, I’m a bit lazy and don’t mind paying minuscule MERs to someone who’s already done the work for me.

Finally, there’s no rule saying that you can only have one and not the other. Maybe you want a bit of both. For my part, all of my new money is going into VXC with Vanguard Canada. I switched to buying steers when the market was on the upswing in 2020. Had I been paying attention, I would’ve started buying steers in March of 2020 when the market was at its bottom. Oh, well – better late than never! I wised up and switched my investments to growth-oriented ETFs. It was the right move for me.

Keep in mind, I didn’t sell my dairy cows. In other words, I kept my dividend-paying ETFs. After nearly 10 years of faithfully investing part of my paycheque, the dividends from those ETFs are going to comfortably support me in my retirement.

So nearly 3 years after the stock market was pummelled at the start of the pandemic, my portfolio is the healthiest its ever been. You have the power to do the same thing with your portfolio. Despite the doom and gloom of the headlines, you’re in this for the long haul. Like investors who came before you and who didn’t sell at the bottom, you can make money over the long haul. All you need to do is add some dairy cows, or some steers, or a little bit of both, to your portfolio. Invest a little bit of every paycheque you earn and do so no matter what. Don’t spend your dividends and capital gains. Instead, re-invest them every year and let time do the rest while you go about building the life that you want for yourself.

It may not always be easy, but it really is just that simple.

*** For the very first time ever, I’m on track to receive enough total annual dividends to cover all of expenses for the year barring any big financial emergencies! It’s a very good feeling.

One Day At A Time

There’s no doubt about it. Anyone who’s slightly aware of the news is hearing that things aren’t good, that we’re heading into a recession, that inflation is climbing, and all other manner of negative stuff about personal finance.

You know what I want you to do about it? I want you to take things one day at a time.

If I’ve learned anything during my few decades on this little blue ball we call home, it is this. No one knows what tomorrow will bring. People will guess and predict and estimate and prognosticate. They will do all kinds of worrying about all kinds of stuff. And you know what?

The future unfolds one date at a time, for everyone. There is no way to be 100% certain about what will and what won’t happen at any given moment. So do yourself a favour and don’t even try.

Instead, focus on what you can control. Do what you can then go about the business of living your life.

Top Up the Emergency Fund

At the very absolute least, have $100 in your emergency fund. It’s certainly not enough but it’s better than nothing. Squirrel away every extra nickel you have into your emergency fund until you have one month’s worth of expenses in there.

Oh, you have that much already? Okay – then your goal is to get yourself to two months’ worth of expenses. I want you to increase your emergency fund until you have one year’s worth of expenses ready to be deployed in the event of a true emergency.

When the emergency hits, you will be very pleased that Yesterday You had the foresight and brains to set something aside. Whatever your emergency winds up being, adding debt to the situation will likely not make it better.

Don’t Stop Investing

If you’ve been following my advice for any length of time, then you have an automatic transfer in place to whisk part of your paycheque from your chequing account to your investment account. You then invest that money into an equity-based exchange-traded fund for long-term growth. You’re doing this month-in-and-month-out, while ignoring the Talking Heads of the Media.

I want you to continue doing this. Look. The economic cycle has its ups and downs. Right now, we’re in – or heading towards – a bottom. For you and me, that means everything is on sale. It’s good to buy things when they are on sale. And due to very fact that the economic cycle is a cycle, the value of the equities – aka: the stock market – is going to go back up.

For those of you who haven’t started investing, start today. Set up your automatic transfer. Pick an ETF or index fund that invests in equities. Invest your money on a consistent basis. Set up a dividend re-investment plan – aka: DRIP – so that your dividends and capital gains are automatically re-invested. Ignore the Talking Heads and go about the business of living your life in the way that makes you happiest.

Spend Consciously

It’s your money so you get to spend it however you want.

That said, might I suggest that you only spend on things that bring you the most joy?

I’ll use myself as an example. At one point, I had 4 streaming services. I was considering adding a fifth when I stopped to ask myself if I was really loving having the initial four. The answer was “No”. Sure, I watched all of them at random times but I could go weeks without watching atleast one. So I cancelled the one that brought me the least amount of quality entertainment.

You see – I was spending to spend and not because that fourth streaming service adding something extra special to my life.

Look at where you’re spending your money. Unless every nickel spent is making your life better, consider cutting some expenses and seeing how it goes. After all, the beauty of our capitalist system is that they will always take your money at some point if you decide to give it to them again. By “them”, I do specifically mean anyone who is currently taking your hard-earned money and giving you a product or service.

Live in the Present

Like I said at the beginning, no one knows what the future will bring. The economy will recover, but I can’t tell you exactly when. Neither can anyone else. And I’m fairly certain that you will sleep easier knowing there’s a cushion of cash waiting for you in case you need it.

Do what you can do then live your life. Spend time with those who renew your soul. Do something creative. Read a book – better yet, write a book! Do your hobby, or start a new one. Talk to someone new. Visit a park or a garden to spend time in nature. Put down your phone & shut off the computer or tablet. Sit quietly for 10 minutes. Take a nap.

Listening to the Talking Heads will not calm your nerves. Their job is to get ratings, not to be right. If you can, rerun the tapes from 6 months ago and see who – if anyone – had correctly predicted every single thing that’s happening today. None of them accomplished this impossible feat! If they couldn’t do it 6 months ago, then it’s highly likely that they still can’t do it today.

There’s no benefit to worrying, or fretting, or considering endless what-if scenarios. Worrying and fretting changes nothing. There will always be a what-if that you didn’t contemplate. Taking the actions that I’ve articulated above will put you in the best position to survive – financially – whatever tomorrow will bring.

At most, you control your choice to live below your means and to invest for the future. Once you’ve chosen to do so, then your next best step is to take things one day at a time.

Retirement Is Not An Age. It’s A Bank Balance.

Truth be told, retirement is a bank balance. People commonly think that of retirement in terms of an age. Traditionally, it’s been age 65 and lately it’s been cropping up to age 70. For a little while in the 90s, age 55 was the catchy second half of a very successful marketing campaign called Freedom 55.

I’m here to tell you that age doesn’t determine when you retire. Your bank balance does that. Think about it for a minute? If you hit age 55, 65 or 70 with $17.89 to your name, can you really consider yourself retired? Is there even the slightest possibility that you’ll have to keep working because you won’t have enough money to live?

On the other hand, if you have $23,000,000 in your bank account by the time you’re 30, 35 or 42, then it’s quite like that you have the option to retire. Whether or not you do so is entirely up to you. The fact is that it is the amount of money in your bank account that determines when you’re financially able to retire.

Age has little to do with when you can retire. The more you invest, and the sooner you invest, the faster your net worth will hit an amount that will allow you to retire. This is the premise behind the hard-core-retire-as-soon-as-humanly-possible articles from FIRE people who are willing to live on the absolutely least amount of money. Some people are willing to save 70%, or more, of their incomes so that they can live off their dividends and capital gains without working for someone else. More power to them!

Myself, I choose not to save quite that much. Make no mistake. I do want to retire early, but I don’t want my life’s journey to be miserable. Living on 30% or less of my take-home pay would make me miserable. You might be able to do it with ease, but maybe not. You’re the only one who can make that call.

But back to my main point…

Spending Every Penny

If you spend every penny throughout your life, and borrow to spend more, then you get to retire never. It’s a harsh truth. You need to have extra money available to divert from today’s spending.***

That money has to be invested for long-term growth. This is why I repeatedly suggest that you invest a portion of every paycheque into equities and to re-invest whatever dividends and capital gains your investments generate. Unless you’re saving huge amounts of money, it’s going to take a long time to build the cash cushion that will fund your retirement.

Again, there’s no magic to the age 45 or 50 or 65 or 70. You can retire as soon as your portfolio generates enough money to replace the money from your paycheque. You’re also going to want your portolio’s annual growth to outpace inflation. No one aims to dust off their resume at age 90! You need your money to grow faster than inflation so that your purchasing power isn’t eroded over time.

In other words, retirement is a bank balance. Once you have enough money in the bank, you can retire. Live below your means so that you always have money for investing. Stay of out debt too. Money spent on repaying your creditors is money that cannot be invested for your desired retirement.

Semi-Retirement

If you need more motivation to save and invest for your future, always remember the following. Employment options widen considerably once your portfolio generates enough to cover the living expenses that won’t be covered by a potentially lower salary. Happiness – and semi-retirement – might be just one employment move away if you have enough money stacked to pay your bills.

The principles of saving for retirement apply equally as well to semi-retirement. Maybe you hate your current job with an unholy passion, but all the jobs you truly want to be doing will pay you less. You earn $75,000, your annual expenses are $60,000 and you invest $15,000. The job you really want to do only pays a salary of $40,000 and your portfolio generates $30,000 per year. (These are net income numbers, not gross.)

Since your portfolio covers half of your $60,000 expenses, then you can take the lower paid, but soul-enriching job. And in this example, you will still have $10,000 each year to invest into your portfolio (= $40,000 – $30,000), so your portfolio would still be growing. Admittedly, you’re saving $5000 less per year and you may have to work longer. Yet, you wouldn’t hate your job and you wouldn’t be miserable while working. Only you can decide if you hate your job enough to take a pay-cut.

No Downside to Saving & Investing

If there’s even the slightest chance that you don’t want to work until the last breath leaves your body, you should be saving and investing as much as you can.

Absolutely spend on what brings you joy, but ruthlessly cut out everything else. When you spend your money, I want you to be getting maximum utility and joy out of that purchase. Your money shouldn’t be wasted on that which adds nothing to your lived experience. What sense does it make to spend your money on things that don’t bring you joy?

Again, retirement is a bank balance. It is not an age. If you start today, then you can reduce the risk of having to work into your dotage. If you’re still working at age 70, 80, or 90, then make sure that doing so is a choice and not a requirement.

Do what you need to do to increase the odds of having the retirement you want when you want it.

*** Our economic system is designed so that people at its bottom live hand-to-mouth for their entire lives. These are the folks who legitimately have nothing to save because they are just barely surviving from one paycheque to the next. This article – and most retirement advice – is not for them. People in financially-precarious situations are forgiven for focusing all of their energy on surviving from one day to the next. Everyone else has no excuse. If you’ve got some fat to trim in your budget, then you’ve got the money for saving and investing. You’re simply choosing not to.

My Rambling Thoughts on the Empty-Home Tax

For the past 2 years, I’ve been reading articles the lack of housing affordability and the impact of an empty-house tax. In short, fewer and fewer people can afford to rent property at current prices. This is troubling for a lot of reasons. Allow me to say that I’m not an expert in this area. I’m not giving you advice about what I think you should do. This article is just a few of my rambling thoughts about the proposed solutions that I’ve heard thrown around.

A Couple of Basic Premises

Renters have seen rental rates skyrocket since the end of the pandemic. As I understand what’s being reported in the media, it’s becoming increasingly common for people to face rent increases of hundreds of dollars if they want to renew their leases. Moving to a new place is also a shock to the system. The next place is not going to be any cheaper than the current one, and is likely to be even more expensive. Some renters would prefer to buy, if they could.

The law of supply and demand is also at work. When there are insufficient rental homes to satisfy rental demand, then the cost of rent goes up. Conversely, when there are more rental properties than there are renters looking for a home, then the cost of rent goes down.

If the empty-house tax doesn’t increase the supply of rental accommodations, then it similarly will not decrease the cost of rent. I’m happy to be proven wrong on this point.

Empty-House Tax

One of the proposed solutions is to force owners of to pay an empty-home tax if they own more than one property. I think the idea behind this proposal is that the owners will rent their empty homes to someone in order to avoid the tax. Personally, I don’t think that will happen on a grand scale. (And if I’m proven wrong, then I’ll say that I was wrong.) What I think will happen is this.

The Very Rich who don’t want anyone else using their pied-a-terre while they are living elsewhere will view the tax as a nuisance and pay it. The same applies to the Somewhat Rich and the Barely Rich. Those who have the money and don’t want others living in their property will simply pay the tax. This means the home stays empty and doesn’t go on the rental market. Renters will not have access to those homes, just as they don’t have access to them now.

The Very Rich, the Somewhat Rich, and the Barely Rich who don’t want to rent their properties will be motivated to sell their properties to someone else. Such an action means that the houses will not be sitting empty. There is no guarantee that the next buyers will add those houses to the rental market. The next buyers might actually want to live in those homes. In such a situation, renters are no better off. Some of them might be able to buy a few of the empty-homes. After all, an influx of homes for sale means an increase supply so the price of homes should fall. This doesn’t help renters though. It helps buyers.

At the end of the day, it would be dumb to believe that homes sold to avoid the empty-homes tax will become part of the rental pool. They won’t, which means that they will not help to drive down the price of rental accommodations.

The Very Rich, the Somewhat Rich, and the Barely Rich who want to keep their property and avoid the empty-home tax will add their properties to the rental market. However, I’ve yet to hear from anyone who has the hard data of whether there will be enough new homes on the rental market for everyone who wants one to get one.

Remember, real estate investors who want to rent their properties are already doing so!!! The empty-homes tax is targeted at people who can afford to have one home sit empty for considerable periods of time. I would venture to guess that this a much a smaller pool of property owners. They’ve already signalled that they don’t want to be landlords. For whatever reason, their properties sit empty. Owners of these properties know that money could be earned yet they choose not to become landlords.

Even if every single one of them rented out their empty-home to avoid the tax, I’m doubtful there would be enough new rental properties to satisfy the current demand or to appreciably drive down the price of rental accommodations. In other words, only a few renters would benefit and the problem of unaffordable rents would remain.

Increasing the number of rental properties

In my humble opinion, the empty-home tax does not appreciably increase the number of rental properties available to renters. Similarly, it doesn’t decrease the cost of rent.

I don’t have any good answers. Truly, I wish I did. Renters deserve to have homes, just like owners. Having a safe, clean, and comfortable place to live is something that everyone should have. Again, this is just my opinion. The empty-home tax does little, if anything, to ensure that renters have greater access to the kind of living conditions that they want. I’m willing to be persuaded otherwise. It strikes me that the empty-home tax might increase the number of homes available to buy. I’ve yet to be convinced that it will increase the number of homes available to rent. The empty-home tax does not help renters in any appreciable way.

Simple Ways to Save Money

I have learned that there are 3 foolproof and simple ways to save money. These methods work for me. I’m going to share them with you. If you want to use them, great. If they work for you, also great! And if you think that they don’t work for you, then so be it.

  1. Stay at home.
  2. Stay off the internet
  3. Use the word “No”… a lot.

Stay At Home

When I’m at home, there are precious few ways for me to spend my money. At home, I have many free things to do. I can read books. My garden and yard always need attention – watering, fertilizing, trimming, picking up litter, weeding, transplanting. Being outside in my yard offers the triple benefit of fresh air, free exercise, and no opportunity to spend money.

As soon as I leave my home, it’s a completely different story. Sit back and let me spin you a tale…

I needed gas for my vehicle, so I went to Costco. My goal was to spend no more than $40. (To preserve my sanity from the exceedingly high price of gas, I fill up when my vehicle is down to half a tank. The price is less palatable, even though I might be going more often. We do what we need to in order to protect our mental health, right?)

While standing at the pump, I remembered that I needed to buy some bread. Costco sells the bread I like in a 3-pack, which means I can stash a couple of loaves in the freezer until I need them. So I went inside the Costco store. And on my way to bread section, I remembered that I was running low on fish and that I’d been hankering for some fish. So I stopped at the meat section. I grabbed my chicken – a package each of thighs and breasts – then grabbed one package of salmon. My planned spend of $40 turned into $119 in the blink of an eye.

How did it happen so fast?

Easy! I left my house. And while I was ought spending as planned, I remembered other things that I needed. Since I was already there, didn’t it make sense to spend my money right then and there on the things that I needed instead of making a second trip another day? Did it really matter that I hadn’t planned to spend an extra $79 that?

When I want to save money, I just stay home on most days of the week. This way, I know in advance that I’m going to be spending money on those days that I do leave the house and I can plan for it.

Stay Off the Internet

At home and outside is a highly effective situation in which I don’t spend money. Indoors, there’s a lot more advertising coming at me. I gave up cable in 2015 and switched to streaming services. Cutting the cord eased the pressure on my wallet, and streaming services deliver the same quality of TV as cable. Sometimes it’s even better. I’m always a year behind on Grey’s Anatomy, but that’s okay. It’s just TV – it won’t go bad if it’s not consumed right away. As a result of my choice to cut the cord, the only advertising I see comes in the form of embedded marketing. Heaven help me if I go anywhere else online!

Nearly every website has some kind of advertising! This shocks absolutely no one. However, what I’m finding is that the advertising is getting to me. I used to be able to block it out, but now… not so much. Thanks to the ads on multiple pages that I visit, I’ve come to discover that my life simply won’t be complete until I have a pergola & composite deck installed at my house and buy some brand-new patio furniture. Can you believe that I’ve lived this long without these things?

I’d thought my sense of apprehension about the future was due to climate change, severe income inequality, and deeply embedded social problems. Turns out, those slight yet ever-present bad feelings in my tummy were due to the fact that I don’t have a backyard worthy of a magazine cover on Home and Garden. If I just spend some money to make my backyard look great, then I will be happy.

Thank Deity-of-Your-Choice for the advertisers who planted this idea in my head! <sarcasm off!>

If I want to save money, it’s best if I just stay off in the internet and avoid the ads.

Use the word “no”… a lot!

I’ve spoken before about the importance of prioritizing what you want from your life. This way, hopefully, you spend your money on the things that matter most to you. After all, you work hard for your money. When you spend it, that money should be working hard for you too.

The only reason that I haven’t run out and bought myself an even prettier backyard is because I know that there are more important things for my money to do. I still plan to travel. That’s a little luxury that’s going to cost me more than it did pre-pandemic. Flights, hotels, food, souvenirs – I want these things more than I want a pretty place to sit while mosquitoes eat me alive.

The word “no” is tiny but tough. It’s a powerful little thing! I say it to myself when I want to stop at the drive-through instead of eating the food in my own fridge. That little trip to Costco I mentioned before? It could’ve been a $200 wallop to the wallet, instead of only $119. My store still has some lovely gardening planters that I’ve had my eyes on for a little while. And there were so many lovely, delicious things in the bakery. I told myself “No!” instead of filling up my cart.

Keeping focused on my priorities makes it a lot easier to say “no” when it’s required.

Looking back over my life, there is only one time that I regret that I said “no” to myself. My second cousin had invited me to her wedding in Paris. I didn’t know her very well and accepting the invitation would’ve meant travelling to Europe twice in the span of 4 months. My budget simply couldn’t swing that kind of travel, so I had to decline the invitation. After seeing the wedding photos and how stunningly beautiful everything was… <big sigh goes here>… Well, everyone has a regret or two, right?

For the most part, I use the word “no” a lot when I want to save money.

So that’s it. Those are my simple ways to save money. Take what you need from this post, leave the rest. The choice is always yours. If these rules don’t work for you, that’s okay. I’m sharing my bits of wisdom in the hopes that they help. You may just need to come up with your own rules, habits, mantras, incantations, spells, whatever in order to save your money.

People Should Always Have Atleast Two Bank Accounts

Today, I was reminded of why it is essential for people to always have atleast two bank accounts. It’s to protect your money from a bank’s right of offset.

What is “offset”?

Very simply, it is the power of the bank to raid your accounts in order to satisfy a debt that you own to the bank. You might now realize that you agreed to allow them to do this… but, rest assured, you did. Read the terms of your banking agreement and you’ll learn that you’ve given them pre-authorization to take your money if you can’t pay your debts.

If you always pay your loans on time, then this article isn’t for you. Similarly, if you know without a shadow of a bout that you’ll always be able to pay your loans on time, then this article probably isn’t for you. These words are for everyone else.

Let’s say you have a mortgage, a line of credit, a credit card, a chequing account, and a savings account with Bank X. Without fail, you’ve paid your loans (mortgage, LOC & CC) from your chequing account. However, something happens and you can’t pay your bills. Maybe you lost your job, or you’re too sick to work. Whatever it is, you’re not in a position to pay so you don’t.

Your bank gets concerned. After all, they lent you the money and you promised to pay them back. Now, you’re not paying back your loan. Your bank may or may not understand why you can’t repay the loan, but they can’t make profits off of understandings. They make money from loan repayments. So the bank starts eyeing your savings account. Maybe this is your emergency money, or travel money, or stash to move across the country. Whatever the money’s for, the bank sees that it’s there and they decide to take what they need to satisfy the loan that you took from them.

See? They used the right of offset to take money from your savings to pay the debt that you owe them.

How can you thwart a bank’s right of offset?

It’s very easy. Get two bank accounts at two different banks. Bank X can only use the right of offset for accounts held at their bank. If Bank X wants to get their fingers on your money at Bank Q, then they have to go to court and get an order to do so. It’s a far more expensive and lengthy process to get money out of an account at a different bank.

My advice to you is simple. Always have atleast two bank accounts. Keep them at different banks. You can still set up an automatic transfer of funds. The transfer will just be from one bank to another. This allows you to build your emergency money, or short-term goal money, without fear that the bank holding your loan will raid your funds.

Ideally, you will borrow money and pay it off as fast as you possibly can. Debt is still bad, but sometimes you have to use it. When you take out debt, do not forget that the banks can take money from any of your accounts with them to repay that loan. If you have money that you absolutely do not want your lending bank to access, then put that money into an account at a bank that hasn’t given you a loan.

To be clear, I am not telling you to avoid repayment. You borrowed the money so you owe a debt. Not paying your mortgage is a financially destructive choice, which only hurts you. I would strongly urge you to avoid that course of action causes because it will cause significant problems in many other areas of your life. If you take out a loan, then pay it back as fast as you can!!!

What I’m telling you is to keep all of your money safe from lenders for as long as you can. Put it somewhere that your lending bank cannot touch without a court order. Normally, that safe place is found at another bank. You should always have atleast two bank accounts, and they should be at two different banks. Be honest with yourself. Don’t you work too hard for your money to lose control over how it’s used? I think we both know that the answer to that question is “YES!”

Not all advice is for all people

As I’ve gotten older, I’ve had to realize that some of the nuggets of wisdom that I hold dear won’t work for everyone. Even my cherished belief that everyone should live below their means is flawed. It is literally impossible to follow the LBYM edict if you most basic needs – food & shelter – outstrip your take-home income. Advising everyone to “live below your means!” is tone-deaf to the reality that not everyone has sufficient means to survive.

Another bit of wisdom that I’ve always questioned comes from the blogger behind GreaterFool. Prior to the pandemic, this blogger encouraged everyone to sell their home, invest the proceeds in the market, and live off the dividends and capital gains. Quite wisely, he took the position that cash flow is more important than net worth. Beneficiaries of outsized tax-free capital gains on their home would be smart to sell it and invest the proceeds in a diversified stock-and-bond portfolio. In turn, the portfolio would churn off enough money to pay rent to a landlord somewhere.

The blogger explained how landlords were effectively subsidizing their tenants. In his view, home prices were going to drop drastically so homeowners would be better off selling their home at high price points and becoming tenants. Before the pandemic, market rental rates were less than the landlord’s expenses to own and operate rental units. The landlord couldn’t increase the rent too much or the tenant would walk away and find somewhere else to live. At the higher end of the rental market, this was a serious concern.

So if a homeowner could sell their home, and their proceeds could cover the rent of a comparable rental property, then it would make sense to sell. The homeowner-turned-renter would realize the tax-free capital gains of their home and move into a landlord’s property. According to the blogger, their invested proceeds would generate enough dividends and capital gains to cover the cost of market rent. The landlord would cover the difference between the rent received and the costs of owning the unit. The homeowner-turned-renter could then cover the rest of their expenses with income from their employment.

The first time I heard this financial advice, I was really impressed. It sounded like a very good thing, but then I started asking questions:

  • what if there was a dividend cut or the capital gains dropped?
  • what if rents went up faster than growth on the invested portfolio?
  • what if the portfolio was compromised somehow?
  • what if the portfolio’s generated returns weren’t enough to rent in the first place?

These are the questions that would keep me from sleeping well at night. Never worrying about how I’m going to pay for my shelter is one of the very best benefits of having a mortgage-free home. Others may feel differently.

I’ve no doubt that the blogger’s proposed financial path would work for some people. After much careful reflection, I realized that I wasn’t one of them.

This advice never sat well with me, even though I own a mortgage-free home. Yes, selling my own home would give me a six-figure sum to invest. In my case, the resulting dividends and capital gains wouldn’t be enough to cover rent for a comparable property in my city. I would have to keep working way beyond my intended retirement date. It would be years and years and years before my portfolio would be generating enough money to cover all of my expenses.

Once again, I’d be sharing walls with strangers and living without those little extras a house brings to one’s life: added privacy, extra room, green space. Undoubtedly, my rent would increase every year and I’d be without any guarantee that my investments would churn out enough money to cover those rising costs. Finally, if I was living off my dividends and capital gains, then I wouldn’t be able to have them automatically re-invested. In short, I’d lose the benefit of compound growth.

Nope. This blogger’s advice was not for me. There were too many drawbacks and too few benefits given my preferences and how I want to live my life.

That said, I could certainly see this advice working for people whose homes were worth over $3,000,000. At a conservative 5% return, there would be $150,000 of favourably-taxed income to spend every year. With that many millions to invest, there might even be enough money to cover inflationary pressures and rising rents.

In my humble opinion, an investment portfolio of less than $3,000,000 wouldn’t work for me. That’s not to say it wouldn’t work for someone else. Again, not all advice is for all people. In my head, going into my dotage while still paying rent to a landlord is rarely a wise course of action. Rents tend to go up. Without the benefit of compound growth over the long term, my dividends and capital gains would eventually become insufficient to cover rising rental rates.

For the record, my house is not worth an amount anywhere close to seven-figures. Investing its proceeds might generate $1000 per month. In my city, that’s currently not enough for the average 2-bedroom apartment. Why would I move from a comfortable-for-me-sized house to an apartment with half as much space, no yard, and less privacy?

With my own paid-off house, I benefit from compound growth of my dividends and capital gains while I’m still working. Yes – I still pay property taxes, insurance and repairs for my home. However, those aggregate costs are far less than what I would pay in rent to a landlord, year-in-year-out. When I eventually stop working, I don’t have to worry about rental increases because I own my home.

The only benefit I see to the blogger’s proposed course of action is immediate lump-sum investing. Someone following his advice would be able to invest a big chunk of money today and benefit from long-term growth. The stock-and-bond portfolio would grow over time and possibly make the homeowner-turned-renter wealthier that someone like me. I rely on consistent bi-weekly contributions from my paycheque to dollar-cost my way into the market. In short, my chosen path was to pay off my mortgage in under 5 years then build an equity-based, buy-and-hold investment portfolio. I’m making contributions but I’m not going to receive the benefits that come from investing a huge lump-sum immediately. This is because it’s always better to invest as much as you can, as soon as you.

The blogger in question is writing for a wealthier audience. I’ll still visit his blog to learn things and to get a perspective on how some of the Wealthy handle their money. I’m seasoned enough to know that I won’t agree with everything this blogger writes. Those best-served by his views are those who have a considerably higher level of wealth than I do.

As you continue to learn about personal finance, you’ll come across many suggestions about what to do with your money. Think carefully! Every money mistake can be undone, given enough time. Yet, wouldn’t it be nice to avoid those mistakes in the first place? Just because something is a good idea or it’s works fabulously for someone else doesn’t mean that it’s the right move for you. It never hurts to remind yourself that not all advice is for all people.

Pessimism & F.I.R.E. – A Little Goes A Long Way

I have a secret to share with you… I think that a little bit of pessimism goes a long way towards achieving financial independence. When most of us start working, we’re chipper and happy and excited to be getting a paycheque. It’s lovely to have some spending power! And most of us use that power as quickly as we can. Sometimes, that results in huge debts that chain us to a paycheque. By the time many of us have lost faith that we will one day work at something we love, the financial obligations that were picked up along the way keep us tethered to employment. Without another source of money to replace our paycheque, we’re essentially stuck.

No one ever talks about this aspect of adulting in their graduation speeches… Those speeches are flowery and encouraging, and urge graduates to pursue their dreams. That’s fine and good and great if you can do it. However, I do wish someone could work in a nugget or two about building up some money on the side… just in case you’re among the unfortunate multitudes who won’t have the opportunity to do what you love and receive a handsomely large paycheque for doing it. But I digress…

Take some time to seriously ponder how much life-satisfaction you anticipate receiving from paid employment. Doing so is a powerful catalyst. I can almost guarantee that you will be motivated to pursue financial independence sooner rather than later. It takes a few years, but we all eventually realize that not everyone who works hard gets rewarded. There are those who aren’t good at office politics, and have no desire to expand their skill set in that area. Unfortunately, some people are the victims of harassment and bullying in the office. These are the main reasons why it’s a seriously good idea to add a drop of pessimism to your views on saving for the future.

It won’t hurt to consider what your options will be if you decide that you hate working and that you want to stop doing whatever it is that you’re paid to do. How will you pay for your life without an employer giving you a paycheque? Do you want to work even harder than you do now by starting your own business? Or would you prefer enough passive income to fully fund you the life you dream of? Maybe you’d enjoy the combination of a lower-paying-yet-absolutely-enjoyable job that’s bolstered by passive income from your investments?

Now, there’s always the possibility that you’re like a couple of my friends who absolutely love their careers. Like everyone, they have bad days at work but, for the most part, they love going to work. Read that again – they love going to work. They would do their jobs for free – that’s how much they love going to work!

It’s mind-boggling to me. Even when I loved my job, I never loved it that much. And over time, my like for my job has dwindled considerably. Many accolades and much credit should be given to Young Blue Lobster. Twenty year ago, YBL knew that working to 65 wasn’t a prominent dream for our life. YBL quickly paid off student loans, a car loan, and a mortgage. YBL stayed out of debt and re-directed those former debt payments to savings that were eventually invested in our TFSA, our RRSP, and our non-registered investments. Even before locating the F.I.R.E. corner of the internet, YBL was pursuing financial independence and funding our dream of retiring early.

At the time, YBL had an inkling that having a salary-replacing cashflow on the side would be a very good thing just in case anything went wrong with the regular paycheque. Looking back, I have to say that YBL was 100% correct. Our little army of money soldiers bolsters my investment contributions every month. In a year or two, those monthly dividend payments will exceed the contributions from my paycheque. That’s not too shabby as far as financial achievements go. Without that little sliver of pessimism fuelling my decisions way back when, my current side income would be meagre.

I want you to pursue your dreams. You’ve got one life and it should be the best one that you can achieve. At the same time, a touch of pessimism can help you to focus on how you can best make those dreams come true. Pessimism… a little goes a long way.

One Year From Now

Quick question for you… How much closer will you be to fulfilling your dreams one year from now? Have you set a budget for making those dreams come true?

Time moves faster than anyone realizes. We’re nearly done with the 5th month of 2023 already! That went by fast. And the next year is going to go by just as fast. When May of 2024 rolls around, what will you have done to fund your dreams?

In the highly unlikely event that you don’t already have a plan to pay for the costs of making your dreams a reality, allow me to suggest cash stuffing. Back in my day, this was called the envelope-method. Like they say, everything old is new again. Today, people have brought this practice back to life.

Cash stuffing is the practice where people give every dollar a job before the money is spent. It’s a cash-based way of moving through the world. People allocate every physical dollar of their paycheques to various envelopes contained in wallets and use those dollars to pay for their expenses. Each wallet contains multiple plastic envelopes and each wallet has a theme. One wallet is day-to-day expenditures, such as groceries, gas, utilities. Another wallet might be for short-term goals – things like travel, weddings, extra-curricular fees. There’s probably a wallet for little indulgences like self-care and leisure. Other wallets are for charitable donations, retirement funds, pet-care, and various savings challenges. The number of envelopes and themes for the various wallets is only limited by the owners’ imagination.

I like to think of the wallets are representations of their owners’ personal priorities. After all, it’s the owner who determines how much physical money goes into each envelope whenever a paycheque comes their way. The wallets’ envelopes have money-targets. Let’s say the owner plans to save $4,000 for travel. Once the envelope reaches that target, the envelope is withdrawn from the wallet and the contribution formerly allocated to travel is re-directed to another envelope.

Do yourself a favour right this instant. Open another tab on this browser then go to YouTube and search for “cash-stuffing”. Many, many, many videos will pop up in your search results. Personally, I really enjoy Intentional Living and Canadian Girl Cash Stuffer. I’ve no doubt that you will find someone whose style of cash stuffing best matches your preferences. Personally, I find it soothing to watch strong, competent hands carefully stuffing numerous envelopes, then condensing those same bills later on for a significant, 4-figure bank deposit. The entire time, a voice is in the background explaining what the purpose of each allocation and when it will be used.

Did I mention that you can have envelopes for retirement? Should you decide to try this method of money management, never forget the needs of Future You. In short, one of your wallets should hold envelopes for your RRSP, your TFSA, and one for your non-registered savings.

It should also go without saying that you need an envelope for your emergency fund. There is an emergency in your future. You don’t know when it’s going to show up, but you can certainly take steps today to get financially ready for its arrival.

The other aspect of cash stuffing that I absolutely love is that it prevent people from going into debt. Those who are committed to only spending the available cash don’t use credit cards. Since they’re never borrowing money on their credit cards, they’re never going into debt. It’s a wonderful method for people to live below their means.

I spend a lot of time persuading you to turn your dreams into your reality. So I ask your again. One year from now, how much closer will you be to realizing your dreams?

We only get one life to live and I honestly believe it should be the best life it can possibly be. Most dreams come with a price tag. There’s some kind of financial component to all of them. You should pay just as much attention to the money-side of things as the other stuff that goes into making your dreams come true.