Debt - Millionaire on the Prairie

Free & Useful Wisdom from Me to You!

You need not make every mistake yourself. It’s perfectly find to learn from the mistakes of others. Here are some things that I’ve learned after investing for 30+ years. This is wisdom borne from real life experience. As my father used to say, hindsight is 20/20. Had I come across a blog post like this when I was younger, I probably would’ve made a few different choices. Maybe you can benefit from my wisdom, or you know someone who can. Either way, here we go…

You can be fired.

At the end of the day, you can be fired from your job even if you’re good at it. Your salary is an expense to your employer and if your employer believes that expending money to pay your salary is no longer a good idea, then you will be let go. It’s nothing personal. It’s math on a spreadsheet.

What can you do to protect yourself from this?

Firstly, you always pad your emergency account and investment account with the first 15% of your paycheque. On payday, that first portion gets whisked away for the inevitable rainy day. This money is not to be spent unless you lose your job. Get atleast $1000 into your emergency fund, then work your way up to a month’s worth of income. Keep socking money away into your emergency fund until you have atleast 6 months of income set aside. This goal is probably going to take a long time to complete, but that’s okay. When you lose your job, you will not regret having money set aside to pay for your expenses.

As for your investment accounts, fund those too. This is the money that will be there for Future You. It’s going to take the place of your paycheque when you finally retire. Follow these guidelines to maximize the size of your portfolio.

Invest for long-term growth.
Set up an automatic transfer so that your money goes from your paycheque to your investment account without having to remember to manually make the transfer.
Aim to keep the management expense ratios below 0.5% for all of your exchange-traded funds.
Never forget that mutual funds are always more expensive than ETFs, and there’s no sense paying more to own mutual funds when you can but a near-identical ETF for less money.
Use a dividend re-investment plan so that all dividends and capitals gains that you earn are automatically re-invested to boost the compound growth of your portfolio.

Secondly, you never stop learning. Should the day come that your employer lets you go, you need to have the skills to find another job. Maybe you want to continue working in your same industry. That’s fine. Know what skills and education requirement your industry demands of people in your current role. If there’s a new role that you want to try, investigate what knowledge and skills you need to secure in order to have a good chance of obtaining the next position you want.

Thirdly, always keep your resume up to date so that you can leave before you’re fired. Sometimes, you’ll know that “budget cuts” or layoffs are coming down the pike. That gives you a dram of power because you can start looking for your next position before you’re fired. If you’re successful, so much the better as you’ll be leaving on your terms.

This advice also applies to those of you who work for yourselves. Customers can disappear and events outside of your control have a way of derailing your very well-crafted business plan. If that happens, then you’re in the same boat as employees who’ve been fired. Entrepreneurs also need to keep a little something in the kitty for those days when the profits are non-existent / insufficient to pay the bills.

No one cares about you money as much as you do.

You have to be the one who is responsible for your money. There is no one coming to save you if you spend every nickel and remain mired in debt. Google the maximum CPP amounts that are available to retirees at age 60. If that amount seems like too little for you to live on when you’re retired, then you need to save.

Track your expenses. Know how much you spend. Armed with this knowledge, you’ll know how much money you’ll need to bring in to cover your costs when you’re retired. Where that money comes from is mostly up to you. After all, you can get a job with a pension and work for 25+ years to climb the ladder and maximize your pension payment when you hit 60.

Another alternative is to do real estate investing and let someone else pay down your mortgages so that you have rental income when you decide to retire. This is a complex area, and there are several good sources of people who have already done this. Check our Bigger Pockets, Coach Carson, and One Rental at a Time. It’s not my cup of tea, but it might be yours. Personally, I do not recommend this route but I do understand how the numbers are supposed to work.

The third and most widely available route is to live below your means and invest for the future. This is what I did. My mistake was investing in dividend paying ETFs instead of equity-based ETFs. This was a huge mistake as I did not benefit from the run-up in the stock market between 2009-2020. My financial situation would be so much different now had I not fallen in love with dividend ETFs.

That said, I do earn a nice passive income from my dividends every year. Not all is lost. I do enjoy watching the Dividend Dream and the GenX Dividend Investor on YouTube. I wish I’d had access to them 20+years ago when I’d started investing. However, they’re both younger than me and their channels are only a couple of years old. For those who are just starting out, I think these two YouTubers have some interesting things to say about how to make dividend investing very profitable.

Investing for Future You should be one of your goals this year. Again, track your expenses. Get rid of the ones that aren’t making your life better. Whatever money isn’t spent on the expenses you’ve eliminated should be split between investing for Future You and paying off debt.

Get out of debt ASAP.

Debt sucks. There’s no way around it. When you take on debt, you’re agreeing to pay some of tomorrow’s money to your creditor. You haven’t even earned the money yet, and you’ve already agreed to give it away. I hate that. Re-read the first section of this post. When you have debt, you’re still under the very real risk that you can be fired.

Some people say that some debts are better than others. I’m ambivalent about this position. I liken debt to cancer. You don’t want it. And if you have to get it, you want the form that’s curable. In other words, if you must take on debt, then keep it as small as possible and get rid of it as fast as you can.

Once you’re out of debt, don’t go back into it. Save up for your future purchases by using sinking funds, then spend that money to buy what you want. Alternatively, save money to rent whatever it is that you want to buy.

Are you itching to travel overseas? Then start a sinking fund and re-direct some of your paycheque to this goal. Once the money is in place, then start booking your flights, hotels, excursions, etc…
Need to replace your car? Start a sinking fund today and drive your current vehicle until the wheels fall off. When they do, use the cash to buy your next vehicle then start saving again. Do this as many time as you need to until you’re buying the vehicle that you really want with the funds that are in your sinking account.
Maybe you’ve been thinking it would be nice to have a vacation home? Rent one, or seven before you buy. Figure out if you want the headache of worrying about another property or if you would rather have the freedom that comes with enjoying your vacation destination and leaving the headaches to someone else.
How about your own boat for the lake or an RV for roadtrips? Again, rent these. Rent them as many times as you need to so that you have a solid appreciation of what it means to own one. If you still want one of your very own, then start a sinking fund and pay cash for it.

No more debt.

Credit cards are a tool.

That’s it. Those little rectangles of plastic can make your life better if you pay them of every single month and if you never carry a balance. If you’re unable to meet these two conditions, then credit cards will keep your mired in debt for a very long time and you should not use them.

Personally, I love my credit card. It gives me free groceries several times a year. I love this feature during the holidays because I have more expenses at that time of the year. Using points for groceries frees up money for gifts and entertainment costs.

I have friends who love their travel cards. They put every expenditure on a card so that their families of six are able to fly all over the world while paying as little as possible for flights. There are lots of credit cards out there and a dazzling array of rewards. I don’t know the in’s and out’s of every card.

All I know is that the rewards are a trap if you don’t pay off your credit card balance every month. Paying interest on credit cards is always more costly than whatever rewards is being offered.

Another thing you should know about credit cards is that carrying a small balance from month to month does not increase your credit score. If you believe that it does, then you should change that point of view because it is not benefiting you. Carrying a balance is good for the credit card company because they will earn interest off of you. Having a balance is not good for you because you’re spending money on interest for no good reason. I have had my credit card for over three decades. I’ve never paid interest and my credit score is very, very high.

Never believe that carrying a balance is good for your credit score.

If you buy it, then you should own shares in it.

Full disclosure: I invest in ETFs and I have a few shares in banks, telecoms, and energy companies. That’s it. That’s my portfolio.

Now, what I’m telling you is that you should own atleast 1-5 shares in companies that make the things you buy. I’m always amazed when I see the never-ending drive-thru line at Starbucks and Tim Horton’s. People love coffee. I do too, and I drink it every day. I wish there was a way to find out if the people buying at the drive-thru are also buying stock in Starbucks and Tim Horton’s. If not, they should be. They can see with their own eyes that these companies are making something that people are willing to pay for. That sounds like a profitable company to me.

The same principle applies to the things that you have in your home. Do you use streaming services? Do you know if other people do? Maybe 1-5 stocks in a streaming service would be a good idea. Maybe you know of a company that makes the hand-computer that you rely on every single day? I’ve noticed that more than one person has one and they seem to be quite popular.

Do you use a bank? Cash a paycheque? Get a credit card? Have a loan? Trust me. The banks are notorious for making money hand-over-fist, year after year. You won’t go too terribly wrong by owning 1-5 shares in one of the big 6 banks.

There’s a lot more research to be done, but I honestly think that investing in the companies that make the products and services that you and millions of others use and/or purchase every single day is a good financial move.

Now you know.

Do with this wisdom what you will. You can make choices that will get you closer to your financial goals, or you can do things that move you further away from them. The power is in your hands so wield it wisely.

5 Simple Rules to Become a Millionaire

This week, someone asked me if I would consider writing a post about not drinking a daily coffee in order to become wealthy. I responded that I though the “daily coffee” is a red herring. By following a few simple rules up front, anyone will become a millionaire with enough time.

Rule #1 – Invest

Take 30% of net pay and invest it in well-diversified exchange traded fund. Do this every single time you get paid. If you get a raise, maintain that 30% proportion.

If you can’t start with 30% right away, then start where you can and increase the percentage by 1% every chance you get. I didn’t start at 30% right away either. However, after 30 years of investing, I’ve managed to hit a 40% savings rate. It didn’t happen overnight but it did eventually happen.

The more you can save, the faster you will hit the goal of becoming a millionaire or being financially independent. It’s important to start today.

I promise you that if you don’t invest any money today, then you will have very little of it when you need it the most later.

Rule #2 – Build an Emergency Fund

Some people recommend having 3-6 months’ worth of expenses set aside in your emergency fund. I’m a little more conservative than that. Personally, I would recommend 12 months’ worth of expenses. My personal mantra when it comes to emergency funds is as follows.

It’s better to have it and not need it, than to need it and not have it.

You know your own comfort level far better than I do. Ask yourself if you would rather have more or less money in an emergency fund?

Saving up this much money will take time, probably years. If it makes you feel any better, I’m still working on building up my emergency fund, and I’ve been tackling this project for a long time.

Rule #3 – Pay off your debt

Much like building an emergency fund, it may take some years to pay off all your debt. And I do mean “all” of it: vehicle loans, personal loans, student loans, credit cards, mortgage, etc… If you owe money, pay it off.

A mortgage may take decades to pay off. This is why I think it’s best to invest while paying down a mortgage and building your emergency fund. Should you get an inheritance, a lottery win, an insurance payout, or a huge raise/bonus at work, then maybe you can consider paying off the whole mortgage. There are a many factors to consider before this decision is made so consider it carefully and don’t make any hasty moves.

It might make more sense to invest the inheritance/lottery win/insurance payout/ raise-or-bonus in the stock market for long-term growth, then use the dividends generated to pay off your mortgage. That way, when the mortgage is gone you will still have a cash machine churning out an income for you. Check out this video for more details of this plan in action.

If you spend the inheritance/lottery win/insurance payout/ raise-or-bonus right away, then it’s gone for good.

Rule #4 – Use sinking funds

When there’s something you want to buy, save up for it first before you buy it.

Sinking funds force you to prioritize where you want your money to be spent. I believe that when you work hard for your money, it should be spend on the priorities that will make you happiest. Wasting money on the things that don’t bring you joy seems to be a poor choice. You will never get back the time and energy spent at work. Instead, you get a paycheque. It should be directed to building the life you really want because it represents your precious, precious time and energy.

I realize that our capitalist society does not encourage this way of life. The Ad Man and his trusty sidekick, the Creditor, are relentlessly exhorting everyone to buy everything they want immediately. My rule is about delayed gratification, not a popular choice for most folks.

However, if you want to become a millionaire, then it’s better to not send interest payments to creditors. It’s better that you invest that money so that you can reach millionaires status as soon as possible, if that’s what you really want.

Rule #5 – Spend your money

That’s right. After you’ve eliminated debt and you’ve funded your emergency fund, then it’s time for you to spend your money however you choose without going into debt.

Your investments are happily compounding in the background. Dividends are compounding each year on a DRIP, aka: dividend re-investment plan. You’re continuing to contribute 30% of your net pay even after paying off your debt and fully funding your emergency account. You’re saving up for everything before you buy it.

Keep investing. Stay out of debt. Maintain a fully-funded emergency fund. Rely on your sinking funds to meet your life’s goals.

If you’re doing these things, then you’re following the first 4 rules. Your day-to-day purchases will have no impact on your path to becoming a millionaire.

So spend the rest of your money however you want. Coffee? Travel? Brunch? Spa days? Pets? Hobbies? Wine club? Sporting events? Clothes? Shoes? Vehicles?

It doesn’t matter how you spend your money once the first 4 rules are being followed. Again, spend the rest of your money however you want so long as you stay out of debt.

4-Wheeled Money Pits Always Need a Sinking Fund

I don’t know if you’ve taken a look at the price of vehicles these days, but they’re not inexpensive. I’m showing my age with the next statement, but I want it to make an impression. Today, there are pick-up trucks that cost more that my first condo, which was $83,000! Unlike today’s trucks, my condo came with a bedroom, a fridge, and a nice view.

My question to you is – have you started planning for how to pay for your next 4-wheeled money pit?

Myself, I hate car payments. The idea of someone reaching into my bank account every month and taking out my money… it makes my blood boil! Nope – not happening. As far as I know, there’s still one sure-fire way to keep the finance companies’ fingers out of my pocket. It’s called paying with cash.

When I bought my last vehicle, I employed what is quickly becoming a quaint, old-fashioned idea. That idea is called paying cash. And even though it was a 5-figure amount, I don’t regret doing so. Paying cash eliminated the need for me to pay interest to a creditor. I hate debt. And I really hate paying debt on a depreciating item. It’s not like my vehicle is going to be worth more in 10 years. Not a chance! Every fifth car on the road is the same as mine, so there’s no possibility that mine will ever be coveted as a collector’s item.

My vehicle is a transportation device, pure and simple. It takes me where I want to go. That’s all it is; that’s all I need it to do. No sense paying interest for the privilege of owning it. I paid cash to acquire it. And now…

Now, I can start saving up for my next vehicle. Ideally, I won’t have to buy another one for several years. That said, the days are long but the years are short. I’m quite confident that, in the blink of an eye, it will be time to buy my next 4-wheeled money pit . When that time comes, I want to have the money set aside to pay cash again.

Today, I encourage you to put yourself in a similar situation. Figure out what it will take to pay cash for your next vehicle.

Whatever you’re driving now, I can promise that it won’t last forever. At some point, it will need to be replaced. Start a sinking fund today. Believe me when I say that shopping for the next vehicle is tad bit easier when you’re not also worried about how to pay for it. And, once you’ve bought next vehicle, you’ll probably love the fact that it didn’t put you into debt. I drove my last vehicle for 13.5 years without a car payment. Trust me – that was one of the things that I loved best about it!

If you don’t already have a sinking fund, go and open a high interest savings account right now. Pick one that doesn’t charge you any fees. You can find one at EQ Bank, if you don’t know where to look. ***

Every time you’re paid, throw a few hundred bucks into this account. Better yet, set up an automatic transfer from the account where your paycheque is deposited to your HISA. When the process is automated, you won’t be tempted to spend the money elsewhere. Technology does the transfer for you. It’s a simple way to ensure that the sinking fund actually gets funded.

If all goes well, you’ll eventually have enough to buy your next vehicle in cash. This is ideal. Think about it for a second. When you have to take on a car payment, that means added stress on your budget. You have to find several hundred dollars every month to pay your creditor or else they will take the vehicle away from you. Where do you cut? Food? Entertainment? Travel? Sports? Gym membership? Self-care? Other fun-stuff? When you pay cash, your budget doesn’t have to suffer. The money is gone – you’ve got your vehicle – debt payments aren’t stressing your budget.

Should you have to buy a vehicle before you have enough to fully pay for it in cash, then the funds that you’ve set aside will become your down payment. The larger your down payment, the smaller your monthly car payment and the less interest you’ll pay over the life of the loan. This is smaller win for your budget, but still a big one. Instead of a $850 monthly car payment, maybe you can get it down to a $300 one. Not ideal, but also not more than $10/day.

If you currently have a car payment, try to pay it off early. The sooner it’s gone, the sooner that money is yours again. Re-direct that former car payment to your sinking fund. Within a few years, you’ll have a nice chunk of change in place for when your current 4-wheeled money pit needs to be replaced.

I’ll say it again, and louder for those at the back. Pay cash for your next vehicle. Start saving for it today so that the money’s sitting there waiting for you when you need it.

*** For the record, I have an account at EQ Bank. I’m not getting compensated for recommending them in this post.

30 Years of DIY-Investing Has Paid Off

When you know better, you do better.
Maya Angelou

This past weekend, I celebrated a rather significant birthday. It was also the 30-year anniversary of when I started my investing journey. As I’m wont to do on my birthday, I considered where I was when I started investing my money and just how far I’ve come on my own. I’m pretty proud of what I’ve accomplished. My parents were smart, but they weren’t rich and they couldn’t teach me what they didn’t know. I learned a lot from books and magazines, then from websites and blogs. As I graduated and earned more, I paid off my debt and invested in the stock market. I was even a landlord up until recently.

Did I do everything perfectly? Hell, no!

To be very clear, I am an amateur investor. That means I don’t have any kind of certification to underpin the choices I’ve made. My financial wisdom comes from lived experience and personal observations. I haven’t been qualified by any governing authority to hold myself out as an expert. I’m an amateur who is going to spout a few words at you.

Take what you need and leave the rest.

Best Moves I Ever Made!

One of the things that I did right was to rely on automation. When my paycheque hit my chequing account, my automatic transfer kicked in to whisk atleast $50 away and into my investment account. From there, I bought mutual funds. When I learned better, I started buying exchange traded funds. First, my contributions all went into filling my Registered Retirement Savings Plan. Then the government introduced the Tax Free Savings Account so my priority each year was to fill up my RRSP and my TFSA. Once I was in a position to fill those registered accounts each year, I turned my attention to investing in a non-registered investment account.

Each year, my employer gave me a slight raise. As my income increased, so did my contribution amount. What’s that old saying? Earn $3, invest $2? Maybe that’s just something I say to myself. In any event, my contribution amount increased each year. In other words, I continued to live below my means even as my means got smaller.

I also used automation to build my emergency fund. Even today, I still send a couple of hundred bucks to my Rainy Day Fund. When I was younger, I’d been told that $10,000 was enough. And then I learned that I should have 3-6 months of expenses tucked away. Today, I’m aiming for a year’s worth of expenses. If anything goes seriously wrong, I can live off my emergency fund for a full year before I have to stop my dividend re-investment plan in order to live off my dividends.

The second smartest thing I did after harnessing the power of automation was to get out of debt. I had about $15K in student loans when I graduated. By saying “No” to myself, a lot, I was able to knock that out in 2 years. Then I turned my attention to paying off my car loan within 3 years. I drove my little navy blue car for 8 years then bought my first SUV. I took out another loan, but sacrificed and lived very small so that I could pay that loan off in 6 months. It wasn’t fun, but it was short term pain for long-term gain.

For those keeping track, the third smart thing I did was to live most of my adult life without a car payment. In my circumstances, a vehicle is a means of transporting my body and my stuff from A to B. It’s only transportation and I see no reason to pay a loan to do so. When I had loans, I figured out ways to pay them off as fast as I could. My vehicles seem to ride better when they’re not weighing me down with debt.

By paying off my SUV in 6 months instead of 5 years, I have 13.5 years of living without a car payment. Yeah… I kept that SUV for 14 years. I would’ve kept it longer but it was a 5-speed manual and my left knee was starting to give me trouble. At the point when I felt I couldn’t safely drive my own SUV, I sold it and bought another one with cold, hard cash.

The fourth smartest move I’ve made is to buy-and-hold. Some of my stocks are the ones that my parents bought for me as a baby. I’ve had those for over half a century. They still pay me dividends every quarter. Maybe $500 per year? Again, my parents weren’t wealthy. The dividend payments aren’t enough to buy more shares, so I re-invest the money rather than spend it.

My other holdings are ones I’ve had for 10+ years. What used to be in a mutual fund with a management expense ratio of 1.76% is now in an ETF with an MER of 0.22%. After all, why would I pay the investment company 1.54% more than I have to for the same product?

In terms of category of investment, I’ve had some for 30 years. Like I said above, my dividend stream is finally enough to support me. That’s the result of my buy-and-hold philosophy.

My fifth best move was to hire an accountant. I’ve owned a few rental properties over the years. She knows tax stuff much better than I do. My accountant has made sure that I don’t get in trouble with Canada Revenue Agency. For that, she is worth every penny. She also answers questions about the tax implications of some of my investing ideas. That information has also saved me from making some big mistakes!

Mistakes? Yeah… I’ve Made A Few!

In terms of mistakes, I made a doozy. Early on, I fell in love with the idea of creating a cashflow of dividends to supplement my pension. Sears went into receivership early in my career and I heard the stories of retirees having their pensions cut. The mess at Nortel also shone a light on how pensioners are at the mercy of their employers’ continued corporate success. I wanted to minimize the chances of my retirement income being disturbed if my pension was cut. So I chose to invest in dividend-paying mutual funds and ETFs.

The smarter play would’ve been to invest in equity-based investment products. Between 2009 and 2022, the stock market was on a tear. That means it was growing and growing, year over year. My dividend products were growing too, but not at the rate of the growth products. I would’ve been far better off investing in equity-products. I finally got smart in October of 2020 and have been investing in VXC ever since.

I didn’t sell my dividend-payers!!! After 12 solid years of investing in dividend products, I’ve got a nice secondary cash flow and it’s growing nicely year over year thanks to my DRIP. It would make no sense to sell those investments just to start from scratch in VXC.

God-willing, I’ve got another 30+ years ahead of me. I’ll continue to invest in equity-based products until I don’t need to invest anymore. Presently, I’m considering the wisdom of using my monthly dividends to bolster my monthly contributions to VXC. I would have to give up the DRIP in order to do so but maybe that’s the smart thing to do since the market is currently low and starting to move back up. Buy low – hold forever. That’s kind of been my plan throughout this self-taught investing journey of mine.

My second biggest mistake with money was being too rigid. I know how that sounds. Sticking to my plan and investing consistently is what has helped me reach the Double Comma Club. That said, I was recently asked if I had any regrets about how I’ve handled money to date. For the most part, I’m good with the choices I’ve made. However, you can’t get to my age and not have atleast one or two regreats.

Looking back, I do miss that I didn’t go to a second cousin’s wedding in Paris. Truthfully, I’m not certain how I got invited since we hadn’t grown up together nor had spent much time together as adults. That said, I had just gotten home from Europe when the invitation arrived. I consulted my budget and there was no way to afford to travel to her wedding without going into debt, so I declined the invitation … (big sigh goes here) … Looking back now, I should’ve gone into debt and gone to the wedding. The debt would’ve been paid off within a few months and I would’ve met some interesting people at the wedding. Did I mention the wedding was in Paris? The City of Lights?

Since then, I’ve been thinking more about what I want my money to do for me today. My portfolio is humming along nicely. My total DRIP almost exceeds what I contribute from my paycheque. I can afford to indulge myself a little bit more when unexpected money shows up. I’m correcting the mistake of being too tight-fisted with my money. In the words of Ramit Sethi, I am learning to craft and build the rich life that I want for myself.

My third biggest mistake is thinking I know better. It’s the sin of hubris. I haven’t always listened when I should, and I certainly haven’t always applied all of the lessons correctly. However, I know this is one of my flaws and I’m working to correct it. No one makes the right choices every single time. That said, I can make better choices for myself if I’m willing to be a little more open-minded and consider viewpoints that are different from my own.

I should have spent less time on Netflix and more time learning from people who’ve done exceedingly well with their portfolios:

Anonymous Dividend Guy (credit to Tawcan for the interview)
The Dividend Dream
Gen Ex Dividend Investor

This is an error that has cost me dearly, but I’m aware of it now. I choose to do better.

My fourth biggest mistake was paying off my house early. When I sold my first two rental properties, I should have lump-sum invested the money into the market via ETFs. Instead, I chose to pay off my mortgage because I wanted to be debt-free as soon as possible.

I realize now that my mortgage would’ve been paid in due course. I got my first mortgage in 2001, and history instructs that mortgage rates continued to fall until 2022. Looking back, I should’ve renewed my mortgage every 5 years. I would’ve gotten a lower rate each time. I could’ve been paying a mortgage while investing, even though my contributions would’ve been smaller due to having to pay for my house.

Shoulda – coulda – woulda… Too late smart and all that jazz. I still did okay. Those former mortgage payments were re-directed to investing for my future. I had to choose between two sacks of gold, so I shouldn’t complain.

Finally, one of my biggest mistakes is thinking that I knew enough to be a successful landlord. If I had to do it all over again, I would’ve learned to crunch the numbers better before buying my rental properties. The first two properties were a cinch to sell – due to the market, not due to my acumen – and they netted me enough money to pay off the mortgage on my home. The third property was not a good investment for me, despite what I thought at the time. I relied on hope… and hope is not a plan. When I finally sold my last property, I did not make money. It wasn’t ideal, but it also wasn’t the end of the world.

And That’s It.

That’s my list of great moves and big mistakes which have gotten me to this point. If I could go back, I would invest in equity-based ETFs from the get-go. Further, I would’ve gone to see a fee-only financial adviser way sooner to set me up on a plan for my money. Having an objective voice and someone to check my progress along the way would’ve been a good idea. In terms of rental property, I would’ve done a lot more research and learned how to crunch the numbers.

Mistakes? Yes – I’ve made a few. They weren’t the end of the world, and my smart choices have balanced them out. Despite a few missteps here and there, I think I’m going to be just fine. Not bad for 30 years of DIY-investing.

I’m not an expert but….

I am not certified by any governing body to tell you how to spend your money. My words of advice were earned at the School of Life, a place where all of us are students. I’m telling you this so that you realize that I’m not an expert, but I’ve still learned a thing or two. If you do what I did, you’ll do fairly well with your money over a lifetime. Here are my tips to acquiring a heavy wallet.

Don’t spend every penny you earn.

First off, I’ve yet to meet anyone who’s been harmed by living below their means. Spending less than your take-home income has no downsides, as far as I can tell. The difference between your net income and your expenses is called “savings” and savings can always be stashed away for various things.

Emergency Funds are not optional.

Secondly, life without an emergency fund is an invitation for financial trouble. There’s an emergency in your future. You simply have no way of knowing when it will show up. I promise you this though. No one in the history of the world has ever lamented about having too much money set aside to deal with the inevitable emergency. If you don’t have an emergency fund, start one immediately and set up an automatic transfer from your paycheque to fund it.

It’s going to take a bit of time to build up a decent emergency fund. That doesn’t matter – just start building it. When the emergency hits you smack in the face, you’ll be quite grateful that you won’t have to worry about the financial side of dealing with it.

Investing for Tomorrow You isn’t optional either.

Thirdly, start investing your savings. Yes – some of your saving will go to building an emergency fund. The rest of your savings should be split between your short-term, medium-term, and long-term goals.

One your most important long-term goals is how to feed, shelter, clothe, and entertain yourself when you’re too old to work. Tomorrow You still needs money to survive until the very last day of your life. The steps you take today to invest your savings will increase Tomorrow You’s chances of having a financially comfortable life once employment is over.

You need to start funding your retirement accounts – namely the Tax Free Savings Account and the Registered Retirement Savings Plan.

If you have to choose between filling the TFSA or the RRSP, my recommendation is to fill up the TFSA first. The TFSA contributions do not generate a tax refund, but the money invested inside the TFSA will grow tax-free and can be withdrawn tax-free.

Should you be so fortunate as to have sufficient money to fill both your TFSA and your RRSP, then do so.

If you still have savings After you’ve filled your retirement accounts, then open a non-registered account with an online brokerage. Invest your remaining savings to earn capital gains and dividends. The money earned in your non-registered account will be taxed every year. The upside is that the taxable rate on your capital gains and dividends will be less than the taxable rate on your earned income.

Inflation isn’t going away anytime soon.

Fourthly, inflation is running high. No one knows when it’s going to go down, so assume that things will be increasingly expensive for the foreseeable future. There are no simply answers to this problem, so my advice to you is to cook more of your own food. I love socializing over food as much as the next person. And I do sometimes yield to the incessant call of the fast food window or the food delivery app. However, inflation running at 7%-8% has forced me to be a lot more disciplined. I’m heading to the grocery store instead of tapping out an order on an app. I’m slicing and dicing, mincing and sautéing, frying and baking in my own kitchen. One of these days, I’ll even master the art of meal planning for the week instead of simply for the next 3-4 days.

My advice to you is learn to grocery shop then spend more time in the kitchen. If there’s something you want to learn to make, there’s someone on the Internet who has a recipe and a video to show you how. I can promise you that $60-$80 spent at the grocery store will yield you a ton more food than the same amount spent at a restaurant, fast food outlet, or food delivery service.

Stay out of debt

For whatever reason, our society has decided that it’s a good idea to put people into debt. The scope and manner in which any one person is able to go into debt is truly breathtaking: student loans, vehicle loans, mortgages, credit card debt, etc…

There’s no legal limit either. It’s not like there’s a law which says “No person is permitted to carry more than $650,000 of debt at any one time.”

So long as there is a creditor who is willing to extend you credit, you can dig a deep a hole as you choose. Even after a creditor stops extending you new credit, the hole still gets deeper thanks to the power of compound interest and the piling on of fees.

Do yourself a favor. Don’t go into debt. If you’re already in debt, then work very hard to get out of it.

You know those savings that I was talking about at the start of this post? Take 25% of them and throw them at your debt. You can use the snowball method or the avalanche method to make extra debt payments over and above your minimum payment.

I really don’t care, which method you choose. Just start making those extra debt payments and get yourself out of debt as soon as possible.

Again, I’m not an expert.

I’m just a person who has learned a few things about money from my own experience. I’ve also observed the financial choices and outcomes of others. Getting out and staying out of debt has done wonder for my financial life. Spending less than my net income has allowed me to set aside money for my retirement while also fulfilling most of my short-term and medium-term goals. Cooking at home has definitely contributed to a heavy wallet. My emergency fund helps me sleep well at night.

Even though I’m not an expert, some of these tips might help you too. Take what you need – leave the rest.

Some Random Thoughts About Money

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

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

Take care of your emergency fund

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

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

No new debt

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

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

Invest for the long-term

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

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

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

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

Again, talk to an accountant for professional tax advice.

Quick review:

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

Now what?

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

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

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

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

And finally…

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

Is it Better to Invest or Pay Off Debt?

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

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

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

Both good options. Which one is best?

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

Why not do both simultaneously?

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

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

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

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

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

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

Age

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

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

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

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

Length of Time To Pay Off Debt

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

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

Too Long, Didn’t Read!

Is it better to invest or pay off debt?

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

Living Underwater is Fantastic for Fish & Bad for People!

When it comes to mortgages, you never want to be underwater. Repeat after me – living underwater is for fish, not people!

A person is underwater on their mortgage when the mortgage amount owing is higher than the value of the house. For example, if you have a $450,000 mortgage but you would only be able to sell your house for $395,000, then you are underwater on our mortgage.

This is a not a desirable situation because it means you cannot sell your house without taking the deficiency to the bank in order to pay off the bank. In the above example, the deficiency is $55,000 (=$450,000 – $395,000). The mortgage debt to the bank can only satisfied by a payment of $450,000. This is known as discharging the debt.

Unfortunately for you, potential buyers of your home are only willing to give you $395,000. In order for the bank to discharge your mortgage debt, you would need to take the $395,000 from the buyers of your home and another $55,000 from your own pocket to the bank.

Just out of curiosity, do you have an extra $55,000 lying around? No? Then you, my friend, are trapped in your house.

The Downsides of Being Trapped in a House

If you’ve got no reasons to leave the house you’re in, then living underwater on your mortgage is an academic problem. Since you’re not going anywhere, there’s no issue about having to pay any sort of deficiency to the bank. You can continue to pay your mortgage and wait for the real estate market to recover. Even if recovery takes a decade, you don’t need to care since you won’t be trying to discharge the mortgage on your house.

The situation is quite different if you want to move across the country for a new job, or your health status changes and your home is no longer suitable for you. There are any number of reasons why you might choose to move your current abode to another one. None of them change the fact that being underwater on your mortgage means you can’t sell your place without satisfying your full debt to the bank.

I ask you again, do you have enough money in your wallet to satisfy the deficiency and get the mortgage discharge you need?

Mortgage Rates are Rising

Those without a mortgage can be forgiven for not realizing that the cost of mortgages is increasing. For the rest of you, it’s imperative that you start thinking ahead. When it comes time to renew your mortgage, will your budget accommodate a 1%-2% increase in your current rate?

If the answer is “No”, or “I don’t know”, then you should be making extra payments to your mortgage. Make extra payments as often as you can. And make those payments are large as you can! This will ensure that, at renewal time, your mortgage is as small as it can be. This means that your new payment at the higher rate will be lower than it would be otherwise.

You can use an online calculator to estimate the size of your next mortgage payment. Whatever rate you’re paying now, add 2%. Assuming you’ll be renewing a mortgage of $350,000 and the anticipated 5-year rate at renewal time will be 5%, here are the mortgage payments generated by this online calculator.

If you’re renewing with a $350,000 balance at 5%, then your bi-weekly mortgage payment is $1,017.81 or $2,025.62 monthly.
If you’re renewing with a $325,000 balance at 5%, then your bi-weekly mortgage payment is $945.11 or $1890.22 each month.

How to Stop Being Underwater

There are a few ways to stop being underwater. Some are harder than others. The most effective way to cease living underwater is next to impossible – you can change market conditions so that the value of your house rises above the balance on your mortgage. See what I mean? That method is next to impossible. Manipulating market conditions likely isn’t within your particular skillset.

Your best bet is to find a way to make extra payments on your mortgage until the balance equals, or is less than, your mortgage’s balance. At that point, the trap is sprung! In other words, what you get from a potential buyer is enough to satisfy you debt to the bank.

Paying extra on your mortgage is a simple plan. Note that I said “simple”, not “easy”. Depending on your other financial obligations, it might not be easy to find the extra money to throw at your mortgage. You might take on another job or start a business. Maybe you’ll sell you no longer need or take in a roommate.

Ridding yourself of non-mortgage debt facilitates another way to make extra payments. Maybe you owe money on student loans, credit cards, vehicle loans, or other consumer loans. As you pay off other debts, re-direct that former payment to your mortgage. Think about it. You were already sending that money to a creditor, so you’ll keep doing so. Your lifestyle won’t change since you were living without that money anyway. All that will change is the name of the creditor.

However you choose to do it, the goal is to stop living underwater on your mortgage.

No Easy Answers

Forgive me in advance, as this post is going to touch on several things. I don’t have all the answers, but I have lots of questions.

Today, I watched a couple of YouTube videos about poverty in Europe. They could’ve just as easily been about North America, but The Algorithms suggested videos about Europe. It hardly matters what country I was viewing. The story is nearly universal. Once a person falls into debt and/or poverty, there are precious few ways out of it.

The first video involved young people who’ve graduated from university and cannot find a job. It’s not for lack of trying. The jobs simply aren’t there to be had. So young people who can do so are leaving their home countries to build lives everywhere. Why wouldn’t they leave? How do you create jobs that will motivate people to stay, to put down roots, to start families? What kind of a future does a country have when its young people have to move away in order to fulfill their dreams and ambitions? What has to happen to entice the young people to return? Will the country be around 100-200 years from now if their best, brightest and most talented leave to build satisfying lives elsewhere?

That same video also discussed how increasing interest rates skewered the incomes of those formerly in the “middle class”. Countries borrowed money and the terms of the loans required a decrease in labour costs. This is economist-speak for employers reducing salary costs. The good folk that believed they were solidly in the “middle class” saw the value of their paycheques plummet while their debt obligations remained the same. More than a few lost their homes and businesses. When incomes are slashed and debt stays in place, how are people supposed to recover from that particular double-whammy? What do you do when you realize that your economic status was tenuous at best? More myth than reality?

There are no easy answers to my questions. You can have the 12-month emergency fund to “tide you over”, but there has to be a job waiting for you at the end of those 12 months. If there’s no job, then you’ve simply exhausted your emergency fund. Without another job to go to, you’ve only delayed the inevitable results of being unemployed: homelessness, couch-surfing, losing friends, deteriorating networks, separation from family, etc… It’s grim.

Getting out and staying out of debt offers some protection from rising interest rates. Payments that used to go to creditors can stay in your bank account. You can use those funds to pay for the rising costs of food, housing, utilities, and any other price hikes associated with inflation’s impact on the economy. Yet if your paycheque doesn’t go far enough, what choice do you have other than credit to pay the minimum monthly bills? When your rent eats 75% of your paycheque, can you really be faulted for using credit to pay for the necessities that the remaining 25% doesn’t cover?

For most of us, the reality is that getting out of debt generally means having a steady income from which payments can be made. When it takes 25 years, or even 15 years, to pay off a mortgage, a borrower is making a huge bet that they will have income over that long period. In today’s world of contract workers and gig-workers, there’s a whole swath of people who might be better off not taking that bet. After all, a bank can just as easily foreclose for failure to pay at the 20 year mark as it can at the 2 year mark. Can you imagine how awful it would be to make 20 years of mortgage payments then lose your home if something permanently reduced your income?

Yet, at the same time, owning a home is still one of the few ways for a not-rich person to build wealth. Talk to the people who bought houses in Vancouver and Toronto as recently as 5 or 10 years ago. The values of their home have skyrocketed. Some lucky folk have houses that have earned more in equity growth than their owners have earned through a paycheque. Buying a home in a city with a strong economy and paying it off is still one of the ways to build wealth for your dotage.

And speaking of your retirement, what recourse is there if your retirement is adversely impacted by market forces beyond your control? If going back to work is not an option for you due to your health, age, or lack of job openings, what do you do?

These are the questions that keep me up at night. We always hear about the success stories, the people who’ve made it. They should be celebrated – they’ve overcome the odds and they can serve as a hopeful example of what’s possible. Yet there are countless others who did not achieve that same success. They worked hard. They saved. They followed the rules, yet they didn’t get their happily-ever-after on the financial front. What are the answers available to them?

Like I said at the start of this post, there are no easy answers. If there were, these problems would’ve been solved by now. All I know is that there are serious structural problems that are encouraging and reinforcing income inequality on a global scale.

Could you afford your life without credit?

I love reading about personal finance. It’s been a hobby of mine for the past 20+ years. I’ll even go so far as to admit that I’m also an avid snoop – I love hearing about how other people spend their money.

Are they investors?
Do they like to be spontaneous with their cash?
Maybe their parents or grandparents are helping them out?
Perchance they started a wildly successful business?
Are they just regular folk trying to survive and have a few creature comforts for themselves?

Want to know what I’ve learned after all my many years of reading about how other people spend their money? Here it is.

There’s a persistently growing group of people who need credit to survive. These are working folks whose paycheques don’t get them from one to the next. No matter how they crunch the numbers, economize, downsize, and sacrifice, they simply don’t take home enough income to pay their expenses.

Take a good look at your finances. There’s no need to share your answer with the class. Just be honest with yourself as you answer this question:

If you had to survive on cash, would your cash run out before you got to your next paycheque?

For Some, Credit is Optional

There’s a segment of the personal finance community that loves to talk about credit card hacking. I’m not an expert so forgive my less-than-accurate description of this financial method. In short, credit card hacking appears to be a process by which cardholders maximize their points for extremely discounted or free travel, hotels, car rentals, etc… These cardholders are diligent about how they use their credit cards each month to maximize these benefits. Most importantly, THEY NEVER, EVER CARRY A BALANCE ON THEIR CREDIT CARDS.

And while travel cards are not my preference, I can certainly see the advantages. I have two friends, each of whom has 4 children. Every so often, my friends like to travel by air for family vacations. Believe you me, they make extremely good use of their travel rewards credit cards. Flight expenses for a family of 6 are very expensive. It only makes sense to use a credit card that will result in one or two of those airline tickets being free or otherwise extremely discounted.

In the interests of transparency, I freely admit that I use a credit card that saves me money on groceries. I use the card – I earn points towards food – I pay off my credit card charges long before the due date. If I had to pay for a gaggle of airline flights, I’d probably use a different credit card.

For Another Group, Credit is a Requirement

There’s another group of people who use credit cards for reasons that aren’t driven by economizing on life’s little luxuries. These are people who need credit because their paycheques are insufficient. They don’t make enough money to pay for rent, food, utilities, and transportation. To be blunt, their paycheques do not cover the basics. It’s not a situation where people have to cut back on cable for a 3-4 months to pay off a debt. I’m talking about those who have already cut their expenses to the bone… and are now digging into the marrow. These are folks who are at the financial bottom, even though they’re employed.

For these people, access to credit gives them a way to survive from one paycheque to the next.

Do not misunderstand me. I am not for one second saying that this a good way to make ends meet. It is not. The rates of interest charged on credit cards should be criminal. However, using credit is the next best way to buy your necessities of living if you’re not able to further slash your expenses and your efforts to earn more money have failed.

I’m going to suggest that those who could live on cash have some empathy for those who can’t. Put yourself in the other’s shoes. Again, no need to share the answers with the class. Just be honest with yourself.

Let’s say you’re paid bi-weekly, i.e. every 14 days. Yet your paycheque only allows you to buy 12-days worth of food. What would you do? Would you willingly be hungry for 2 days or would you use credit to bridge the gap?

You need your car for work, and it breaks down. There’s no reliable public transportation near you, and your co-workers don’t live nearby. Do you look for another job near home? Or do you use credit to fix your vehicle so you can maintain your livelihood?

These aren’t terribly far-fetched scenarios. People find themselves in these situations every day. When they don’t have the cash to pay for the repair, or to feed themselves, they turn to credit.

Life Can Be Expensive When You Don’t Have Enough Money

Even if you had an emergency fund, there’s no universal rule that life won’t throw you another emergency before you’ve had a chance to rebuild your fund.

Credit provides a lifeline, an immediate solution to a financial problem. The real issue is that the cure is as bad as the disease. For those at the bottom of the economic ladder, relying on credit is just as bad as not having sufficient money to pay for their costs of living.

It’s not a situation of using credit and paying it off in full, while earning a low income. People in that situation could live on cash, but use credit for other reasons. Maybe they’re earning points. Or perhaps they’re building their credit score. At the end of the day, they set aside their cash to pay off their credit card balances in full. Their income may be low, but it’s enough to get them from one paycheque to another. They simply use credit in place of cash, but they never fall into the trap of carrying a credit card balance.

My concern is for those who need to use credit because their cash isn’t enough. Life isn’t getting any cheaper. A few weeks ago, we found out that inflation in Canada had hit 4%. That’s not great, especially when your income doesn’t grow in step with inflation. For those who have disposable income, now they have just a little bit less of it. The people who were just making it from one payday to the next… well, they may not be able to do it anymore. When gas, groceries, rent and utilities all increase, while income stays stagnant, doesn’t it make sense to rely on credit if you can? Even if it’s going to cause problems later on?

Again, I ask you…

…Could you afford your life without credit? Do you earn enough to live on cash?

There are no easy answers when the belt has been tightened as tight as it can go but there’s still not enough money. If I were wise enough to have the answers, I would share them with the world. Like most of the chinwag that emanates from personal financial bloggers, my suggestions and insights are for those who already have money. Solving the problem of people not having enough money to begin with is beyond me.

In a perfect world, incomes wouldn’t have to be supplemented with credit. Paycheques would be enough to cover the survival expenses, to invest, to save for emergencies, and to buy a few little extras. That isn’t the reality for everyone. So as we start 2022, I urge you to have some compassion and kindness towards those who aren’t fortunate enough to have to have extra. Please don’t judge them for the choices that they make. They’re doing the best they can.