Millionaire on the Prairie

Tag: emergency fund

  • No One Said It Would Be Easy.

    No One Said It Would Be Easy.

    Getting what you really, really want is hardly every easy. It can be a grind. There are going to be days when you don’t want to work for it. Chances are you shed a tear or two along the way. It might take you much longer than you’d anticipated, and there are no guarantees the path will be a smooth one.

    So what!

    Accept the fact that the life you really want and that the dreams that you want to see come true are not going to fall into your hands like snow on a winter’s day. The reality is that you are going to have to put in some serious effort then reap the rewards later. If it’s worth having, then it’s worth fighting for. Never forget that!

    Since this is a personal finance blog, I can help you with the money part of building the life you honestly and truly desire. There are some very basic guidelines that will get you 97% of the way there. If you follow these, then you’re set. The other 3% won’t make or break you either way. The more of these rules you fail to follow, the harder you’ll make it on yourself.

    Choose wisely.

    First things first… commit to living below your means.

    There’s no way around this fact. If you spend every nickel you earn, then you will not have money leftover to put towards your dreams and the life you really want.

    You need to save some of the money you earn. I used to think that 10% was enough. Now, I’ve matured and I see that 20% should be the bare minimum.

    Maybe you can’t start at 20% right now. Fine – 20% is out of the question for right now. I refuse to be persuaded that you can’t work your way up to 20% over time. Start where you are right now, then increase your savings rate by 1% every single year. If you can increase your savings rate at a faster pace, then so much the better.

    People get raises, start side hustles, create content, teach skills, etc… There are many ways to earn additional money. Find one that works for your life and do it. Whatever money you earn can be applied to building the life you want and to turning your dreams into your reality.

    Next, work on getting out of debt.

    This might take a minute. Getting into debt is usually fun, but getting out is a tedious task. Unless you come into a windfall, it’s going to take you some time to pay off your creditors. If you can, make extra payments to pay off your debt faster.

    And for the love of all that you hold holy, stay out of debt. If you want something, set up a sinking fund then use cash to buy it. As a matter of fact, set up a sinking fund even if there’s nothing in particular that you want. Set up an automatic transfer in the amount all of your former debt payments and send that money to your sinking fund. You’re already accustomed to making those payments, but this time they’ll be going into your pocket instead of someone else’s.

    When you finally decide what you want, the money will be there waiting for you. No debt needed!

    Invest for your long-term future.

    While paying down your debt, cinch your belt a little tighter and set some money aside for Future You.

    Debt payments are about paying for past decisions. Investing for your future is about self-care. You’re going to need food, shelter, transportation, heat, and a few other basic necessities every single day until the day you die. This is why you absolutely must set aside some of today’s money for tomorrow’s expenses. You won’t always be physically and mentally capable of going to work. There’s also a decent chance that you simply won’t want to leave the comfort of your home to do tasks for someone else. Or maybe you’ll no longer love running your own business.

    Whatever the case, you don’t want to be forced to keep working when you’d rather stop.

    When that time comes, you’ll be very happy to have cashflow from investments to replace the cashflow from your salary. Start today. Invest for the long-term. Re-invest all your dividends and capital gains. Set up an automatic transfer to invest a portion of every dollar that crosses your palm. When you stop sending your body out to work, there will be a pot of gold waiting for you. Future You will be very glad that Today You made good choices.

    Build your emergency fund.

    Much like paying off debt, it’s going to take a minute or two to build up atleast six months’ worth of expenses. I’m not adverse to seeing people with one year’s worth of expenses set aside, but I appreciate that six months’ worth will do in a pinch. Emergencies always have a financial component, so kindly make hay while the sun shines. Believe me when I say that an emergency is never made better by the addition of debt.

    The last thing you want is the burden of paying for an emergency for months, if not years, after it’s happened. To avoid this depressing situation, make sure that you’re adding to your emergency fund on a regular basis. Every time you’re paid, send some money to your emergency fund and leave it alone.

    No one has ever complained about having too much money during an emergency.

    And if you have to use your emergency fund at some point, make sure that you re-build it as fast as possible. There is no way of knowing when your next emergency is going to land so it’s best to be prepared as soon as possible.

    Finally, stop getting in your own way.

    By this, I mean do not take on financial burdens unless absolutely necessary. More monthly subscriptions won’t get your closer to your dream life unless you’re the one selling to subscribers. Any dollar that is spent on something other than what you want most is a dollar that is not bringing you closer to your dreams.

    Remember that there is always someone out there who is goading you to spend your money in ways that aren’t getting you closer to the life you want. You’re the best person to know what your heart really desires. And you need not sacrifice your priorities just because the AdMan and the Creditor request that of you. They’re your dreams so it’s your responsibility to protect them, to nurture them, and to pay for them.

    Again… No one said it would be easy. I’m here to tell you that it will be worth it.

  • Three Simple Steps to Master Your Money.

    Three Simple Steps to Master Your Money.

    At the time of publishing this post, there are less than 60 days left in 2024. You might want to start thinking about your dreams and goals for the new year. Whatever yours are, I’m going to suggest that learning to master your money should be one of your goals. After all, you’re the person earning the money and you should be firmly in control of what your money does. Trust me. Life is better is when your money works harder for you than you do for it.

    There’s no need to wait until January 1 to make the following suggested changes. Believe me when I say that you’ll want to master your money sooner rather than later. Start today.

    If you’re a person who likes to make resolutions, then you can implement these three steps on New Year’s Day. Everyone else, I would strongly encourage you to do start following these steps immediately.

    Top Up Your Emergency Fund

    The goal is to have one year’s worth of necessary expenses set aside. I know that most experts recommend 3-6 months’ worth of expenses. Personally, I don’t believe that this is enough. You’re free to disagree with me, of course. The reality is that it’s better to have a bigger emergency fund than you might need. When your income disappears, you’ll want to have as much set aside as possible to tide you over until you get another paycheque.

    Your next job might pay you less than you were earning before. It might take you longer than 6 months to find your next position, or to start earning money from your own business. Being unemployed is a bad situation. Going into debt to pay for living expenses while unemployed makes the situation considerably worse.

    Do yourself a favor and set aside more than you need. Your necessary expenses are your shelter costs, your basic utilities, your food, your transportation, your medications, and your phone. If you have pets, then you need to cover their costs too. Everything else should be put on hiatus until you get another source of income.

    For most people, it will take some time to hit this target. Setting aside a year’s worth of expenses won’t be quick. There will be many, many temptations along the way to spend re-direct money away from the task of building your emergency fund. Do yourself a favor. Set up an automatic transfer from your chequing account to your emergency fund. This way, you don’t have to think about funding your future emergencies as it will happen automatically through the magic of technology.

    Invest Your Money

    First things first – track your expenses. Ideally, you’ll do this for a month. Write down what you spend. Figure out which expenses were necessary (see above) and which ones weren’t. Of the second group, identify the ones that don’t make you happy and promise yourself to eliminate those ones in the future.

    Whatever money is cut needs to be re-directed towards your investment portfolio. Your investment portfolio consists of registered accounts and your brokerage account. Your registered accounts are your Tax Free Savings Account (TFSA) and your Registered Retirement Savings Plan (RRSP).

    Fill your registered accounts before you start contributing to your brokerage account. The TFSA will not generate a tax deduction but the money will grow tax-free forever. You can also withdraw money from your TFSA without paying taxes. The RRSP money is tax-deductible, and money inside an RRSP will grow tax-free. Once you start to withdraw the money, you’ll pay taxes on it. Fill your TFSA to its limit, then focus on filling your RRSP.

    Once you’ve filled your registered accounts, then you can open a brokerage account and re-direct your investment contribution. Money invested in your brokerage account is not tax-deductible, and you do have to pay taxes on it every year. Ideally, you’ll be investing in securities that generate dividends and capital gains for you. Dividends and capital gains are not taxed as heavily as interest earned in a bank account or from GICs.

    Follow this order of investing every year: TFSA -> RRSP -> Brokerage Account.

    If you’re starting from scratch, it might take you a few years to fill up the registered accounts. That doesn’t matter. You’re trying to build a nice, fat money cushion for Future You. Consistency is key, so don’t worry about how long it will take. Just start today and don’t stop.

    Pay Off Debt

    Ridding yourself of debt is just as important as long-term investing. I don’t want you sacrificing one for the other because you need time on your side. You need to have money invested so it can compound for as long as long possible. This is why you should be investing at the same time that you’re paying off debt.

    After you’ve eliminated the debt, you will have a hard-working investment portfolio in place. This is a wonderful thing! It means you won’t be starting from $0 if your debts aren’t gone until you hit your 50s or 60s.

    Tighten your belt and learn to say “No”. If you have debt, then I want you to do the following.

    Take half of your contribution amount and direct it towards your debt. Allow me to be very clear. You’re already paying the minimums on your debts every month. Half of amount that would’ve otherwise gone to your investments will be added to the minimum payment of one of your debts. An increased payment dramatically shortens the time it will take to pay off a debt. Once debt #1 is gone, add that entire former payment from debt #1 to the minimum payment of debt #2. When debt #2 disappears, add the entire former payment that was going to debt #2 to the minimum payment for debt #3. Repeat this cycle until all of you’ve paid off all of your debts.

    Do not get bogged down in deciding whether to use the Debt Snowball Method or Debt Avalanche Method. It truly doesn’t matter. The only thing that matters is your decision to start paying down your debt today.

    Both methods will get your out of debt. Personally, I like the Snowball Method since it eliminates the smaller debts first. Paying down debt sucks, so seeing wins as soon as possible makes people feel good.

    Once you’ve paid off your debts, take the former debt payments and re-direct them to your registered accounts and your brokerage account.

    That’s It. That’s the Plan.

    Once you’re out of debt, stay out. Save up for large purchases so that you don’t have to finance them. The one exception is your mortgage. Even I will admit that this is the one purchase where financing is nearly unavoidable without a lottery win, a big insurance settlement, or an inheritance.

    Keep your emergency fund fully-funded. If you need to use it, then make it a priority to build it back up again. Life can be funny. There’s no rule saying that only one emergency is headed your way.

    Invest for the long-term. Put your money into well-diversified, equity-based securities. Personally, I like exchange traded funds (ETFs) more than I like mutual funds. For nearly the same security, ETFs will cost you atleast 80% less. Read The Simple Path to Wealth by JL Collins. While it’s written for an American audience, the savings & investing principles are equally applicable to Canadians.

    You’re already doing all of these things, you say? Fantastic! Use this time to tweak your system, if necessary. Consider increasing your emergency fund by 3%, just to keep up with inflation. It’s never a bad idea to increase your contributions to your brokerage account by an additional 1%. Taking this step every year will make a big difference in how much your accumulate. It bears repeating – once your debt is gone, keep it gone.

    That’s it – that’s the plan to master your money. If you do these three things, then you’ll be setting yourself up for success.

    Everything else is details.

  • Stay Home – Save Money!

    Stay Home – Save Money!

    The entire world is facing the COVID19 pandemic right now. There is nowhere to hide, and there is currently no vaccine from this disease. However, each of us has the power to slow its spread. We should all do what we can to stay home!!!

    It’s very simple: stay inside your own home.

    The coronavirus that causes COVID19 is a respiratory virus. It is spread through droplets in the air when people are around each other. To slow its spread, each of us must stay home. And if we must go out for essentials, then we should practice social distancing by remaining atleast 6 feet away from others.

    If you stay home and if you practice social distancing when not at home, you will be doing your part to limit the spread of COVID19.

    Tackle your to-do list!

    Stay home! Use the time to do those things that you always say you’re going to do but don’t actually do. For example, is there a closet that needs to be cleaned out? Have you sorted that catch-all drawer that drives you crazy each time you open it? Weren’t you thinking of writing a book or starting a blog?

    If you’re not good at it, learn to cook. The internet has countless websites that will teach you the long-forgotten art of cooking for yourself. Start at the All Recipes website and work your way around the world wide web. Since you’re staying home anyway, you have the time to simmer and braise and boil and bake and sauté and dice and julienne and all those other magnificent things that cooks do in the kitchen. Feeding yourself is one of the easiest things to do in cutting down on your expenses.

    Since the pandemic was declared, I’ve spent a lot of time in my kitchen. I’ve made lasagna, meatballs, spaghetti sauce, and chicken. I’ve baked a cake and a batch of cookies. My freezer is filled with pre-portioned packages of chicken marinating in lovely sauces that I made myself. Thankfully, I’m back to hitting my daily target of 10,000 steps per day! This weekend, the plan is to make a delightful dish called Chicken, Sausage, Peppers & Potatoes. It’s simple and tasty, and it also creates absolutely delicious leftovers.

    If you’re still employed, be grateful.

    The economy is very volatile right now. Millions of people have applied for employment insurance because their jobs have disappeared for an indeterminate amount of time. They don’t know if they’ll have jobs to go back to when this is over. Through no fault of their own, their economic lifeline has been cut and they’re working through the process of figuring out how to pay for their lives.

    There are other millions of people who haven’t lost their jobs. If you can count yourself among those who are still employed, then it’s time to start trimming the fat from your budget. The emergency fund needs some love right now. Right now, the focus of your money needs to be on food, shelter and transportation. Everything else can wait. Books can come from the library – you can get the Libby or Overdrive app for your device if your physical branch is closed.

    Find other ways to save money right now. I’m not an economist, nor am I a financial planner. It’s just my gut that is telling me that the macro economic situation is going to be challenging for the vast majority of us for a while yet. If you have a paycheque coming in, then you should strive to make it last as long as possible. Stop living paycheque-to-paycheque! Put a portion into your emergency fund. Pay your bill on time, yet ensure that you have as few bills as possible. Do not take on any new debt right now. If you can’t pay for it in full (whether cash or debit), then you can’t afford it right now. Save up your money and buy it later.

    COVID19 is not going to last forever. This pandemic is definitely a huge challenge and it will continue to cause grief until such time as vaccine is found. The good news is that as each day passes, we are that much closer to finding one.

    Stay healthy – stay safe – stay home!

    ***************

    Weekly tip: Track all of your expenses so you know where you spend every dollar.

  • In Sickness & In Health

    In Sickness & In Health

    Emergency funds… you need them in sickness and in health.

    My workplace has been a hotbed of germs and colds and flu for the past few weeks. Even I had to take a day off to give myself some time to rest and recover from my head cold. And I started thinking about how fortunate I am to have sick leave banked for times like this. Staying home for the day won’t impact my salary. I can focus on feeling better without worrying that my paycheque will be less than normal.

    Some people are not so fortunate. For many, many people, a day away from work means losing money. As we all know, bills don’t take a break. Whether you’re sick or healthy, the bills and expenses of life need to be paid. If missing work due to illness would negatively impact your paycheque, then you need to have emergency funds set aside somewhere.

    It is absolutely imperative that you have some money stashed away to replace your income. You don’t know when you’re going to get sick. And you don’t want to be thinking about the damage to your monthly income when you’re dealing with a runny nose, body chills, and a hacking cough.

    Emergency funds take time to build and, once used, time to replenish. They should be relatively easy to access, so I suggest putting this money into a high interest savings account. When you’re healthy, find a way to squirrel away some cash into this financial necessity. Challenge yourself to set aside a particular per diem until your emergency fund has hit six months worth of expenses. Maybe you’ll pay $5 per day, maybe $10 per day. Even $1 per day is a good goal if your budget is particularly tight. Trust me – you will never regret the small sacrifices that you had to make when you truly need to rely on your emergency funds.

    Let’s say that you had a car loan or student loan that you’ve just finished paying off. After congratulating yourself for paying off a debt, re-direct that former payment to the care and feeding of your emergency fund. You were living without the money before so you can continue to live without it for a little while longer.

    The last thing you need to do when your income drops is to go into more debt by borrowing money to make up the lost income. Emergency funds can drastically reduce the need for you to go into debt.

    Finally, make sure to replenish your emergency funds after you’ve used them. Emergencies can strike at any time. The sooner you get yours back to full strength, the better prepared you will be for the next one.

    *****************

    Weekly Tip: Cut back on how much TV you watch so you can get rid of cable. The added benefit of less viewing time is less exposure to marketing. You’ll be amazed by how a significant reduction in TV-watching dampens your desire to buy stuff.

  • Personal Finance – the Greatest Hits

    Personal Finance – the Greatest Hits

    This post is going to be short and sweet. If you’re new to the world of personal finance, the following gems are the building blocks of wealth. If you’re an old hat at the mastery of money, then I would ask that you forward these greatest hits on to anyone who might need them.

    If I knew more, this post would be much longer. I don’t know as much as I wish I did, but I’m still learning. These old chestnuts will get you well on your way to a place of financial stability. I’ve written them down for you but it’s up to you to put them into practice in your own life.

    Pay yourself first – always.

    I don’t have too much more to say on this point. If you don’t pay yourself first, then you’ll never have money for investing. There might be money leftover after you pay everyone else, but it’s highly unlikely. Most of us don’t have anything leftover to save before the next paycheque rolls in. If you pay yourself first, then you can spend the rest and you’ll have the comfort of knowing that you kept a little something back for yourself.

    Emergencies don’t make appointments.

    (Credit for the insightful phrasing of this bit of wisdom goes to Patrice Washington.) You need an emergency fund so start building yours today. In my humble opinion, this kind of fund needs to hold atleast 6 months worth of living expenses. No one has ever regretted having too much money on hand during an emergency.

    Automate your money.

    This means setting up an automatic transfer to fund your priorities. Needs come before wants, but wants are prioritized too. You’ll need an automatic transfer to your emergency fund so that life’s little surprises don’t require you to live in your overdraft or to carry credit card balances from one month to the next.

    The next automatic transfer you’ll need is to your retirement fund so that you’re saving for Old You. A portion of each paycheque must be saved for the day when you stop working. You cannot assume that you’ll be wholly in control of when you retire. Time flies and Old You will be here in two shakes of a lamb’s tail. Do what needs to done today so that Old You has sufficient money tomorrow.

    Track your expenses.

    Yes, you know where this is heading. I want you to keep track of your money. What gets measured, gets managed. This is an old adage that I heard around the office and it has always stuck with me. If you want to know where your money is going, then you have to keep track of it. You’re a Singleton so you’re the only person who’s spending your cash. If you don’t keep track of it, no one else will.

    Invest in an equity-based exchange-traded funds.

    There are low-cost investment products that allow you to put your money to work in the stock market. While you’re busy figuring out the”best way” to invest, your money might as well be working hard on your behalf in the interim. This is money that you’re setting aside for retirement and long-term goals. In other words, this is where you put the money that you won’t need for atleast 5+ years.

    Never stop learning about investing. Don’t get cocky! You’re not an expert, and you don’t have a magic touch. Investing in ETFs is a way for you to get profitable exposure to the stock market, without relying on market timing or picking the next Netflix. There will be volatility and I want you to ignore it. Just keep investing and compounding your money over a long period of time while you continue to learn.

    Only spend your money on what brings you the most joy.

    Unless I’ve been seriously misled, each of us is entitled to have some fun & pleasure in our lives. This greatest hits list would be incomplete if I failed to acknowledge that money is also meant to be spent in order to create joy for ourselves and for others. I’m not talking about mindless consumerism or rote daily purchases.

    I’m talking about the special treats, the little extra something that makes you feel special. It’s something different for all of us. Whatever yours is, make sure that you’re spending some of your money to acquire it.

    So there you have – the short and sweet list of the greatest hits of personal finance according to the Blue Lobster. Do with it what you will!

  • Make Hay While the Sun Shines

    Make Hay While the Sun Shines

    This week, I was very sad after reading an article in the Walrus about how so many people in Canada go hungry on a regular basis.

    The article reminded me that being able to eat every day is a privilege that I take for granted. I have enough money so I can go to various grocery stores and buy the food I need to eat three good meals each day. I have money to go to restaurants with my friends. I have sufficient funds to eat fast food when I’m too lazy or too disorganized to have done my meal prep. I have money and, therefore, I have food.

    However, eating shouldn’t be a privilege accorded only to those with money. Without food, people die. It’s that simple.

    There are many reasons why people don’t have money, why they can’t afford to feed themselves. Unemployment, mental health problems, evictions, rental increases, homelessness, family conflict… These are just a few examples that readily spring to mind. Regardless of the reasons for lack of money, that article from the Walrus made me question if we, as a society, are really willing to let people starve to death for lack of funds?

    I don’t have the answer to that question, nor do I have any particular wisdom on how to eradicate the pervasive presence of poverty. My purpose with this article is to encourage you to think about what you can do today to minimize the risk of starvation becoming something that you have to face.

    First things first – be grateful. If you have food, shelter, family, health, then you’ve already been blessed with what’s most important. Be grateful for what you have and never take your situation for granted.

    After reading this blog for some time, you know that I’m a huge advocate of squirrelling away your money. Yes, it’s important to enjoy each day as it comes but not if it means spending every penny you have. You don’t know when the next emergency will hit, when you’ll get sick, when you’ll lose your job, etc…

    The time to save for tomorrow’s emergencies is now. Money is the buffer between you and many bad situations. Money in the bank gives you options when you need them most. Having money in the bank means you can survive between employers, between contracts, between assignments, between paycheques. It means that you can continue to live somewhere with a kitchen and a fridge and a stove and a place to store the food that you will be cooking for yourself. Having money set aside means that you’ve created a bigger gulf between yourself and a situation where you don’t know when you’ll next have something to eat.

    Once you’re in that situation, it’s very hard to get out of it because you’re too focused on daily survival to make plans for the future. Take my advice – start now!

    I want you to calculate your personal per diem, ie. your daily cost to survive. Track all the money you spend in a month then divide that number by the days in the month. For example, if you spend $3000 per month, then your per diem is $100/day.

    Then figure out how long you think it would take you to find another source of income if you lost your current one. Double that timeframe! Finding good paying positions – whether through freelancing, self-employment or working for others – isn’t easy. Be conservative! Assume that it will take longer than you expect and plan accordingly.

    Then look at how much money you already have set aside in a savings account. How many days could you survive off what you’ve saved?

    Having per diem money put away is your safety net. It should go without saying, but I’ll say it anyway, that the more money you have then the stronger your net.  Per diem money will help you to avoid the risk of starving if your income disappears for a time.

    There is no perfect fix to the issue of poverty. However, there are steps you can take to lower your risk of falling into a poverty so deep that you cannot feed yourself.

    As a Singleton, there isn’t another breadwinner in the home to supplement your income. It’s all on you, which is both a blessing and a curse. It’s a blessing because you don’t have to save as much money. It’s a curse because you do have to build and reinforce your safety net all by yourself. It’s my experience that the unexpected expenses of life still crop up while you’re building your cash cushion. It won’t always be easy but you’ll have to find a way to save money and also have funds to cover unexpected items without relying on debt.

    The cash cushion won’t be built overnight. Depending on how much disposable income you have, it could take you weeks, months, or years to set aside a big ol’ bucket of money. Do not let that deter you! Trust me when I say that this is a goal worth pursuing – no matter how long it takes!

    Never ever forget that money is the barrier between you and poverty.