Money - Millionaire on the Prairie

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.

Money Should Work Harder Than You Do

One of things that I’ve always understood about investing is that money works harder than people are able to. Money never gets tired, sick, distracted, or unmotivated. It literally works around the clock once it has been invested. People can’t do that. People need food, rejuvenation, sleep and time with loved ones. Those items are vitally important to being a healthy person and to living a good life. They also take people away from doing their jobs.

The trick to being healthy, living a good life and earning lots of money is to send your money out to work. Go back to the title of this post and believe what it says. Money should work harder than you do.

There are a few ways around this particular fact, but most of us have to do the initial work to get money. We exchange our labour (aka: life energy) for a paycheque. The paycheque may be from an employer, from our clients, or from our own business. It doesn’t really matter. We give away our life energy and receive money for our efforts.

The purpose of this post is to remind you that you can work towards a situation where you still earn an income to support your lifestyle without having to earn a paycheque. I’ve written before about how your income and your salary are not the same thing. Your salary is part of your income, but it’s not the only element. There are ways to fund your lifestyle without having to earn a paycheque. One of the ways to do this is by increasing your dividend and capital gains income. Dividend income and capital gains income are what I like to call passive income. As far as I’m concerned, passive income is wonderful.

Dividends and capital gains are monies paid to shareholders when companies make a profit. Your goal, should you wish to increase your income, is to invest in companies that pay dividends and capital gains. There are a number of ways to do so, but I strongly recommend exchange-traded funds and index funds. If you want to do individual stock-picking, then more power to you. That’s not my cup of tea because I don’t know how to do it.

Sadly, there is no way around the fact that you likely won’t earn life-changing amounts of dividends and capital gains at the start of your investment journey. Let me be clear. Your invested money will earn passive income. However, it will take some time before your passive income is enough for you to live on. This is one of the reasons why it’s important that you consistently invest each and every time you get paid. Secondly, you should aim to increase the amount you invest. Start with whatever amount you can commit and increase that amount over time.

You have to invest your money in order for it to work for you. The simple idea of investing has never generated a single nickel for anyone. Ask me how I know this. One of my biggest money mistakes was to not start investing my former mortgage payments as soon as that particular debt was gone. Instead, I spent years thinking about starting a dividend-heavy portfolio. I earned nothing while I was, in effect, procrastinating. The month after I stopped thinking and actually started doing, I earned my first dividend. I haven’t looked back since.

Remember how I said that your money should work around the clock? I wasn’t kidding. I set up a dividend re-investment plan, often called a DRIP. This way, my dividends are automatically re-invested into more units of my chosen ETFs and index funds. The dividends don’t sit in my bank account, and I’m not tempted to spend them. They are immediately put to work for the sole purpose of making even more passive income for me. It’s a highly lucrative feedback loop.

If you wanted, you could do the same thing.

Now, even though I’m a big fan of the Financial Independence Retire Early (F.I.R.E.) movement, I’m a super-huge fan of the FI part. I firmly believe that everyone who earns a paycheque should be working towards financial independence. If you part ways from your employer, or are otherwise unable to earn your keep, having a cushion of cash that’s funded by passive income is your safety net. The passive income can replace your earned income, if you choose to go back to work, or it can fund your retirement if you decide that working for a living no longer turns your crank.

Early retirement is not everyone’s goal. Some people love their jobs. There is no reason why they should stop doing what they love. The same cannot be said for financial independence. The best of both worlds is loving what you do and having financial independence. Most of us won’t have the former but all of us can work towards achieving the latter.

However, the money won’t start working for you, nor be there when you need it, unless you start investing part of your paycheque today. So start today – stay consistent – increase the amount you invest as you’re able to – achieve financial independence – live life & be happy!

The Holidays.

As hard as it may be to believe, the holidays are only a few weeks away. Thanksgiving will be here in another couple of weeks. (Or in November if you’re in the USA.) Then it’s another few short weeks until we celebrate Christmas, or Hannukkah, or Kwaanza, or Festivus.

While the holidays will be different this year, the fact remains that people will do what they can to keep tradition alive. That might mean mailing more presents, or swapping recipes instead of baking in the same kitchen. It might mean less travel but more time doing video chat. Or it might mean more road trips and fewer flights.

No matter how you and your loved ones plan to celebrate the holidays COVID-style, there’s a good chance that your wallet is going to take a gut punch before the celebrations are over. The time to start saving for the holidays is now. There are roughly 13 weeks left in 2020. Start setting some money aside each week so that you can pay for the upcoming expenses without putting them on credit.

Homemade for the holidays?

I’m going to take a wild guess and say that you’re one of the many people who are staying closer to home. If that’s so, then maybe you have some extra time on your hands. This might be the year that you take up baking Christmas cookies or other holiday treats. If you start a few weeks before the big day, you can probably bake some presents for the people you’ll be seeing.

After the year we’ve had, and the social distancing we’ve done, I suspect that a great many of us don’t want more stuff. However, we’d appreciate sharing a bite of something delicious with those we’ve missed. Stuff is easily forgotten. Happy time spent together? Not so much. People want the connection… and most of us connect over food in one way or another.

If you’re doing to be online anyway, try watching some videos of people baking (or cooking) something you’d like to share with your loved ones. I recently discovered the Preppy Kitchen on YouTube. I’ve spent hours watching the host bake delicious desserts. My eyeballs have consumed more calories than I could ever possibly burn off in one lifetime! That said, I’m still considering which of his delicious recipes I will be baking for Christmas dessert.

It doesn’t have to be a baked gift. You could make or create so many other things to be shared. Here’s one list of ideas that might appeal to you. The internet is a vast place so keep looking if none of these suggestions are the ones for you.

Spend cash, not credit!

Maybe you’re not the creative or crafty type. No worries! I’m not either. I bake year-round, but only make Christmas cookies at the end of the year. I’m more of a mall-shopper when it comes to presents for the holidays.

That said, please follow my lead. Only spend cash on the presents for others. No one wishes for their loved ones to go into debt to get them stuff. Well, maybe kids do but that’s because they don’t understand credit and debt just yet. The adults who love you don’t want you to be financially harmed over doodads and knickknacks. If you must buy people presents, then stay out of debt to do so.

Figure out a budget of how much you want to spend on others, then stick to it. Thanks to the pandemic, there’s a chance that your discretionary spending on other stuff has been curtailed this year. There’s a chance that the money not spent on commuting, the gym, sports activities, and eating in restaurants has resulted in a little bit more jingle in your pocket. I’m not encouraging you to spend more than you otherwise would! Savings should not be squandered simply for the sake of doing so.

What I am saying is that, hopefully, it’s easier for you to keep the credit cards tucked away this holiday season. If you’re fortunate, then you can spend cash only to fulfill your desire to give.

We are two thirds of the way finished with 2020. The holidays are coming up quickly. It would behoove you to start planning for how you’re going to pay for them. I want you striding into 2021 with a smile on your face and without debt on your mind!

Weekly Tip

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Make extra payments over the life of your mortgage to minimize the interest you pay over the life of your mortgage loan. This can be done by increasing your minimum payment each year. Or it can be done by putting a lump-sum down against your mortgage. The more extra payments you make, the less interest you will pay to the bank.

When Should I Start Saving?

In a perfect world, you would have started saving with the first dollar that you ever received, i.e. birthday money, paper route money, graduation money.

You would have gone to the bank – or your parent would have taken you – to the bank and you would have opened an account. Then you would have deposited that dollar before you’d had a chance to spend it. Everyone seems to know that the sooner you start saving, the better. However, there appears to be a disconnect between knowing and doing.

You’re the only person who can bridge the chasm between knowing what to do and then actually doing it. The truth is that it is quite simple to open a savings account in today’s world of online banking. It’s another very easy and straightforward matter to put an automatic transfer in place, thereby eliminating the need for you to manually transfer money into your savings account. The automatic transfer kicks in every time you’re paid – easy peasy lemon squeezy!

The very next best time to start saving money is immediately. I cannot stress this enough! Savings work best if you take steps to save money. Step one – save. Step two – don’t spend your savings. If you’re not yet accomplishing these two things, then you’re only dreaming about saving… which is all fine and good but it won’t help you very much since you can’t use dreams to acquire what you want. Dreaming about saving is not the same as actually starting to save.

I love dreams as much as the next lady, but dreams don’t put the cream in cupcake. You need to actually start saving – the sooner, the better. I speak from experience. One of the reasons that I’m able to seriously consider an early retirement is because I started saving a portion of my first paycheque when I was 15 years old. I’ve made many stupid decisions with my money over the years, but starting my savings plan in my teens is not one of them.

Now, let’s say there’s a good reason why you can’t start saving today. If this is your situation, then I want you to start saving money on any day that ends in the letter “y”. That leaves you with Monday, Tuesday, Wednesday, Thursday, Friday, Saturday, and Sunday. Each of these is a very fine day to start saving your money.

Whatever else you do, please don’t start saving tomorrow. First of all, tomorrow is promised to no one. Further, it is not a day ending in “y” so it’s not a suitable day on which to start saving. And while I hesitate to state the obvious, I feel that it’s best to articulate the fact that everyone eventually runs out of tomorrow’s. No one ever runs out of today’s – go back to my first point. Today is the very best time to start saving money.

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Weekly Tip: Practice delayed gratification. Wait a day or a week or a month before buying what you want. It gives you a chance to assess if you really want to make the purchase. It also gives the retailer a chance to put the item on sale. This is good because the whatever-it-is-that-you-want will be cheaper if you decide to make the purchase after a prescribed waiting period.

Progress need not be Perfect!

When you know better, you do better…
from one wise soul to another, Maya Angelou to Oprah Winfrey

No one is born knowing how to invest. This is awesome news! It means that anyone can learn how to invest if they take the time to practice the skill. It also means that progress need not be perfect.

Much like walking, playing the piano, and mastering Candy Crush, the skills of investing must be practiced and honed before one becomes proficient at them.

I’m a huge fan of YouTube. As I was perusing the millions of videos on that platform, I came across one that was called “Vanguard or Fidelity – Which one is Better?”

And do you want to know something?

Yes, Blue Lobster. Please, tell us what you’re thinking.

My initial reaction to that post’s title was to scroll right past it. I’ve learned a little bit of wisdom on my relatively few revolutions around the sun. And one of those bits is that it’s best to just start investing, regardless of where you do so. Progress need not be perfect in order for you to achieve your dreams. Think of it this way – every journey starts with a single step but not every journey to the same destination requires the same number of steps. If a person needs to take a few extra steps to where she’s going, then she still gets there.

Focus on progress, not on perfection.

For example, we will look at the situation of an investor named One. Let’s say One decides to invest with Fidelity. (To be frank and open, I invest with Vanguard Canada. And no – I’m not being compensated for mentioning them in this blog post.) One sets up an account at Fidelity and creates an automatic transfer to have a fixed amount invested into an exchange traded fund every time One gets paid.

Superb! One has taken the very first steps towards investing for One’s own future.

Did One make the absolutely best choice for an investment account? It’s hard to say without knowing if One spent hours doing the research to determine the management expense ratios, various fees, product offerings, and account features from all of the investing companies that One could have chosen.

What we do know with certainty is that One did not delay her progress by staying in the quagmire created by analysis-paralysis. One made the smart choice by focusing on progress, rather than trying to achieve perfection. One is taking action by accepting the maxim that progress need not be perfect.

There’s no doubt in my mind that a perfect, best account does exist somewhere out there. I’m just not certain that it makes sense to waste more than 3-4 hours looking for it. The ultimate objective is to start investing your money; it’s not “to open the perfect, best investment account.” Keep your eyes on the prize! No one is going to pat you on the back for opening the absolute best and perfect investment account if it takes you 2 years to find it after sifting through all the options. The best and perfect account doesn’t actually help you if you never actually open it and make an investment.

Again, progress need not be perfect. I know a baby who has just started to walk. He’s only been doing it for a few weeks, but he’s focused on progress, not on perfection. At first, he could only stand and would fall down every time he moved his head. A week later, he could walk ten steps unaided. The next time I saw him, he would walk slowly…and drop down to crawl if he had to get somewhere quickly. (The kid’s got a great big brain and understands that sometimes speed is of the essence!) The last time I saw him, this kid was very nearly walking like a champ – moving his head, going further distances, turning around without falling down too much. In another six weeks, crawling will have long been forgotten as a preferred method of travel.

The first time you walked, you fell down after a few steps. You didn’t let that stop you, did you? No, you didn’t! Instead, you tried again and again and again and again until you could do it. Without knowing you personally, I’m willing to bet that you’re now quite a proficient walker. The same principle applies to investing.

Always be learning while making progress.

Be like a baby – save and invest your money with the perspective that progress need not be perfect!

You see, there’s nothing stopping you from continuing to research investment accounts once you’ve started investing. Save-invest-learn-repeat. You are free to keep learning after you’ve made an investment.

Again, full-disclosure, I invest with BMO Investorline. And, again, I’m not getting compensated for mentioning them. Yet just because I invest with BMO Investorline doesn’t mean that I haven’t also research Scotia I-Trade, Questrade, RBC Direct Investing, or any other investing platform/company. (I’m not being paid for mentioning these platforms.)

Further, I have no idea if BMO Investorline is the ultimate, best and perfect option for me. It doesn’t matter. What does matter is that I am automatically investing in very inexpensive exchange traded funds and earning big dividends every month. And even though I’ve been with BMO Investorline for years, I would switch my investment portfolio in a heartbeat if I found a platform that better suited my needs for a lower price.

If One discovers that Vanguard Canada offers a more suitable range of investments products than Fidelity, then One is not in any way prevented from moving One’s investment account from Fidelity to Vanguard Canada.

Procrastination is the enemy of progress.

When it comes to investing your money, procrastination is extremely detrimental to achieving your financial goals. The reason why it is so bad is because you have a finite amount of time in which to grow your money. Money needs to be invested so it can compound. And compounding is most effective over long periods of time. Ergo, start investing your money right now so that it has as long as possible to compound.

Don’t let analysis-paralysis stop you from taking action today!

Your progress need not be perfect in order for you to reach your goals. Lord knows that my investment path hasn’t been smooth, nor will it ever be exalted as the absolutely correct path to take. If anything, my investment story should be viewed as a cautionary tale for fellow investors. However imperfect my journey has been, the fact that I started when I was 21 and have consistently invested my money for the past 2.5 decades has been a key factor in me pursuing and achieving my goals.

Neither you nor I can get to where we want to go without making some kind of progress. So we have an obligation to ourselves to keep moving forwards. Whether that’s listening to a podcast, reading a book, following a blog, or using trial-and-error, doing any or all of these things will lead us closer to taking action. And taking action is how we will progress towards making our dreams come true.

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Weekly Tip: Don’t pay for memberships or subscriptions if they’re no longer making your happy. As much as we might like to believe it, peer pressure didn’t end when we graduated from high school. Review your monthly expenses. How many things are you paying for simply because your friends are paying for them? If those things are no longer bringing you joy, then stop paying for them.

“Your relationship with money?” Clarification is required.

Lately, I’ve been seeing the phrase “your relationship with money” all over the place. What is that?

Clarification is required.

How can you have a relationship with money? It will never remember your birthday, tuck you in at night, check on you to see how you’re doing, worry about your health, or care about your feelings. Money is an inanimate object without feelings towards you. The fact that you have feelings for money is not the same as you have having a relationship with it.

If you have feelings for a movie star or sports figure whom you’ve never met, it doesn’t mean you’re in a relationship with that person. You’re in even less than a relationship with money than with a famous person because there’s a teeny, tiny chance that the Fates may smile on you, let you meet your heart’s desire, and that s/he becomes your friend/partner/spouse/boss/mentor.

Believe me when I say that money will never be any of those people to you or for you.

Money is merely a tool – that is all.

Much like a hammer or fire or a fork, money can be used to help you achieve your life’s goals, ambitions, and dreams. Money does not have feelings towards you, and it never ever will.

Take your birthday, for instance. Money allows you to buy candles for the cake. Money is useful if you want to buy yourself a present. Money is spectacularly proficient at assisting you to throw yourself a birthday party. However, money will never take the initiative to plan a birthday party for you or take the care of all the little details that will make your birthday special. The details, the organization, the planning – those all have to be done by a human being in your life.

Your parents, your friends, your boss, your elderly next neighbour down the street, your barista – these are people with whom you can have a relationship. Good or bad, your interactions with these people will create memories for both of you. Your shared experiences will be the foundation of your relationship with other people. You can influence whether those interactions are friendly or forgettable, frosty or fabulous.

No matter how you use money, the fundamental nature of your use of money is that of a human being using a tool to achieve a purpose. It is akin to you using a knife to butter toast. It is not a relationship, no matter how many times you use that particular tool.

Though we imbue it with many attributes and power, never forget that money isn’t a person. It has no loyalty towards you. It will never love you, never care about you, never think about you for one second. When you die, money will neither remember nor mourn your passing. Money is an inanimate object without feelings, reason, or morals.

Make no mistake. I am perfectly aware that money is extremely useful when it comes to buying things. However, money will never – not even in a million years – satisfy your emotional need for connection with another human being.

The high that comes with spending money on stuff never lasts because it doesn’t satisfy what people really want. They want the joy of connecting to someone else, so they buy the golf clubs or the sweater or the car or the house. What they really want is to feel heard, loved, and appreciated by special people in their lives.

You cannot have a relationship with money. This is why I’m so very perplexed by this phrase “your relationship with money.” You don’t have a relationship with money – it’s impossible. You have more of a connection with someone whom you’ve never met on the other side of the world that you do with money. You know what you have in common with the other-side-of-the-world-stranger? You’re both living on planet Earth and you share a common interest in ensuring that climate change doesn’t destroy the planet.

See? Money is not a person. That means it cannot relate to you. It also means that there’s no relationship.

Money can be used to build relationships.

You can use money to build relationships with people. If you want to do something nice for your co-workers, you can use money to buy the ingredients to bake for your colleagues or to bring in a box of pastries for all to enjoy. If you want to spend more time with your friends, you can use money to host potlucks at your house, to attend concerts with them, or to partake in a once-a-month-no-matter-what dinner date. If you want to improve your relationship with your family, you can use money to do those things that you know will bring the most joy and create the best memories for your kin.

Do you understand what I’m trying to say?

Money is useful for assisting you to achieve some of the relationship goals that you may have for relationships with the people in real life. Allow me to be clear. Money won’t solve all relationship problems, but it can certainly facilitate the creation of experiences & memories that you wish to share with those who are close to your heart. Do you want to take a vacation with friends? Attend a concert with a sibling? Try a new restaurant with a fellow foodie? Money can help you do all of those things.

Money is a tool that permits you to create experiences with other human beings. Those shared experiences are the foundation of your relationships, whether positive or negative. Money has no feelings about those interactions one way or another, which means money is not relating to you. It is simply a tool that you can use to achieve what you want.

You can have as many relationships as your energy and time will allow. But I’m here to tell you that you simply cannot have a relationship with money.