Tag: money mistakes

One of my Biggest Money Mistakes

Tempus fungit… which is Latin for time flies. And boy does it ever!

In 2006, I was fortunate enough to pay off my house. Unfortunately, I wasn’t smart enough to immediately turn my former mortgage payments into investment contributions. Instead, I didn’t start dollar-cost-averaging into the stock market until 2011. This was on one of my biggest money mistakes.

I missed the 2008 stock crash (Yay!!!) but I also missed 2 years of the recovery between 2009 and when I started investing in 2011 (Boo!!!!).

And what did I do with my money between 2006 and 2011? I seem to recall a trip to Hawaii in 2007. I’m sure I made some renovations to my home. I financed my vehicle and paid it off in six months. The rest of the money… I haven’t a clue where it went.

Coulda…Woulda…Shoulda….

Now that it’s 2020, I really regret that I didn’t start using dollar cost averaging the very second that I no longer owed money on my mortgage. If I had, then I would be 5 years closer to my retirement goals. Sure, I’ve got 9 years of consistent investing under my belt but I could have had 14 years of investing behind me. Why did I wait so long? Partly, it was because I listened to well-intentioned friends and family who told me to relax and enjoy my money.

The choice to listen was mine, and I accept full responsibility for it. At the time, I was younger and far less money-wise than I am now. However, I just wish that I’d found blogs like this one – or any of the other super-awesome blogs out there – earlier than 2011. Right now, I follow Personal Finance Club on Instagram. He encourages his followers to “Invest early and often”. You might want to check him out, follow him for a while, learn stuff that you might not already know… or not. The choice is yours.

I love PFC’s mantra and I wish I’d found this Instagram account in 2006. As it is, I started following PFC on Instagram in 2018. By then, I was already investing regularly but I still really like the graphics on his account. In any event, his advice is great. If I’d started in 2006, then I would have had 20 years of retirement savings under my belt by the time I hit my planned retirement date. As it currently stands, I’ll only have 15 years of savings in my kitty.

Unfortunately, I learned too late than procrastination is a time-waster. Even if you love your job, save and invest for financial independence. If your budget will allow, start working towards financial independence while you’re also paying down your debt. If that’s not possible, then start saving and investing your former debt payments once the debt is gone. There’s no need to duplicate my money mistakes! Do not use your former payments for day-to-day living. Instead, turn your former debt payments into investment contributions so that your money starts working hard for you as soon as possible.

Once I finally committed to investing for my dotage, I set up automatic transfers and began building my army of money soldiers. I’m happy that I’ve been able to consistently invest month-in, month-out since 2011. Yet, I still regret that I didn’t start in 2006 so that I’d be that much closer to financial independence.

Procrastination is to be avoided…

You don’t have to in any way adopt, imitate or copy one of my biggest money mistakes. Experience is a great teacher. You can just as easily learn from someone else’s experience as your own. Why not learn from mine? You need not make all the mistakes yourself.

Take a good look at what’s happening to so many people during the COVID-19 pandemic. Far too many people have lost their employment through no fault of their own. From what I’m reading in the media, precious few of those people have enough money tucked away to survive a job loss. They do not have the luxury of not worrying about how to pay for what they need. In short, they were not financially independent when the pandemic hit.

The best reason to consistently work towards financial independence is because you don’t know when you’ll want to stop – or when you’ll be forced to stop – working for a paycheque. If you love your job and can’t wait to spring out of bed to do it, then save for financial independence anyway. Being financially independent doesn’t mean that you’re obliged to quit doing what makes you happy.

Should the unthinkable happen and you stop loving your job, being financially independent also means that you have the option to stop doing what no longer brings you joy. You can quit to do something else without wondering how to put food in your belly.

And if you find yourself unceremoniously tossed out of your job, being financially independent means you won’t be in the position of wondering how to pay for the expenses of your life.

As stated by the Physician Philosopher, financial independence is the escape hatch. His article is about burnout among medical doctors, specifically, but the principle applies to any employment situation that you may want to leave. When you aren’t concerned about financial consequences, it is so very much easier to leave your employment whenever the mood strikes. Conversely, financial independence gives you the luxury of tending to your wounded pride, without any additional financial stress, should your employer unilaterally decide to send you on your way.

Please don’t be a procrastinator! Start working towards financial independence today.

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

Weekly Tip: Pay the lowest management expense ratios (MERs) as possible while still meeting your investment goals. When two products are essentially the same yet priced differently, it makes no sense to pay more than necessary to acquire what you need. Use this calculator from the British Columbia Securities Commission to see the impact that MERs have over long periods of time. The lower your MER, the higher your final investment amount.

Minimize Your Vehicle Debt

It is ridiculously easy to incur as much vehicle debt as much as possible – aka: more than absolutely necessary – when buying a new set of wheels. You simply have to do the following three things:

  • borrow as much as you possibly can,
  • get a really high interest rate; and
  • pay the absolute lowest minimum monthly payment.

Taking all of these steps will ensure that you acquire and maintain the maximum amount of vehicle debt for as long as possible.

… Wait – what?!?!?

On the off-chance that you’d like to keep more of your money for yourself, this article will teach you how to manipulate a few financial levers. By following some or all of these tips, you’ll get a new vehicle. The side benefit is that more of your hard-earned money will stay in your own damn pocket.

Ideally, you’ll pay cash for your next vehicle. The sad truth is that we don’t live in an ideal world. Gentle Readers, I know that most of you will take a loan and spend several years paying off your vehicle debt.

Should you wish to avoid paying the maximum on your debt, then heed the following words. There are several levers at your disposal to keep your vehicle debt as low as possible.

Lever 1 – Buy a less expensive vehicle

First, you don’t need the most expensive vehicle that your budget will allow. It’s perfectly okay to drive something that costs a wee bit less than what the car dealer wants you to finance. Be completely honest about what you need, not what you want. All you really need is a vehicle that will safely get you from A to B.

Your worth as a human being is not determined by the car you drive. Transportation should never have any impact on your self-esteem. People who care about how your car looks aren’t the ones who are paying for it. If they want you in a $95,000 SUV, then let them foot the bill. Your goal should be to drive what’s best for your budget because you know that your value as a human being is not dependent on the kind of vehicle that gets you from one destination to the next.

It never ceases to amaze me how many people never consider the option of spending less money in the first place!

Lever 2 – Get the lowest possible interest rate

I cannot stress this enough. There are 2 portions to each of your loan payments – the interest and the repayment of principle. The interest rate is the price you have to pay to the lender for borrowing their money. If you have a low interest rate, then more of your payment will go to repaying the principle instead of lining the finance company’s pockets. The opposite is true. A high interest rate means that more of your payment goes towards paying interest.

The interest rate applied to your vehicle loan will fluctuate with your credit score. A higher credit score results in a lower interest rate. Conversely, a low credit score results in a higher interest rate.

Lever 3 – Increase your monthly payment

Increase your monthly obligation results in the loan being paid off more quickly.

For example, let’s stay that you can get a 5-year loan for $150 per month. If your budget will allow for a $350 payment, then make the higher payments for a shorter period of time and pay off your debt years earlier. Hear me well as I say the following to you…

Making the minimum payment never benefits the borrower!

Paying the lowest minimum amount always results in the maximum amount of interest being sent to your lender. Paying a higher amount than absolutely necessary is a form of short term pain for long term gain.

Lever 4 – Make a big down payment

Your down payment on your next vehicle should be as large as you comfortably afford. The larger your down payment, the smaller the monthly payments required to completely eliminate the loan.

You’re going to have to pay for the vehicle anyway so minimize the pain by paying for it as fast as you can. Hopefully, you’ll be able to sell your previous car privately and get more money than by selling it to the dealer. There’s always the chance that you’d been saving up for your next car in anticipation of being able to pay cash, but something went awry and you had to buy sooner than you’d anticipated. If that’s the case, then good on you! Use the money from your vehicle savings fund as your down payment.

Lever 5 – Make loan payments to yourself

Once your loan is paid off, continue to save the payments in a separate account. Your current car will not last forever. And no – paying off one loan is not an automatic trigger to buy your next vehicle. Drive your vehicles until the wheels fall off!

Trust me on this – your car purchases will always incur far less hassle, angst and financial worry if you already have money in place when it’s time to buy the next vehicle. By continuing to save your car payments, you’ll give yourself two options: you’ll either have the cash on hand to simply pay for it all at once or you’ll have a sizeable down payment to ensure small monthly car payments.

Money Mistake #2 – My Mortgage

Looking back, I’m certain that I made a money mistake when I chose to pay off my mortgage instead of focusing on investing.

At the time, I was in my 30s and my mortgage was less than $100,000. I had bought my first home when I was 28 years old. I had a 25-year amortization and my bi-weekly payments were $750, if memory serves. That amount was probably $450 more than I was required to pay since I had routinely increased my mortgage payment by the maximum allowable percentage each year. I was able to handle the costs of running my home, and my budget fortuitously still contained a significant bit of disposable income.

Hindsight is 20/20

I wish I had known then what I know now. Had I become wiser sooner, I would have invested that extra $450 bi-weekly into the stock market. Hindsight is always 20/20, right?

So how do I explain my choice? A good deal of my reasoning at the time was founded on fear. I’m a Singleton. That means I don’t have a second income coming into my household. I knew that if something were to go catastrophically wrong, then I would lose my home. My family’s not wealthy. They would have done what they could, but I would have most likely lost my home eventually. Having a paid-off home seemed to be the smartest move for me.

I was also a huge fan of Dave Ramsey’s book – The Total Money Makeover. I read that book diligently and wholeheartedly subscribed to his teachings of becoming debt-free as soon as possible. After adopting his teaching, I put it into practice and attacked my mortgage with a vengeance.

With the benefit of time, I’m wondering if I didn’t make another money mistake. My goal had been to retire at age 50, not a particularly young age in the world of F.I.R.E. but certainly younger than the traditional age of 65. I’ve crunched the numbers and I won’t be able to hit my target without a large lottery win, or without developing a taste for cat food. I don’t want to retire simply to stay in my house due to financial constraints.

What could have been

If I’d known then what I know now, I would have stuck to my minimum required mortgage payments. Doing so would have allowed me to invest all that extra money into the stock market. Obviously, I would have taken part in the roller-coaster ride of the 2001 crash. And I would have gone through the other one that we had in 2008. Yet, I would have been be sitting quite pretty by now. My investment portfolio would be much fatter even though I would still have my mortgage.

I should not fault myself for not knowing everything about money in my thirties. Blogs were just beginning to take off. Unlike today, the Internet wasn’t a ready source of debates about the benefits of paying off a mortgage versus investing for the future. I picked a path, believing that I could do just as well if I started investing in my mid-30s. I wanted the security of a mortgage-free home before directing my funds towards my investment portfolio. It seems kind of weird to write that down. Today, I realize that if I had invested first, my portfolio would be throwing off enough income to pay my mortgage.

Take it for what it’s worth

What worked for me won’t necessarily work for you.

Today, 5-year mortgage rates are less than 3.5%. When I took out my first mortgage, I was overjoyed to have a 5-year rate of 6.5%. Today, my first condo would sell for approximately $240,000. I’m the first to admit that my condo wasn’t anything special even though I fell in love with it on sight. (That’s another money mistake that I made!) When I bought that condo, I paid $74,000.

My advice to other Singletons with a mortgage is to crunch your own numbers very carefully.

Like I’ve written elsewhere on this blog, you’re the one who is responsible for your income security in old age. You’ll need a place to live and your goal should be mortgage freedom before retirement. At the same time, you need to invest your money for growth so that you have a nice, fat investment portfolio to get you through the thirsty underwear years.

Even though I now believe that everyone should be investing for long-term growth while paying off their mortgage, you know the particulars of your circumstances better than I do. As such, you are the person best situated to make the choice that you think is best.

My money mistake was a doozy, but I’ll still be okay. I’ve got a mortgage-free home and a solid portfolio. I would have had more if I’d known better, but I still have plenty so I can’t complain too loudly. Life presented me with a choice between two sacks of gold. I chose one over the other, but I still wound up with a sack of gold.

Cook Food – Save Money!

One of the reasons why I write this blog is because I have this deep-seated belief that someone out there might learn from my experiences and avoid making the same mistakes that I’ve made on my journey to wealth. I’m narcissistic enough to think that my words will have an impact if I share them on the Internet. So here we go…

Looking back on the choices I’ve made with my money, I can honestly say that one of my biggest mistakes is that I’ve never used my kitchen enough. I eat out – A LOT!!! I have a standing bi-weekly date with one co-worker. I go out with another friend every single week. There are impromptu lunch invitations which appear in my inbox, and I say yes to those far more often than I say no. I can count on one hand the number of times I’ve declined a lunch invitation! On top of those social outings, there are the many, many, many times that I’ve simply not brought a lunch and have gone to one or another of the fast-food outlets or restaurants located near my work.

On the plus side, I always pay cash for my meals. None of my meals has resulted in me staying in debt any longer than I have to. I can still accomplish my goals.

So why do I consider it a money mistake to not use my kitchen more often?

I view it as a money mistake because, most of the time, eating out isn’t the best use of my money. Now, my meals with friends and colleagues do allow me to socialize with people I love and respect. That’s wonderful and I don’t regret those meals.

However, when I have to go get a lunch to eat at my desk, I’m disappointed with myself. Money spent on those meals isn’t bringing me happiness or joy. I could have – should have – spent that money at one of the two wonderful grocery stores that lie between my parked car and my house. Twice a day, every day, I drive past two grocery stores. They’re bright, well-stocked, and very clean. The staff are friendly and helpful. Both stores carry everything I need to make myself healthy dinners, and thereby healthy leftovers for lunch the next day.

Even when I buy something healthy for lunch, I’m irritated with myself. For instance, I enjoy fruit so I occasionally buy fruit cups but this is still not a joyful purchase. I’m essentially paying double or more the cost of the same fruit at the grocery store. I’ve paid for someone’s labour to cut up the fruit, knowing full well that I have cutting boards and knives at home to do the same job. I’m contributing to the demand for plastic and other single-serve packaging, which is bad for the planet. Food from home is transported in reusable containers that are washed and re-washed many, many times before they break or otherwise need to be replaced.

And since this is a personal finance blog, I have to state as explicitly as I can that shopping at the grocery store is cheaper for me than it is to eat out for lunch! If I hit up a fast-food place, my wallet is atleast $9 lighter when I walk out. A sandwich from the grocery store is going to cost a lot less than a sandwich from the coffee shop. And if I want a drink to go with that sandwich, I’m looking at atleast $11. Try doing that 5 times a week – suddenly I’m spending $55 per week! Let’s say I go to a restaurant instead of a fast-food outlet. In my city, you can’t get a lunchtime meal for less than $20 after tip.

For $55-$100 per week spent on food, I’m better off going to the grocery store. A lasagna might cost around $27 to make once all the ingredients are purchased. (Your grocery store prices may be higher or lower. I live in an expensive province.) However, that lasagna will feed me atleast 5 times, bringing the cost per meal down to just over $5. Chain-store coffee in my city costs more than $5 if you go for one of the fancy ones!

And that’s just for lunches. I’m also very bad for mid-morning snacks. I leave my house by 6:30 am, which means I’ve eaten breakfast at 6:10 or so. My tummy starts distracting me around 9:45 or 10:15, so I invariably go down to the coffee shop for a muffin. I’m spending atleast $3.50 for that muffin! Thankfully, I don’t buy a coffee to go with that muffin or else I’d be spending atleast $5 for my mid-morning snack every day.

So what does all of this mean?

Essentially, it means that I’m a dum-dum for not doing some very basic meal-planning in order to cook tasty dinners that will generate enough food for the next day’s lunch. And, yes, I’m also a dum-dum for not baking some snacks for myself every weekend. However, Rome wasn’t built in a day and I know that I won’t kick all of my bad habits in a single blow.

The question I’ve had to ask myself recently is why should the fast-food places get my money instead of the grocery stores when it’s the grocery stores that best meet my need for tasty, healthy lunches & snacks?

Now that I’ve identified my money mistake, my next step is to stop making it in the future.

I’ve committed to reducing how much I spend on eating out. Time with friends over a meal is still very important to me so there will be no changes to that part of my budget.

The big change will happen on the days when I don’t have lunch plans. For those days, I will cook something delicious for dinner so that I have leftovers. Lasagna is a marvellous leftover food! I’ve also got a kick-ass recipe for Shepherd’s Pie. A few weeks ago, I discovered a recipe from www.allrecipes.com for something called Chicken, Sausage, Peppers & Potatoes – a wonderful one pot meal that easily accommodates additional vegetables if desired.

I will stop at the grocery stores two to three times a week so that I have the ingredients on hand to cook for myself. I may never learn to love grocery shopping, but it’s simply something I have to do to live my best life and to maximize the enjoyment that I get from my money. Am I still spending money? Yes, of course. Am I getting more enjoyment out of my money? Hell, yes!!!

It took a long time for me to come to this realization but I’m finally convinced of its truth. Cooking and baking my own food is a highly effective and utterly delicious way to satisfy my hunger and to save money at the same time.

Procrastination is a Money Mistake!

I’ve made my share of mistakes when it comes to money.

 

One of my biggest mistakes was waiting 5 YEARS before I started investing in my non-registered portfolio of dividend-paying exchange traded funds (ETFs). I paid off my house when I was 34 but I waited half a decade before I started investing in dividend-producing assets outside of my TFSA and my RRSP. That was such a dumb move that I almost want to slap myself! I was investing my former mortgage payment money in somewhat expensive mutual funds. Fortunately, I’d had the brains to not spend my newly-freed-up mortgage payment on stuff! However, I was getting raises at work during this time so I’d had the good fortune of having additional disposable income on top of my former mortgage payments. Unfortunately, I wasn’t smart enough to re-direct these extra funds towards my non-registered investment portfolio. In other words, money from my raises did not work as hard for me as it should have.

 

And if you were to ask me what I did with my “extra” money during that time-frame, I’d be hard pressed to tell you. I know that I took a trip to Hawaii with my mother. I know that I bought my SUV, although I paid it off within 6 months of purchase through gazelle intensity. I know that I did some renovations to my house. However, the rest of it must have just disappeared via thoughtless spending. I have no idea where it went and that drives me crazy!

 

You want to know the kicker? I’d spent the three years prior to actually investing thinking that I should be putting my money into an asset that would pay me dividends. I yearned for a dividend-paying portfolio so badly that I could taste it. I craved a dividend-paying portfolio because I understood that those dividends would compound over decades to create a solid cash flow to supplement my other retirement income. I spent hours reading blogs and personal finance books, pouring over newspaper articles about value investing versus growth investing, deciphering the various blah-blah-blah from multiple sources. Yet, I was no closer to actually buying the dividend-producing assets that I wanted.

 

Despite all my time thinking about what I wanted, I didn’t take any action to make it happen – instead, I waited and waited and waited to start! And when the financial crisis hit, I froze. I listened to the faceless voices on the radio who were predicting the end of the stock market as we knew it. Years of procrastinating will cost me dearly because I could have been investing steadily during the financial crisis and scooping up investments at low, low prices. Instead, I waited and pondered and thought and wondered and dreamt and delayed and considered and waited a little bit more!!! My inaction means that my Little Money Soldiers have five fewer years to go out and reproduce themselves.

 

I’d always wanted to retire at 50, but I don’t think I can hit that target without winning the lottery. In case you were wondering, picking the right numbers is a lot harder than it looks!

 

Part of me will always wonder if I could’ve hit my goal if I’d started investing all of my disposable income into my non-registered portfolio as soon as I’d paid off my mortgage. It’s a horrible game of “What if?” and there’s no good answer. The truth is that I can’t go back and re-write history. What’s done is done. And I have to remember that I still love the renovations that I’ve done to my house, and that I loved the travelling that I’ve done since becoming mortgage-free. During those 5 years of procrastination, I was smart enough at the very least to pay cash for everything so I never got myself into debt.

 

So what caused me to finally make the investment that I’d wanted for 5 years? Mainly, it was a smart little voice inside my head that spoke firmly and said the following: “Enough! Just start or it will never get done.”

 

I wish that voice had been more melodramatic or that the words had been more inspiring but the little voice was short and sweet. I listened to the little voice and went to my brokerage account’s website to get started. It only took a few minutes to set up my automatic transfers, to enter the initial buy order for my dividend-producing assets, to set up the dividend re-investment plan (DRIP), and to take the first step towards getting the kind of portfolio that I wanted.

 

The other thing that kicked me into gear was all the reading I was doing on personal finance blogs about something called the “side hustle.” Back in my day, a side hustle was called a part-time job. Times change and I must change with them. In any event, a side hustle is a way to make money beyond going to your main job. I knew that an investment portfolio which paid me dividends every month would count as a side hustle…and it offered the added benefit of not requiring me to really do anything in order to get the money. Yes, I had to earn the money to buy the units in my ETF but I already had a firmly established habit of investing my former mortgage payment so there was no trouble on that front. I simply had to move the contribution from my old investment to my new one. Easy-peasy!

 

The other benefit of my chosen investment plan was that my deeply-held preference for laziness would be satisfied, yet I could still tell myself that I had a side hustle.  I too had joined the ranks of the personal finance bloggers whom I admired and who had found ways to benefit from a side hustle in addition to their regular, full-time employment. The cherry on top of my plan was that my dividend income would receive preferential tax-treatment, which is just a fancy way of saying that my dividend money would be taxed at a lower rate than my employment income.

 

There are many, many ways in which I could have made significant financial mistakes with my money. Procrastination is the one that will hobble my dream of early retirement at age 50. However, it could have been worse. I could’ve gone into debt, or I could’ve co-signed a loan with someone who skipped out on the debt. I could’ve spent my mortgage money after my mortgage was gone. I could still be waiting to start!!! When I’m flagellating myself a wee bit too much about this financial mistake, I remind myself that I’ll still retire sooner than most and that I could’ve done a whole lot worse than living in my own head instead of taking action as soon as I’d figured out what I wanted to do with my money.