Suddenly, they had no money.

When I watch movies, I like to think about the personal finances of the characters or the financial implications of the stories. Unlike sex and violence, movies aren’t explicit about most characters’ money situations. When bad guys beat up the good guys on instruction from someone else, haven’t you ever wondered how much the bad guys were paid to do so? Most bad guys in movies are killed or grievously injured. What kind of medical coverage do they have? Do they have life insurance for their dependents? Do they even have emergency funds to cover the bills while they’re unable to work?

Think about the characters who are dressed and coiffed impeccably from start to finish, without ever wearing the same outfit or accessory twice. Don’t you ever wonder how they can afford that while working in whatever job they have? The exception to this last question is Tony Stark. It’s clear right from the get-go that he’s a multi-billionaire. But what about the other Avengers? How do they afford their lives? Especially Bruce Banner! Does he own lots and lots of stock in clothing companies? What kind of premiums does he pay for liability insurance? Captain America was encased in ice back in 1945. Had he socked away some money before his time in the army? Did he live on its compound growth once he was thawed and back among the living?

Before I get too far off topic, let me get back to what I want to talk about in this post. The ending of Don’t Look Up has stuck with me for a very long time because it was about wealthy people, a group that evokes my latent desire to be an amateur sociologist. As I watched the elderly naked characters emerge from their spaceship, I was struck by the futility of their departure from Earth.

None of them were wealthy anymore. How could they be? They had no money… which struck me as deeply ironic since having more money than anyone else in the world had allowed them to be on the spaceship that took them to the new planet. By the same token, they didn’t exactly need money either. After all, they no longer had any bills or expenses to pay. However, people wealthy enough to book a seat on a spaceship generally aren’t concerned about which streaming service should be cut from their budget in order to make ends meet.

It was quite clear from the movie’s ending that only the very wealthiest of humans had gained passage on the spaceship, and only because they could afford to buy their way on board. On Earth, right up until hours before the comet destroyed the planet, they had been the people with more money than anyone else. They had such disproportionate access to wealth that they could pay to leave the planet when they felt it was time to go.

As those formerly-rich folks emerged from the spaceship and took their first steps on the new planet, I said to myself: “What was the point of leaving? It’s not like they went to a better place. How are they going to adapt to the fact that they no longer have money?” ***

My point with this post is that the movie made me ponder whether someone can be rich if there are no poor people around. If everyone is on an equal footing financially, then can anyone be considered wealthy?

At the end of the movie, all of those naked people were in the exact same financial position as everyone else around them. None of them enjoyed the benefits of intergenerational wealth, networking, or opportunity based on lineage. Every single one of those people had lost all of the privileges associated with being one of Earth’s Financial Elites.

The so-called survivors at the end of Don’t Look Up no longer had access to all of the status symbols associated with uber-wealth on Earth:

  • Servants? It was unlikely that any one of them would deign to serve someone else as they had been served in their former lives on Earth.
  • Multiple homes? Unlikely… they’d all just gotten off a spaceship and were walking around an utterly alien terrain.
  • Family businesses? Also very unlikely. Their families had been abandoned back on Earth and killed by the comet, just like the customers who had patronized those businesses, just like the employees who had worked in those businesses.
  • Stock portfolios? Art collections? Expensive jewelry? Nope – nope – nope. The new planet wasn’t tied into the banking system and the stock markets on Earth, so no one person had any ability to access whatever paper assets they had owned. Also, every bank and stock market on the planet had been destroyed by the comet. Every monetary system known to man had been annihilated.

Literally and figuratively, their wealth no longer existed. Would that itsy-bitsy, teeny-tiny realization blow their minds later? The movie ended before I got an answer to my question. In my consideration of what went through their minds, I can only come to the conclusion that the level of cognitive dissonance that would have been experienced by those formerly-wealthy folks would have been breathtaking!

Now, I know that movie was about humanity’s refusal to face the inevitable until it was too late to make any changes. Whether it was a plea to stop our relentless destruction of the environment or a plea to pay attention to the asinine level of incompetence happening in government, the fact remains that the last few minutes of the movie were about those who had left Earth before the comet hit. I’ll never know if the director intended it or not, but my take-away from the end of Don’t Look Up was that the formerly-wealthy people’s departure from Earth had only delayed the final demise of humanity; it didn’t prevent it.

Think about it. Humanity was still going to be extinct for a variety of reasons. Firstly, none of those “survivors” were capable of reproducing themselves, so no new humans at all, ever. Secondly, I harbor great doubt that any of them could feed or shelter themselves for very long once they had exhausted their provisions, if any. Thirdly, the naked, elderly humans seemed utterly un-prepared to face the aggressive, people-munching wildlife on their new planet.

I know it was just a movie. However, that doesn’t stop me from imagining their shock at discovering that having all the money in the world wouldn’t prevent them from dying too. The so-called survivors landed on an unfamiliar planet without any information about it other than that they could breathe the air. For all intents and purposes, they were in nearly the same position as the first humans who had walked the Earth. And I say “nearly” because those early humans had the benefit of their fertility. Whatever lessons one generation learned while struggling to survive were passed down to children. In other words, early humans had a future! The survivors who emerged onto the new planet didn’t even have that. From what I could see in the movie, those survivors were all elderly and well-past their baby-producing years.

Can you imagine how their minds must have been blown?

Without the yardstick of money and without possibility of leaving a legacy, what had they really accomplished by leaving the planet? They got to ride in spaceship before dying on alien soil? Yet, with the destruction of Earth, there was really and truly no one left to mark this event. Whether or not dying off-planet was an accomplishment, their knowledge and record of doing so would die with them.

To my mind, they would have had to find a way to deal with the fact that they were no better off than the people who had died on Earth.

Also, I had to wonder if they had any useful survival skills. Astonishingly enough, their talent for creating wealth was of absolutely no use to them in their new location. Remember, they had been financial Titans on Earth. They had earned bucket and buckets and buckets of money in their former lives. On a new planet and without any kind of mentorship, would any of them have been able to survive the way the earliest humans had? How much food had been packed into the spaceship? Once it ran out, would any of them be to hunt or grow their own food? Would they have splintered off into even smaller groups or would they have found a way to work together? How would they have preserved their sanity in the face of no future???

The way I see it, money is a bit of a scorecard. In a capitalist society like ours, having more money means you’re winning. Money means access to food, shelter, healthcare, transportation, communication, education, and a good deal more stuff. However, there comes a point where a person no longer really has to worry that he or she won’t have enough. These are the people with net worths in the 9-figure range and above. These are the people who got off the spaceship at the end of Don’t Look Up. However, having the best financial scorecard on Earth is less-than-trivial if Earth is the only place that particular scorecard is recognized.

What happened to the so-called survivors’ perceived self-worth once they realized that they were no longer winning? That the game had been changed and their net worth was the exactly same as everyone else’s? That their previous privilege and status was literally meaningless on the new planet?

How did they handle the knowledge that, suddenly, they had no money?

*** And I’m not trying to engender sympathy for the uber-wealthy. That way lies pitchforks and angry mobs.

Life Gets in the Way

I’ve enough life experience to know that life gets in the way of the best laid plans. And since this is a personal finance blog, I’m going to try and expound on this idea as it impacts your money decisions.

It’s easy to tell people to invest consistently. Showing others how to set up automatic transfers to a brokerage account is a matter of a few graphs and maybe some one-on-one coaching. Reminding people of the importance of always living below their means is a simple task. Wanting to do those things is as easy as falling off a log!

The reality is that doing those things is NOT EASY. Ideally, everyone would be able to invest money from every single paycheque, without fail. Being able to do so for years and years requires that a lot of things go very right for a very long time.

First of all, you need to earn an income that has room for saving. If every penny you earn is spent on shelter, food, transportation and utilities, then where is the “investing-money” going to come from? Are you willing to cut back to only eating twice a day? Maybe you won’t bother paying for electricity during the summer months? Maybe you wouldn’t mind only showering once a week to save on water?

My point is that there is an income level at which it is unrealistic to expect someone to save. They would be living a life of deprivation, such that their basic needs are not being met. It would be cruel and perverse to expect that they would deprive themselves even more.

So let’s say someone is making enough to cover all of their needs and most of their wants. They might even have enough for a luxury or two. These are the people with “investing-money”. They can live below their means and still live a comfortable life.

However, life can get in the way of their investing plans too. What if a family member needs financial help? Or what if a vehicle needed to commute to work is totaled and the insurance payout isn’t enough to buy a replacement in cash? Maybe the parents’ retirement income isn’t enough to keep the lights on so they need a few hundred dollars every month to keep from being hungry? What if an employer goes bankrupt and another position isn’t to be found for another 8 months? What if illness prevents one from ever working again?

My point is that you can only invest month-in-month-out if everything goes well all the time.

This isn’t the reality for most. For the majority of us, there are always expenses that crop up and demand that we make a choice. You can personally make all the right personal finance moves then have your life upended by a motor vehicle or workplace accident that requires months, maybe years of rehabilitation. No one chooses to be hurt in this fashion. Being a great employee won’t save you if your employer goes bankrupt during a recession and no one else is hiring. Similarly, that status won’t help you if the only jobs you can find are minimum wage or just above that level. Let’s be honest. You cannot invest what you don’t have.

Even if you have an emergency fund, there’s no universal law stating that your emergency will cost as much as or less than what you’ve socked away. Similarly, there’s no prohibition against you experiencing more than one serious emergency at a time. And if you are “lucky enough” to have an emergency that falls within the capacity of your fund to handle, then you’re in the position of having to replenish your emergency fund.

So unless you’re income has increased, you’re faced with the choice of using your money to invest or to replenish your emergency fund. After all, you only have a finite amount of money. You owe it to yourself to make the best use of it. Having an emergency fund is a cornerstone to taking care of your financial needs. Yet, investing for the Care and Comfort of Future You is also extremely important.

It’s called personal finance because it’s personal. There is no one right answer for everyone. With each passing day, I am convinced that it’s a rare few who can invest without fail over a lifetime. While many have the intention, the vagaries of life can sometimes impede the implementation of such a plan.

Do me a quick, free favor. If you’re doing your best to save for your future, then pat yourself on the back. You still have to survive today. And if that means lowering your investment contribution to $10 per month, then so be it. I am not going to suggest that you starve today so that you can eat tomorrow. If you’ve used your emergency fund, replenish it. If you don’t have an emergency fund, start one. If you’ve lost your income, then preserve your money until you’ve secured another source of income. If your family needs help to avoid ending up on the street, then make the decision that lets you sleep well at night.

Life gets in the ways of the best laid plans. That doesn’t mean you stop planning. It means that you adjust and tweak your investment plan as necessary, without abandoning it completely.

Create Money Pots and Organize Your Money

Welcome to 2021! A bright and shiny new year stretches out in front of us. Have you figured out what you want to do with it? Any resolutions in place yet? Or do you firmly believe every new dawn brings you the chance to change you life as you see fit?

Whichever philosophy you adopt, I’d like to suggest that you organize your money in a way that best suits your lifestyle.

You know how your recurring monthly bills arrive every other day? It could be a bill for a utility like electricity, heat, or water. On the other hand, it could be bill for some service that you makes your life a little bit easier, like a housekeeper, or lawn service. Maybe it’s a subscription for some kind of pampering service, like a wine-of-the-month club or food delivery. Whether by email or by snail-mail, there always seems to be some utility/service provider out there who wants to receive some portion your hard-earned money:

  • $13.99 for Netflix;
  • $400 to heat your house;
  • $14.95 for your Audible books;
  • $104.71 to keep your mobile phone turned on;
  • $57.85 to keep the weeds away;
  • $60-$140 for your wine subscription;
  • $115 for your gym membership;
  • $Y-amount for product/service-of-your-choice.

You get my drift. Between you, me and the fencepost, it’s more likely than not that you have way more monthly subscriptions than the few I’ve listed above. Who do you know who has only one streaming service? I know people who pay for cable on top of Netflix, Crave, and Disney+!!!

And even though you agreed to pay for each of these utilities and/or services, are you ever truly and deeply excited to actually get the bill? Does your heart leap with joy when it’s time to pay for what you’ve ordered? Or is it more often the case that you ask yourself where the money is going to come from in order to cover the cost?

It’s been my experience that the fun is in the having of the whatever-it-is, not in the paying for the whatever-it-is.

Here’s another couple of questions for you. And you need not share your answer with the class if you don’t want to. I just want you to be brutally honest with yourself… Are you ever caught off-guard by these payment demands? Are the words “I thought I just paid for this!” a part of your daily lexicon?

If so, then I have the perfect solution for you.

Introducing the money pot.

Sadly, it is not the one at the end of the rainbow. Nope, these nifty little caches of coins are ones that you will fill yourself. You create money pots to segregate your funds based on their intended purpose.

A money pot is the place where you set aside money from each paycheque to pay for various things. In this particular circumstance, you should create a money pot dedicated to your recurring bills. If you use your money pot correctly, I promise that you will never again have to scrounge around for money to pay your monthly bills.

Money pots are an integral part of your financial armamentarium. Think of them as stopover points for your money. The money arrives via your paycheque, stays in the money pots for a little bit, then leaves again to pay for its intended purpose. If you create a dedicated money pot for your recurring bills and use it as intended, its balance will fluctuate without ever growing significantly. Money will go in – bills will arrive – money will go back out to pay them.

Where does the money come from?

You’ll fund this money pot by adding up your monthly recurring bills then ensure that this amount of money finds its way into your utilities/services money pot every money. If you receive atleast 2 paycheques each month, then you can automatically transfer half of that amount to you money pot. If you’re paid monthly, then the full amount comes out of your paycheque and goes straight into your money pot.

Let’s say your monthly recurring bills are $1000 each month and you’re paid every two weeks. You’ll set up an automatic transfer of $500 every two weeks. That money will be sent to the money pot dedicated to your monthly bills. By having these funds set aside, you can pay your recurring bills as they arrive. You have the comfort of knowing that your money pot will be replenished every 14 days. No more scrounging around for the cash to pay your bills!

From this point forward, your automatic transfer should be automatically funding your money pot every time that you are paid. To be blunt, set things up so that your paycheque goes into your chequing account and then some of it is automatically transferred to your money pot. Recurring bills land in your inbox or mailbox and you pay them immediately from the money pot.

You know what else is great about this system? You’re in control of the size of your monthly bills. If you want to shell out less each month, then you can do so. And if you think your life needs a little something extra each month, then you’re in charge of that decision too. The amount of money going into your money pot is entirely up to you.

Divide and Conquer for the Win!

It’s been my experience that having one stash of cash from which to pay everything makes it rather easy to delude one’s self. The precise details of the delusion vary but, at its heart is the false belief that a large balance in one’s chequing account means that all the money therein is suitable for spending willy-nilly. Don’t feel bad if you’ve ever succumbed to this fantasy. You’re human and this illusion is particularly seductive.

Frankly speaking, the majority of mere mortals aren’t particularly good at ensuring today’s wants do not take priority over tomorrow’s needs. It’s okay to admit it – wants are generally more fun that needs! 

You’ve heard me talk about sinking funds before. Once you’ve identified your priorities, you direct your money to paying for them by relying on automatic transfers. The money pot for your recurring monthly bills is a sinking fund designed to handle the very short-term demands on your money. You’ll use the funds within the money pot to pay for the routine bills that come around every 30 days. It is to be kept separate from your emergency funds, your retirement funds, and your investment portfolio. This is not the money that you spend on groceries, clothing, or vacations. This money is for funding those bills that come around, month-in-and-month-out, until such time as you cancel them.

Since you’re the only one in charge of your money, it’s on you to ensure that your recurring utility bills are funded, before you start spending on your wants. Creating and funding a money pot for your recurring bills is an effective way to complete this monthly chore.

Trust me on this! Automatically funding a money pot for all of your recurring monthly bills guarantees that the money doesn’t “accidentally” get spent on something else. 

Never Stop Reading!

Learning doesn’t stop with graduation. You should never stop reading. Read everything that you can get your hands on. Reading opens your mind to new ideas & perspectives. No one says you have to agree with everything that you read, but you owe it to yourself to learn as much as you can in the time you have left.

Since this is personal finance blog, I’m going to talk about the personal finance books that have shaped my financial life.

The Automatic Millionaire by David Bach

I loved this read for its simplicity and ease of implementation. After reading it, I didn’t have to spend too much time setting up my automatic transfers. 20 minutes? Maybe 30 minutes? In less than an hour, I’d created a system whereby a portion of my money went to my long-term goals, another portion went to my short-term goals, and the rest stayed in my chequing account to get me from one day to the next. Easy-peasy-lemon-squeasy!

I’ve been using automatic transfers for more than 2 decades. They eliminate the need for me to remember to transfer money from my chequing account to my investment account. The money is magically in place when it’s time to make an RRSP or TFSA contribution. There’s money waiting to be deployed to pay my monthly utility bills. Learning how to automate my money at a young age set me on a good path when it came to personal finance.

The Wealthy Barber by David Chilton

There’s something special about your first. I was 21 years old when I read this book. I was naive and very un-sophisticated when it came to money matters. However, this book impressed upon me the important of starting my Registered Retirement Savings Plan as soon as possible so I did. I was a student who paid nothing in taxes, hence I got a full tax refund back every year. Still, those little contributions to my RRSP have since grown into a nice six-figure income. What I took from this book is that investing is best started as soon as humanly possible.

The Two-Income Trap by Elizabeth Warren and Amelia Warren Tyagi

Senator Warren’s book was my first foray into the political implications of personal finance, and the risks that are associated with dual income families spending both of those incomes. I promised myself that if I ever married, I would make sure that my partner believed in living below our means just as much as I did. That way, we could live for today while still saving and investing.

While I’ve never married, I still set aside a good chunk of my salary for investing purposes. Mental gymnastics allows me to split my household income into two! Sometimes I pretend that the monthly dividends generated by my portfolio are the take-home pay of my imaginary spouse. It’s the best of both worlds – a second income without any money fights about how it will be spent!

Debt-Proof Living by Mary Hunt

This book was fantastic. I loved it because it gave me an infrastructure for how to set up my short-term money. One of the best ideas I’ve ever come across is the Freedom Account. Its purpose is to cover the irregular expenses that come up every year, but aren’t emergency expenditures. Think of things like oil changes, clothes purchases, pet expense, vacations. These are the expenses that do not occur regularly but still have to be covered. You don’t know exactly when you’ll have to pay for them but you know it’s going to cost some money.

I’ve had my Freedom Account for decades, and it’s been my safety net more than once. If you don’t have one, I suggest that you get one.

The Richest Man in Babylon by George S. Clason

It’s a parable that’s also a quick read. I loved this book! The financial principles about savings and investing have been around for centuries. And so have the mistakes that people make with their money. This parable touches upon the difficulties of not spending every nickel earned, finding good mentors, investing properly, and repaying debts. It’s also about the fact that get rich quick ideas are scams, more often that not. Building wealth takes time and consistency, but almost anyone can do it by following the right principles.

Quit Like A Millionaire by Kristy Shen & Bryce Leung

This inspirational story of retiring in one’s early 30s will stick with me for a long time. I learned about the challenges and strategies for early retirement. This book opened my eyes to idea of living outside of North America in order to save money. I learned about how to segment my money so that I wouldn’t have to sell from my portfolio during a market downturn.

Kristy and Bryce are the brains behind the Investment Workshop, one of the best free sources I have ever found for learning about how to create, maintain and re-balance your portfolio. Take advantage of their lessons to set yourself on a path for a comfortable retirement, early or otherwise.

Again, never stop reading!

As I’ve said before, you need not make every mistake yourself – you can learn from the mistakes of others. Books are a source of knowledge. They’re free from the library. Even in our COVID-19 circumstances, you can still access library books – you simply need to go online instead of into a building. Never stop reading!

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Weekly Tip: Create you own pension by investing your money towards your retirement. Fewer and fewer employers are offering pensions to their employees. This means that you have to save for your own retirement. If you don’t save the money for Future You, then no one will. Start today by squirrelling away a little bit of money, invest it for the long-term, learn a little bit more about investing, then start over. Save, invest, learn, repeat!