Tag: Priorities

Yesterday, Today, and Tomorrow

Today, I listened to a really good interview on YouTube with the fellow from Debt Ascent. He and his wife had over $500,000 in student loan debt. They paid it off in 5 years, while buying a house and also fully funding their registered retirement accounts. This was a great interview for two reasons.

Not everyone has fat to cut.

What I loved about this interview was that Mr. Ascent acknowledged that not everyone has the same ability to pay off debt as quickly and as easily as he and his wife. While both of them earned good six-figure incomes, they chose to live on one income while pursuing their financial goals. One of the things I loved best about this interview is that Mr. Ascent articulated that it is easier to meet your financial goals when you have a larger income.

Don’t misunderstand me. If you’re earning $300,000 per year and spending every penny, then you are in the exact same financial boat as the person who earns $35,000 per year and spends every penny. Both of you are living paycheque-to-paycheque. However, if both of you realize that you need to make financial changes, only one of you has the ability to make significant changes in a relatively short period of time.

Mr. Ascent acknowledges that there is a baseline of spending. In order to pay for the basics, everyone has to spend a certain amount of money. While it might fluctuate based on location, let’s say that the baseline is $35,000.

When you’re earning $300,000, you can choose to cut expenses. Doing so frees up a good chunk of money for you to fund your financial goals. Maybe you decide to pay off the auto loan in 18 months instead of 5 years. Perhaps you switch to cash instead of credit so that you can pay off your credit cards faster. Once your debts are gone, you have the ability to re-direct debt payments to funding your retirement accounts and paying off the mortgage.

At the other end of the spectrum, an income of $35,000 doesn’t allow you to make such big financial changes. At that salary, you’re going to need the vast majority of it just to pay for your life.

Unlike the vast majority of personal finance bloggers out there, Mr. Ascent expressly acknowledged that it’s easier to meet your financial goals when there is a lot of fat to cut from your budget.

Paying for yesterday, today, and tomorrow.

The other fantastic part of this interview was hearing Mr. Ascent talk about how he and his wife prioritized their money. In his words, they made choices to maximize every dollar. They were able to get a mortgage rate of 3%, and had a rate of 2.95% on their student loans. He disclosed that in order to get such a low rate on their student loans, they had to agree to pay $4,000/mth for 7 years. Further, they knew that they were responsible for funding their retirement so that was priority number one. And, of course, they had to pay the mortgage or else they’d lose their house. Every “extra dollar” was sent to their student loan debt rather than being funnelled into an investment account.

Why? Isn’t the common wisdom to invest while paying down debt? Don’t all the calculators show that doing both works out best over the long-term?

Perhaps… Yet, personal finance is personal for a reason. What works for one won’t necessarily work for all.

The Ascents took a different view. In Mr. Ascent’s words, they wanted to prioritize their money in order to maximize their cashflow. They realized that the sooner they rid themselves of that $4,000/mth minimum payment, the sooner they could earn and keep that money for themselves. In other words, eliminating that payment would mean an immediate increase in their household’s disposable income. The Ascents realized that they would be able to cut back to working 4 days a week if they chose. The former student loan payment could be re-directed towards their mortgage, resulting in even more disposable income sooner.

So that’s what they did. According to Mr. Ascent, registered retirement accounts were funded first as they were the highest priority. The next highest priority was paying the mortgage. Finally, the minimum student loan payment was made. And when there was extra money, it went to the student loans.

If I understood him correctly, they were completely debt-free within 7 years of finishing their respective graduate degrees. They paid off half a million dollars in student loans as well as a $200,000 mortgage. On top of that, their retirement accounts have hit the half million dollar mark. Their starting salaries after graduation were a combined $200,000 and they managed to double that in less than 10 years.

Again, Mr. Ascent was humble enough to recognize that he and his wife were in a very fortunate position to be able to do what they did. At not point did he ever try to make the argument that everyone could mimic their choices, no matter their income.

Well, anyone could do that…

… if they were earning that much money. That’s the common response upon learning that the Ascents earn big bucks as a dual-income professional couple.

I think that response is short-sighted. There are many people who earn high salaries, and are living paycheque-to-paycheque. Having a high income provides you with the opportunity to pay off debts fast, to fully fund your retirement, and to rid yourself of your mortgage. A high income is not a guarantee that any of those things will happen. The choice to spend money belongs to you. The Ascents are an example of a high income couple who chose to live below their considerable means in order to achieve the goals that they set for their money. Again, they chose to live on one salary while the other salary went to paying off debts and funding their retirement accounts. The choices they made after graduation paved the way for them to have full control over their entire paycheque.

There is absolutely no doubt that having a very high income was beneficial. That fact should in no way diminish the choice that they made to live on one income. They made the choice not to upgrade their lifestyle once they finished graduate school. Together, they decided to eschew the path of consumerism and to focus their energies on removing the shackles of debt from their lives.

Again, anyone could do that!

You’re right. Anyone who earns more than the baseline income needed to survive can make the same choice as the Ascents. To be clear, I absolutely understand that some incomes are just not large enough for more that subsistence living. This post is directed at those who do have the fat-to-cut in their budgets, yet choose not to align their spending with the dreams they have for their lives.

Just like the Ascents, you have the choice to prioritize your financial goals. Nothing is stopping you from living below your means in order to fund those goals. It might take you longer than 7 years, but so what? Would you rather spend every penny and not ever achieve your dreams? Or would rather work a little bit longer to see your long-term goals become a reality?

As soon as you decide what you want, you’ll be in a position to start figuring out ways to make it happen.

Priorities Are Personal

Every day that you wake up offers you the chance to move closer to, or further from, your priorities. You can spend your life’s energy, time, and money in ways that are making your dreams come true. You can just as easily spend your resources making someone else’s dreams come true. One way or another, you will be spending our life doing something. It’s up to you to decide what that “something” is.

As the title of this post states, priorities are personal. There’s a very good chance that your priorities are not going to be the same as anyone else’s. Sure – there are general themes that apply to all of us. We all need food and shelter every day. Yet, some people will only eat organic while others will never learn to cook more than toast. Some people want a water view from their bedroom balcony, while others need easy access to the slopes and mountain trails in order to feel at peace.

The distinctions are in the details. And since this is a personal finance blog, I’m here to encourage you to spend your hard-earned dollars in ways that permit you to achieve your life’s priorities.

Most of the time, the things we want cost money. In the Before Times, I travelled every single year. In 2016, I had started travelling overseas. A big chunk of my annual spending was devoted to this priority – flights, hotels, food, souvenirs, excursions. It added up to $5,000 – $7,000 per year. Travel was one of my priorities so I was willing to give up other things. I ate breakfast at home instead of buying it at the coffee shop before work. I learned to cook more recipes in my own kitchen, instead of relying on the good folks of the restaurant industry. Spa treatments were curtailed. Concerts were foregone in favour of Spotify or CDs. Each of these littles choice allowed me to save between $100-$150 each week in order to fund my travel priority.

You can do the same thing.

List out everything that you want. Whether you cap the list at 10-20-30 things or experiences that you really want is entirely up to you. This is your list of priorities. Once you’ve completed the list, move to step two.

Put this list in order of importance. Is getting a pet more important to you than season’s tickets to a sporting event? Would you rather save for a down payment or go to a weekly happy hour? Does retirement matter more than upgrading your vehicle?

Once you have your priorities in order, you turn your attention to the money. How are you going to pay for all of your priorities?

Honestly? You can’t pay for everything at once. If you could, then there’d be no need to prioritize. You list is meant to help you choose where to allocate each dollar. As each priority is funded, the dollar can move to the next one.

For my part, my priorities are well-defined. Some of them will take a long time to pay for, but others can be funded in less than two years. Priority number one is paying for the annual expenses that will only stop when I do – property taxes and insurance premiums. I know in my heart of hearts that the day I don’t pay my insurance premiums is the day that my house burns down while my car is in the garage. I have an automatic savings plan in place so I can accumulate the money to pay these annual bills when they come due.

Retirement is priority number two. Sadly, I am not a member of the “I Love My Job” Club. My job is challenging, interesting, and well-compensated. I work with very smart people and am part of a well-functioning team. However, I’m not gleefully jumping out of bed every morning in order to do my job. I’m looking forward to retirement so I don’t have to do those parts of my job that I don’t enjoy.

As you may have surmised, travel is priority number three. In the Before Times, I’d be planning my next trip on the flight home. The world is a big place. I might not always have the physical ability to see it. Ideally, I will see as much of the world as I can while I still have the ability to walk, stand, sit, and maneuver without too much difficulty. However, we’re currently in pandemic times so travel is taking a back-burner.

Fixing up my house is priority number four. And by “fixing up”, I don’t mean replacing furnaces and water heaters. Those are things that fall under “maintenance/repair/replace”. No – I’m talking about landscaping projects. I’m taking about new carpet, new paint, new cabinetry. The stuff that has made HGTV so incredibly successful! There’s a good chance that I will be in my house for a very long time, so I want it to be comfortable and to my taste.

Priority number five…

Well, truth be told, there really isn’t one. Maybe replacing my SUV in the next 5 years? Whatever isn’t spent on priorities 1-4 sits in a slush fund, accumulating until such time as there’s something that I really and truly believe will make my happy.

It’s up to you to do the same with your money. From this day forward, think about your priorities before you spend your money. A simple way to do this is to set up automatic transfers to fund your priorities. Hive off part of your income into a savings account – for short term goals only – so that the money is there to pay for your priority. Long-term goals like retirement need to have their allocations invested in the stock market – RRSP and TFSA for registered monies and investment accounts for non-registered monies.

Why I love Tangerine

As you know, I hate paying bank fees. Thankfully, there are many great options available so I never have to. (And if you’re still paying bank fees, please tell me why? You don’t have to pay them either if you’re willing to spend roughly 20 minutes setting up a free online bank account.)

However, I digress. The three best online banks in my opinion are Simplii, EQ Bank, and Tangerine. And to be explicitly clear, I am not being paid by any of these banks for this post. I’m simply sharing my opinion. Feel free to do your own research make your own choices.

At the time of this post, EQ Bank had the highest interest rate on its savings accounts.

Tangerine is my favourite online bank for the reason that it is best suited to help me achieve my goals. First of all, one customer number allows me to create and access up to 5 sub-accounts. Secondly, I can ascribe a name to each of these sub-accounts. Thirdly, I’m able to use automatic transfers from my real-world bank account to the sub-accounts.

All of my favourite personal finance tools are available to me in one online bank. What’s not to love?

Make use of Sinking Funds!

The older I get, the worse my memory becomes. Raise your hand if you can relate! Anyway, having sub-accounts means that I can create pools of money for my short-term goals. Before COVID-19, I traveled every single year so one of my sub-accounts was appropriately named “Travel”.

The beauty of naming my sub-accounts is the inherent prioritizing function that I had to go through in picking those names. Again, I only have 5 sub-accounts so I had to figure out which of my many short-term goals were the highest priority. Travel is still more important to me than furniture, which is why I still don’t have a sub-account called “Furniture”.

Having various sinking funds for my short-term goals means that the money is there when I need it. Un-sexy things like insurance and property taxes need to be paid every year. One of my sub-accounts is a sinking fund for those expenses. When those bills come due, the money will already be there. Do you know how nice it is to not have to scrabble together the money at the last minute?

I also have a sub-account for medium-term goals, namely anything that needs to get purchased in the next 2-5 years. When it was time to replace the windows & siding on my house, I got the quote then got to saving. It took nearly 2 years to save up the money but I wasn’t worried about how to pay my contractor when the work was done.

And once that particular job was done, it was no longer a priority. So that particular sub-account acquired a new name… “Landscaping.” Trees need to be cut down… grading needs to be levelled… new sod needs to be laid. (For those of you who don’t yet own a home, know that it is a money-pit. On top of the mortgage, you will be on the hook for repairs, maintenance, upgrades, and all the other financial joys that come with home ownership.)

Automate!

You know what else I love? Automatic transfers! Yes, you heard me say it – I love automatic transfers. I have my main bi-weekly transfer from my checking account to my very first Tangerine sub-account, which I call my Freedom Account. (Shout out to Mary Hunt of Debt-Proof Living!) I have more transfers in place from sub-account #1 to the various other sub-accounts.

Here’s another reason why I love Tangerine. This particular online bank has a rather unique feature that I haven’t found anywhere else. Tangerine allows me to implement “Money Rules” and these rules allow me to control what happens to the overflow.

Overflow? Blue Lobster, what the hell is overflow?

Dear Reader, if you’ve been doing automatic transfers for any length of time, you know that money piles up. One day, you account has $25 then the next time you check it, there’s way more! That’s the power of implementing automatic transfers. You do it once then move on to other tasks in life. Your money will accumulate automatically without you having to remember to make every single transfer manually.

At Tangerine, you have the option of re-directing money once a pre-determined amount is sitting in your sub-accounts. That re-directed money is the overflow. Pay attention – here’s where the steak starts to sizzle.

Money Rules in Action!

For example, you need to accumulate $3000 for your pet emergency fund. So you set up an automatic transfer. Once your $3000 is in place, you’re not going to cancel your automatic transfer! Instead, Tangerine gives you the power to have that money re-directed to one of your other sub-accounts. Maybe you’re saving up to go on a road trip or new furniture. Tangerine’s system means that money that otherwise would’ve stayed in your pet emergency fund is sent to your next highest spending priority.

And you don’t have to worry about fiddling with the automatic transfer should you need to use some of your emergency funds. Let’s say you need $1500 for your furry friend’s surgery. Your pet emergency fund will drop down to $1500. The automatic transfer will go back to funding that sub-account until it gets back up to $3000. At that point, future funds – the overflow – are whisked away to the sub-account named for your next highest priority.

It’s a pretty sweet little feature. Again, it ensures that your money is going towards your highest spending priorities.

Do yourself a favour.

At the very least, consider opening a Tangerine account. The purpose of this account was, and mostly still is, to make it somewhat difficult to access this money until I really need it. I wanted a simple method to siphon money from my day-to-day spending to my financial goals.

You don’t have to obtain a bank card for this account. I’ve had my Tangerine account for more than 10 years. I’ve never asked for a bank card. Without one, I can’t withdraw money at a bank machine. My money stays in place until I need it. What more could a Single One want?

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Weekly Tip: Figure out your priorities and spend accordingly. There will come a point in life where you realize that it makes absolutely no sense to spend your money on things that don’t make you happy. The sooner you reach that point, the better.

Tough Choices

Try as I might, I still haven’t figured out a way to get everything that I want. There are always tough choices to be made about money. I honestly believe that tough choices are the foundation of the non-financial side of personal finance.

While the Single Ones among us do not have to fight with anyone about money, it’s still incredibly important for us to identify our spending priorities. Being single does not eliminate the requirement to take responsibility for our money. Setting priorities helps us figure out what to do when tough choices have to be made about how to spend our dollars, and which goals to pursue.

Last weekend, I found a wonderful house. It’s a 1500sqft bungalow with main floor laundry, a double-car garage, and – wonder of wonders! – a large foyer that opens into a beautiful, bright living-space. Did I mention the large composite deck, the spacious & fully-furnished basement, and the fabulous ensuite off the master bedroom? It’s even in the neighbourhood that I’ve been watching for the past ten years!

So why didn’t I jump on the change to buy it?

Here’s why… Doing so jeopardizes my retirement plans.

The house is almost perfect for me. It’s main drawback is that it would require me to commit to working for at least another 5 years. Time is precious. I’m not one of the Very, Very Fortunate who loves their job and would do it for free. While my job has a great many benefits, I’ve long dreamed of the days when I can spend my time doing what I want and not what my employer pays me to do. I don’t want to sacrifice 5 years of my retirement for a house.

And it wouldn’t just be losing 5 years of retirement. Having a mortgage again would mean that I would lose the financial flexibility that I have right now. In pre-COVID times, it was so nice to be able to say yes to spontaneous invitations without worrying if my budget could handle the expense:

  • Dinner with friends to celebrate the warmer weather? Sure.
  • Can I afford the Rimrock to attend a good friend’s wedding? I’ll be there with bells on!
  • How about a last-minute theatre performance? Not a problem!
  • Why not pop over to the Emerald Isle in six weeks? I’m on my way!

Taking on a six-figure mortgage at this stage of my life would mean giving up the little extras that bring me joy. Those little extras are my reward for having been diligent and focused in my younger years, when I was paying off student loans, car loans, and the mortgage on my current house. Back then, I said “No” a lot more than I do today. Friends and family often chided me for the financial choices that I made, but I don’t regret following my plan. After all, I was the one who had to live with the consequences of my spending choices.

So as much as I wanted to buy the very awesome new house, I had to make a tough choice between two competing priorities. I could stay on track to retire, and continue to live in my current home which is perfectly suitable for me. Staying in place means that I don’t have to forego time in retirement. Alternatively, I could go back to having a mortgage and living on a tighter budget. In addition to all its lovely features, this new house’s property taxes are twice what I pay now. I’d have a higher heating bill each month, and I expect that the other costs of running a house would be higher too. Also, little renovations that I would want – a railing for the deck, new paint in the dining-room – would have to be put off. My budget wouldn’t handle renovations and mortgage payments at the same time.

At the end of the day, I chose to say “No” to the new house. The truth is that I’m not prepared to give up my goal of retiring when I want. I don’t hate my current house but I’m also not enamoured of the idea of never living anywhere else before my long dirt nap starts. Part of me is craving to be the Joneses, to buy another house, to set up a new little spot to call my own. It seems that everyone I know has bought a new house in the past 5 years – family, friends, colleagues, acquaintances. Why should I be the only one who doesn’t get to buy a new house?

The last question is a stupid one. I am not being deprived of a new house! I’m simply making a different choice. Those who have bought won’t have the option of retiring a wee bit sooner. They’re committed to repaying the bank or losing their home to foreclosure. The choice for them was to buy the house and to work longer than I’ll have to.

When it comes to money, tough choices have to be made sometimes. I’d already defined my priorities so it wasn’t too, too hard to walk away from the new house. I know what’s most important to me.

Ideally, you’ve also defined your priorities and you’ve figured out how to spend your money so that you can meet them. You’re the one who works hard for your money so make sure that you’re pursuing your priorities whenever you spend it. Whether you want a new vehicle, a new home, a new book, or new clothes, just make sure that your money is going towards the priorities you’ve set for your life.

The tough choices won’t go away completely. Knowing your priorities will better equip you to choose the alternative that gets you closer to the life you want to live.

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Weekly Tip: Update your net worth every month, or on a regular schedule that best suits you. Net worth is determined by adding up your assets and subtracting your debts. If you have a negative net worth, that means you’re in debt. If you have a positive net worth, then your assets exceed your debts. Your net worth is a snapshot of your finances at a given point in time. Knowing this number will help you to determine what your next steps need to be on your financial journey.

I am not an Economist

First and foremost, I am not an economist. I write this article as someone old enough to remember H1N1, SARS, the Great Financial Crisis, and the DotCom crash. I’m quite certain that there were other economic challenges earlier in my life but I was young enough, or naive enough, to take no notice of their impact on my life.

Anyone who pays attention such things knows that the stock market is experiencing a great deal of volatility right now. Most people are scared of contracting COVID19. Businesses are shuttered. Some people are losing their jobs. Other people are trying to hoard essential products. Pictures of empty grocery shelves are everywhere.

It’s easy to be afraid right now.

Again, I am not an economist. However, you should have faith that the stock market will recover. When? No one knows. Yet, I am 99.999% certain that this is not the end of capitalism. The supply chains are still running. Grocery shelves are still being stocked. Prescriptions are still being filled.

Very smart people all over the planet are working on a vaccine for COVID19. They will find one.

What I think you should do

Do not panic with your investments! If you can avoid it, then do not sell anything in your portfolio right now. The only way to lock in a loss is to sell when the price falls.

The stock market will recover from this dip. No one knows how whether the recovery will happen by the end of 2020, or whether it will recover in 2 years. However, the impact of COVID19 will become an item in the rearview mirror when the stock market starts to go up again. Just like H1N1, SARS, the Great Financial Crisis, the DotCom crash, and all the other economic shocks that have preceded this virus.

Should you be one of the fortunate ones who has stable employment right now, then I urge you to stick to your current investing schedule. This suggestion is based on the assumption that you have a fully-funded emergency fund of atleast 6 months of expenses. If your emergency fund isn’t this full, then cut out non-essential spending until it’s nice and fat. You’ll never regret having an emergency fund when you need one!

Keep your investing schedule in place. I invest monthly. I plan to continue investing unless circumstances drastically change. A long time ago, I decided that timing the market would only drive me nuts so I’ve never attempted to market-time my investments. Instead, I opted to making regular investments into the stock market every month. Money goes in – dividends get paid & re-invested – money goes in – dividends get paid & re-invested… ad infinitum…

If you have an investing schedule, then stick to it. Right now, investors have the ability to buy equities when prices are low. Again, I’m going to state the obvious – the stock market is low right now. No one – and I mean NO ONE – knows if we’ve hit the bottom of whether the stock market will continue to fall over the next few weeks. Yet, those who invest in a broadband index funds (or exchange-traded fund or mutual fund) and who stay invested for the long-term will see positive returns.

Note that I’m only referring to buying broad-based index funds and similar products during this downturn in the market. If you’re the sort who engages in stock picking, then I wish you all the best. Stock analysis is not something that I would suggest. I have no way of knowing which stocks will recover to unseen heights and which ones will crash when the underlying business fails.

Learn from my mistake

Full disclosure: I am a self-taught buy-and-hold investor who believes in dollar-cost averaging. This means that I skim money from each paycheque to invest in the stock market on a regular monthly schedule. I invest in exchange-traded funds, and I’ve done well.

However, I haven’t always made the smartest decisions with my money. I’ve made significant errors with my own investments. One of the worst decisions I made was back in 2008 when the stock market plunged. The value of the stock market was falling and I made a HUGE mistake. I stopped investing money on the way down!!! My fear took hold and I decided to wait until the “market got better”. Thankfully, I was smart enough not to sell but I wasn’t smart enough to stick to my strategy to dollar-cost average into the market.

Had I stuck to my strategy of investing money every month, I would have been buying during the market crash. This is known as “buying low“, and it’s an exceptionally good thing when you plan to hold onto investments for a very long time.

If I hadn’t erred, I would have taken full advantage of the recovery that started in 2009 and that ran up until a few weeks ago. My portfolio might have been big enough to let me retire a few years earlier than planned had I not made this monumental error.

Though I can’t remember exactly when, I did re-start my investing schedule and I’ve stuck to it ever since. COVID19 is not going to prevent me from counting to save-invest-learn-repeat. I will still move money from my paycheque to my investing account. Every month, I’ll continue to buy units in my exchange-traded funds. I will not stop regular investing this time around.

And if my income isn’t stable?

If your income is variable, or in doubt, then your focus needs to be on eliminating all non-essential spending from your life so you can squirrel away your cash. Right now, your priority has to be survival – rent/mortgage, food & prescription medicines. Everything else has to go on the back-burner until you get a handle on how you’re going to continue to receive an income.

Focus on beefing up your emergency fund. That money that used to go to drive-through coffees? Stick it in your emergency fund. Your monthly massage? Social distancing means massages are out for a while. This is a really good time to cut subscriptions to things that no longer bring you joy. Find the fat in your budget and trim it away so that you have money to live on if your income goes away.

Keep your money liquid in a high interest savings account. Allow me to state the obvious: you will need cash to get you through the hard times in case you lose your job. This is not the time to be making extra payments to your debts, nor is it the time to start investing in the stock market. Gather your money in a safe place so it will be there when you need it.

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Weekly Tip: Stop non-essential spending for the next few weeks. Top up your emergency fund. Stay indoors. Wash your hands. Stay healthy!

Decide – Execute – Enjoy!

The first step to getting what you want is to prioritize your goals. You’re the only one who can decide what you need in order to live the life that you really want. The next step is to create and execute the plan to turn your dreams into your reality. The final step is to enjoy the reward of your efforts. Decide – execute – enjoy!

I’ve followed this three-step plan to achieve many goals in my life, both large and small, long-term and short-term. When I got tired of saying that I’d never been to Europe, I decided to go overseas. Between 2016 and 2019, I travelled to Europe three times. For each trip, I found a way to set aside the money from my paycheque so that I could visit Italy, Spain and Ireland. Getting to Europe was important to me so I found a way to make it happen.

The Claddagh Ring – Dublin, Ireland
The Sargrada Familia – Barcelona, Spain
Trevi Fountain – Rome, Italy

One of the keys to my success was using technology to remove the temptation to spend money on things that didn’t get me closer to this particular goal.

Automatic Transfers are Your Friends

I absolutely and completely love automatic transfers. They are reliable – they’re effective – they’re simple to understand. All a body has to do is decide how much money to put toward a particular goal, and then put an automatic transfer in place. For example, if you wanted to create an emergency fund of $3500, then you could automatically transfer a fixed amount from each paycheque into a separate emergency fund account until you’d saved $3500. Easy-peasy lemon-squeezy!

Once one goal is reached, you simply keep the transfer in place and use the money to go towards the next most important goal.

And you needn’t limit yourself to having one transfer. For my part, I have 4 automatic transfers in place. One is for my long-term goal of early retirement. Another is for short-term goals like travel, house repairs, birthday & holiday presents, theatre tickets, vehicle replacement, and the like. The third transfer is in place for my charitable donations. And finally, the last transfer is in place to cover the costs associated with being a home-owning adult who has bills to pay.

Once my automatic transfers go through, I can spend the rest of my paycheque however I want! My long-term goals are being funded. My short-terms goals are also getting a little love. The costs of running my house and various other bills all get paid on time. And I have money set aside for charity. The rest of the money can be squandered and I can still create the life I want for myself.

I enjoy the theatre and I go several times each year. When it’s time for me to renew my subscription to Broadway Across Canada, the money’s there. Holiday traditions are important to me since they mean time with my family and friends. Is it time to buy some Christmas presents? The money is already there. And let’s not forget those special occasions that aren’t always so predictable. Invitation to a wedding or a spa weekend with friends? The money’s waiting for me.

Sinking Funds are Key to Paying for It All

Automatic transfers are a magnificent way to build sinking funds for all of your anticipated expenses.

While we live in an instant gratification society, one of the realities of good financial stewardship is that we can’t always get what we want when we want it. Credit cards create the illusion that you’re living your best life. They allow users to buy whatever they want the very second that they want something. However, unless that person has the money sitting aside to pay the bill, credit cards burden people with exorbitant interest payments.

Credit cards don’t teach people about patience. Let’t be honest. Most credit card purchases aren’t for emergencies. For a great many people, credit is used because someone doesn’t want to wait a little bit long to buy!

If you’re serious about spending your money on the things that matter most, then take my advice. Siphon a portion of your income every time you’re paid into an account dedicated to your most important goals. Use automatic transfers and sinking funds to acquire the things that you really and truly want.

You work too hard for your money to waste it on purchases that you won’t remember 48 hours after you’ve made them. Create a financial plan for your money by telling it where to go instead of wondering where it went. Automatic transfers and sinking funds are financial tools that will help you to build the life you really and truly want for yourself. Start using them today and move that must closer to achieving your dreams.

Decide – execute – enjoy!

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Weekly Tip: Don’t let websites store your credit card information. Firstly, doing so makes it that much easier for you to indulge in instant gratification purchases. The few extra seconds of typing in your information might be all you need to make you reconsider whether the purchase is moving you closer to or further from your goals. Secondly, if the retailer’s website is hacked, then your information is at risk and your odds of being the victim of identity theft go up.

FOMO, YOLO, Priorities & Money

FOMO – Fear of Missing Out. YOLO – You only live once. These are the catchphrases that encapsulate our relentless demand for instant gratification. We want what we want when we want it…ideally sooner. And let’s face facts – it feels really great to have our desires satisfied. Who doesn’t like immediate gratification?

This week, I read something rather thought-provoking, an article about lifespans. The article focused on how our relationships with those most important to us are finite, no matter what we do. Every minutes you’re alive is leading towards the end, whether yours or that of someone you hold near and dear. The article challenges the reader to strive to allocate their time to those relationships and activities that are the priorities. This led me to think about how I spend my own time and whether my time is spent on my priorities.

I understand the twin phenomena of FOMO and YOLO – I really and truly do! No one wants to be left out of fantastic experiences – time with friends, exploring a new place, trying a new restaurant, being one of the Cool Kids Who Do Cool Things. These can be the stuff from which great memories are made. I totally get it.

Yet, I want you to ask yourself if all of those fantastic experiences reflect the priorities that are most important to you. Did you do them because you really wanted to or because you were experiencing FOMO and/or YOLO?

Looking back now, do your past choices still make you happy? Do you wish that you’d put your energy and efforts into something else?

What’s Done is Done!

No one can undo the past. Once spent, time is gone forever. This is why time is way, way, way more precious than money. Money is replaceable but time is finite.

I’m not trying to get you to regret anything that you’ve done up until this point. What I am trying to do is make you think about what it is that you want for your future. Once you’ve nailed that down, you can marshal your resources, focus your attention, and take the necessary steps to get what you want.

Are you trying to save for a house? Maybe you want to finish your degree one day? Is a self-funded sabbatical something that you really, really want? Do you want to start your own business?

Sometimes, priorities cannot be satisfied immediately. Long-term goals, by their very definition, are going to take some time. They will be no less pleasurable due to the time it takes to acquire them. From what I’ve observed, people who achieve what their hearts truly desire rarely ever regret saying no to early options for their time and money.

Hear me now! I am not suggesting that you say no to every invitation. That’s not a good way to live, nor will it improve or sustain the relationships that are most important to you. What I am proposing is that you clearly identify the priorities for your life and that you learn to balance them with all of the other options that are presented to you.

From this moment forward, strive to spend your time and money in ways that move you closer to the life you truly want.

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Weekly Tip: Pay your taxes on time. There’s no sense in borrowing trouble.

Can I Afford It?

Such a simple question, isn’t it?

“Can I afford it?”

At first blush, it seems ridiculous to even ask the question. It’s a yes or no question. Either you have the money or you don’t.

Appearances can be deceiving. Having the money is only the first part of the equation…

Okay, Blue Lobster – just what in the hell are you talking about now?

The question of affording something is much larger than the question of whether you have money. Making the purchase is relatively easy. Take out wallet – hand over cash – get what you want. Easy-peasy-lemon-squeezy!

Nope. Actually being able to afford something means knowing what it is that you really, really want.

What are your priorities for your money?

Prioritizing your money means that you get to say “Yes!” to some purchases while saying “No!” to others. You won’t be able to buy everything you want unless you’re a multi-gazillionaire. And if you are multi-gazillionaire, please let me know so that I can follow you on Instagram.

Let’s say your Fur-Baby needs an operation that costs $1200. Your pet is not suffering and the operation isn’t a emergency, but it is necessary. You’ve got 75% of the cost saved up and you’ve calculated that you can save up the rest over the next 6 weeks if you set aside $50 per week into your dedicated Fur-Baby Fund.

And let’s say you happen to be at the mall with a friend after a year-long week at work. There’s a very nice item on sale for $50. You like the item and you have $50 in your wallet.

Can you afford it?

You tell me. Your pet needs an operation and if you spend the $50 on the mall item, then you won’t have that $50 to put towards the Fur-Baby Fund. You’re the only person who can determine which priority is more important to you. Do you want to pay for the operation or the item at the mall?

Going into debt isn’t an option. Debt put you in chains to your creditors. Debt means committing money you haven’t yet earned to someone else for purchases made in the past. Relying on debt to make consumer purchases is a very bad idea. As you’ve heard me say before, debt is a financial cancer. There’s no need to ask for cancer by whipping out a credit card. Old-fashioned savings and delayed gratification will get you to your financial goals.

Now, knowing that you have $50 to spend, you have to decide: can you afford it?

Saying “No!” is a good thing.

Though only two letters long, this one word is a powerful weapon in your financial arsenal. Though small, this little word is mighty. If used correctly, it has the power to keep you on track towards your dreams.

It’s more than okay to say “No!” when asked to spend money in a manner that doesn’t align with your priorities. You work hard for your money and spending it on non-priority items is akin to lighting it on fire.

To be fair, there are times when it’s perfectly okay to say “Yes!” to spending your money. Should you be so fortunate as to have gobs and gobs of leftover money after your priorities have been funded, then you can probably fritter it away on non-priorities while still meeting your goals.

For the rest of us, frittering is a luxury that should only be indulged in sparingly. The more frittering that is done, the longer it will take to achieve our financial goals. And the less money we have, the more deleterious an impact frittering will have on our money priorities.

Never, ever let anyone bully you into making spending choices that don’t reflect what you truly want. This bring me to the Others.

Don’t let the Others determine your priorities.

There are a great many people out there who are willing to step into your wallet and disperse your money. I call these people The Others. Sometimes, the Others are easily identifiable. You’ll recognize them as the Ad Man and his trusty sidekick, the Creditor. More often than not, the Others take the form of our friends and family. Every so often, co-workers fall into this category too.

The Others have no qualms whatsoever about telling you how to spend your own money. It’s been my experience that the Others think that I should spend my money on their priorities. The very possibility that their priorities aren’t the same as mine is an utterly foreign concept to them.

One time, a friend of mine told me that I could afford a weekend trip to Las Vegas. Truth be told, I was floored by her audacity in opining about what I could afford to do with my money. It would have never occurred to me to tell her how to spend her money. In all honesty, the same thing has happened with members of my family.

Over the years, I’ve learned to ignore the Others’ exhortations to spend money. When I’m feeling generous, I tell myself that the Others just want the best for me. Or that they believe spending money will make me happy. When I’m not so generous, well… let’s just say that I don’t ascribe such kind motives to their opinions. The bottom line is this: I know what my priorities are, and I have a plan for my money. I don’t expect the Others to agree with, understand, or share my priorities. The Others’ opinions of my spending choices are irrelevant to my goals. Since I’m okay with ignoring their “advice”, I always know if I can afford to spend my money on something.

So….can I afford it?

The answer to the question is as simple as 1-2-3. One, determine your financial priorities. Two, use the word “No!” as often as needed so that your money goes where you want it to go. Three, ignore the Others since they most likely want to spend your money on what’s most important to them.

Once this framework is in place, you will be extremely adept at answering the question of whether you can afford it, whatever it happens to be.

Start Today

There’s no one perfect way to become financially savvy. Yet, I can promise you that you won’t obtain the knowledge you need unless you start today.

There are very few people in your life who will care about your financial health as much as you do. If you’re lucky, your family will take it upon themselves to teach you what you need to know to be successful with money. Once you’re an adult, you owe it to yourself to build upon the lessons that your family taught you and to share that increased knowledge with those closest to your heart.

Your employer pays you to do a job. She really doesn’t care what you do with your money so long as it doesn’t negatively impact how you perform as an employee. She doesn’t care if you save to pay cash for your goals, whether you pay off your debts, or if you invest for your retirement. At best, she cares that you don’t ask for her to pay you any more than you currently earn to do your job.

On the other hand, the AdMan cares about your money very much, and so does his trusty sidekick, the Creditor. They care about taking it away from you. The AdMan’s sole goal is to convince you to give your money to someone else – a restaurant, a retailer, a car dealership, a pharmaceutical company. The AdMan doesn’t care who you give it to, so long as you give your money away.

The Creditor simply wants you to give your money to him. The Creditor will lend you money because he wants you to pay it back with interest.

Your ability to avoid falling into a deep debt hole is contingent on learning how personal finance works. Creating effective strategies to achieve your goals and dreams is going to be somewhat dependent on how you handle the money that comes your way. Part of self-care is learning the lessons of money.

Start today. Whether you need to pay off a debt or you want to save for next year’s vacation, I want you to start today. It may take a while to achieve your goal and that’s perfectly okay. The sooner you start, the better off you’ll be. No one has ever regretted handling their money in a way that allows them to meet their life’s goals.

Don’t be too hard on yourself. No one has ever learned it all at once, and you won’t either. Believe me when I say that you won’t pick the perfect investment – no such thing exists. You can start immediately – there’s no need to wait until January 1 of next year. There’s no time like the present. Transfer $1, $5, $10 to your savings account. If you don’t have a saving account, open one then make the transfer. Commit to one no-spend day per week or per month. Figure out how to prepare and cook more of your own meals. These are small changes within your locus of control. They will help you reach your goals.

Your money situation won’t change by itself. Nothing changes until you do. Start reading books and blogs today. You don’t have to master it all at once. Open a savings account – set up an automatic savings plan – accumulate your first $1,000. And while you’re doing that, read books and consume blogs about investing so that you feel more comfortable with the topic. Again, don’t be too hard on yourself; no one knows everything so you’re not alone. And when you are finally comfortable making your first investment, I want you to only invest in things you could explain to your grandmother. If you don’t understand an investment product, do not invest in it until you do. Never let anyone bully you into putting your hard-earned money towards something you don’t understand.

Today is the best time to plant your money tree. The sooner it’s planted, the longer it has to grow.

Start learning – don’t ever stop. Start saving money – don’t stop! Start taking care of yourself financially so you’re not dependent on others to do so.

Knowledge is power. Take the small steps first. Start today.