Tag: Procrastination

Procrastination is the Thief of Time.

Truer words have never been spoken. When it comes to investing your money, procrastination is also robbing your wallet.

See – it’s like this. If you invest $0 today, then you’ll definitely have $0 tomorrow.

On the other hand, if you invest something, then you’ll have way more than $0. The more you invest, the more you’ll have. It’s a simple, direct relationship between the choices you make today and the outcomes that you’ll have tomorrow.

First lesson – invest your money. Start with what you can and work your way up. I suggest increasing your investment contribution by 1% every year. When you get paid capital gains and dividends, re-invest them.

Keep an eyes on your management expense ratios. The MER is the amount of money that is fleeced from your account. I look at it this way. The businesses that offer the investment products need to get paid too. That’s fair. What is not fair is me paying 2% per year instead of 0.35% (or less) for the same product from someone else.

Play around with this investing fees calculator for a little bit. It shows you the impact of MERs on your investment account. The longer you keep your account, the more money is siphoned away to someone else. By choosing good investments with lower MERs, you’ll be keeping more of your returns in your own pocket.

Second lesson – understand the impact of fees. Canada has a reputation for having some of the highest MERs in the world. The longer you pay higher MERs, the less money you’ll have for Future You when you really need it. Try to pick investment products with low MERs.

Don’t be afraid to make mistakes. You’ll always learn more from your mistakes than you will from your successes. Make your mistakes. Learn from them. Don’t make the same one over and over again. Your goal should be to earn-save-invest-learn-repeat. It’s a pattern that should never stop. As you learn better, you’ll do better.

Trust me. I started out investing in mutual funds with one of the Big Six banks. I wasn’t paying a 2% MER, but it was around 1.75%. I didn’t know any better. The Big Six bank didn’t even have a way for me to automatically deposit to my mutual funds every month. I did it in person, which got weird very quickly. So I went to an investment firm. I loved that investment firm, and I got wonderful service every time I called. Unfortunately, while the MERs were lower, they were still pretty high. But I didn’t know any better so I stayed with them.

Eventually, I started hearing about something called exchange-traded funds, or ETFs for short. They offered the same diversification as mutual funds but with MERs that were much, much lower. By the time Vanguard came to Canada, I couldn’t move my accounts fast enough.

Third lesson – make your mistakes fast so you can learn fast. No one is perfect at investing, and everyone makes mistakes sometimes. The key is to learn from your mistakes so you don’t repeat them. The biggest mistake that you can make when it comes to investing is to never start.

If you’re not yet investing, start today. If you’ve started and your MERs are too high, then move your accounts to equally good and less expensive options. If your MERs are low already, then work on increasing your contribution amount by 1%. Make sure you’ve turned on the dividend re-investment plan feature on all your investments. If your brokerage doesn’t allow for a DRIP feature, then move your accounts to one that does. Trust me on this. You most certainly want to have the DRIP in place so that your investment returns compound as fast as possible.

You’re smart enough to learn how to do this. The fact that you’re here, reading my blog, means that you have an interest in attaining financial security at some point. That’s the seed that’s needed to plant your Money Tree. By starting today, you’re preventing procrastination from stealing any more time from you.

Find Serenity in What You Can Control

Sometimes, I think that people procrastinate about starting their investment portfolios because they don’t understand every element of how various investment products work. They’re afraid to invest and to lose their money. I can understand that fear completely. Believe me when I say that I share that fear too!

However, it’s a fear that can be tamed if you can find serenity in what you can control.

Here’s the thing. No one can control the stock market. Contrary to what you see from the Talking Heads of Financial Media, there really isn’t any way to control what happens in the future. People can predict – they can approximate – they can calculate likelihoods. These are fancy way of saying that the chinwag is simply a guess. It might even be an educated one, but it’s a guess all the same. Allow me to assure you that there is not a single one among us who always knows which stock will soar like Facebook or tank like Enron, ascend like Tesla or plunge like Bre-X.

You can’t control the vagaries of the stock market nor their impact on your investment portfolio. Only God knows what’s going to happen with any particular stock in the future.

That said… there are three areas where you do have control. Your choices in these areas will have a significant impact on the growth of your investment portfolio. Think of these areas as levers that can be manipulated to increase the odds of you amassing great big buckets of cash. If you manipulate all three levers, then you can vastly improve your portfolio’s return.

Amount and Frequency

You control the size of the contributions to your investment portfolio. How much you save is the single most important factor influencing the amount of money you ultimately accumulate. The more you save and invest, the faster your money will compound and grow. The best returns in the world will not get you to your goal if you don’t actually contribute money to your investment account.

Play around with this compound interest calculator if you don’t believe me. At a steady rate of return, a higher contribution grows faster than a lower contribution. In other words, a $500 contribution will compound faster than a $100 contribution.

The second most important factor, in my humble opinion, is the frequency of the contributions. I’m paid every two weeks, so I contribute to my investments every two weeks. Personally, I think it’s best to contribute when you have the money to do so. You should always pay yourself first when you get paid. That means taking some portion of your income and investing it for growth. If you haven’t read it yet, get your hands on a copy of The Automatic Millionaire by David Bach. It’s great!

If you’re paid bi-weekly, then contribute bi-weekly. Paid monthly? Invest monthly. Go back to the calculator and compare the difference in future value between investing monthly and investing annually. The difference is attributable to the effect of compounding.

My advice to you is to invest as much as you can as early as you can. Start harnessing the power of compounding interest immediately.

Control Your Fees

A second very powerful lever within your control is the management expense ratio (MER) of your investment product. The MER is the fee that you pay to the purveyor of the investment you buy. In short, it’s a skim from every dollar you invest and that money is spent to pay salaries & overhead to make the investment available to you.

You control the impact of these fees on your portfolio by choosing investment products that have lower MER fees while delivering equivalent results. You are the person who is choosing the products where your money will be invested. (Or maybe you’ll go with an investment advisor. I don’t have an investment advisor.)

Mutual funds are more expensive than exchange-traded funds and index funds. However, they both allow you to invest in equity products and bond products. My opinion is that it does not make sense to pay more for an investment when an equally good one is available at a lower price. However, if you want to pay a 2% MER (or higher!) on your investments, instead of a 0.25% MER for the same investments, then you are free to do so. You are an adult and, after all, it’s your money. You earned it and you get to decide what to do with it.

However, please make an informed decision. Take a look at this investment fee calculator to see the impact that fees have on your portfolio’s overall performance. If you’d rather have less money at the end of your investment horizon, then go with the higher MER. However, if you’re interested in maximizing your cash cushion, then choose investments with low MERs.

In the interests of transparency, I can state that none of the MERs I pay are higher than 0.25%. That means for every $1000 that I invest, I pay my investment company $2.50. If I had to pay an MER of 2%, then I would be paying $20.

Imagine having a nice 6-figure nest egg of $750,000. Would you rather pay $1,875 per year in MERs of 0.25%? or $15,000 per year in MERs at 2%?

Duration of Systematic Contributions

This is just a fancy way of saying that you are in charge of how long you make contributions to your investment portfolio. How long are you willing to commit to investing for your future?

I’ve always been a nerd about money, and I’ve been contributing to my investment portfolio for 2.5 decades. Let’s just say that I’m old enough to remember the Freedom 55 commercials and they struck a chord with me. I’ve been gunning for early retirement ever since!

I won’t lie to you. Without a lottery win, inheritance, or sizeable payout from somewhere, it’s going to take a good amount of time to build an investment portfolio that’s capable of replacing your income. If you’re living on 50% of your take-home pay, you can get it done in less than 17 years. Don’t believe me? Check out this handy-dandy little calculator if you want to play around with your own numbers.

For most of us, it’s going to take many years of steady investing to build a nest egg. You are in charge of whether you start now or tomorrow. In other words, you’re the person who controls whether to procrastinate on such a long-term endeavour. Once you do get started, you’re also the person who’s in charge of whether to continue investing.

Investment Portfolios Don’t Fund Themselves

Now that you know what you can control, put that knowledge to good use. Set aside a chunk of every paycheque and use an automatic transfer to make sure it’s re-directed to your investment account. Pick investments that are diversified and geared toward long-term growth. Make sure your investments have MERs under 0.5%. Keep investing and ignore the Talking Heads. Over the long-term, the stock market goes up. Day to day gyrations should not guide your investment choices. You’re in this for the long-term.

Never stop learning! Read books and blogs. Ask questions. Remind yourself that when you know better, you do better. It’s best to make mistakes with small amounts money than with large amounts of money. So when you make a mistake, forgive yourself and learn from it then move on. Find serenity in what you can control.

The time will pass anyway. Why not start today?

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.

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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.

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.