Tag: Ramit Sethi

Money Habits Ought Not to Be Underestimated

When I first delved into the world of personal finance, I came across the idea that savers have trouble spending their money. Basically, the belief is that those who have saved all their lives are incapable of reversing their behaviour and spending their savings once they retire. I pooh-poohed that point-of-view. After all, how could being fiscally prudent be a bad thing? Or result in a bad outcome?

I promptly dismissed a perspective that I considered nonsense and happily continued along my own path of saving and investing. Save some, spend some seemed to be a far more intelligent way to use money IMHO. I worked my way up to saving a third of my paycheque for retirement. The rest of my take-home pay was spent on travel, concerts, home renovations, the daily Care-&-Feeding-of-Blue-Lobster, gifts for & celebrations with family & friends, and various other things. Surely I had it all figured out in my 30s didn’t I? Why should I even considered another way of seeing things when it came to how to spend money?

As they say, with age comes wisdom. It’s been many years since I discarded the notion that I would have trouble spending money when the time comes. Lately, I’ve been reviewing my own beliefs and taking another look at my own money habits. For more than 20 years, my method has been to rely on automatic transfers to fund my investment account. Rightly or wrongly, I picked out several mutuals funds then moved on to exchange-traded funds and invested my money into those investment products every single month.*** Every dividend earned has been re-invested through a dividend re-investment plan (DRIP). When I received raises, my contribution amount was increased too. A portion of each raise was invested for the future and the rest went into increasing my day-to-day comfort.

I’d thought I was doing most things right. Earn – invest – spend the rest. Looking back, I know that I didn’t pick the perfect investment products for my goals. (I’d been investing in dividend ETFs instead of equity ETFs. That “little mistake” was corrected in October of 2020.) With the benefit of hindsight, I see that I could have made better choices earlier in my investment journey but c’est la vie!

Today, I’m quickly approaching my anticipated retirement date. I’m quite happy about getting 100% of my time back. My work is mentally challenging and my colleagues are fantastic. I’ve been very fortunate in many aspects of my career. In spite of all of that, working at my current job until I take my last breath has never been a goal that’s made it onto my Bucket List. I’m very much looking forward to retirement. However…

I must confess that I’m feeling much more than slight trepidation about the idea of spending my money. The paycheques will stop and I will have to turn to other cash flows in order to continue paying for my life. And after a lifetime of money habits to save-save-save, it’s going to be a challenge to spend instead. My youthful self’s pooh-poohing is coming back to bite me in the butt.

Two years ago, I finally attended a meeting with a fee-only financial advisor. He told me that I was doing very well, and that I would have plenty for my retirement. He even told me that I could retire 2 years earlier than I’d planned! My financial advisor set up a withdrawal system for me… and that’s when it hit me. I would have to spend my money. Not all of it, and not all at once, of course – but I would have to spend some of it every year until my death.

Truthfully, the realization left me more than a little shaken.

Since then, I’ve also started listening to Ramit Sethi and his view on how to create a rich life. According to Mr. Sethi, who I do admire, I am not living a rich life because I haven’t yet defined what that would look like for me. In his estimation, I’m not using my money in the best way possible. While I’ve never been dissatisfied with my money choices, it would appear that I might not have been asking myself the right questions.

In addition to Ramit Sethi, I’ve started following Bridget Casey. She is another proponent of living a rich life. Now, she’s a few years younger than me so her life circumstances are very different than mine. However, she’s asking herself the questions now that I should have been asking myself when I was her age. Ms. Casey is also a fan of Ramit Sethi, so she’s building her rich life today. There’s a small part of me that wishes I had learned about this concept earlier.

So the question is the following: do I regret my money habits?

I wish I had a simple answer to that question. My money habits are going to allow me to retire 2 years earlier than planned. I will never regret that! At the same time, my money habits – particularly the one about never borrowing money to travel – prevented me from attending a wedding in Paris. I had just gotten home from Italy (or Spain?) when I received the invite to head back to Europe in a few months for a cousin’s wedding. My sinking fund for travel was empty and I didn’t have the funds to pay for the wedding trip in cash. So I declined the invitation. Do I regret that decision? Yes, but only a little bit.

Abiding by my money habits for so long has crippled my ability to make most decisions without considering the financial implications. Now, one of the biggest financial goals of my life is going to force me to amend my money habits. Firstly, I don’t need to save and invest anymore. I’m still not certain that I will stop completely or that I’ll ever feel comfortable turning off my DRIP. (My financial advisor said I should stop the DRIP when I retire.) Life without an automatic transfer into my savings/investing account is unimaginable to me, although I’m well aware that the vast majority of people do not save and invest regularly. That’s their choice and their choices aren’t my business, but if I’m not doing it – saving and investing – for myself then I start to feel rather anxious.

I’m very glad that I’m learning this about myself today, instead of after I retire. There’s time for me to start making some changes. One of those changes has been to decrease the amount of money that goes into my various sinking funds. I’ve redirected a few hundred dollars towards another goal, but I still need to get some advice from my accountant. Once I’ve spoken to her, then those few hundred dollars will probably go towards little day-to-day luxuries like a 4-6 hot-stone massages every year and a monthly housekeeper. My “rich life” might not be as grand as those of Mr. Sethi and Ms. Casey but that’s okay. Their priorities aren’t mine.

So I take it from me. Money habits should not be underestimated. Once you’re in a particular groove with your money, it’s going to be challenging to change them. While I’m still a fierce proponent of saving and investing, I’m going focus the next few years on figuring out how to spend my money too. I want my spending to bring me just as much comfort, joy and happiness in the next phase of my life as my saving-and-investing has brought me up to now. There’s a way to ensure I’m living my own rich life in retirement and I’m determined to find it.

*** There was an unfortunate 4-month hiatus during the most severe period in the 2008 recession. I could’ve been buying equities when the stock market was at its lowest, but I got scared and stopped my contributions. Trust me – I have since learned my lesson. We’re in another stock market downturn right now (2022) and I’m turning over the seat cushions to find money to invest in the stock market before this recession is declared over.

F.I.R.E. – A Refreshing New Perspective

For those who don’t know, F.I.R.E. is the acronym for Financial Independence, Retire Early. It’s a financial point of view that has gained traction in the past 10-15 years. People live significantly below their means in order to grow their money as fast as possible until they no longer need to work. Once they hit that point, they are considered financially independent. If they wish, they can choose to retire early at that point. There are a multitude of websites and blogs devoted to the F.I.R.E. way of life. I will admit that my personal finance coming-of-age was heavily influenced by the initial hardcore tenets of FIRE.

For a long time, I easily adopted the face-punching viewpoint of Pete who runs Mr. Money Mustache even though I was not going to give up some of things that he clearly eschewed. For a little while, I was also enamored with the draconian thriftiness espoused by Jacob’s on his website, Early Retirement Extreme, even though I would never choose to live that way. I was constantly searching for stories of people who lived well-below their means because I wanted to see how far I was willing to go to have money for my investments. When I found a poster on YouTube who only ate once a day in order to save money for investing, I realized that I had limits. Starving when you don’t have enough money is one thing. Purposely starving yourself in order to invest money is offensive to me. I decided to stop seeking the extremes.

Lately, a refreshingly new perspective has emerged. In my view, it is healthier and more welcoming than what I learned. The concept is an homage to living your best life while investing your money. Your money should be used to make your life as good as possible. This doesn’t mean going into debt. It doesn’t mean working forever. It does mean being laser-focused on that which is most important to you. Debts eventually get paid. Salaries increase, one way or another. Consistent contributions to investments will churn out capital gains and dividends. At some point, the gap between the cost of your monthly necessities and the cash flow coming to you will widen to an appreciable amount. This is called your disposable income. The new perspective is about figuring out how to spend that disposable income in a way to brings the most joy and happiness into your life.

I find the new perspective more persuasive than I would have even 5 years ago. One of my biggest challenges is finding balance between living today to the fullest while saving and investing just enough for tomorrow. Two authors come to mind. They’ve articulated ideas about living each day to the fullest, without ignoring the onus to take care of Future You. Specifically, I’m thinking about Ramit Sethi of I Will Teach You To Be Rich and his exhortation to live your rich life now. The other author is Bill Perkins, who has encapsulated the essence of the new perspective in his book book, Die With Zero.

What I like most about the new perspective is that it offers a sense of balance. It gives people permission to enjoy the present, and to enjoy spending a little bit of money today. The new perspective recognizes that time is fungible – once gone, it can never be reclaimed. Accordingly, everyone should figure out what is most important to them and spend their money accordingly in order to maximize the utility of their money while securing their financial future.

Ramit Sethi encourages people to pursue their rich life today. As I understand his message, he doesn’t want you to wait 10-15-20 years to start living well. He wants you to determine what you want and to figure out if you can incorporate it into your life today. Mr. Sethi advises people to ruthlessly cut out the stuff that doesn’t matter so that they can focus their money on the things that do.

I love this idea! For my part, cable TV is unimportant. I cut it out of my life 8 years ago, and I don’t really miss it too much. I can’t host Grey Cup or Super Bowl parties, but that’s the extent of the drawbacks to not have cable in my home. What I do love is traveling to new countries. Before the pandemic, I was able to fund 3 trips to Europe in the space of 4 years. For me, that was a huge accomplishment. My rich life definitely includes travel!

In Die With Zero, the author’s position is that dying with too much money means that you have deprived yourself of experiences that could have enriched your life. This book really challenged my views about spending, saving, and investing my money. Truth be told, my mind was blown! First of all, how could a person die with too much money? Was that even a thing? I really had to slow down and contemplate what the author was saying.

Speaking only for myself, this book forced me to consider whether I was spending money in ways that made me happiest. I’ve been saving consistently since age 21. I’d finally visited a fee-only financial planner to get an objective opinion on whether I could hit my financial goals. (The answer was a resounding “Yes!”) By the time I read Die With Zero, I was comfortably past the Coast F.I.R.E. point in my money journey. I was ready to contemplate the idea that I might not have been using my money in the best way possible. After reading this book, dying with un-spent millions no longer seemed like the wisest choice.

It’s truly not my intention to be the richest person in the graveyard. There are experiences that I’d like to have which will require me to open my wallet. Though I’m not entirely convinced that I should die just as my net worth hits $5.47, I appreciate the ridiculousness of dying with millions of dollars to my name. That money will only benefit my heirs. The opportunity for me to benefit from the money dies the moment that I do. While I intend to leave something to my heirs, I want to help and not hinder. There is an intrinsic value in attaining your own personal goals. I won’t deprive them of the chance to experience the pride of accomplishment.

Right now, I’m still searching for the sweet spot. In my humble opinion, the new perspective is going to gain traction. There are those who hate their jobs and want to leave as soon as humanly possible. To those unfortunate masses, I encourage you to change jobs or find a new career. Life is too short to be miserable at work. If changing jobs isn’t an option, then know that I completely understand why you’re willing to sacrifice time today and gamble that you’ll have the time tomorrow to enjoy your money when you eventually do quit.

There will always be hardcore adherents to the “sacrifice everything in the short-term to retire ASAP” view of F.I.R.E. However, that path to financial independence and early retirement is not palatable to everyone. As with most lessons to be learned in life, it is up to each of us to take what we need and to leave the rest. We alone are the ones who know best what we truly desire from our precious time here on Earth. We owe it to ourselves to learn new ideas, try them out, see if they work, keep them if they do, discard them if they don’t, and to do it all over again.