Tag: Retirement

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.

SOS! Funding Your Retirement is an Emergency

This week, I heard a very sad story about how seniors in Canada are becoming increasingly impoverished as they age. They don’t have enough funds to support themselves in their dotage. Here’s the link to the article. I’d encourage you to read it for yourself.

Here’s one of the main take-away’s from the article. If you don’t save for your own future, no one is going to do it for you.

Your employer is not looking out for your financial well-being. Pensions are vanishing. If truth be told, your salary is a business expense that is only grudgingly tolerated. If your employer ever figures out a way to eliminate that expense before you’ve figured out a way to live without your salary, then you will be up shit creek without a paddle. When was the last time a gas station employee pumped your gas?

Your parents probably want to help you, but chances are good that they will need their money to pay for their expenses. Maybe they need nursing care. Perhaps they helped fund your education or had a big debts so they didn’t have a chance to save for their own retirement. Maybe your parents didn’t earn a lot during their working years so they still live hand-to-mouth. If your parents are flush and have promised you everything, you should still save for your own retirement. Inheritances are meant to be received, but they should never be the bedrock of your future financial security.

What about your friends? They may love you to death. You may have the kind of friends who would bring the shovels to help you bury a body without asking any questions. Even friends as treasured as these are not going to fund your retirement. They have their own retirements to fund. At best, you and your friends could figure out a way to buy nice, big house and live together as senior citizens – it could all be very Golden Girls!

As a Singleton, you probably don’t have the benefit of a second income coming into your household. In other words, you generate all the income and the paycheques stop when you do. There’s no second earner to help you bring home the bacon. You won’t benefit from survivor’s benefits or a life insurance policy if your partner pre-deceases you. There’s no back-up salary unless you create one by investing your money today so that you have a cashflow for tomorrow.

****** Stop, Blue Lobster – just stop! What is a “back-up salary”? And how do I get one? Simply put, a back-up salary is a cashflow that comes to you without you having to go to work. Think of dividends. Once you’ve bought the stock, you don’t have to do anything else – the dividends will roll in like clockwork unless something very, very bad happens. Another example is royalties from a book or music. You write the book or the song once – it sells – the royalties roll into your wallet every time the book is sold or the song is played. Think of your back-up salary as money you don’t have to sweat for. Pretty sweet, isn’t it? *******

It’s on you to do the heavy lifting. Should you be fortunate enough to have fat in your budget, then you owe it to yourself to trim it away and to put that money to be better use. Set up an automatic savings plan so that a portion of each paycheque gets squirreled away. Invest in an equity-based index fund or exchange-trade fund. Get out and stay out of debt. Save for purchases before you make them.

If you can max out your TFSA and your RRSP each year, great! If you can’t, then contribute as much as you can. These are registered savings vehicles, which means that your money will grow tax-free while inside them. Money that comes out of a TFSA is never taxed. Money inside an RRSP is taxed upon withdrawal. Remember, you can accumulate money faster if you aren’t paying taxes on it every single year.

When it comes to your retirement, saving money is the factor that matters most. Without savings, there can be no investing. You have to save & invest the money now or else you won’t have enough money later. It’s really that simple.

Absolutely clarity is required for this next point: Simple doesn’t mean easy. Not once in my life have I ever said “It’s too damn easy to save money!”

It’s always hard to save money. There are so many things I want. Temptation – aka: advertising – is everywhere. Truth be told, I like love spending money. You know what else I love? Knowing that I’ll be able to buy groceries after I retire.

If you’d rather not be working in your 70s and 80s, then start saving & investing for retirement today. And if you’ve already started, then good on you – don’t stop. You don’t get a pass on taking care of your financial future just because it’s hard.

It’s up to you. Funding your retirement is an emergency.

The days are long but the years are short. This is an old-fashioned way of saying that time passes by very, very quickly. Even if you think retirement is decades away for you, I want you to believe me when I say it will be here before you know it.

All Hail the Octopus!

This week, I had the pleasure of reading a fantastic article about saving for financial independence and early retirement that was written by Mr. Tako of www.mrtakoescapes.com***. In this magnificent article, Mr. Tako discusses his surprise that anyone would view his choices as “hardcore” on his pursuit to financial freedom. By following his own plan, Mr. Tako was able to retire on his own terms. What some may view as hardcore, others may view as tweaks. It’s all in the eye of the beholder!

While I loved his article, my take-away was slightly different. I was simply happy to know that every small step makes a difference. Sometimes, it feels like saving and investing is a treadmill that’s going nowhere. The destination is so far away, and why can’t I just win the lottery and be done with it already?!?!?! However, articles like Mr. Tako’s remind me that there is an endpoint and that every little step I take gets me closer and closer to it.

Unlike Mr. Tako, I haven’t had many bad jobs nor many bad bosses. For the most part, my career has a many great attributes. I work with very smart people. My work is mentally challenging. I have autonomy over how my tasks get accomplished. I have a nice office filled with natural light. My office plant is big and beautiful, healthy and happy. I’m even happy with my salary since, without debt, my paycheque is more than sufficient to meet my needs.

Still…

At the end of the day, I want to retire and the sooner, the better. When I’m not at work, I’m much, much happier. It’s as simple as that. I have a great circle of friends – I love my family – I’m a bit of a homebody when I’m not travelling. Working gets in the way of that, despite all of the really great facets of my job. When I work, I’m on someone else’s schedule. I’m doing things that mean little or nothing to me. I’m attending meetings that have little palpable purpose. Despite all of the good things that I listed earlier, working means that I have to sell my time to someone else in order to survive financially. If I can find a way to retire early, then I get my time back.

Much like Mr. Tako, I’ve taken steps over the years to find ways to save on daily costs so that I can retire sooner.

At this point, I’d like to fully acknowledge that there is no one plan that will work for every single person. Each of us has to figure out what we’re willing to do in order to achieve the financial freedom that we want for ourselves.

The first big step in the right direction was my decision to take transit. I gave up the daily drive to work way back in 2001. I’m not a huge environmentalist, nor am I troubled by rush-hour traffic. The commute is the same whether I’m behind the wheel or a passenger on the bus. No – my main reason for choosing transit was so I could save on my commuting costs in order to invest money for early retirement. I’m fortunate to live in a location that has excellent transit service for commuters. For nearly two decades, I’ve driven to the park-n-ride, shown my bus-driver my pass, and have happily ridden in safety back and forth to work.

This one small decision 18 years ago has saved me thousands of dollars because I don’t pay hundreds of dollars each month for parking. I fill my tank every 10-12 days. My insurance premiums are lower, and the wear-and-tear on my car is less that it would’ve been with a daily round-trip drive to work.

The second step in my march to financial freedom arose due to a health concern. A sensitivity to caffeine required me to cut down on coffee during my work breaks. Many years back, I went to my doctor and complained of a racing heart. She asked how much coffee I drank. I told her that I had coffee with breakfast, at my mid-morning break, and during my afternoon break. She told me to cut back to one coffee a day and see how I felt. My doctor’s a miracle worker! Within a week, my heart had stopped racing. The upshot was that I was also saving money to be re-directed to my retirement.

Step #3… In 2016, I took the big plunge and cancelled my cable subscription. Again, this wasn’t a strictly financial decision. It wasn’t a money decision at all! I simply got tired of paying for garbage, so I decided to stop. But whatever would I do with the additional money each month that wasn’t going to the cable company? You guessed it – I funnelled the extra money into my investments!

Finally, in 2018, I made another commitment to myself which has positive financial results. I decided to start taking my lunch to work more often than not. Again, it wasn’t really a money decision. Fast food and restaurant food doesn’t taste as good to me as my own cooking. It suddenly struck me one day that I was paying for food that I didn’t enjoy. Taking my lunch to work earns me a double-whammy: good food to eat and more money saved for financial independence.

Like Mr. Tako says in his article, these small steps don’t feel extreme. They feel normal. I didn’t try to do everything all at once. Knowing myself as I do, that’s a challenge that I would have failed. Instead, I added these changes gradually until I reached my satisfaction point.

How about you? What steps have you taken in pursuit of funding your own dreams?

(***Update 2024 – sadly, this website is no longer available.)

RRSP Season

It’s Registered Retirement Savings Plan season! From now until the last day of February, there will many advertisements all over the place exhorting you to make a contribution to your RRSP.

If you need more detailed information about the rules, then I would suggest that you visit the website for the Canada Revenue Agency. Alternatively, you can talk to your accountant or a financial advisor. This article does not in any way, shape or form constitute comprehensive accounting or legal advice about RRSPs. I am not a professional nor am I giving you any kind of investing advice. This post is a starting point for you to make inquiries, learn the basics, and take responsibility for your future by determining how to use RRSPs to your best advantage.

For my part, I really like RRSPs. I’ve been contributing to mine since I was 21 years old. Every year, I get a tax refund which is promptly re-invested for retirement or put towards an annual vacation. I’m very diligent about automatic transfers to my investment portfolio so I’m quite comfortable with spending my RRSP-generated tax refund on whatever my heart desires.

RRSPs offer tax-deferred growth. You can pick almost any kind of investment to put under the tax-deferred umbrella. On top of that, you might even qualify for a tax refund if you make a contribution. If you’re in a higher tax bracket when you put money in than when you take it out, you’ve saved money on both sides of the transaction.

Remember – it’s tax-deferred savings, not tax-free savings. If you contribute when you’re in the 33% tax bracket, then your tax refund is based on that tax bracket. If you’re in a lower tax bracket when you take the money out, say the 26% tax bracket for instance, then you’ll pay tax on that RRSP withdrawal at 26%. This means you’ll be 7% to the good. Woohoo!

In my humble opinion, RRSPs have many commendable benefits.

However, not every product is perfect. RRSP contribution room can be lost if you make a contribution and then withdraw the money outside of two very specific RRSP programs. Those programs are the Lifelong Learners Plan or the HomeBuyer’s Plan. In short, if you contribute $1000 to your RRSP and then withdraw that money outside of the aforementioned programs, then you cannot put that money back into your RRSP in the future. Unlike the Tax Free Savings Account, which allows for contribution room to be re-captured if a withdrawal is made, your RRSP contribution room is gone forever once you withdraw your money.

Another associated drawback to RRSPs, in certain circumstances, is the creation of a nemesis commonly known as D-E-B-T.

“How can an RRSP result in debt?” you ask.

It’s quite simple. At this time of year, banks love to give people RRSP loans. Customers borrow money, contribute to their RRSP, and then they’re supposed to use the tax refund to pay down the RRSP loan. Whether the tax refund is actually applied to the outstanding balance on the RRSP loan is anyone’s guess. The tax refund goes straight to the borrower who took out the loan and it can be used however the borrower wants it to be used. Concert tickets? Holiday? Extra mortgage payment? Cigarettes? The choice is limited only by the borrower’s imagination and common sense. There’s no requirement for the tax refund to pay down the RRSP loan.

In my humble opinion, failing to pay down the loan with the tax refund is most likely a stupid move because do you know what else belongs to the borrower? The loan payments! If the tax refund is spent on something other than the RRSP loan, the loan payments still have to be made because the borrower put himself into debt by taking out the loan in the first place!

Even if the tax refund is applied towards the RRSP loan, trust me when I say that the refund won’t be enough to cover the principal of the loan which means that the borrower is on the hook for the remaining balance of the loan.

Keep in mind that the banks aren’t lending you money interest-free. They might defer the interest on the first 90-days of the loan, in the expectation that you’ll apply any tax refund towards the debt, but don’t hold your breath. Way back in the Palaeolithic period when I worked for a financial institution, this is what my overlords did for the customers. I have no idea if this is still the practice. However, if you can’t repay the loan in full within the grace period, then you will be paying interest on your RRSP loan until it’s completely repaid.

The other big drawback to the RRSP loan is that it, more often than not, requires more RRSP loans in the future if a person is intent on funding their RRSP each year. A cycle of debt is created – this is bad. See, if you’re required to make loan payments on this year’s loan, then you’re most likely not setting money aside for next year’s RRSP contribution. If you had set aside the money in the first place, then there would not have been any reason for you to have taken out an RRSP loan. Following this logic, when next year’s RRSP season rolls around, then you’ll be more inclined to take out another loan to make your next contribution.

This is an ass-backwards way to set aside money for the future. Yes – make the RRSP contribution. No – do not go into debt to do it!

“So what’s your bright idea, Blue Lobster?” you ask.

It’s simple. Go to any bank’s RRSP loan calculator and enter your numbers. The calculator will spit out a loan payment amount. I want you to set up a transfer from your bank account to your RRSP in the amount of the loan payment. Maybe the calculator spits out a payment amount of $500/mth. If your budget can accommodate this number, great – contribute $500 to your RRSP every month like clockwork. Maybe your budget can only tolerate a monthly hit of $350. That’s fine too – you’ll contribute $350 to your RRSP each month.

The point is that instead of paying money and interest to the bank, I want you to contribute that money to your RRSP. If you were willing to pay the bank some interest for the privilege of borrowing money, then I see no reason why you won’t make interest-free payments to yourself.

Either way, you’ll be setting aside money for your future. Why not do so without going into debt?