Tag: RRSP

Three Simple Steps to Master Your Money.

At the time of publishing this post, there are less than 60 days left in 2024. You might want to start thinking about your dreams and goals for the new year. Whatever yours are, I’m going to suggest that learning to master your money should be one of your goals. After all, you’re the person earning the money and you should be firmly in control of what your money does. Trust me. Life is better is when your money works harder for you than you do for it.

There’s no need to wait until January 1 to make the following suggested changes. Believe me when I say that you’ll want to master your money sooner rather than later. Start today.

If you’re a person who likes to make resolutions, then you can implement these three steps on New Year’s Day. Everyone else, I would strongly encourage you to do start following these steps immediately.

Top Up Your Emergency Fund

The goal is to have one year’s worth of necessary expenses set aside. I know that most experts recommend 3-6 months’ worth of expenses. Personally, I don’t believe that this is enough. You’re free to disagree with me, of course. The reality is that it’s better to have a bigger emergency fund than you might need. When your income disappears, you’ll want to have as much set aside as possible to tide you over until you get another paycheque.

Your next job might pay you less than you were earning before. It might take you longer than 6 months to find your next position, or to start earning money from your own business. Being unemployed is a bad situation. Going into debt to pay for living expenses while unemployed makes the situation considerably worse.

Do yourself a favor and set aside more than you need. Your necessary expenses are your shelter costs, your basic utilities, your food, your transportation, your medications, and your phone. If you have pets, then you need to cover their costs too. Everything else should be put on hiatus until you get another source of income.

For most people, it will take some time to hit this target. Setting aside a year’s worth of expenses won’t be quick. There will be many, many temptations along the way to spend re-direct money away from the task of building your emergency fund. Do yourself a favor. Set up an automatic transfer from your chequing account to your emergency fund. This way, you don’t have to think about funding your future emergencies as it will happen automatically through the magic of technology.

Invest Your Money

First things first – track your expenses. Ideally, you’ll do this for a month. Write down what you spend. Figure out which expenses were necessary (see above) and which ones weren’t. Of the second group, identify the ones that don’t make you happy and promise yourself to eliminate those ones in the future.

Whatever money is cut needs to be re-directed towards your investment portfolio. Your investment portfolio consists of registered accounts and your brokerage account. Your registered accounts are your Tax Free Savings Account (TFSA) and your Registered Retirement Savings Plan (RRSP).

Fill your registered accounts before you start contributing to your brokerage account. The TFSA will not generate a tax deduction but the money will grow tax-free forever. You can also withdraw money from your TFSA without paying taxes. The RRSP money is tax-deductible, and money inside an RRSP will grow tax-free. Once you start to withdraw the money, you’ll pay taxes on it. Fill your TFSA to its limit, then focus on filling your RRSP.

Once you’ve filled your registered accounts, then you can open a brokerage account and re-direct your investment contribution. Money invested in your brokerage account is not tax-deductible, and you do have to pay taxes on it every year. Ideally, you’ll be investing in securities that generate dividends and capital gains for you. Dividends and capital gains are not taxed as heavily as interest earned in a bank account or from GICs.

Follow this order of investing every year: TFSA -> RRSP -> Brokerage Account.

If you’re starting from scratch, it might take you a few years to fill up the registered accounts. That doesn’t matter. You’re trying to build a nice, fat money cushion for Future You. Consistency is key, so don’t worry about how long it will take. Just start today and don’t stop.

Pay Off Debt

Ridding yourself of debt is just as important as long-term investing. I don’t want you sacrificing one for the other because you need time on your side. You need to have money invested so it can compound for as long as long possible. This is why you should be investing at the same time that you’re paying off debt.

After you’ve eliminated the debt, you will have a hard-working investment portfolio in place. This is a wonderful thing! It means you won’t be starting from $0 if your debts aren’t gone until you hit your 50s or 60s.

Tighten your belt and learn to say “No”. If you have debt, then I want you to do the following.

Take half of your contribution amount and direct it towards your debt. Allow me to be very clear. You’re already paying the minimums on your debts every month. Half of amount that would’ve otherwise gone to your investments will be added to the minimum payment of one of your debts. An increased payment dramatically shortens the time it will take to pay off a debt. Once debt #1 is gone, add that entire former payment from debt #1 to the minimum payment of debt #2. When debt #2 disappears, add the entire former payment that was going to debt #2 to the minimum payment for debt #3. Repeat this cycle until all of you’ve paid off all of your debts.

Do not get bogged down in deciding whether to use the Debt Snowball Method or Debt Avalanche Method. It truly doesn’t matter. The only thing that matters is your decision to start paying down your debt today.

Both methods will get your out of debt. Personally, I like the Snowball Method since it eliminates the smaller debts first. Paying down debt sucks, so seeing wins as soon as possible makes people feel good.

Once you’ve paid off your debts, take the former debt payments and re-direct them to your registered accounts and your brokerage account.

That’s It. That’s the Plan.

Once you’re out of debt, stay out. Save up for large purchases so that you don’t have to finance them. The one exception is your mortgage. Even I will admit that this is the one purchase where financing is nearly unavoidable without a lottery win, a big insurance settlement, or an inheritance.

Keep your emergency fund fully-funded. If you need to use it, then make it a priority to build it back up again. Life can be funny. There’s no rule saying that only one emergency is headed your way.

Invest for the long-term. Put your money into well-diversified, equity-based securities. Personally, I like exchange traded funds (ETFs) more than I like mutual funds. For nearly the same security, ETFs will cost you atleast 80% less. Read The Simple Path to Wealth by JL Collins. While it’s written for an American audience, the savings & investing principles are equally applicable to Canadians.

You’re already doing all of these things, you say? Fantastic! Use this time to tweak your system, if necessary. Consider increasing your emergency fund by 3%, just to keep up with inflation. It’s never a bad idea to increase your contributions to your brokerage account by an additional 1%. Taking this step every year will make a big difference in how much your accumulate. It bears repeating – once your debt is gone, keep it gone.

That’s it – that’s the plan to master your money. If you do these three things, then you’ll be setting yourself up for success.

Everything else is details.

It’s Time to Assess Your Financial Progress.

Well, we’re already weeks into the final third of the year. Tempus fungit, which is why you should take 20 minutes or so to assess your financial progress. Is your debt decreasing or increasing? Have you added more money to your emergency fund? Did you set up an automatic transfer? Are your sinking funds in place for your short-term goals?

You’re the only person who can honestly say whether you’ve taken the actions needed to get you where you want to be. After all, you’re responsible for doing what’s necessary to make your dreams come true.

How many of the following actions have you taken so far this year?

  • tracked your expenditures each month
  • directed some portion of your paycheque to your emergency fund every month
  • created sinking funds for your short term goals
  • eliminated recurring subscriptions that no longer make your happy
  • ensured that your credit card is paid-in-full every single month
  • paid off your debt by making extra payments over and above the minimum payment amount
  • funded your RRSP and TFSA as much as you can
  • set up an automatic transfer from your chequing account to your investment account
  • opened a brokerage account so you can invest your money into ETFs
  • ensured that your securities in your investment account are set up on a dividend re-investment plan
  • started making financial plans for 2025

Ideally, you will have completed all of these tasks. It’s okay if you’ve only done a few or even only one of them. Getting good with your money takes time and practice. It’s about building habits, which will eventually become financial reflexes if given enough time. The sooner you start, the better for you.

If you haven’t done anything to progress financially, then chastise yourself for no more than 10 minutes then move forward to the next step. In case you had any doubt, the next step is to start. Yes – that’s right. Start by doing one thing. If you can find time to mindlessly scroll various apps on your phone, then you have time to start taking the steps to improve your financial future.

I promise that if you continue to do nothing about your money situation, then your financial circumstances will never improve. Believe me when I say that you’ll be in the same position tomorrow as you are today if you don’t make any moves to earn, save, and invest your money.

Start where you are today and go from there. Do not assume that you have to know everything about money before you begin. There is no perfect way to do money. Good money moves are unique to each person. That said, spending every penny you earn, going into debt, and living without an emergency fund is a recipe for financial strife. That particular course of action benefits no one. You have to start today. As you learn better, you will do better.

When I started my own financial journey, it was with $50 every two weeks for my part-time job in a grocery store. I would go to the automated teller to transfer $50 from my chequing account to my savings account. Eventually, I had $8,000 in my savings account. Like an idiot, I used half of it to buy my first car. Sigh…

The good news is that I learned from my mistake. As I earned more money, I started saving a bigger amount from my paycheque. Reading about personal finance became my hobby. That lead to me opening my RRSP at age 21. I managed to fully fund my RRSP every year that I had contribution room. In 2009, the TFSA was born and I started to fill that up too. Over time, I learned about exchange traded funds so I switched my investments from mutual funds with high MERs to ETFs with low MERs. As a result, more of my investment returns stayed in my pocket instead of going to the fund manager. (Check out this calculator to see the impact of MERs on a portfolio’s returns over time.)

It took a while but, I eventually paid off my student loans, a car loan for my second vehicle, my mortgage, and a car loan for my third vehicle. When I was finally out of debt, I made much better use of my investment account by using my former debt payments to buy more investment securities. Without debt, I finally had some extra money over and above what was required to fully fund my RRSP and my TFSA each year. Once I was investing a third of my take-home income, I established sinking funds for travel and renovations to my home. Future Blue Lobster would be provided for by my long-term investments so it was time for me to focus on some short-term and mid-term goals that would make my life’s journey a little more comfortable. In short, I wanted to add a few little luxuries to my life so I did.

For me, being debt free was a key element of making substantial financial progress towards achieving the things that I wanted from my life. One of the biggest things I’ve always wanted is financial independence. I desire to be in a position where my investment income can replace my entire salary if necessary. That day is very nearly here as I’ve finally reached what is called Lean FIRE. Personally, I’ve never been a huge fan of Lean FIRE, but I do see its utility for some folks who want to do something else with their time.

I don’t know how much debt you have, yet I’m pretty sure you’ll be better able to fund your heart’s desires when you aren’t sending so much of your money to your creditors. Figure out a way to eradicate your debts sooner rather than later. Avalanche method or snowball method isn’t terribly important. The most salient factor is getting rid of your debt. If you do nothing else financially for the rest of 2024, please work on eradicating your debt. The sooner it’s in your past, the sooner you will have the money to make your dreams come true.

While you’re paying off debt, don’t forget to invest some of your money. It can be $5 per week or $50 per month, or whatever amount above $0 that you choose. Just start investing! The more time your money has to compound, the bigger it will grow. You really can’t afford to wait until your debt is completely gone before you start investing for Tomorrow You.

No one is saying this will be easy, but it’s not impossible either. Depending on the size of your income, it may take a few months to achieve all of these goals or it may take several years. I can promise that none of these goals will be achieved if you’re not willing to take the steps to make them your reality. No one is perfect at money, and there is always more to learn. That shouldn’t impede you from trying. Start today, from where you are right now. If you invest nothing today, then you will have nothing tomorrow. It’s as simple as that. You and I both know that you want to be more financially secure tomorrow than you are today. What’s stopping you from moving towards that goal?

Let’s say that you’ve reached the point of being debt-free with a fully-funded TFSA and RRSP. You’ve also got atleast 6 months of income stashed away in your emergency fund and a nice chunk of each paycheque is being invested into ETFs. Your sinking funds are replenished every year so that you can pay for those large, irregular expenses that show up every year. Now what?

First, congratulate yourself on being very, very good with your money! So many people will read blog posts like these without taking any steps to implement the suggestions therein. By following these steps, you’ve set yourself up to be financially secure. Second, keep doing what you’re doing right now and continue to learn more. Stick to your knitting and watch the financial wins multiply in your favor.

And if you’re not yet at the top of your money game, then it’s time for you to start. Tomorrow You will be thankful that you did. Again, if you invest $0 today, then you will have $0 tomorrow. You need money until the end of this journey call life. Today is a great day to begin targeting some of your time and energy towards building a solid financial future for yourself.

Assess your financial progress and take the necessary steps to get yourself where you want to be with your money.

The Debt Is Gone. Now what?

I spend a lot of time talking about paying off debt. Why? For the simple reason that debt impedes you from spending your money on the things that you really want.

Once the debt is gone, what should you do with your former debt payments?

This post isn’t for those of you who already have a plan for your money.

If, however, you’re a person who doesn’t have a good plan for your money, then you should stick around while I drop some pearls of wisdom. Feel free to pick them up as you see fit.

Whatever your former payment amount, I want to divide it by three. One third will go to your emergency fund. The next third will go to your retirement and/or investment account. The last third will go into your chequing account so that you can spend it on upgrading your life.

Build Up Your Emergency Fund

Emergencies can strike at any time. They’re inconvenient that way. And while I don’t know what kind of emergency will land in your lap, I can pretty much guarantee that it will have a financial component. You need to have an emergency fund to handle it.

Some people advise having 3 months’ worth of expenses in the bank. I’m a lot more conservative than that. I think everyone should be aiming for atleast 6 months’ worth of expenses in their emergency fund. Let’s say you lose your job. That’s definitely when you will need your emergency fund to carry you until you can persuade someone else to pay you for your skills and expertise at whatever it is that you do.

It will take a long time to build up 6 months’ worth of expenses. (For those of you who are really, really conservative, aim to build up 6 months’ worth of income!) Debt is a barrier to building a sizeable emergency fund. That’s why I dedicating one third of former debt payments to the task of weaving your financial safety net.

Give Your Retirement & Investment Accounts Some Love

The next third of your former debt payment should go to maxing out your Tax Free Savings Account and your Registered Retirement Savings Plan. These are the two registered accounts where you should be investing money for your retirement. Future You will thank you for doing so.

In the fortunate event that you’ve already contribute the maximum allowable amounts to both your TFSA and your RRSP, you should open a non-registered brokerage account and invest one third of your former debt payment. Your investments will grow tax-free, so it’s to your advantage to invest your money sooner rather than later.

Unlike the TFSA and the RRSP, there is no limit on how much you can invest in your non-registered account.

When your debt is gone, set up an automatic transfer from your chequing account to one of these accounts – TFSA, RRSP, or non-registered brokerage account. Max out the first 2 before you start investing in the last one.

Inflate Your Lifestyle With the Last Third

That’s right. I’m encouraging you to spend your money. After all, you worked hard for it. Now, instead of sending it to someone else, you get to keep it. You can spend it on whatever you want. That’s the beauty of being debt-free!

Maybe you’ve been dying to take a trip? Or maybe there’s something new you want for your home? Perhaps it’s finally time to join that wine club you’ve found? Whatever it is, I want you to buy it. You now have the cash and your purchase won’t impact your ability to invest for the future, nor your ability to save for emergencies.

Maybe there’s nothing you want to buy right now. That’s fine too. You don’t have to spend money if you don’t want to. Keep the money in a sinking fund labeled “Whatever I Want”. When you figure out what you want to buy, if anything, the money will be there waiting for you.

And if there truly isn’t anything want to purchase, then you may want to fill up your emergency fund even faster. No one has ever complained about having too much money during an emergency. You could also send more money to your retirement and investment accounts.

I’m not encouraging you to squirrel away every penny for the future, or for emergencies. However, if you don’t see a need to increase your day-to-day spending, then those are two great options for the final third of your former debt payment.

Another fantastic option is making a charitable donation to causes that you hold dear to your heart. It’s good karma to help others and money is very helpful for those who need it.

So there you have it – Blue Lobster’s suggested use of your former debt payment. Again, take what you need and leave the rest. You earned the money so you get to decide how best to use it to make your dreams and goals your reality.

Have You Decided How to Spend Extra Money?

Most of us dream of winning the lottery, but there are times when smaller lump-sums come into our lives. What should be done with that extra money?

In my humble opinion, you should split that extra money in the following way:

  • 50% to your investments
  • 30% to your debts (if you have any)
  • 10% to your emergency fund
  • 10% to whatever you want

Investments need to be funded.

My advice is to invest money when you have money. Your Tax Free Savings Account and your Registered Retirement Savings Plan will not fund themselves. It’s up to you to put the money into both of these accounts. Once you’ve made the contributions to your TFSA and RRSP, you have to invest that money so that it can grow over a long period of time.

If you’ve already maxed out your TFSA and RRSP contribution room, then put the money into your non-registered brokerage account. The government taxes capital gains and dividends earned in your brokerage account less than it taxes income received from your employer. This is a very good thing.

So when that “extra money” lands in your bank account, invest half of it.

Pay down your debts.

In an ideal world, you don’t have any debts.

Most of us don’t live in an ideal world. Debt is a part of many people’s lives via student loans, credit card debt, medical debt, mortgages, car loans, etc… I view debt as a financial cancer. Debt prevents you from building your own financial cushion. It prevent you from accumulating wealth. When you send money to your creditors, then you’re unable to invest those same dollars for Future You. Debt limits your ability to make life a little bit easier for Today You.

So when extra money comes your way, send atleast 30% of that amount to your debts. If you want my opinion, pay off any debts that can be paid in full. I subscribe to the Debt Snowball method of repayment because it feels good to get rid of debt. Positive psychological boosts are generally good motivators, so I’m a fan.

Top up your emergency fund.

It takes a very long time to build up an emergency fund. While some people are comfortable with a smaller one, my goal is to work my way up to 12-months worth of expenses. I’ve yet to meet this goal and I’m still working towards it. Thanks to my automatic transfers, I’ll get there eventually.

In the interests of transparency, I’ll tell you that I recently had to pull money from my emergency fund. Accordingly, refilling my emergency fund has moved up my priority list for my money. I need my cushion to be replenished as soon as possible because there’s no way to know when the next emergency will arrive.

When extra money comes your way, it’s an extremely good idea to put atleast 10% of that money into your emergency fund. You don’t know when that emergency is going to land. There is a high likelihood that there will be a financial component to your emergency. Right now, there’s no way for you to know how big that financial hit will be. Trust me when I say that you will be very happy to have some money salted away the day that you have to deal with your emergency.

Spend the rest however you want.

That’s right. I want you to spend the last 10% of your extra money however you want.

While I firmly believe that it’s important to save for the future and to get out of debt, I realize that one of the main benefits of money is buying those things that will make you happy today. Is it a nice dinner out? Maybe a day on the links? Or you need to refill your wine-rack? Perhaps you want to upgrade your phone or your computer? Is there a getaway that you’ve been wanting to do?

Whatever it is, make it happen with the remaining money without going into debt.

Let your priorities guide you.

It’s your money. You’re the one deciding how to spend your extra money. My suggestion allocation of how to use that money is for those who might need help in figuring out what to do with their extra money.

Now, the allocation suggested above is just my preference. Other people might have different priorities for their extra money. Some people might want to put all that money towards paying off their debts. There are others who will put the whole amount into their investments. Of course, there are also those who will see this as “found money” and will choose to spend the entire amount on whatever they want at the moment.

Do what makes sense for your life. Having a plan for your extra money ensures that your priorities are met, and that you’re not left wondering where all that money went.

The Secret to Wealth? Invest the Difference.

Three little words. These three small words have the power to change your financial destiny if you make the choice to implement them in your life.

Invest the difference. What does that mean?

In a nutshell, it means you should be living below your means. The LBYM-lifestyle translates into always having a gap between what you earn and what you spend. Your goal is to make the difference between your earnings and you spending as big as possible while still enjoying your life from day to day. Then you’ll take that amount, ie. the difference, and you’ll invest it for the long-term. The bigger that amount, the sooner you’ll reap your investment gains. Then you’ll let those gains compound for a couple of decades. At some point, your investment gains will able to support Future You, whether wholly or in part, when you’re no longer able to send your body out to make money.

Kindly keep in mind that staying out of debt is a key part of living below your means. If you’re constantly paying money to creditors month after month after month, then you won’t have those dollars going into your investment portfolio. Also, paying creditors 29.99% when you can only reasonably expect an average return of 8%-10% over the long-term is a losing proposition for you.

Pay off your debts then start investing.

If you have debts, focus on paying them off first.

Unless you’re over 35. If you’ve hit your mid-30s, then you need to invest while you’re simultaneously paying down your debts. Yes – you’ll pay a little more interest this way, since your debts will stick around longer. In my humble opinion, that’s not your biggest concern. Once you’re solidly into your adult years, then you need to start making adult decisions. And one of those decisions is to take care of Future You by investing money for your care and feeding 30 years from today. Once you’ve hit your mid-30s, then you need your money to be working for you as soon as possible. In your case, ASAP = immediately. It doesn’t not mean “tomorrow”.

The trick will be to not go into anymore debt. Make a plan and stick to it. As your debts get whittled away, re-direct 50%-75% of your former loan payments to your investment. The rest of the former payment can be spent bulking up your emergency fund. If your emergency fund already holds 9-12 months expenses, then spend that money on the little luxuries that make your life more comfortable.

Maybe you want to enjoy a nice bottle of wine once a month? Or would you rather travel somewhere? Perhaps you finally have the money to comfortably handle the long-term financial commitment of a pet? You know what you want better than I do. My point is that you should use some of that money to add what you really want into your life.

If you need a plan for how to pay down your debts, I would suggest using the Debt Snowball method. Despite the controversies that are always swirling around the man who made them famous, this method of paying off debt is an effective and straightforward way to rid your life of creditors. Do not go into further debt while paying off your current ones. I cannot stress this enough. Staying out of debt is incredibly important to Future You’s survival and comfort.

Where should you invest your money?

In my humble and inexpert opinion, your money should first go into your Tax Free Savings Account. Then it should go into your Registered Retirement Savings Plan. Finally, you should be investing in your non-registered investment account, aka: your brokerage account.

Don’t feel bad if you can’t max out your TFSA and your RRSP right away. It literally took me years to max out my contributions. (And I treated myself to something nice when I finally accomplished this goal!) Invest as much as you can, as soon as you can. Eventually, your debts will be gone and you’ll have the funds to contribute. Stick to your knitting and you’ll accomplish this goal. Remind yourself as often as you need to that it likely won’t happen overnight.

So those are the broad strokes. Think of them as the first principles of wealth. You simply have to live below your means, stay out debt, and invest the difference. If you do that consistently for a very long time, the odds of you becoming wealthy increase dramatically.

Your Net Income is the Amount That Counts

People like to talk about their salary when asked about how much they earn. This is hardly surprising, since annual salary is nearly always a larger amount than what you take home. Net income is what you received after taxes and deductions have been subtracted from your gross salary. Whether you get direct deposit and receive a physical cheque, your net income is the number that you should have in mind.

What sounds better? Earning $100,000 per year (annual salary) or earning $68,572 (net income after taxes)?

It always sounds better to be earning the higher salary. This is because our society subtly and not-so-subtly teaches us that it’s always better to earn more. After all, that means you’re worth more… doesn’t it? So to admit to earning a lower amount is akin to telling the world that we are worth less. But I digress!

When it comes time to doing your budget, always work with your net income. Determine how much you take home from your job each month and subtract your expenses until you get to $0. Once you’ve spent all your money, stop spending until your next paycheque.

Don’t ever divide your annual salary by 12 and then subtract your expenses from that amount. Doing your budget this way is a recipe for disaster, an invitation to overspend. It’s the pathway towards a debt-spiral. You need not make your financial life any harder than it already is!

Pay Yourself First… doesn’t work for everyone, sadly.

If you were asking for my advice, then I would tell you to order your expenditures by priority. Personally, I think pay-yourself-first is a fantastic way to live… unless doing so means that shelter and food won’t get funded.

The unfortunate reality is that there are a good many people who barely have enough to pay for shelter and food before the money is gone. I don’t have any easy answers for those folks. They are the working poor. They live hand-to-mouth, not because they want to but because they don’t have enough money to live. They’re paid the lowest amounts permitted under the law. As prices go up and their wages stay the same, they don’t have enough money from one paycheque to the next. I’m going to give them a pass for not paying themselves first since I can understand why eating today might be viewed as more important than retirement tomorrow.

For everyone else, my suggestions are as follows.

Pay Yourself First

Take the first 15% of your net income and put it away for Future You. The money should go into your TFSA. Once you’ve maxed your TFSA, then put your money into your RRSP. Fill these accounts and choose equity investments. Don’t fiddle with this money. It is meant to take care of you in retirement. In other words, when you’re no longer able to go out to work, then you will be relying on this money to generate sufficient cashflow to pay for your expenses until you die.

Necessities Come Next

Next, pay for your necessities. You need shelter, so pay for your mortgage or rent. If you’re a homeowner, pay for the utilities that you need to keep your house running – power, water, heat. You should also pay your property taxes so that your municipality doesn’t take your home away from you. If you’re smart, you’re also setting aside atleast $100 from every paycheque for annual maintenance and unexpected “surprises” that come along with owning a home. Eavestroughs need to be cleared of leaves. Furnaces and hot water tanks need to be inspected, maintained, and replaced. Windows and roofs don’t last forever.

Have an emergency fund for your home and add to it on a regular basis.

Stick Some Money in Your Emergency Fund

There’s an emergency in your future. They are the very definition of spontaneity. You don’t know when one will arrive, but you can be guaranteed that it won’t show up at a convenient time. When it does land in your lap, you’d be best served to have some money in the bank to deal with it.

Whatever your emergency is, you will likely need money to deal with some aspect of it. A flight? A deposit? A hotel stay? New clothes? Repairs to something-or-other?

Just stick money into your emergency fund from every paycheque. Don’t spend this money! When you need it, you’ll be thanking yourself for having the foresight to set it aside in the first place.

Fill Your Belly

Do yourself a favor. Start preparing most of your meals at home. You’ll have more control over what goes into your body. It’s still cheaper to cook and bake for yourself than it is to have someone do it for you. The upside is that food that you prepare for yourself tastes better than whatever you can get at the drive-through window. And when you do go out for a meal, it become a special treat because it’s not something that you do everyday.

Fill Your Vehicle’s Belly

If you need to drive to work, then go and fill your tank. Throw $100 into a dedicated vehicle fund. At some point, your vehicle will need an oil change, new tires, or a tune-up. Whatever your vehicle will need, odds are good it won’t be cheap.

There will also come a day when you’ll need to replace your vehicle. If you can manage it, pay for your next vehicle with cash and bypass financing all-together.

Pay Off Your Debts

Maybe you didn’t find my blog until today so you weren’t aware of the debt trap until you were firmly caught in it. What’s done is done. Your task now is to get yourself out of debt.

Pay off your debts. Personally, I like the Baby Steps and the idea of getting rid of small debts in order to have a few quick wins. It feels good to pay off debts. Use a good chunk of whatever’s left over at this point to pay off your creditors. This might take you a few weeks, a few months, or a few years. No matter how long it takes, just do it.

Once you’re out of debt, don’t go back into it.

Spend What’s Left

Okay… do you have money left after savings, shelter, emergency fund, debt, food, and gas?

If the answer is no, then stop spending. Do not go into debt for non-necessities. That’s a stupid move and you’re not a stupid person. It sucks to not be able to spend your money the way you want to. Focus on what’s come next after your debt is gone. That money stays in your pocket; you don’t have to send it to your creditors anymore!!!

If the answer’s yes, then let’s keep going. My next suggestion to you is to build up your non-registered investment account. Your TFSA and RRSP are registered accounts, so the government limits how much you can contribute to them each year. There are no such limits on non-registered investment accounts. You can contribute as much as you want. I like the idea of contributing $100 per day to your investment account, but you can pick whatever amount you want.

Now, you can spend the remainder of your net income however you want on the luxuries. These are the non-necessities that you don’t strictly need for survival, yet they do make life a little easier. Very often, they can be categorized as entertainment, self-care, sports, gardening, travel, or whatever-it-is-that-makes-you-smile. Spend your money on these things however you see fit.

I’m a little bit cuckoo about plants. In the spring, I hit 3-5 greenhouses and buy too many annuals for the planters around my home. I’m constantly on the hunt for perennials that thrive on neglect, in poor soil, and in the hot sun on the southern wall of my house. Oh, and it has to have pretty flowers. I haven’t found it yet but I spend a good chunk of money looking for it.

Your whatever-it-is is likely not the same as mine yet we both derive pleasure from spending our money on it. There is nothing wrong with this. One of the purposes of money is bring joy to people.

Read a Couple of Books to Optimize Your Spending

If after your non-survival spending is done and you still have money leftover, then you should read Die With Zero and figure out what really, really, really matters to you. Then you should spend your money on that. After all, you only get one life. Whatever money you earn should be spent creating the life you want for yourself. For some people, you might still choose to spend your money in the same way that you would have if you hadn’t read the book. However, atleast you’ll be aware of another perspective before you do.

Actually, now that I think on it a little bit more… maybe you should read Die With Zero after you’ve paid for your survival expenses and before you start spending on the whatever-it-is-that-makes-you-smile. You might also want to consider the words of Ramit Sethi and learn how to build your rich life.

So there you have it. These are the ways that I think you should be spending your money. Whether you follow my suggestions or not is entirely up to you. After all, you know your money situation better than I do. And I fully admit that your priorities won’t be the same as mine. Take what you need and leave the rest.

Buy and Hold – This Strategy Works Exceedingly Well

***** First off, I am not a licensed financial advisor. I don’t hold any of the designations and I’m not an expert in telling people which investments are best for their particular situations. This post is about what has worked for me. It is in no way a guarantee, warranty, or promise that my chosen investment products will work just as well for you.

Now, with that out of the way, let’s get to it…

I’ve used the buy and hold strategy for my entire investing life. This strategy is far less risky than trying to time the market. Market timing as an investing strategy is too intense for my tastes, so I don’t do it. I have little faith in my ability to buy the perfect stock at the perfect time and to also sell it at the optimum moment. In hindsight, I can confidently state that the buy and hold strategy has worked exceedingly well for me. This is most likely due to the fact that I’m something of a passive investor and this method required very few decisions from me. These were the 4 main questions that I asked myself when I started oh-so-many-moons ago.

  1. How much would I commit to investing from every paycheque?
  2. When would I set up my automatic savings plan?
  3. Which exchange traded funds did I want to buy with my automatic savings?
  4. Would I be willing to increase the savings amount each time I paid off a debt or got a raise?

That’s it. Those were the questions that helped me to put my buy and hold investing strategy into action.

Question 1 – How much?

I started my investment journey with $50 from each paycheque. It was easy at the time. I was living at home, so my parents paid for the majority of my life. I had to cover my entertainment with money earned at a part-time job. Everything else was paid for by my folks. That $50 was roughly a third of my bi-weekly paycheque, but I’ve never been a big spender so it wasn’t a hardship.

As I finished school and moved into my career, that savings amount went up. Since I’m a person who drives my vehicles for a very long time, I have years and years between car loans. I kept my Oldsmobile Alero for 8 years, and the loan lasted for 5 of those years. The Alero was eventually replaced by an SUV, whose loan was paid off in 6 months. I kept my SUV for 14 years, and would still be driving it but for knee problems that make it kind of unsafe for me to be working a clutch in traffic. (I still love my SUV and made sure that it went to a good home when I sold it.) Last fall, I purchased my current vehicle in cash. It was a big sum and I didn’t particularly enjoy handing it over, but I really, really, really hate car payments.

Once they were eliminated, former car payments were directed towards my investment accounts. They became RRSP and TFSA contributions. Within a few years of ridding myself of car payments, I was able to make the maximum annual contributions to both my RRSP and my TFSA. No more big rollover balances for this Blue Lobster!

The same thing happened after I paid off my mortgage – my savings amount shot up again! Think about how much you pay for your mortgage or rent. If you didn’t have to pay that every month, don’t you think it would be easier to find the money to invest?

Today, I’m at a very comfortable bi-weekly savings rate, many times higher than the one I started with so long ago.

Question 2 – when to start the automatic savings program?

“Right now.”

In my case, that’s not exactly true. When I was saving my $50 every two weeks, I would actually go to a bank machine and to the transfer myself. (Yes – I’m older than online banking.) I would punch in my numbers and manually transfer the money from my chequing account to my savings account. At the time, I was in high school so I didn’t know about exchange traded funds or mutual funds, or other kinds of investment products. All I knew about were savings account so that’s where my money went.

When online banking became a reality in my life, one of the first things I did was set up an automatic transfer. The money from each paycheque was sent where it needed to go. I’ve had the benefit of using automatic transfers for more than half my life. This means that I don’t have to face the choice of whether to save & invest my money every time I get paid. That question was asked and answered decades ago. No need to ask it again.

As the years passed and I learned more, I put more automatic transfers in place so that each of my priorities and goals could be funded. My RRSP and TFSA contributions were invested in the securities I had chosen. My buy and hold strategy went into action, and I didn’t look back.

Question 3 – What did I buy?

Ah… now we come to one of my biggest investing mistakes. I invested in dividend-paying mutual funds… then, later on, I switched to dividend-paying exchange traded funds (ETFs). The switch occurred because ETFs have management expense ratios that are so much lower than those that come with mutual funds. The management expense ratio (MER) is the on-going cost paid for owning mutual funds and ETFs.

Words to the wise – the MERs on mutual funds are almost always higher than the MERs on ETFs.

I thought of my dividend-paying securities like anything else. Why pay more for the same thing? If I can buy the same 2L carton of milk for two different prices, then I’m going to buy the one that costs less. The same logic applied to my investment products. When I learned about ETFs, I made the switch and didn’t look back.

For decades, I invested my money each month into dividend-payers. My thought was to ensure that I had a steady stream of income in retirements. Dividends receive favourable tax-treatment, i.e. they’re taxed must lower than interest earned on GICs or employment income. Secondly, I could participate in dividend re-investment programs (DRIPs). This meant that all of my dividends were automatically re-invested into buying even more dividend-payers. Compound growth for the win!

Sounds like a great plan, right? Well, I should have been investing into straight equity products. The stock market’s return outpaced what I earned from my dividend-payers. Even with the volatility of a regular stock market, and the crashes that happened in 2001, 2008 and 2020, I would have been so much farther ahead if I had just invested in straight equity ETFs.

Ah well… coulda, woulda, shoulda…

My saving grace lies in the fact that I was using the buy and hold strategy.

  • Was I buying the wrong thing? In hindsight, yes.
  • Did I hang onto my investments once purchased, and thereby benefit from compound growth? Again, also yes.
  • Has the buy and hold strategy worked wonders for me despite my big mistake? Yes!

Question 4 – did I increase my savings amount over time?

You bet your sweet patootie I did!

When I was younger, I had a lot more debt. I graduated with student loans, and I’ve taken out 2 car loans in my life. On top of that, I had a mortgage. My employer has given me raises over the years, but none of those matched inflation.

The “extra” money for my buy and hold strategy always came from not replacing one debt with new debt. Once my student loans were gone, that money was available to be invested. As my car loans and my mortgage were paid off, that money was also re-directed towards my investments.

Now, I’m going to admit that I used part of each former payment to bolster my day-to-day living too. I think I was paying $650 or $750 every two weeks for my mortgage way back in 2006. (And I realize that those numbers are downright paltry compared to the mortgage payments some people are paying today.) However, at the time, they were a big chunk of my paycheque so I was glad to see them go.

At the time, I chose to send $500 of each former payment to my investments and the remainder – whether $150 or $250 – stayed in my chequing account for the little extras. In short, each time I paid off a debt, I re-directed the majority of that former payment to my wants while the bulk of the payment went to my investments. No one is promised tomorrow, but that’s no excuse not to save for it.

The buy and hold strategy has worked exceedingly well for me. I have no reason to believe that it won’t work for you so long as you have a little bit of money to invest. You need not be an expert to start investing. It’s okay if you learn along the way. I did. I had to make tweaks here and there, as I grew more knowledgeable. They key was to start and to never stop. If you have a few bucks to invest each month, you should do so.