Tag: TFSA

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.

Take Action Today – Don’t Wait for New Year’s Eve!

As you may know, I’m not a fan of New Year’s resolutions. To my mind, if something is good for me, I should start doing it today if it’s in my power to do so. Waiting for some arbitrary date on which to implement something beneficial seems a little… stupid. Delaying means that I’m continuing with something not-good instead of making my life better as soon as possible.

But that’s just me. You do you as you see fit.

There are exactly 6 weeks left in 2022. You might to cast a thought or two towards the status of your money and how it’s done in the past 10.5 months. Are you happy with how you handle money? Do you think that there are areas where your habits & choices could be tweaked? If you could go back in time, would you make the same choices?

Most importantly, what have you learned about yourself from the way you use your money?

Emergency Fund

How’s your emergency fund? You really should be plumping it up. Inflation is still a bear and interest rates are going up. When the emergency lands, you’ll be grateful that your emergency fund is on the larger side. Make sure you’re adding a few dollars to your emergency fund every time you’re paid. It takes quite a while to get it to a five-figure size. Even if it’s only $5, start there and work your way up. More is usually better when it comes to having money in your emergency fund.

I have yet to hear anyone complain about having “too much money” when they’ve lost their job, or had to repair the vehicle they need for work, or had to wait for their sick leave benefits to kick in. An emergency fund is supposed to replace your income for a short-term period until you’re working again. No one really ever knows how long they’ll be out of work, so more is better when it comes to having money set aside.

And since no one ever knows when something will happen that will threaten their income, it’s best that you take action today. Do not wait for the next calamity to arrive before you start funding your emergency fund. Think of the people who lost their jobs when COVID-19 arrived in 2020. Want to bet that many of them wished they’d had an emergency fund in place to cover their bills while they were unable to earn their income?

Funding your retirement – TFSA and RRSP accounts

Maybe you’ve got a pension. Maybe you don’t. Either way, you should be saving for your own retirement. After all, a pension is simply a promise. Sadly, promises get broken. Just ask the pensioners who worked for Sears and Nortel. Those retirees did not get the money that they were promised. In short, these workers held up their end of the bargain by working for their employers for decades with the understanding that they would be paid a pension amount every month. To put it mildly, the employer did not come through on that promise.

Don’t let this happen to you! Start saving money for your own retirement, over and above whatever your employer has promised you. Every time you’re paid, shuffle a little bit of money into your personal retirement account. If you’re fortunate enough to have money for both, start with your Tax Free Savings Account and fill it up before you move on to contributing to your Registered Retirement Savings Plan. Despite their names, do not leave money in your TFSA and your RRSP in savings accounts. Invest your money in the stock market by using exchange-traded funds or index funds that are equity-based.

The sooner you invest, the sooner your money can start to grow. Take action today.

Once you’ve invested your money, leave it alone. If you’re more than 5 years away from retirement, then you’re investing for the long-term and you can safely ignore the Talking Heads of the Financial Media. The THFM are there to generate ratings for their media platform, not to give you a personalized assessment of your current financial situation. If you want that kind of attention, then hire a fee-only financial planner. You’ll pay the bill and you’ll have the assurance that her or his opinion is about your money circumstances. Again, hire a fee-only financial planner. Anyone else is probably just a salesperson who get a commission when you buy a recommended product.

Track Your Expenses

Where does your money go? How many automatic expenses go through your bank account or your credit card? How much do you spend with cash?

It’s my belief that knowledge is power. In order for you to be powerful with your money, you need to know how you spend it. Start tracking your money. Use an app. Fill out a spreadsheet. Pick up a pen and put it to paper. I don’t care what method you choose. The bottom line is that you need to know where all of your money is going.

Armed with that information, you’ll be able to figure out if your spending choices align with your life’s priorities. In other words, are you spending your money in the best way possible to get what’s most important to you?

Right now, we’re in an inflationary period. Everything is more expensive!!! The same dollar buys less today than it did last year. Given that reality, it’s vitally important that you’re satisfied that you’re spending choices reflect your goals. Unless you get a raise, it’s not like you have more money available for daily life. Winning the lottery, inheriting lots of money, and getting an insurance payout are not reliable or predictable ways to obtain more money. For most of us, we work – we get paid – we spend-and-invest our paycheques. Unless our paycheques increase, there’s precious little flexibility to get more money.

You give up time doing whatever-you’d-rather-be-doing to work and earn money. Respect your efforts enough to know where that money is going. Take action today and become intimately familiar with how, when and why you’re parting with your hard-earned money.

Slay the Debt Monster

We all know that it’s incredibly easy to get in to debt. Credit is everywhere! A few clicks on your phone, tablet, or computer and some creditor will be sending you a credit card in moments. Credit and debt are two sides of the same coin. You cannot go into debt unless someone has extended you credit. Alternatively, you can’t be in debt if you don’t use credit. See how that works?

If you have debt, then do what you can to get out. Maybe you take a second job and the paycheque from that job goes straight to your debts. Perhaps you start selling things that you don’t need or use anymore. Money from those sales goes straight to your debt. Do some batch cooking so you can cut back on eating out. There’s always the option of giving up subscriptions for a few months. Do you need all of your streaming services right now? Could you live with one of them for 2-3 months, then switch to a different one later? While they’re still only less than $20 each, if you have more than 5 streaming services then you’re spending close to $100 per month.

Take that $100 per month and throw it at your debts. Pick the smallest debt – pay it off first by adding the $100 to your minimum payment on that debt. Take that former payment and add it to the $100. Apply that payment amount to the minimum payment on the next smallest debt and pay it off. Now two debts are gone. Take those two former minimum payments and add them to the $100. Apply that amount to the minimum payment on the third smallest debt and pay it off.

This method works. You’re making minimum payments on all of your debts, except for the one that’s getting the extra money.

That’s it – that’s the post.

Hopefully, you’re doing okay. No one can predict the future, but I can promise you that tomorrow’s challenges will be easier to handle with money in the bank. Take action today and make the money moves that will help you to make your dreams come true.

Some Random Thoughts About Money

Never let it be said that I’ve ever held myself out as a money expert. Truth be told, I have no formal training in financial planning. I’ve read lot of books and lots of blogs, but I’ve never been certified to give financial advice to anyone.

With that said, I’d like to share some random thoughts I’ve had about money over the years. It’s been my observation that there are general principles about money that will work for most people. Here are the ones that I want to share with you. And if you don’t agree with me, that’s fine. I’m not arrogant enough to think I know all the answers or that my way is the only one that works. Take what you need and leave leave the rest.

Take care of your emergency fund

First of all, it’s always a good idea to have an emergency fund. Larger is better, but any amount is better than nothing when the emergency hits. There will be an emergency at some point – it’s not a matter of “if”. It’s a matter of “when”. Do yourself a favor. If you haven’t started an emergency fund, start one today. And if you do have an emergency fund, try to bump it up by 10%. Inflation has been on a tear so whatever emergency you have in your future, it’s going to cost you 6%-8% more due to inflation.

By its very definition, an emergency will not give you a heads-up. It’s on you to prepare for its arrival by setting some money aside for the financial aspects of whatever emergency is headed your way.

No new debt

The next thing you’re going to want to do is avoid going into more debt. If you’re not in debt, then great. Keep it that way. However, if you have debt, then seriously consider working your way out of it. Cook at home more to save money. Eliminate a streaming service or two for a few months and re-direct that money to your creditors. The fact is we’re heading into – or are already in – a recession. Not everyone is going to keep their job, or have an easy time finding one should the need arise. If that might be you, it would be very, very smart of you to minimize the strain that debt payments put on your paycheque.

After all, any money that doesn’t have to go to your creditors is money that stays in your pocket.

Invest for the long-term

Third thing – don’t stop your investment program. If you’ve been here for awhile, you know that I strongly suggest that everyone invest in the stock market. My non-expert recommendation is that you invest for the long-term in a diversified, equity-based exchange traded fund. For the past year, the stock market has been trending down and it’s been extremely volatile. Big deal! The long-term trajectory of the stock market is up and to the right. Over time, the stock market make money for investors. You need not concern yourself with daily movements.

If you’re investing in diversified, equity-based ETFs, don’t stop. Keep investing! However, if you’re investing in individual stocks, then God be with you. I have no idea how to pick winners and wish you the best of luck in your efforts to do so! If you’re not investing in anything, it’s time to start. You cannot participate in the stock market’s recovery if you’re not investing in the first place.

Use your tax shelters first. This means, put your ETFs in your TFSA first then into your RRSPs. Once you’ve filled up those tax shelters, you can invest in a brokerage account. Since TFSA and RRSPs are tax-shelters, the money will grown inside them tax-free. When the money comes out of your RRSP, you’ll pay taxes on the withdrawal. When money comes out of your TFSA, you will not pay any taxes on the withdrawal. Got it? Good. Don’t believe me? Talk to an accountant.

Once your tax shelters are maxed out, then continue to invest via ETFs in a brokerage account. The capital gains and dividends earned will be taxed each yet, but at a preferential rate. This means that they will be taxed at a lower rate than that tax rate you’ll pay on your earned income.

Again, talk to an accountant for professional tax advice.

Quick review:

  • Emergency fund? Check!
  • Debt paydown? Check!
  • Investing for the future? Check!

Now what?

Well, if you’re fortunate enough to still have money leftover, you’ve got many good options.

Might I suggest some sinking funds? The new year is less than 10 weeks away. If there are any particular dreams you want to realize in 2023, then now is as good a time as any to start planning on how to pay for them.

  • Do you want to travel in 2023?
  • Will you be taking some new course(s)?
  • Is it time for that home renovation you want?
  • Do you want to make more or bigger donations next year?
  • Are there any big celebrations or anniversaries that will happen in 2023?
  • Is there a chance you’ll be taking a sabbatical?
  • Will you need to purchase or replace any equipment for your business or side hustle?

Creating sinking funds and filling them up via automatic transfers is a good way to ensure that your priorities are funded. It’s been my experience that my money is frittered away when I don’t have a plan for it. Sinking funds have been a godsend for me since they ensure that money is in place when I need it. Chances are, they’ll serve the same purpose for you if you decided to use them.

And finally…

Remember to enjoy today. So much of financial planning and money management is about the future. While it’s good to take care of Future You, it’s just as important to live in the present. Wishing away your life is no way to live it. Count your blessings and enjoy them while you can. Today won’t ever come again, and tomorrow is promised to no one.

My 5 Most Successful Steps to Retiring As I Wish

Ever since I started working, I’ve been thinking about the day that I can stop – for good. Thankfully, I’ve had very good jobs and worked with amazing people. My work has been challenging and my tasks have been interesting. All that said, work is not my passion in life. I’m not one of those people who bounds out of bed every morning because I’m excited to get to the office. Nope. I’m willing to admit that I’m happier with life when I’m not at work. Whether it’s two weeks away on my annual vacation, two days away on a weekend, or a day off during the week for whatever reason. I’m always happier with my life when I’m not at work.

Thankfully, I learned this truth about myself when I was quite young. As a result, I started my retirement planning when I was 21 years old. Here are the most successful steps that I’ve taken over the years to maximize the odds that I can retire as I wish.

Contributing the Maximum to my RRSP

In hindsight, maybe it wasn’t the best decision to start investing in my Registered Retirement Savings Plan at age 21. I still remember my parents’ accountant telling me that taking the tax deduction while I was a student wasn’t the best idea. He didn’t have any qualms with me contributing to my RRSP but he thought I should wait to claim the deduction in the future when I’d graduated and was working in my chosen profession.

Looking back, I can see that his advice was very good. Admittedly, I didn’t really understand it. My lifelong love of learning about all things personal finance was nascent so I didn’t appreciate the wisdom of his words. At 21, I happily claimed the deduction and spent it on some item whose memory thereof has been lost to the mists of time.

Stupid decision or not, the RRSP-habit was formed. I have contributed the maximum allowable amount to my RRSP every single year since age 21. The money first went into GICs, then into mutual funds, and finally it is now all invested in exchange traded funds. As I learned better, I did better. Over the years, my MERs have dropped and my returns have skyrocketed.

Contributing the Maximum to my TFSA

In 2009, the federal government introduced the Tax Free Savings Account. I can still recall sitting at my computer desk and hearing the words come out of the Minister of Finance’s mouth as I listened to the recap of the federal budget. My head whipped around and I immediately started paying attention. What had he just said? There was going to be a new way for me to save money without paying taxes? Tell me more!

My wise younger sibling then said the following to me:

“Blue Lobster, for you, the TFSA is just another retirement savings vehicle.”

Lightbulb on!

Ever since it’s been available, I have been making the maximum contributions to my TFSA. These contributions have never been sullied by interest rates incapable of matching inflation, as are offered by GICs, nor have they been brutalized by the higher-than-necessary MERs of mutual funds. Nope. I immediately put my TFSA money to work in dividend-paying ETFs.

After another discussion with my accountant, I decided that my TFSA could be used to create a tax-free stream of income in retirement. If I invested in dividend-paying ETFs, then I could withdraw the monthly dividends from my TFSA in retirement. It would be tax-free cash flow. Cha-ching! There was also the tiny little benefit that money from my TFSA wouldn’t impinge my ability to get OAS payments.

Was this the smartest use of my investment? Probably not. I now listen to the wisdom of Bridget Casey of Money After Graduation, and she’s convinced me that I should’ve gone for growth by investing in different equity ETFs. She’s probably right. There was a bull run in the stock market from 2009 to 2020. My TFSA would be bigger had I made different investment choices.

Contributing a Good-Sized Chunk of my Paycheque to my Brokerage Account

This is where the rubber really hits the road. Once I’d paid off my mortgage, I had a good bit of money remaining in my bank account every two weeks. (For the record, I’m a big believer in accelerated bi-weekly mortgage payments.)

Instead of spending that money on this-and-that, I put it to work in my non-registered investment account at my brokerage. My former mortgage payments went straight into ETFs. As with my RRSP & TFSA investments, I put everything on the dividend re-investment plan. When I got raises, I diverted some of the newly-earned money to my investment portfolio and some of it went to increasing my standard of living. As time passed, I was able to get to the point where I’m investing 1/3 of my net pay into my brokerage account and living on the rest.

Staying Away from Debt

In today’s world, it is very hard to avoid all debt. I understand that. I don’t like it, but I understand it.

For my part, I’ve had student loans, vehicle loans and a mortgage. Thankfully, I’ve never had revolving credit card debt. In the interests of transparency, I’ll admit that I do use my credit card but I pay the balance in full every single month.

However, I don’t have debt. The last time I bought a vehicle was in 2008. I used my line of credit and I did everything possible to pay off that LOC-debt within 6 months. It sucked but I didn’t care. I knew that having a car loan for 5 years would’ve sucked too. In my mind, 6 months of short-term sacrifice was well-worth the extra 4.5 years of car-loan freedom. And, yes – my former car loan payments were re-directed to my investments once that debt was gone.

My house has been paid off for 15+ years. While the property taxes, utilities and insurance aren’t cheap, my housing costs are far less than they’d be if I still had a mortgage to pay on top of everything else.

Life without debt is generally better. Instead of money going to your creditors, it can be re-directed to paying for your life’s dreams. It’s best avoided altogether. And if you can’t avoid debt, then minimize it to the greatest extent possible. While it’s in your life, do whatever you can to get rid of it as soon as possible.

Playing the Lottery

Bet you weren’t expecting that one, were you?

It’s true. I play the lottery every week – to the tune of about $20/wk. Even though it hasn’t yet paid off, I consider this one of my most successful steps.

I’ve heard that the lottery is a tax on the stupid, and that those who can’t do math are the ones who play the lottery. I don’t care. The fact of the matter is that I can’t win if I don’t play. Someone has to win and it might as well be me.

Let’s face facts. I’m contributing the max to my RRSP and my TFSA. One third of my paycheque is going into my investment portfolio. I don’t have any debt. Spending $1040 per year on lottery tickets is not going to make or break me. My retirement plans are still on track. If I win the lottery, they’ll just get a fantastically, awesome boost and I can retirement today instead of tomorrow.

Playing the lottery is my indulgence and I’m not giving it up. Other people will spend their disposable income as they wish. I will too. No judgment.

Final Thoughts on Why I Save So Much

I’ve been working in my current position for a long time now. Believe me when I say that my feelings towards working haven’t changed. I’m still happier when I’m not at the office. And I say this despite the fact that I have mentally challenging work. I’m rarely ever bored by my work. My colleagues are truly wonderful people who carry their weight and are always there for me when I need guidance, advice, or mentorship. My bosses are all fairly good people. And while I would never turn my nose up at a raise, the truth is that my compensation allows me to live the life I want. Even my benefits are not too shabby. All in all, I have a working situation that many others can only dream of yet I’m still far happier when I’m at home or with family or on vacation.

I have no illusions that my feelings are unique or that others prefer working to spending time doing what they love with those whom they love. The difference between me and them is that I’ve created a financial foundation for myself where work is becoming optional. This blog post is about the most successful steps I’ve relied on during my working life. Thanks to them, I’ve put myself in a position where I don’t have to allow my paycheque to be the overriding factor in decisions about my life. If my paycheque were to disappear, I wouldn’t have to find another one immediately… or at all. I have the comfort of knowing that my investments – and hopefully a newspaper-worthy lottery win! – will replace my paycheque when I’m ready to part ways with my employer.