Wealth Creation - Millionaire on the Prairie

Investing time is right now!

As I write this blog post, the world is in a trade war. No one knows what’s going to happen next, nor when it will end. Certainly no one knows just how deeply the financial pain will be felt by the Not-A-Billionaires. In my very humble opinion, those who are already billionaires should be just fine. Everyone else needs to be a little more prepared for the financial pain that is headed our way.

The only thing that can be said with any kind of assurance is that this situation will not last forever and the market will recover…eventually. For you, it’s investing time.

How long that recovery will take is anyone’s guess. I urge you not to put too, too much faith into the words of the Talking Heads in the media and online. No one knows what will happen, nor precisely when the recovery will start!!!

If you haven’t started investing in broadly diversified, equity-based exchange traded funds (ETFs), then today is an exceptionally good day to start. The market is down, which means everything in the stock market is on sale. Buying while the market is down means that you’re “buying low”. This is a good thing. Open an investment account and start buying equity-based ETFs to be held for the long-term. In case it needs to be said, always keep your long-term investments separate and apart from your emergency fund. They’re two pots of money for two very different purposes, and they should not be co-mingled.

If you have started investing, then continue to do so. When you get paid, take a portion of your paycheque and invest it. The current volatility in the market need not be a reason for you to stop investing. If anything, consider increasing your investment contributions. The market is down, which means everything in the stock market is on sale. Buying while the market is down means that you’re “buying low”. This is a good thing.

Do not stop investing right now! You’ve heard me speak before about learning from other people’s mistakes, right? Well, this is your opportunity to learn from mine. Back in 2011, there was another recession. It was a small one, so not very well-known. It was nowhere near as big as the Great Recession of 2008. Here comes the part where I made my big mistake. I blame it on the fact that I was much younger and far less wiser in 2011 than I am today.

When the market started falling, I stopped contributing to my investments for 6 months!

This meant that I did not buy at the bottom. I waited until the sale was over to re-start my bi-weekly contributions. Prior to that little recession, I had been contributing a portion of my bi-weekly paycheque to my investments through a method called dollar-cost averaging. My system was automatic and I barely ever thought about it. However, when the market started dropping, I panicked and halted my automatic contributions. Doing so was one of the worst investing mistakes that I’ve ever made.

There’s no need for you to repeat my mistake in 2025.

If you’re already on an investing schedule, stick to it. So long as you still have a paycheque, continue to live below your means so there’s money to invest. The stock market is on sale right now. You’re currently living through a great time to buy equity-based ETFs and index funds. When the market recovers, as it will eventually, the value of the investments you make today will increase.

It bears repeating. Keep your investments separate and apart from your emergency fund. Your emergency fund has to be in place in case you and your paycheque part ways. You should never invest your emergency fund in the stock market. Instead, keep that fund in a high interest savings account like EQ Bank or Tangerine. Do not put your emergency fund in your Tax Free Savings Account (TFSA). The TFSA is the perfect account for your investments since they can compound over the long-term without being ravaged by taxes. You don’t want to have to withdraw money from this account during an emergency. Doing so means that you’ll be thwarting the growth of your investments.

If you’re feeling particularly nervous or panicked about the current economic volatility, then I suggest that you find ways to trim the fat from your spending. Whatever amount you find should be divided in two. Send one half to your emergency fund, and use the other half to increase your contributions to your investments. This is the best of both worlds.

The market is going to recover and volatility should be accepted as normal. Continue your contributions to your investments. Bulk up your emergency funds a little bit at a time. Turn off the news for a day or two. Control that which is in your power to control: your spending, the amount you contribute, and your choice to continue investing in your future.

Time will do the rest.

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.

DreamChasers: Making Mistakes to Make Dreams Come True!

No one – and I mean no one – fulfills their dreams without making some mistakes along the way. Making mistakes is integral to the journey. After all, how are you expected to learn and grow if you don’t have mistakes from which to learn and grow?

You’ve heard me speak about my mistakes before. And they were doozies! If I had to choose, my biggest mistake of all was not investing in low-cost, well-diversified, equity-based exchange traded funds as soon as I possibly could. Instead, I stuck to dividend-generating ETFs for far, far too long. I didn’t correct this mistake until October of 2020… sigh… Some mistakes will bite you harder in the ass than others, and this one still stings.

My second biggest mistake was not appreciating that I had another 20 years of investing in my future after selling a couple of rental properties. Instead I took that money and I paid off my primary residence’s mortgage. That was a colossal error! When all was said and done, I had a nice six-figure cheque in my hand. I should’ve taken that money and invested it into an equity-based mutual fund. (I sold my rental properties right before ETFs started to become well-known in Canada. Before ETFs arrived, I invested into mutual funds.) Yes, I would’ve kept my mortgage longer. The flip side is that I also would’ve been fully participating in the bull market than ran at a steady clip between 2009 and 2020. There’s a good chance I would’ve been retired now had I simply kept my principal residence’s mortgage for a few extra years.

My third biggest mistake was listening to people who told me not to be too hard on myself. I’ve been investing since I was 21. I was fortunate enough to max out my RRSP early in my career, and I didn’t immediately know what to do with the extra money over and above my RRSP contributions. So I increased my mortgage payments each year instead of increasing my investment contributions. After I’d eliminated my mortgage, I took some time to treat myself to vacations and a few other luxuries. Given the benefit of hindsight, I can admit that I should’ve simply thrown a good chunk, if not all, of my former mortgage payment into my investment account. Listening to the advice to let up the gas on my investing was not in my best financial interest.

No sense crying over spilled milk, right? I eventually learned from my mistakes and I have since course-corrected. Despite some very big errors on my part, I’ll still be able to make my dreams come true.

Three instrumental decisions have led me to this place in my life. The catalyst for my current financial situation was the decision to start investing. I know that sounds trite, but you would be amazed at the number of people who never start. Those who invest $0 today will have $0 waiting for them tomorrow. It’s that simple. Maybe they get an inheritance, or win the lottery. But it’s more likely than not that neither of those things will happen. The vast majority of us have to invest our own money if we expect to have any in the future.

I made 2 more decisions that were instrumental in helping me get to this point with my money:

Live below my means, aka: stay out of debt.
Automatically invest a portion of my paycheque every time I got paid.

When I started my investment journey, I was in debt. I had student loans, vehicle loans, and a mortgage. I didn’t let debt stop me. Contrary to a lot of advice, I invested while I paid off my debts. Thanks to some bonuses at work, I was able to eliminate my student loans within a couple of years. Those former student loan payments were rolled into my car payment so that one disappeared fairly quickly too. And I was fortunate enough to pay off my mortgage in short order thanks to a couple of real estate investments that paid off due to an exceptionally hot real estate market.

Once I was out of debt, I stayed out. Was it easy? No. Did I have to delay gratification for a month or two? Yes. Was it worth the wait? Absolutely yes!

Staying out of debt hasn’t stopped me from doing any of the following things:

travelling to Europe 4 times in 8 years
going to concerts at home and abroad
maintaining my theatre subscription to Broadway Across Canada
updating my wardrobe as needed
taking road trips
dining out with friends and family
renovating my home
replacing my vehicles
making new friends
spending time with family and those I love best

In short, staying debt-free has allowed me to use my money to live life on my own terms. Since paying off my mortgage, I’ve never had to commit my future income to paying off debts. Big purchases are paid with a credit card and the credit card is paid off with savings. Yes – I’m old school that way. I save up for things first before I buy them. It’s old-fashioned but it works like a charm, every single time. I’ve yet to have a vendor say “No, sorry. We won’t take your money today because you didn’t give it to us yesterday.”

Vendors will be just as willing to accept your money after you’ve accumulated a pile of it to buy your preferred whatever-it-is.

When I switched jobs, I didn’t have to worry about missing any payments to creditors while I waited for my new paycheque to start. I had the luxury of having some money in the bank to pay for my life while I adjusted to a new pay schedule. There was no fear of what could happen to my credit score. As a matter of fact, I rarely ever think about my credit score because I don’t apply for new credit. I don’t need more credit. I have cash, which is superior to credit. Owing no one is a financial super-power, and it’s available to nearly everyone.

Automatically investing from every paycheque was the step that put the sizzle in my steak! It only took me a few minutes to set up the automatic transfers that I needed. As my income went up, I increased the size of my investment contribution proportionally. I started at $50 per paycheque and moved up from there. Never once have I regretted my choice to invest automatically. Truth be told, I’ve never even heard of anyone who has wished that they had saved less money for their future.

You know what I love best about automatic investing? I never have to think about it! Money is skimmed from my chequing account to my investment account every two weeks without any effort from me. I have enough other things on my plate to think about every week, so eliminating the bi-weekly task of transferring funds is wonderful. The money goes where it needs to and I can sleep peacefully, knowing that I’ve taken another step towards building Future Blue Lobster’s financial security.

The other benefit is that I can happily ignore the Talking Heads of the Financial Media. I don’t pay any attention to whether the stock market is up or down. Negative news doesn’t influence how or when I invest. My money is transferred and invested into broadly diversified, equity-based ETFs. There is little financial analysis on my part and I love it! I don’t want to spend hours studying the stock market to chase outsized returns. I’m quite happy earning the long-term average return and watching my money steadily grow over the long-term.

I have read The Simple Path to Wealth by JL Collins. It’s a great book! And the principles espoused in that book work, so that’s why I follow them. Consistent investing in the stock market over a long period of time is a highly effective strategy, regardless of how much money you invest. Obviously, investing more sooner means a higher final amount a few decades later. Don’t let the size of your contribution discourage you from investing as soon as possible. Remember, I started with $50 every two weeks. Had I known better earlier in my life, I would’ve started with $25 or even $10.

The most important thing is to start. The second most important thing is not stop. Making mistakes is part of the process. At the end of the day, your dreams will still come true.

Financial Independence – Make It Your Goal!

Over the past few months, I’ve been seeing many articles about the death of FIRE. For those that don’t know, FIRE is an acronym for Financial Independence, Retire Early. Its popularity as an idea really took off before March 2020. Since the return of inflation, not as many people have been preaching about it.

For my part, I’ve always wanted to retire early – ideally in my 30s and 40s. Believe me when I say that ship has sailed! To be fair, I’ll retire before the traditional age of 65, but I definitely won’t be considered a super-early retiree. And if we’re being honest with each other, I’ll admit that I’m a bit sad that I can’t retire right now. So while I’ve always been a big fan of FIRE, the second half of the acronym was intriguing but I was never able to be fully wedded to it.

The first part of the acronym is a completely different story. Financial independence? Yes, please!

Achieving financial independence is one of my foundational beliefs about the purpose of having money. In my opinion, everyone should be striving for financial independence. Nobody should be financially dependent on someone else their entire life. As a single person, I’ve always known that I didn’t have the luxury of another person’s paycheque coming into my household. I’m the only one responsible for ensuring that there’s enough money to pay for the life I want to live. To that end, I’ve made financial independence one of my life’s goals because I know that one day, I won’t be able to work anymore. When that day comes, I need to ensure that I have enough money to pay for my life’s expenses when my employer and I part ways.

I have always been enamored with the idea of having sufficient passive income to live comfortably without having to go to work. This was my Holy Grail. And the best way I knew how to achieve this was to invest a portion of every single paycheque into the stock market. What do I mean by a portion? I’d describe it as a decent chunk – maybe not half but certainly more than a measly 10%.

A long time ago, I decided to invest and that decision has paid off handsomely. I started slowly, with $50 bi-weekly. As my income grew, so did my bi-weekly contribution amount. The habit of investing was made much easier by the power of automation. I didn’t have to decide to invest every 2 weeks. The automatic transfer whisked the money out of my chequing account and into my investment account without my participation. Today, I’m very happy that my stock portfolio kicks off an ever-increasing amount of passive income every single year.

So how did I get to this point with my money? And is it something others can do too?

When I was 21 years old, I knew nothing about investing. I started anyway.

My parents’ accountant told me I wasn’t making the wisest choice by contributing to my RRSP. I ignored him and put money into my RRSP. He had suggested that I save for my first house. Looking back, I can appreciate his advice and, with the benefit of hindsight, I’ll admit that it made the most sense. I was a 21 year old student, therefore in the lowest tax bracket, so contributing to an RRSP might not have been ideal for my circumstances. That said, the fact remains that I was headstrong and so I did what I wanted. After all, I knew what an RRSP was and I’d been influenced by the Freedom 55 commercials that were popular at the time.

So for a few years, all I did was invest money into mutual funds within my RRSP. Remember, I knew next to nothing about investing. I didn’t let my lack of knowledge stop me. I consumed books about personal finance. When the internet allowed, I started to consume websites and blogposts about money, investing, and personal finance. Eventually, I graduated and got my first adult job, so I set up that life-changing automatic transfer from my paycheque to my investment accounts.

I moved out of my parents’ house and really had to pay attention to where my money was going. At some point, I started an emergency fund. It took a very, very long time but eventually my emergency fund grew to where it is today. I can easily cover 6 months’ of expenses, if I have to.

In 2009, the TFSA came into existence. I decided to stuff my TFSA to the max every January. When I learned that ETFs were cheaper than mutual funds, even though they do the exact same thing, I switched the securities inside my RRSP and TFSA from mutual funds to ETFs. That was the second smartest money move I’ve ever made.

Again, it took a very long time but eventually my RRSP and TFSA were both maxed out. I still wanted to invest a portion of my paycheque, but where? And that’s when I remembered my brokerage account. (My parents had bought me a few bank shares when I was a baby, so I’d been holding them in my brokerage account.) By this point, I knew that money earned in the form of dividends and capital gains would be taxed less harshly than money earned from my job.

And while the RRSP and TFSA had contribution limits, my personal brokerage account allowed for unlimited contributions. In theory, I could invest so much money that income from dividends and capital gains would be enough to pay for all of my life’s expensive. Stated in a different way, I could live on passive income and pay less taxes at the same time! Once I’d had that realization, I was hooked. Every time I got a raise at work, I increased the contributions to my brokerage account.

By now, I’d heard of FIRE. I thanked Younger Me for putting me on the path to financial independence. Of course, Younger Me made some very big mistakes. For example, I was investing in dividend-paying ETFs instead of equity-focused ETFs for way too long. As a result, I didn’t benefit as much as I should have from the stock market bull-run between 2009-2020. Had I invested in equity-based ETFs from Day 1, I would probably be retired right now and my portfolio would probably be twice as large. No sense crying about it. I’ve since corrected my investment strategy and my portfolio is doing much better.

Financial independence was my goal, and I’m well on my way to meeting achieving it.

And the longer I strive for it, the more I believe that everyone owes it to themselves to be financially independent too. I’ve watched colleagues get trapped into jobs they hate by their debts. So many people live off their credit cards and lines of credit, which makes them slaves to their creditors. Living in debt equals sacrificing your financial future. It also means that your employer has more control over you life’s choices than you would otherwise want to give them.

Can you imagine the options you would have if you had a portfolio that covered your basic needs?

Such a portfolio would give you the power to walk away from any employer at any time. You wouldn’t need the paycheque! Your portfolio would be paying for your food, shelter, clothing, transportation, and communication needs. You could live without a job. How awesome would that be? No more Sunday-scaries!

Alternatively, if there was a job you loved and it paid peanuts, you could happily take that job and still not worry about how to pay for your life’s expenses. Think about it! The money from the love-job would be your fun money. Passive income would ensure your survival and you could join that exalted group of People-Who-Love-What-They-Do-For-A-Living! Those are truly some of the luckiest people in the world.

This is why I believe that everyone should be striving for the first part of FIRE – financial independence. And if you want to retire early, then go for it. Not everyone wants to retire ASAP and that’s fine. When to retire should be your choice. If you want to keep working after having accumulated a nice, fat cash cushion of investments, then you can do so… with the added comfort of knowing that it’s truly a choice, rather than a necessity.

So, is the idea of FIRE really dead? No. I think it’s still alive and well for many people. What I think has changed is the sentiment that it’s okay to talk about FIRE in the current economic climate. Many, many, many people are suffering due to the impacts of the high inflation we experienced in 2022-2023. Prices skyrocketed while wages and salaries remained the same. Many people were squeezed and continue to feel the pinch of their money not going as far as it used to.

Talking about FIRE would be crass. People who are struggling financially, yet also want FIRE, do not need to be reminded that it will be harder for them to become financially independent and that retirement is further away. Instead, the pursuit of FIRE has returned to the shadow and those of us who are still pursuing it are simply doing so very quietly and very discreetly.

I’ve Hit a New Money Milestone!

Indulge me for a moment as I pat myself on the back for hitting a pretty significant-to-me money milestone! When I was updating my various spreadsheets, I realized that I had done something I’ve only ever read about. In the first six months of 2024, the amount of dividend income that I’ve received exceeds the amount of dividend income I earned for the entire year of 2019! This means that, within the space of only 5 years, I’m on track to double my annual dividend income.

Not too shabby at all…

As long-time readers know, I’ve made many money mistakes. I’m a DIY-investor and I didn’t have the benefit of blogs, podcasts, and websites about money when I started. It took me a long time to course correct. Even still, the one thing I did absolutely right for the past 16 years of my investing journey was to invest money from every paycheque. (I will admit that I started investing in 2004, but then the stock market crashed in 2008 and I stopped investing for 6 months. While I didn’t sell anything, the fact remains that I completely missed the fantastic buying opportunity. I still think about what could’ve been had I not acted like a dummy…sigh…)

As my debts got paid off, I re-directed the lion’s share of those former payments to my investment account. As a teenager, I started down this path by investing $50 from my bi-weekly paycheque. By the time I had my first adult job, that amount was a few hundred dollars every two weeks. When my mortgage and SUV loans were paid off, those amounts meant I could invest atleast $1,000 every two weeks. I was still living below my means, instead of allowing money to burn a hole in my pocket. Trust me – there was still money being saved for short-term goals like travel, renovations, and annual insurance payments. Bottom line, I invested first and lived on what was leftover.

And I’ve always used a DRIP for all of my dividends. DRIP stands for dividend re-investment program. I’m nearly at the point where my dividend income matches the amount of money I contribute to my portfolio every year. If all goes according to plan, I’ll hit that particular money milestone in 2026. Until then, I will continue to revel in the fact that my DRIP is causing my portfolio to grow exponentially faster than it would if I were relying solely on my contributions to increase its value. At this point, I earn returns on my contributions and my DRIP units. This is so much better than only earning returns on my contributions.

Today, my choices are paying off. This year, I’m on track to have my dividend income exceed my planned spending. This is another spectacularly fantastic money milestone! According to the wisdom of the internet, I’m financially independent because my portfolio is covering all my costs. At this point, I can live off my dividends and I don’t have to work anymore, so long as nothing goes sideways. Is that amazing or what?

On some level, I knew I would hit this target eventually but seeing it on my spreadsheet has made it very, very real. In the first 6 months of 2024, my portfolio has covered every single purchase that I’ve made.

So what changes?

Not much. I’m going to bask in the joy of this accomplishment, then go back to my regularly scheduled life. I’m content with how I spend my money. There’s very little more that I want. And while I’m technically financially independent, the fact remains that I’m “only” Lean FIRE. I want a little more margin before I hang up my gloves. I’d like for my dividend income to exceed my expenses by atleast 20%. That way, whatever’s not spent can pile up and pay for those inconvenient and irregular expenses. In short, my cash cushion needs a little more padding before my employer and I part ways.

My plan was very simple, but it was never, ever easy. It took me along time to get here, mainly because of some mistakes I made along the way. When I learned better, I did better. On top of that, there were always temptations to spend my money on something. I remained laser-focused on my priorities and did what needed to be done to ensure that my money only went to that which was most important to me.

Now, my portfolio is paying me more money every year. Five years ago, I wouldn’t have imagined that I’d earn an entire year’s worth of dividends in only 6 months. Yet, here I am – hitting my goals way sooner than I’d thought I would and still sticking to my plan. This is a day to celebrate. Yay, me!

Making good choices is always better!

Making good choices isn’t always easy or convenient, but it almost always pays off.

I’ll be frank. I love eating out. I go out for meals with friends regularly, usually twice a week. It’s part of my social life and I don’t apologize for it. There are other things I don’t buy so that I have money to spend time with my nearest and dearest. Sharing a meal is one of my favourite things to do.

That said, I get very vexed with myself when I have to eat out because I was too lazy to cook something beforehand. Leftovers are a fundamental requirement to me living my best life, since I’m not a fan of grocery shopping and I’m not too eager to cook every single day. That said, I hate being forced to to buy something – anything – just because I’m hungry. It’s a reminder that I’ve made a bad choice with my time, my diet, and my money.

On Sunday afternoon, I was out with a family member running errands when I realized that I was very hungry. My stomach was rumbling and all I could think about was a drive-through. I briefly considered going to a sit-down restaurant for lunch, then remembered that I have food at home. Good food – healthy food – the kind of food that I want to be putting into my body on a regular basis!

We had only completed two errands. The major to-do left on my list was grocery shopping, but I know better than to go to the grocery store while hungry! That’s a recipe for an unnecessarily large bill for things that I may or may not eat in the future.

Instead of finding a restaurant, I went home and made myself a tasty lunch. It was simple – marble cheese on whole grain toast with a gala apple. It was both delicious and gentle on my wallet. You see, if I’d gone to a restaurant as per my initial whim, I would’ve spent atleast $30. That’s $30 that I hadn’t planned to spend. The meal likely would’ve been too many calories, to many carbs, and too big of a portion. My choice to come home and feed myself out of my own kitchen saved me money, kept my food intake aligned with my nutritional goals, and was another teensy little step towards fulfilling my financial dreams of early retirement. (That $30 can go towards my short term goals and my retirement fund.)

Coming home for lunch in the middle of my errands might not have been ideal, but it was the right choice for me.

Now, it’s not always an option to come home when I’m hungry. For example, when I’m at work, I can’t simply visit my own kitchen when it’s time for lunch. Also, my office is located in a not-so-nice part of downtown so I don’t have great food options. My choices are crappy fast food or expensive slow food. Neither options appeal to me. So what’s my alternative?

I’ve chosen to batch cook on the weekend and take something tasty to the office with me. This week, I’ll be dining on sweet potatoes, baked chicken breast in a lightly-sweetened glaze, and a medley of mushrooms and brussels sprouts. For snack, I’ll be taking some nuts or some fruit. My lunches will be delicious, filling, and inexpensive.

As I’ve said before, there’s a fortune to be found in your kitchen. Cooking most of your meals at home means that more of your money can be directed towards the things that matter most to you. I’m not suggesting that you never eat out. Rather, I’m putting it out there that you might want to spend a little more time in your kitchen. Eating out is a luxury! Somehow as a society, we have forgotten this. Having an app to order our food is a very new idea. The financially better option is to buy your own food and cook for yourself. Make enough to have some leftovers for the next day, or to freeze for those days when time gets away from you but you still need to eat when you get home.

I’m not immune to the lure of the app. There have been many nights when I’ve wanted to order a pizza or something else on my phone. You know what stops me? It’s not the cost of the food item. It’s the cost of the add-on’s. There’s a service fee, a delivery fee, taxes, the day-ending-in-y fee, and a tip. After it’s all added up, the medium pizza that I’d planned to buy is somehow $40!!! I’m not yet at a stage in my life where $40 for one pizza makes any kind of sense. So instead of entering my credit card information, I close the app and go to my kitchen where I can always get a peanut butter and jelly sandwich, or cheese and crackers with an apple, or a bowl of oatmeal. I would rather have an un-glamourous, not-Instagramable dinner than spend $40 on a single pizza.

The other benefit of cooking my own food is that I don’t have my credit card on too many servers, waiting to be found by hackers. I’m not a tech-bro, nor do I have any background in the security features of apps. However, there are far too many stories of big companies being hacked and Bad Guys getting their hands on customers’ credit card information. This is something I don’t have to worry about too, too much when I don’t use apps and websites to order my food.

Making good choices is always better. It might not be convenient or easy, but it’s optimal. Cooking at home and taking food with you when you’re on the go is an all-around benefit. You control what goes into your body. Your skills in the kitchen mean that you can feed yourself as needed. And it should go without saying that your wallet stays a little heavier since money isn’t flying out as fast.

So if you’re looking for some extra cash to put towards your financial dreams, I suggest that you start by looking in your kitchen. A little extra time with your stove could result in a big boost to your budget. Take it from me and make good choices!

Five Ways to Join the Double Comma Club

First off… not everyone has the financial ability to pursue all of 5 of these tactics at the same time. So, as always, do what you can right now. When you can do more, then do more. This post won’t be about starting your own business or making money through real estate. It’s geared at those who have income, who want to invest some of it for their future selves, and who want to eventually be millionaires. So with that proviso out of the way, let’s turn to the five paths you can take to join the Double Comma Club.

Tax Free Savings Account (TFSA)

The name sucks. It really does. As I’ve mentioned elsewhere on this blog, the government did a disservice to people by calling this a “savings” account. It should be viewed as an investment account. The money that you put into this account will grow tax-free. You can withdraw money from this account and you don’t have to pay taxes on the gains. In light of this feature, this account should be used for investing for the Care and Feeding of Future You.

There are rules about contributing and withdrawing money in the same year. You can read those details here. Essentially, if you take any amount of money out in a calendar year, i.e. 2024, then you cannot return that same amount of money to your TFSA in 2024. You can return that money in 2025 or later. (If you mess this up, then the Canada Revenue Agency will penalize you. So don’t mess up.)

Right now, the annual contribution room to TFSAs is $7,000. Ideally, you’re able to stuff that much into your TFSA all in one shot. If you can’t, please don’t let that stop you from contributing something. Set up an automatic transfer so that you’re contributing something to your TFSA every time you get paid.

If you’re paid bi-weekly and you contribute $50/paycheque, then you’ll be setting aside $1,300 in a year. That’s way better than $0/year. Remember, this is money that will grow tax-free. Start where you can and increase your contribution amount as you’re able to do so.

Should you come into a lump sum of money, then stuff your TFSA right away so that it can start growing for you as soon as possible. The sooner your money is invested, the higher your odds of reaching the Double Comma Club. Here are some examples of lump sums:

inheiretance
tax refund
divorce/lawsuit settlement
lottery win

Do not let the money just sit in the account. You must invest it. Personally, I invest my money in the stock market by using exchange-traded funds from Vanguard that are in the equity category. Equity products are those that are growth-oriented. They are suited for people who don’t want their investments decimated by inflation. Equity products have more volatility, but they deliver the best return over the long-term. You should be stuffing your TFSA with equity products to maximize the compound growth of your contributions. When it’s time for Future You to live off the money in your TFSA, you’ll be glad that your cash cushion is as large possible.

I used to invest in dividend ETFs because I loved the monthly dividends they paid me. However, I would have done better overall by investing in growth-oriented ETFs. Don’t make the same mistake that I did. Start investing in the growth-ETFs first. You can worry about getting dividends later.

Registered Retirement Savings Plan (RRSP)

In all fairness, it takes $269.23 bi-weekly to contribute $7K to your TFSA. If you’ve been fortunate enough to max out your TFSA contributions every year, then you should do the same with your RRSP. You can find out how much RRSP contribution room you have by going to CRA’s website.

The RRSP gives you a tax deduction for every dollar that you contribute. It’s a tax-deferred account, which means that you pay taxes on the withdrawals that you’ll eventually have to make. In short, the government will make you draw down your RRSP starting at age 71.

In the mean time, the money in your RRSP will grow tax free!

There’s a lot of debate about whether the RRSP is a tax-trap. In my little opinion, it’s better to pay taxes on money that you have than not pay taxes on money you don’t have. When Future You is too old or too ill to work, you probably won’t mind having a fat and juicy RRSP that gets taxed when you withdraw the money that you need.

As with the TFSA, I would urge you to stuff your RRSP with any lump-sum monies that you received. Do so after stuffing your TFSA. After all, the TFSA is the home of money that will never be taxed. As such, you should aim to have as much of your money in your TFSA as you possibly can.

If you’re not in line for lump sums, then go back to your tried-and-true automatic transfer. Each time you’re paid, send some money to your RRSP. When your income goes up, the increase the transfer amount. Eventually, your RRSP contributions will be maxed out. Yay for you!

Invest in equity-products, ideally ETFs. I’m not a fan of mutual funds because they’re too expensive. They have higher management expense ratios than ETFs, yet they do not – and cannot – guarantee higher returns. If I’m not getting a higher return, then why would I pay more money?

The MER is the slice of each investment dollar that goes to the investment company offering the product. My ETF has an MER of 0.22%. This means that $0.22 of every $100 that I invest goes to Vanguard. I used to own the equivalent mutual fund (at a different company), where I was paying an MER of 0.76%. Essentially, I was paying an extra $0.54 for every $100 invested. I saw no good reason to continue that trend so I switched from mutual funds to ETFs.

I know that $0.54 is a very trivial amount of money. Keep in mind that eventually you will be worth over $1,000,000. At that point, the extra MER of 0.54% means that the MER to be paid will be $5,400 per year. This is unnecessary! I don’t know about you, but I don’t see any need to fork over an extra $5,400 to anyone when I can get the same thing for less. Check out this calculator and play with your own numbers if you need more convincing.

Non-Registered Investment Account aka: Brokerage Account

Okay – this is where the steak starts sizzle. Unlike the TFSA and the RRSP, there’s no limit to how much you can invest in your brokerage account. You will pay taxes on your capital gains and dividends each year, but that is not a reason to avoid investing in this account. If anything, you want to earn as many capital gains and dividends as you possibly can because they aren’t taxed as heavily as income you get from your employer. I’m not a tax expert so speak to an accountant if you need more details. Trust me when I tell you that you need a brokerage account to better your chances of joining the Double Comma Club sooner rather than later.

Let’s say you’ve maxed out both your TFSA and RRSP. Don’t cancel that bi-weekly contribution. All you need to do is re-direct it to your brokerage account. Never forget that your automatic transfer is proof that you’re living below your means. It’s the amount of money between what you earn and what you spend. When you see money being automatically sent to your various accounts, be proud of yourself! Living below your means is no easy feat.

Once the TFSA and RRSP are fully funded, you should re-direct your automatic savings to your brokerage account. After all, you’re used to living without that money in your budget. Also, investing every time you get paid is a fantastic habit. There’s no good reason to break a good habit. The money going into your brokerage account will be working alongside the money in your TFSA and RRSP to ensure that Future You lives a comfortable life.

In my little old opinion, you should be investing atleast 25% of your take-home pay. (For transparency sake, I’ll admit to investing one third of my paycheque. It’s a good chunk and it’s easier to do when one is debt-free and childfree.) As always, the choice of how much to save is yours alone. It’s the money you earned so you have final say over where it goes.

For the third time, you can contribute lump sum amounts to your non-registered account.

The money should be invested in equity-focused ETFs with low MERs. My definition of low is anything less than 0.35%. Others only buy ETFs with MERs less than 0.10%. Don’t let the MER be the sole factor you consider when purchasing your ETFs. I have one ETFs with an MER of 0.55%, but it’s consistently paying me a 4-figure dividend every month so I’m loathe to sell it at this point.

Pay Off All of Your Debts

I have to admit that I had qualms about putting this method in the fourth position on my list. You see, I didn’t follow my own advice. I paid off my debts first – student loans, car loans, mortgage – then I seriously started investing. My former mortgage payment went into mutual funds and later ETFs. The same thing happened with student/car loans.

Looking back with the wisdom gained from experience, I should not have accelerated my mortgage payments every year. I should have been putting that money into the stock market. I would’ve had my mortgage for a lot longer. (It was paid off in 2006.) However, I also would’ve had a lot more money in the stock market, which was on a tear from 2008 to 2020. In short, investing my money in the stock market sooner would have meant greater compounding over a longer period of time on a bigger pile of cash.

Live and learn.

You need not repeat my mistake.

If you have the money, pay off your debts while you’re investing for Future You. It’s in your interest to ensure that you have as few financial obligations as possible. Make all of your minimum payments as required while stuffing your TFSA and your RRSP. If your debt is paid off before you’ve stuffed those accounts to the gills, then take that former debt payment and send it to your other debt payments. In this way, your debts get paid off faster than originally planned.

Should you receive a lump sum before your debts are entirely gone, I would suggest splitting it in half. Send half of the lump sum to the Care and Feeding of Future You accounts, aka: your TFSA and then your RRSP. Ensure that the other half goes to your debts, particularly your credit card debt if you have any. That’s almost always the most expensive debt so it’s in your best interest to get rid of it first.

You’re free to do what you want with your hard-earned money. I kindly ask that you consider investing for your future while at the same time you’re working hard to pay down your debts.

Oh, also – once you’re out of debt, don’t go back into it. Do what you need to do to save up your money before you spend it. Paying as you go is far preferable to committing future income to today’s needs.

Spend Your Money

Yes – you read that correctly. I want you to spend your money – not all of it, but some.

Look. I know that I am constantly asking you to invest a part of your paycheque for the future. But I also realize that every single one of us lives in the present. We should all be able to enjoy some of our money today. Right?

My story involves a lot of travel, entertainment, and various stuff. It’s just that it arrived at different times of my life. Once I’d paid off my house, I started sending my former mortgage payments to my RRSP and my brokerage account. When the TFSA came into being, I started sending money there too.

And while I was paying off my mortgage and investing for Future Me, what was I doing to live in the present?

I was eating out with my friends two or three times a week. I travelled to the US to see family and to visit different places. I went to concerts. I did renovations to my house. I bought my beloved SUV. Once I’d maxed out my accounts and hit a savings rate of 1/3 of my take-home pay, I decided to spend a little bit more money. Some people want to hit a savings rate of 50% or even 70%. Living on that little of my paycheque wasn’t the goal for me. I could achieve my goals by saving one third of my paycheque. Everything over and above that target could be spent however I wished. In my case, I started travelling overseas. I did bigger renovations to my home. In the past 8 years, I’ve been to Europe 4 times… and that 8-year period included 4 years of not travelling by plane. I even paid for a professional financial planner. (That was money very well-spent because he told me that I could retire 2 years earlier than I’d planned!)

That’s a long-winded way of saying that you should spend some of your money along the way. Investing for Future You and paying off your debts are two very important financial goals. Living in the present is also a very important financial goal. Spend some of your money today so that you’re building up your inventory of memory dividends and making your dreams come true. Future You will thank you!

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.

Debt is the Enemy of Financial Security.

It never ceases to amaze me how easy it is to get into debt.

I haven’t been a child since the last millennium, but I do still remember that people had to apply for credit by filing out a paper form. Today, offers for credit come directly to my email address. The financial institutions pushing credit no longer need a signature. Somehow, tapping a screen has become an acceptable way for people to start the journey into debt. They don’t even need to verify that I’m the one tapping the screen on my phone! Anyone can tap that screen and – poof! – I’m the one who’s responsible for repaying a new credit card. ***

Just this week, a financial institution offered me a credit card with a $25,000 limit!!! Are they crazy? Exactly what algorithm are they using to think that my income could pay off that kind of limit every month? To be clear, I don’t earn enough money to pay off that kind of limit in one month. And since I always pay my credit card bill in full each month, I make sure that I don’t charge more than I can repay.

Debt is a cancer to wealth.

You build less wealth while you have debt payments.

Let’s get one thing straight. Personally, I’ve come to believe to that people should be investing while they’re paying off their debt. I don’t care if it’s $10 per week or $50 per month. A little something needs to be invested for the future until the debts are paid. It may take years to repay your debt. During that time, people should still be building their wealth through investing. Small amounts invested over long periods of time do have a way of growing into very large sums. Time is too precious to waste, so invest while paying off debt.

Try not to think about how much further ahead you’d be if you were able to send your debt payments to your investment account. Obviously, investing more sooner is better. At the same time, investing something is better than investing nothing.

Once the debts are gone, atleast 70% of those former debt payments ought to be re-directed towards investing. The other 30% should be spent on whatever frivolities a person wants.

Don’t go back into debt!

Do what you want with your own money. I’m just here to tell you that going into debt over and over again will prevent you from building any kind of wealth for yourself. Debt is not getting cheaper. When was the last time the interest rate on your credit card came down?

Secondly, if you’re forever going into debt for one thing or another, when are you going to have the monthly 3-figure or 4-figure amount to invest for your future? Do you really want to spend your entire life working just so you can send most of your paycheque to someone else?

I’ve had debt before, but I got out of it.

I used a loan to buy my second vehicle. It was a 5-year loan, and I don’t remember the interest rate. The payment was $325 per month, so a little more than $10/day. I was tickled to death when that car loan was finally done. I’d hated making those payments!

So imagine my shock and horror when the financing company offered me another loan to buy a new car.

WTF?!?!!

At the time, a friend of mine explained that I was the exception. She said that most people would go and buy another vehicle. My mind was blown! I simply couldn’t fathom the idea of going into debt for another vehicle simply because I had repaid my loan. The vehicle I had just paid for was only 5 years old. There was nothing wrong with it, mechanically or cosmetically. Best of all, that car no longer siphoned $325 out of my wallet every month. Why on Earth would I want to go back into debt for another car?

Debt is easy to acquire, yet hard to eradicate.

Read that heading again. The truth is that I’ve never had an easy time getting out of debt, when I’ve had it. It took me years to pay off my mortgage, and I did it rather quickly. As I’ve noted, it took me 5 years to pay off a vehicle loan. I seem to recall that it took me several years to repay my student loans too, and those were relatively small at an amount of $15,000. Thankfully, I’ve never had credit card debt.

Yet, if I could remember how long it took me to acquire the debt, I would have to say that each loan application required less than 30 minutes of my time. My mortgage might have taken a bit longer but it was still less than an hour to be approved.

Mere minutes to acquire over $100,000 of debt… sigh… it’s almost breathtaking, isn’t it?

In very sharp contrast, it took me years and years to pay it all back. And I managed to repay those loans early! There were tax refunds and retro-cheques to help me do so. Most of the early repayments came from delayed gratification and extra payments. According to my memory, I accelerated my mortgage payment every year on the anniversary so I could pay off my principle residence’s mortgage super-early. I started at $304 bi-weekly and had bumped it up to $750 bi-weekly by the time it was done.

I have to wonder why the length of payback is never, ever advertised when creditors are extending debt to customers. Never ever forget this truth – it takes a long time to repay debt.

Debt is an impediment to the life you want.

Sending most of your paycheque to creditors sucks. You work hard, and someone else benefits from your efforts. I’m not at all convinced that most of us want the results of our life’s energy and precious time going to our creditors. We should be in a position to determine where our money goes. After all, we’re the ones who used our blood, sweat, and tears to earn it.

Get rid of your debt. There are many websites offering good suggestions about how to do so. I don’t claim to be an expert. My path to debt freedom included living well below my means and practicing delayed gratification for years. It worked for me because I earned a decent income and was able to keep my expenses low as a Single Person. I didn’t take on many subscription services. I went to the grocery store and cooked my own meals. As I rid myself of debt (student loans, car loans, and a mortgage), a significant chunk of those former payments went into my retirement and investment accounts.

Today, I’m very content with my financial situation and Past Me’s choices about money. Eliminating debt from my life, sooner rather than later, means that I have better options and that I’ve secured a spot in the Double-Comma Club. Creditors are not part of my life and I think that’s great.

*** I minimize the risk of this ever happening by deleting these email offers immediately. Then I go into my trash folder and delete the email permanently. I also never let anyone else touch my phone outside of my presence. If there’s another way to stop unsolicited credit card offers coming to my email, please let me know.

Mistakes I Made on the Way to the Double-Comma Club.

This week, I heard a statistic on YouTube that 49 is the average age for people to become a millionaire in the United States. I can only assume that it’s approximately the same for Canadians. Speaking from personal experience, that statistic is bang on. And I managed to do it while making some very big mistakes.

Mistake #1 – Buying mutual funds instead of exchange traded funds

When I first started investing, I bought mutual funds instead of exchange traded funds, i.e. ETFs. One of the reasons for this was that ETFs were not widely known in Canada at the time. I can’t be faulted for working with the information I had at the time.

Where I can be faulted is for continuing to invest in mutual funds after I learned about ETFs.

See, the only beef I have with mutual funds is their price. The management expense ratios, aka: MERs, of mutual funds is always higher than the MER of the comparable ETF. Investors have to pay MERs to the financial institutions that offer mutual funds and ETFs. Fine – people need to get paid. I understand that.

However, there’s no evidence that paying higher MERs results in better outcomes for investors. If anything, it’s the opposite. Paying higher MERs means smaller portfolio values for investors.

Over a long-enough timeframe, the difference in MERs can mean seeing hundreds of thousands of dollars less in my portfolio. That’s a very bad thing. It means that investors paid more for management expenses and wound up with less money. Check out this calculator and play with the numbers for yourself if you don’t believe me. Adjust the expense ratio and you’ll appreciate difference there is between an MER of 2% and an MER of 0.5%. The money that doesn’t go to the final institutions is money that stays in your portfolio.

Eventually, I realized that keeping my investments in mutual funds was only hurting me. So I sat down, completed the necessary forms (which took about 10 minutes), and sent the proper instructions to have my money moved into ETFs. I have never regretted my decision to make the switch.

Mistake #2 – Investing for dividends instead of for growth

This mistake happened because I’m an inherently lazy investor. The idea of passive income via dividends appealed to me! I wouldn’t have to work and money would still come to me?!?!! Once I’d understood what dividends were and how to get them, I couldn’t invest in dividend-producing assets fast enough.

So, instead of investing in equity-based mutual funds and ETFs, I invested in the dividend equivalents. Every month, I earned a few dollars. Eventually, I was earning hundreds of dollars each month. That sum crossed the 4-figure amount. Today, my dividends are enough to cover all of my basic annual expenses for food, shelter, transportation, and clothing. There’s even enough to cover some of my wants, stuff like short trips, concerts, and theatre tickets.

I try not to think about the fact that I would’ve been able to retire 5 years ago if I’d invested that same money into equity-based products. By investing solely in dividends, I missed watching my portfolio benefit from the 11-year bull run in the markets that happened between 2009-2020. If I’d invested in growth ETFS, my money situation would be so much better. I can only imagine that my portfolio would be worth double – maybe even triple! – what it is now.

I corrected my mistake in October of 2020. As the stock market was recovering from the pandemic, I tweaked my investment plan. (I should’ve made this move in April of 2020, but… coulda-shoulda-woulda, right?) Instead of investing in dividend-generating ETFs, my contributions are directed towards equity-based ETFs. The difference its made to my portfolio is remarkable. Even during the downturn we all saw in 2023, my portfolio was happily chugging along. I’ve more than recovered what I lost during the steep market declines of 2020.

Mistake #3 – Not understanding the 4%-rule

Admittedly, it can take me a very long time to understand certain things. For example, I still don’t understand the importance of the P/E ratio when assessing stocks. However, I’m not a stock-picker so I don’t worry about this blank spot in my understanding of investing. If I ever do decide to become a stock-picker, I’ll study the topic of P/E ratios and go from there.

One of the investment concepts that had me stumped was the proper application of the 4% rule to my portfolio. I didn’t understand how to use the percentage to fund my retirement. Sure, I could appreciate that 4% of $1,000,000 is $40,000. What I didn’t understand was whether that $40,000 came from the $1M-principal amount or did it have to come from the earnings generated by that principal? And what was I supposed to do if my portfolio had an annual return of less than 4%?

In other words, I always wondered what the 4% represented. Was I supposed to be taking 4% out of my portfolio’s principal every year in retirement? Or was I supposed to aim for an annual return of 4% and then only withdraw those earnings?

Roughly 5 years ago, I started to fully understand that the 4% rule traditionally means taking out 4% of the principal value of one’s portfolio and living on that amount. The 4% rule is meant to effectively decrease the value of one’s portfolio so that a person can pay for food, shelter, and living expenses in retirement.

So if I started with $1,000,000, then I’d take out $40,000 and leave the remaining $960,000 invested. Hopefully, the remaining $960,000 would still be earning 6% or more. Then, those earnings would be added to the $960,000. The following year, I would withdraw 4% of $960,000+earnings (whatever that amount wound up being)… The remainder after year 2’s withdrawal would remain invested to earn more money, and then I’d repeat the cycle in year 3.

This is not a bad strategy. It does mean that the portfolio is canabilized a little bit each year. Also, if the annual return is less than 4% in any given year, then the value of the portfolio decreases faster than the investor may want it to.

That said, my personal goal has always been to live on the dividend income earned from my portfolio. By living on the earnings, my portfolio remains intact. In other words, I don’t have to sell my portfolio in 4% chunks every year. The assets within my portfolio will continue to benefit from compound growth and my earnings should increase accordingly.

Mistake #4 – Ceasing my contributions during the 2008 recession

This one is a doozy. It’s one of the worst investing mistakes I could have made, aside from the two mentioned at the end. I try not to castigate myself too badly because I was young, and far less informed than I am now. The internet didn’t offer the same kind of information that it does now, and I had few real life examples to emulate. I made the decision that I thought was best at the time. I just happened to be very wrong.

When the stock market crashed in 2008, I saw the value of my portfolio go down. I stopped investing. I’d had an automatic transfer in place. Every two weeks, a certain amount of my paycheque went into my investment account where it would be invested into pre-selected mutual funds.

When the stock market dropped in 2008, I halted my automatic transfers. The mists of time have impacted my memory. I can’t exactly remember how long I stopped investing. Let’s say it was 3-6 months. I could kick myself for making that choice! During those 3-6 months, when the market was low, I should have been buying more units in my mutual funds when they were super-cheap. The stock market was on sale and I chose to wait until the prices went up before I resumed buying into it.

Who goes to the grocery store and says “Wait! This food is too cheap! I need the price to increase significantly before I buy some more”? No one says this, ever!

So when the pandemic delivered a gut-punch to the market in March of 2020, I knew not to make the same mistake. I continued to invest my money. I even scrounged up a few extra dollars and made an additional contribution outside of my regular investing schedule! Today, 4 years later, I’m so very pleased with Yesterday Me for sticking to my plan. Yesterday Me had learned from the past and ignored the Talking Heads of Doom who were out in full force as the coronavirus spread across the planet.

Conclusion

Making mistakes won’t prevent you from reaching your financial goals. I’m proof of that! I made 4 very big mistakes during my investment journey yet I’ve still earned my way into the Double-Comma Club.

Let’s be realistic. There are 2 big impediments that are definitely going to stop you from becoming wealthy. The first one is living above your means, which is to say that your expenses are more than your income. If this is the case, then you’re in debt because you owe money to creditors. If you don’t have money to invest, then you’re hooped.

The other big impediment to becoming wealthy is failing to invest. If you never invest your money in the stock market, then it will never grow for you. Do not let fear stop you from investing. Accept that you will make mistakes. At the same, realize that you will learn from them. We learn a lot more from failure than we do success.

Every baby stumbles after their first few steps. But you know what that baby does? S/he gets back up and tries again. And again and again and again until s/he figures it out. You can do the same thing with your investment portfolio. Make your mistakes. Learn from them sooner. Keep investing and you too will eventually become a member of the Double-Comma Club.

So start today.