Wealth Creation - Millionaire on the Prairie

Make Money While You Sleep

Passive income is my favourite kind. If there’s an easier way to increase my cash flow, then I haven’t found it yet. Generating passive income takes a modicum of effort on the front end, then time does the rest. You will make money while you sleep. It can’t get any easier than that!

When I first started investing in dividend-generating securities, my monthly dividends were roughly enough to buy a pack of gum. It wasn’t exciting and I didn’t tell anyone about them. Instead, I went about the business of setting up a dividend re-investment plan, aka: a DRIP, so that all those little amounts of money could compound as fast as possible. In the meantime, I sliced off a chunk of my paycheque every two weeks and sent it to my investment account. Over time, the monthly amount of dividends steadily increased. The first time I earned $1K in a single month was pretty exciting! My plan was finally working and I could envision living off my dividends in retirement. Woohoo!!!

What I love most about dividends is that they’re the easiest money I’ve ever earned. The money that I invested 30 years ago is still working for me. That fact still blows my mind. Yes – I had to go to work to earn a paycheque. And I had to live below my means, which is just another way of saying that I had to choose to invest-for-tomorrow rather than spend-every-nickel. Finally, I had to leave it the hell alone for a very long time so the DRIP could work its magic.

The beauty of a DRIP is that it compounds the dividends automatically. I don’t need to re-invest the same earned dollar over and over and over in order to see the dividend amount grow. The compound growth from that first contribution will continue indefinitely until such time as I sell the underlying investment. So every time I invest new dollars, I’m increasing the assets that will work for me 24/7/365. Those assets grow for me in two ways. First, each subsequent contribution makes my asset base larger. Second, companies increase their dividend payments. This is known as organic dividend growth, and I love it.

The invested dollars are the ones that are buying me my financial freedom, one paycheque at a time. I can’t deny that the size of my paycheque mattered too. After all, one can’t invest if one has barely enough to cover the bare necessities from one paycheque to the next. Thankfully, I wasn’t in that position. I was fortunate enough to be in a position where I had plenty leftover to splurge on the wants. Instead, I curbed that impulse and chose to invest a good chunk of my disposable income.

(Lest you think that I lived like a miser, rest assured that I did not. I’ve travelled to Europe 3 times in the space of 5 years, visited the US more times that I can remember, attended 3 destination weddings in not-inexpensive locations, maintained seasons tickets to Broadway Across Canada, gone to many concerts at home and abroad, and socialized atleast twice per week with friends. The pandemic slowed me down, but only because everything was closed for a bit. I’ve had many great experiences with family and friends, while avoiding the relentless marketing & exhortations to spend everything I earn.)

Looking back, I credit those three steps – earn, invest, DRIP – with putting me in the position that I am today. If it becomes necessary, I could live on my dividend income. It would be tight, but I could do it. Do you know how comforting that feeling is? I’ve reached Lean FIRE, as the kids call it.

One of my favourite YouTubers talks about how she set up an investment account for the sole purpose of paying for her home’s mortgage. At the time of her video, Dividend Dream had an investment account that generated enough cash every year to pay for her mortgage. Watch her video. After giving it considerable thought, she decided that it made little sense to liquidate her account to pay off her mortgage. I’m convinced that she’s right. When you have a cash machine steadily paying for some, if not all, of your expenses, there is no good reason to destroy it. It makes more sense to keep the cash machine running smoothly so you can live off the income it generates.

Speaking from personal experience, Dividend Dream’s method works. As I said early, my first few dividend payments were enough to buy a pack of gum. Then they grew to be enough to cover my monthly Netflix subscription. Soon after that, they were enough to put one tank of gas in my vehicle. The next big step was paying for half a mortgage payment, then a full mortgage payment. Today, my monthly dividend cheque is enough to cover 90% of my regular monthly expenses – both needs and wants. That’s pretty good, if I do say so myself.

Invested money works non-stop. It doesn’t get sick, need time off, or otherwise stop working for you. Once you get the ball rolling, there’s little else that you need to do. Earn the money then invest it in dividend-producing assets. Time will do the rest. You can sleep without worry, comfortable in the knowledge that you’re earning money through passive income. Unless you’re paid to sleep, I can’t think of a better or easier way to earn money.

Procrastination is the Thief of Time.

Truer words have never been spoken. When it comes to investing your money, procrastination is also robbing your wallet.

See – it’s like this. If you invest $0 today, then you’ll definitely have $0 tomorrow.

On the other hand, if you invest something, then you’ll have way more than $0. The more you invest, the more you’ll have. It’s a simple, direct relationship between the choices you make today and the outcomes that you’ll have tomorrow.

First lesson – invest your money. Start with what you can and work your way up. I suggest increasing your investment contribution by 1% every year. When you get paid capital gains and dividends, re-invest them.

Keep an eyes on your management expense ratios. The MER is the amount of money that is fleeced from your account. I look at it this way. The businesses that offer the investment products need to get paid too. That’s fair. What is not fair is me paying 2% per year instead of 0.35% (or less) for the same product from someone else.

Play around with this investing fees calculator for a little bit. It shows you the impact of MERs on your investment account. The longer you keep your account, the more money is siphoned away to someone else. By choosing good investments with lower MERs, you’ll be keeping more of your returns in your own pocket.

Second lesson – understand the impact of fees. Canada has a reputation for having some of the highest MERs in the world. The longer you pay higher MERs, the less money you’ll have for Future You when you really need it. Try to pick investment products with low MERs.

Don’t be afraid to make mistakes. You’ll always learn more from your mistakes than you will from your successes. Make your mistakes. Learn from them. Don’t make the same one over and over again. Your goal should be to earn-save-invest-learn-repeat. It’s a pattern that should never stop. As you learn better, you’ll do better.

Trust me. I started out investing in mutual funds with one of the Big Six banks. I wasn’t paying a 2% MER, but it was around 1.75%. I didn’t know any better. The Big Six bank didn’t even have a way for me to automatically deposit to my mutual funds every month. I did it in person, which got weird very quickly. So I went to an investment firm. I loved that investment firm, and I got wonderful service every time I called. Unfortunately, while the MERs were lower, they were still pretty high. But I didn’t know any better so I stayed with them.

Eventually, I started hearing about something called exchange-traded funds, or ETFs for short. They offered the same diversification as mutual funds but with MERs that were much, much lower. By the time Vanguard came to Canada, I couldn’t move my accounts fast enough.

Third lesson – make your mistakes fast so you can learn fast. No one is perfect at investing, and everyone makes mistakes sometimes. The key is to learn from your mistakes so you don’t repeat them. The biggest mistake that you can make when it comes to investing is to never start.

If you’re not yet investing, start today. If you’ve started and your MERs are too high, then move your accounts to equally good and less expensive options. If your MERs are low already, then work on increasing your contribution amount by 1%. Make sure you’ve turned on the dividend re-investment plan feature on all your investments. If your brokerage doesn’t allow for a DRIP feature, then move your accounts to one that does. Trust me on this. You most certainly want to have the DRIP in place so that your investment returns compound as fast as possible.

You’re smart enough to learn how to do this. The fact that you’re here, reading my blog, means that you have an interest in attaining financial security at some point. That’s the seed that’s needed to plant your Money Tree. By starting today, you’re preventing procrastination from stealing any more time from you.

10 Ways to Increase Your Wealth in 2024

I’ve been learning about wealth-building and personal finance for awhile now. Allow me to save you some time by sharing the methods that helped me to reach my own financial goals. If you want to increase your wealth, then implement as many of the following strategies as you can. Don’t be discouraged if you can’t do them all at once. Much like becoming proficient in any area of life, it takes time to get good with money.

1. Live Below Your Means

This maxim is the bedrock of succeeding with money and increasing your wealth. Your “means” is your income, so never spend more money than you bring in. Spending more than you earn translates into debt payments to creditors. It also put you in the position of never having disposable income for investing and building an emergency fund.

Say the word “No” to yourself and others until you’re able to live below your means.

2. Pay Yourself First

Whenever money hits your bank account, take 10% off the top and invest it. In other words, send the first 10% that amount to your TFSA, RRSP, or investment account. The sooner the money is invested, the sooner it’s working 24/7/365 to replicate itself for your benefit. This 10% is the money that must be properly allocated to Future You before it is spent on the present wants and luxuries of Today You. Believe me when I say that 10% is the absolute bare minimum that you must invest it for your future.

After you’ve sent the first 10% to your investment account, spend the remaining 90% of your money however you want without incurring debt.

Ideally, I’d like to see everyone invest 20% or more but this isn’t always feasible. And if you can’t start with 10%, then start where you are and work your way up to 20% or more.

Strive to increase your savings percentage by increments of 1% as often and as quickly as you can.

3. Build Up Your Emergency Fund

To start, I want you to get $1,000 in your emergency fund. This isn’t enough for a lot of emergencies but it’s better than nothing.

In the perfect world, you’d have 6 months of income in the bank. That takes a very long time to accumulate because it’s not a small amount of money. Set up an automatic transfer so that a portion of your paycheque goes to your emergency fund every time you’re paid. Once you have a 6-month emergency fund, then your emergency fund contribution can be re-directed to paying off debt and/or investing for the care and feeding of Future You.

If you have to use your emergency fund, then re-filling it has to become a priority again.

4. Pay Extra On Your Debt

Debt is a wealth-killer. If you’re committed to handing over great swaths of your paycheque to your creditors, then you simply cannot use those funds for investing.

I don’t care if you use the snowball method or the avalanche method to pay down your debts. Just get rid of them! Here are some methods to get find the money to make extra payments over and above your minimum amounts due:

Work another job and devote that paycheque to your debt.
Cancel some of your subscription services and re-direct that money to your debts.
Sell things that you no longer need, use, or want and put all that money towards your debts.
Downgrade your car for awhile to get out from under your car payments, and use your those former payments to pay down your debt.

Once you’re out of debt, stay out. If you want to buy something, save up the money first then buy the item outright.

5. Fund Your TFSA

The Tax Free Savings Account is a magnificent tool for building your wealth. Do not be intimidated by the maximum annual contribution limit. For 2024, that limit is $7,000. Contribute what you can!

Invest your TFSA contribution for growth. Do not use your TFSA as an emergency fund or a savings account. The name is misleading. Think of your TFSA as a way to build a tax-free river of cash that will pay for your living expenses once it grows large enough. That’s right. The money grows tax-free. If you invest it in growth instruments and let your investment compound for a long time, the dividends and capital gains earned inside your TFSA can be withdrawn tax-free to fund your living expenses.

6. Fund Your RRSP

Much like the TFSA, money inside your Registered Retirement Savings Plan will grow tax-free. The main difference is that withdrawals from your RRSP will be taxed. As such, investments in your RRSP are properly characterized as tax-deferred.

Again, stuff your RRSP to the best of your ability. Create an account at the Canada Revenue Agency so you can see exactly how much you can contribute to your RRSP. As with building your emergency fund and filling your TFSA, it might take you a long time to max out your RRSP contributions. Don’t let that stop you from starting.

7. Contribute to Your Brokerage Account

Once you’ve maxed out the contributions to your TFSA and your RRSP, they will continue to take priority each year when you have to consider where to invest your money.

However, there will come a point where you will still have money to invest after you’ve contributed to those registered accounts. At this point, you should open a brokerage account and continue to invest. The dividends and capital gains earned in your brokerage account will be taxed, but at rates much lower than the income you earn from your employer.

8. Throw Money Into a Slush Fund

A slush fund is simply there to be a buffer. If you get a parking ticket, then use the slush funds to pay for it. Let’s say you need a last-minute hostess gift, then that’s where the money comes from.

I’ve had my slush fund for a few months, and it’s come in handy. I pay some of subscriptions annually, and the money has come from my slush fund. Every money, I transfer $25 to this account. Once it hits $500, then I’ll stop doing the transfer since I’m not looking to build another emergency fund. My slush fund is meant to fluctuate up and down as unexpected yet-not-emergency-fund-worthy expenses crop up during the month.

9. Pay Off Credit Cards in Full Every Month

Use your credit cards – just pay them off in full every month. If you only pay the minimum balance owing, then your issuer will charge you interest. That interest will compound every single month until the debt is paid.

And if you can’t pay off your credit cards in full every month, then stop using them and pay for your purchases with cash. When the cash runs out, you’ll know to stop spending until your next paycheque comes in. The real beauty of cash is that it forces you to prioritize your purchases. Only you know what’s most important to you today… and which purchases can wait until later.

10. Invest From Every Paycheque Until You Retire

This is key. You need to pay yourself first consistently until you stop earning money. Every paycheque is an opportunity for your to improve Future You’s financial comfort. Don’t squander that opportunity on purchases that you won’t remember in a month. Scared that you’ll make a mistake and choose the “wrong” investment? Feel the fear and do it anyway. The reality is that you learn more from your mistakes that your successes.

Every time you’re paid, take atleast 10% – or whatever amount you can start with – and invest it for your future. (If you’re still building your emergency fund, then split that 10% in half and send 5% to your emergency fund. The other 5% will be invested as follows – TFSA first, then RRSP, then brokerage account. If you have debt, then split that 10% three ways and send 3% to your debts as an extra payment over and above your minimum payments, 3% to your emergency fund, and the remaining 4% to Future You.)

The less you spend on things that don’t bring you joy, the more money you will have for Future You. Track your spending for a period of time, then go back and assess how you felt after each purchase. Identify those expenditures that didn’t make your life better, and then resolve not to make them again in the future. Zip-zam-zoom! There’s a little bit more money that can be invested.

So there you have it – my list of 10 ways that you can increase your wealth in 2024. There are no guarantees in life, but these 10 methods will get you closer to the financial comfort that we all desire to have in our dotage. You start where you are and you make progress each day. Trust me when I say that other people have figured out how to do this. You can figure it out too.

A Gift For You – A Step-By-Step Plan for Your Money in 2024!

There’s only 1 week left until we say “Welcome!” to 2024. My gift to you this holiday season is a step-by-step plan for your money. As always, take what you want and leave the rest.

First off, I want you to open atleast 3 bank accounts. Each of these will have a very specific purpose. You can add more if you want, but you need atleast three.

First Account – Your Chequing Account

This is the account that will be the center of your financial life. You will deposit your paycheque money into this account. You will deposit your tax refunds into this account. If you get birthday money, it will go into this account. In case I’m not being clear, all of your money will flow into this account.

Next, all of your automatic transfers will flow out of it. These are the transfers for plumping up your emergency account and for sending money to your investment accounts, aka: the Care and Feeding of Future You accounts.

Once the automatic transfers have been completed, you can spend the remaining money in your chequing account however you see fit. As you know, I’m not a fan of budgets.

If you see a need to budget whatever’s left over after your transfers have gone through, then more power to you.

Second Account – Your Savings Account

This account will hold your emergency fund. These are the funds that you will rely on in a true emergency, which I’ve defined as the loss of your income. If your paycheque goes away, then you will use the money in your emergency fund to pay for your life until such time as you get another paycheque.

How much should you have in your emergency fund? Well, I’m quite traditional on this subject. I think you should have between 6-12 months of take-home pay in your emergency fund. If you can replace your paycheque quickly, then it’s okay to have closer to 6 months of take-home pay. However, if it would take you longer to replace your income, then aim for the higher amount.

Don’t expect that building an emergency fund is going to be easy or quick. It’s simple to create one. After all, the only thing you need to do is set aside money from every paycheque and then not spend it. However, as we can all agree, it’s not always easy to keep our mitts off a growing pile of money.

Easy or not, you still need to do it. Set up an automatic transfer from your chequing account to your savings account. Make it for $100 (or whatever amount you can reliably handle) and send that money to your savings account every time you get paid. The higher the amount, the faster you fill your emergency fund.

Trust me when I tell you that absolutely no one in the history of the world has ever complained about having too much money during an emergency.

Third Account – Your Investment Account

This is the account where you’re going to invest money for Future You. As I’d mentioned above, Future You is still going to want food everyday and warm place to sleep once you’ve stopped working. You owe it to your future self to start investing for tomorrow.

By now, you know the drill. Set up an automatic transfer from your chequing account to your investment account. I would advise that the transfer amount be atleast 20% of your net, take-home pay. If you’re under 25, then it can be 15%. And if you’re older than 25, aim for 30%. Again, if you can’t hit these targets right now, then set the automatic transfer amount for whatever you can afford. Then, work up to the target percentages as your income grows and as your debts are paid off.

You can hold your investment account with your current financial institution, with an online brokerage, or with an investment company. In the interests of transparency, I hold my accounts with an online brokerage where I do a single trade, once a month, to buy more units in my exchange-traded fund of choice.

Once your transfer goes through, do not leave the money sitting around. Invest it! The only way to make your money grow is to invest it. I recommend exchange-traded funds for the following reasons:

they’re less expensive than mutual funds and offer the same level of diversification;
they’re way less risky that picking individual stocks;
they allow you to invest in hundreds of companies at once and in different countries; and
they permit you to benefit from dividend re-investment plans immediately.

When you go to buy exchange-traded funds or mutual funds, pay attention to the management expense ratio. You should never be paying more than an MER of 0.40% without a damn good reason. MERs paid to someone else are money that is leaving your pocket. The higher the MER, the less money that you have invested. The MER shouldn’t be the only reason that you pick an ETF or a mutual fund, but it should be a factor that’s given a lot of weight when you decide where to invest your money.

Next, your ETF or mutual fund should have a DRIP feature. The dividend re-investment plan is one of the tools that’s going to help you stay invested. You see, at first your annual dividends are going to be very small. Think dollars… or cents. But within 2-3 years, you’re going to be receiving hundreds and then thousands of dollars on an annual basis. With a DRIP, those dividends are automatically re-invested while you, Dear Reader, are spared the temptation of spending them. The dividends don’t land in your investment account. Instead, they promptly re-invested before you ever get a chance to consider withdrawing them and spending them.

Finally, keep investing no matter what. The pandemic taught many of us that the stock market can plunge deeply within the span of a few weeks. And 2022 was no picnic either for investors. Even today, the Talking Heads of the Media are expending a lot of chinwag on “the recession”.

Listen.

No one knows when the recession will get here, how long it will last, nor how bad it will be. The only thing that they can all agree on is that it won’t last forever. When the recession is over, the stock market will start going up again. It’s what the stock market does, and what it has always done. If you’re not invested, then you won’t benefit from the stock market recovery.

So invest. And stay invested. Do not stop contributing to your investment account. Transfer your money to this account and continue to invest your money so that it can grow. Future You will thank you for doing so.

Additional Accounts – Your Sinking Funds

These accounts are where you will accumulate funds for both un-sexy stuff (car insurance, annual property taxes) and irregular payments that make your life better (travel, theatre subscriptions, concerts, fine dining, etc…)

In short, you will prioritize your short-term goals and set aside money to pay for them. I can’t tell you how much easier it is to pay may insurance premiums when I know that there’s money sitting in a bank account just for that purpose. The same goes for my annual subscription to Broadway Across Canada, my vacations, my property taxes, etc, etc, etc… You get the drift. If a certain item or service has made it onto my priority list, then I have an account set up to pay for it.

You should do the same. Sinking funds force you to allocate money to the things that are most important to you getting closer to your dream life. And one of the keys to a dream life is not having to worry about how to pay for the things that you want.

That’s the Plan.

Those are the steps. Everything else is a detail. I admit that it’s not glamorous, nor particularly snazzy, but I can assure you that this plan works. I’ve been following it for most of my adult life, and I’m pretty satisfied with the outcome. I’ve made mistakes along the way… many mistakes… but sticking to this plan for my money has tempered their impact on my financial life.

Easy Money Is My Very Favourite Kind!

I love money. I always have, mainly because it allows me to buy all sorts of things. Hard money is good too, but easy money is better.

Hard money is the kind you have to sweat for. It’s what shows up in your paycheque after you’ve traded away a portion of your very precious, very limited time here in this world. You’ve shuffled a little bit closer to the end of that mortal coil in exchange for some money.

Great! Fabulous! You made the deal, and you got what you were promised. Hard money is earned through hard work.

Yet… if you’re fortunate enough to learn about it before your days are done, there’s a way for you to also receive easy money. This is the money that you don’t have to work for. It just arrives in your bank account – easy peasy, lemon squeezy. Whether you show up at the office, whether you get out of bed, whether you’re at home, at the top of a mountain, on a beach, or at sea. This money flows into your coffers without you having to do a thing.

Is it obvious yet? Easy money is my very favourite kind.

Some of the people in my family have acquired $44,000 in less than 5 years. How did they do that? It’s quite simple, really. They invested under the following conditions:

when the stock market was doing well before COVID-19 arrived;
when the market plunged at the start of the pandemic;
during the tepid recovery between late 2020 and the end of 2021;
during the turbulence of 2022; and
they’re still investing in 2023.

My family members invested in the stock market without fail and turned contributions of $21,000 into $44,000 without batting an eye. A minimum of $3,000 per year was invested into broadly diversified equity ETFs in each of the past 5 years. In the past 2 years, the contribution amount increased to $6,000 per year.

The initial $21,000 contribution amount is broken down like this:

2019, 2020, 2021 = $9,000 invested ($3,000/yr into equity-based ETFs)
2022, 2023 = $12,000 invested ($6,000/yr into equity-based ETFs)

Despite the ups and downs in the stock market during those 5 years, the invested money has more than doubled. Not bad… not bad at all. Money went in and it didn’t come out. My family members left it alone to do its thing, and “its thing” was to grow quickly in a short period of time. That’s all, folks. It wasn’t more complicated than that.

Someone had to work to get the initial $21,000, right? That was the hard money that has since been turned into easy money… the additional $23,000 of value that no one had to sweat for.

You can do the same thing for yourself, if you’re so inclined. Can you find $100 per week? That’s $5200 per year. Maybe you can only find $25 per week? That’s $1300 per year.

Whatever you can find, then you start investing with that amount and you move up from there. Wiser minds that mine suggest investing in growth stocks. They have a track record of higher returns. For my part, dividends worked for me but it took a long time to get where I am right now. If I had to go back, I’m not so certain that I would make the same choices. My sack of gold is heavy, but it could’ve been much heavier had I been smarter sooner.

C’est la vie, right?

You’re quite lucky in that you get to decide for yourself whether you want to only earn hard money. If you can read this blog, then you can start to make easy money. Slice off some portion of your paycheque every time you’re paid and send it to your brokerage account. I’d suggest opening a brokerage account at a place that has a list of commission-free ETFs that you can buy. As soon as you can buy one unit of a commission-free ETF, do so. When the dividend or capital gains from that investment rolls in, re-invest it and do not spend it.

You’re building a cash-machine. It will take some time. The dividends and capital gains will be paltry at first. Given time, they will multiply. I’ll never forget the first time my cash-machine spit out $100 in a single month. That was awesome! You know what was even better? The first time it generated $1,000 in a single month! Believe you me, the first $5,000 dividend payment has been the nicest yet.

So start today. You too can earn easy money. And if you love your job, great! No one’s telling you to quit. You can do your job for as long as it makes you happy. Earning easy money in no way eliminates your choice to work. However, if there’s the slightest, tiniest possibility that you might not always enjoy working for hard money, then follow my advice. Take the steps now to earn some sweet, sweet easy money later.

Increasing my Passive Income in a Few Clicks

This week, I gave myself a $600 annual raise. No, I didn’t get a promotion or take a different job. Instead, I simply increased my passive income by buying some bank stock. As I’ve said before, salary and income need not be the same thing. There are always ways to increase your income even if your salary isn’t going up as fast as you want it to.

Normally, I’m not a stock-picker. I love my exchange-traded funds because they pay me dividends every month and I get the benefit of diversification. Another way of saying this is as follows. My ETFs generate passive income, which is my very favourite kind of income.

Allow me to be extremely clear. I bought shares in this bank solely because I’d received a stock tip from my sibling who is very wise and very methodical about certain things. Stock tips that come my way are generally disregarded instantly. Like I said, I’m a believer in ETFs and that’s where I’ve been investing my bi-weekly contributions to my investment portfolio since 2011. So why did I listen to my sibling this time around? Why did I act on this particular stock tip?

First, I understand what banks do. They make money, hand over fist, year-in-year-out. Some of that money is paid out to shareholders in the form of dividends. Given that I’m looking to retire within the next 10 years, I want to build a steady stream of reliable cash flow to fund my retirement. Dividends fit the bill. They also receive preferential tax treatment, which is a nice cherry on top of this tasty sundae!

Secondly, the bank I bought pays over $1/share in dividends 4 times each year. For every share I own, I’ll be making $4 per year. An extra $4/year? Big whoop! Remember that it’s an extra $4 per year per share. The more shares I have, the more dividends I earn. And I’m a huge believer in the dividend re-investment plan, which leads to my third point.

Thirdly, my brokerage will allow me to DRIP the quarterly dividends from this stock. I’ll “only” acquire 2-3 new shares every 90 days from this initial purchase, but each of those DRIP-stocks will also earn over $1 per quarter and will also lead to the purchase of even more bank stock. I’ll be benefiting from exponential growth in the number of shares that I’ll own, which means that my passive income will also be growing exponentially the longer I hold this stock.

Fourthly, the dividend payout of these shares is likely to go up. The bank stock I purchased this week has increased its dividend for the past 5 years, so it is considered a Canadian dividend aristocrat in some quarters. (Check out this article from Million about dividend aristocrats if you’re interested in learning more.) Increases in dividend payout are also known as organic dividend growth, a feature of dividends that I like very, very much.

Fifthly, I can keep earning these ever-increasing dividend amounts forever. I’ve created a beautiful money-making cycle that will continue as long as I’m alive. Unless I shuffle off quickly, this stock purchase should soon be paying me $1000 per year, then $2000, and so on and so on and so on. It’s the beauty of the DRIP meeting compound growth.

Finally, if there comes a time when I need to stop my DRIP and live off these dividends, then I can do so. While I’m always thinking of ways to increase my retirement income, I assure you that I don’t plan to live on the entirety of that income unless I have to. For my whole life, I’ve lived below my means. Presently, I don’t see any reason to stop doing so when I retire. The dividend income from my ETFs and my pension should be enough to cover my expenses when my employer and I part ways. If I don’t need the passive income from my bank stock to live, then I see no reason to stop the DRIP.

To recap, dividends generate passive income. Ergo, dividends are my favourite kind of income. This week, I had the opportunity to increase my passive income so I took it. The benefit is that I’ve increased my annual income and I’ve bought myself a little bit of insurance that I’ll have enough money to pay for things when I’m too old to return to the workforce. In the meantime, I’ll sit back and let the magic of compound growth do its thing via my DRIP. It’s all good!

You Will Either Be Rich or Poor

Future You is going to be rich or poor. The choice is yours.

This post is aimed at those folks who fall between the two ends of the financial spectrum. It’s not for those who are already uber-wealthy, nor is it for those who are living paycheque-to-paycheque. Rather, I’m aiming today’s words at the ones who still have to work to pay their bills, who have some fat to cut from their budgets if necessary. These are the people who still have financial options. Choices made today will determine if they are rich or poor in the future.

Inflation eats away at everyone’s spending power. It is imperative that you accept this concept when thinking about Future You’s finances. Prices go up over time. The 18 months prior to this post have been particularly challenging because inflation was nearing the double-digits. Everyone saw prices increase at a phenomenal rate, while their paycheques were not keeping pace. While a 4% raise is always nice, it can hardly compete with 8% inflation everywhere else.

So while inflation has “slowed” as the economists like to tell us, it’s still around. And it’s not going away. Prices are still going up but they’re simply going up more slowly.

The Book-Ends of the Money Spectrum

As I stated to at the beginning, this post is not for the uber-wealthy. They have lots and lots and lots of extra fat in their budgets. Increases in the prices for groceries, gas, utilities, and shelter will have no impact on their lives. No one will be crying the blues for the wealthy ones.

People at the other end of the spectrum are the ones who are living paycheque-to-paycheque. They work, and they earn, and their paycheques are gone in a heartbeat to pay for the cost of living as soon as they land in the bank. After shelter, food, gas, and bills, the P2P-group has very little, if anything, leftover. These good folks are in a legitimately terrible situation. They’ve already cut out the “little extras” and are still barely making it. I don’t have any good suggestions to easily fix their situations.

The rest of the folks land between these two ends of the spectrum. These are the ones who will either be rich or who will be poor. It all depends on whether they invest some of their disposable income into income-generating assets.

Financial Assets Move You Towards The Wealthy End

I’ve spent many decades reading financial articles, websites, and blogs. The one lesson I’ve learned over all this time is that successfully investing for cashflow takes some time but it pays off in the long-run. I chose dividends and I’ve stuck with dividend-investing since 2011. I’ve made plenty of mistakes and my choices were not perfect. That said, my army of money soldiers will help me to weather inflation’s impact on my future income. My employer is not interested in giving me 7% salary increases every year, no matter who hard I work. Yet, my costs of living will continue to rise as inflation inexorably moves forward. I could get another job, but I really don’t want to.

Instead, I’ll have my dividends do the heavy lifting for me.

Years ago, I set up an automatic dividend re-investment plan, aka: DRIP. As my dividends were paid out each month, I would DRIP them into more dividends. Between the DRIP amount and my regular monthly contributions, I was compounding the number of dividends that I was buying each month. Every dividend that I owned paid me a few cents each month. Naturally, I only earned a few dollars each month when I started in 2011. It was hardly enough to buy a cup of coffee. However, it only took a few years before my dividends were generating $1,000 per month for me. And a few years later, they were generating $2,000 each month.

Believe me when I say that an extra $24K per year is more than a 4% raise from my employer. Thankfully, I was one of the people who lived between the extreme ends of the spectrum. After food, shelter, transportation, and utilities, I had enough money leftover for investing and other things. My choice was to invest before paying for the others things, aka: travel, theatre subscriptions, and whatever other non-necessity happened to catch my eye.

Looking back now, I’m very happy that Young Blue Lobster understood that investing was the only way to stay ahead of inflation. Young Blue Lobster intuitively knew that it was perilous to count on an employer, and that increasing one’s income is the responsibility of the person earning it.

Inflation Will Move You Towards Poverty

If you have the means to do so and you choose not to invest, then you are making the choice to let inflation push you into poverty. What used to be affordable becomes less and less so over time. The fact that you can’t afford something is not going to motivate retailers to drop the price. Waiting for the government to “fix inflation” is not a great move either. It’s best that you assume prices will go up faster than your paycheque will increase. Once that first step has been taken, your next best move is to start investing part of every paycheque for long-term growth.

Your investment portfolio will eventually grow to a sizeable amount, and its annual increase in size will outpace your salary gains, whatever they are. The more you invest and the sooner you invest, the bigger and sooner those gains will be. Other than telling you to win a lottery jackpot, I have no feasible ideas on how to earn big money quickly. What I do know, from personal experience, is that buying into the stock market on a consistent basis for many years and always re-investing the dividends (and capital gains) has meant that my annual income has increased far beyond anything my employer has given me. And since I’m on a DRIP, those increases will continue for as long as I’m alive because of the power of compounding and organic dividend growth.

Never forget that there are many forms of income and your employer only controls your salary. Unless you’re already living paycheque-to-paycheque, you owe it to Future You to invest some of your money. Be proactive. Start slicing the fat from your budget today and investing it wisely so that you, not inflation, control when, where, and how to make adjustments to your budget.

Using a Cash Machine to Fund Your Dreams

This weekend, I happened across a wonderful video about building a cash machine to fund dreams. It was created by a YouTuber that I discovered about 2 months ago. She goes under the handle “The Dividend Dream” and I’ve learned a lot from her videos. The one that I’ve bookmarked in my Favorites folder is the one about how she plans to use her dividends to buy a beach house.

Mind blown! What?!?!?!

Anyway, I want to unpack some of the things she talks about in this video. Feel free to watch the video first or watch it after you’ve read my Sunday afternoon ramblings. Just so you know, I’ve watched her video several times already and plan to watch it a few more times. Her example is one that I hope to follow because I think it’s repeatable for anyone, both on a large scale and a small one. Your mileage may vary.

Poor People Thinking

As explained by the TDD, poor people thinking is to earn, cut expenses, save up money, and use that money to pay off debt. This isn’t a terrible plan. Truthfully, it’s a bajillion times better than staying in debt and paying unlimited amount of interest to creditors over your lifetime.

However, it’s not an optimized plan. Poor people thinking doesn’t allow for the creation and maintenance of a cash machine.

If you watch TDD’s video, you’ll hear her say that she started a brokerage account to save up enough to pay off her mortgage. She doesn’t say how long it took her to save up $425,000, but that doesn’t matter. The point is that she started to save and invest her money in dividend-paying stocks. While she was investing her money, she continued to learn strategies for optimizing her wealth. In other words, she never stopped learning. By the time her mortgage was down to $430,000 and her mortgage-payoff account was up to a balance of $425,000, her MPA was earning $23,677 annually in dividends. Her mortgage payment amount was $22,404.

By this point, TDD realized that her MPA could pay her mortgage payments every month. Eventually, her mortgage would be paid and she would continue to earn $23,677 in dividends every year. In fact, she would earn more than that because she would still be investing money into her MPA thereby earning more dividends.

TDD had transitioned to rich people thinking.

Rich People Thinking

While it’s rarely called by this moniker, rich people thinking is to create a cash machine that will pay for life’s expenses. In TDD’s case, her MPA is a cash machine. It generates enough money to pay for her mortgage every month until her mortgage is gone. When that $430K debt is out of her life, she will still have an intact cash machine that will pay her over $23K in dividends every year.

I’m not suggesting that it’s super-fast to invest enough money to generate $23K every year. Of course not! I’m living proof of that. I started investing 30 years ago, and am only now on the edge of earning $40K per year from my portfolio. I made a lot of mistakes over the years, but mid-5 figures of dividends isn’t to shabby.

However, when I started, it didn’t take very long to earn $18 per month. That’s enough to cover my Netflix bill each month. By the following year, I could’ve covered Netflix and something else***. Go and watch TDD’s video and pay attention to the main lesson: once the cash machine is paying for an expense, it will continue to do so forever.

Your assignment, should you choose to accept it, is to start building your own cash machine. Do not be discouraged by how long it will take! Start with small goals and move up from there. The magic of compound interest takes times to impress. Going from $1 of dividends per month to $2 won’t exactly blow your socks off. That’s just a taste of better things to come. Believe me when I tell you that I was very pleased the first time I earned $1,000 worth of dividends in a month. The first time I earned over $5,000 in a month was even better. And now that my portfolio generates more than a full-time employee earning minimum wage in my province ($15/hr)… well, let’s just say that I do very much believe in the power of my cash machine.

*** In the interests of clarity, I will admit that I didn’t spend my dividends…and I still don’t. Instead, I re-invested them automatically through a dividend re-investment plan. What I do instead is track my annual expenses against my monthly dividend payments. Symbolically, my dividends currently pay for 97% of my current expenses. This is a huge jump from only 4.5 years ago! And I’m still investing a chunk of each paycheque on a monthly basis.

When I retire, my cash machine will cover all of my life’s expenses. If I continue to invest a little bit each month, then it will still continue to grow and kick off even more dividends each year.

Your cash machine can do the same thing for you. All you have to do is feed it consistently by investing a part of every paycheque until its returns are enough to cover your expenses. So go back to the start of this article and watch TDD’s video, then watch it a few more times. Do what TDD and I have done and reap the rewards. You’re welcome!

30 Years of DIY-Investing Has Paid Off

When you know better, you do better.
Maya Angelou

This past weekend, I celebrated a rather significant birthday. It was also the 30-year anniversary of when I started my investing journey. As I’m wont to do on my birthday, I considered where I was when I started investing my money and just how far I’ve come on my own. I’m pretty proud of what I’ve accomplished. My parents were smart, but they weren’t rich and they couldn’t teach me what they didn’t know. I learned a lot from books and magazines, then from websites and blogs. As I graduated and earned more, I paid off my debt and invested in the stock market. I was even a landlord up until recently.

Did I do everything perfectly? Hell, no!

To be very clear, I am an amateur investor. That means I don’t have any kind of certification to underpin the choices I’ve made. My financial wisdom comes from lived experience and personal observations. I haven’t been qualified by any governing authority to hold myself out as an expert. I’m an amateur who is going to spout a few words at you.

Take what you need and leave the rest.

Best Moves I Ever Made!

One of the things that I did right was to rely on automation. When my paycheque hit my chequing account, my automatic transfer kicked in to whisk atleast $50 away and into my investment account. From there, I bought mutual funds. When I learned better, I started buying exchange traded funds. First, my contributions all went into filling my Registered Retirement Savings Plan. Then the government introduced the Tax Free Savings Account so my priority each year was to fill up my RRSP and my TFSA. Once I was in a position to fill those registered accounts each year, I turned my attention to investing in a non-registered investment account.

Each year, my employer gave me a slight raise. As my income increased, so did my contribution amount. What’s that old saying? Earn $3, invest $2? Maybe that’s just something I say to myself. In any event, my contribution amount increased each year. In other words, I continued to live below my means even as my means got smaller.

I also used automation to build my emergency fund. Even today, I still send a couple of hundred bucks to my Rainy Day Fund. When I was younger, I’d been told that $10,000 was enough. And then I learned that I should have 3-6 months of expenses tucked away. Today, I’m aiming for a year’s worth of expenses. If anything goes seriously wrong, I can live off my emergency fund for a full year before I have to stop my dividend re-investment plan in order to live off my dividends.

The second smartest thing I did after harnessing the power of automation was to get out of debt. I had about $15K in student loans when I graduated. By saying “No” to myself, a lot, I was able to knock that out in 2 years. Then I turned my attention to paying off my car loan within 3 years. I drove my little navy blue car for 8 years then bought my first SUV. I took out another loan, but sacrificed and lived very small so that I could pay that loan off in 6 months. It wasn’t fun, but it was short term pain for long-term gain.

For those keeping track, the third smart thing I did was to live most of my adult life without a car payment. In my circumstances, a vehicle is a means of transporting my body and my stuff from A to B. It’s only transportation and I see no reason to pay a loan to do so. When I had loans, I figured out ways to pay them off as fast as I could. My vehicles seem to ride better when they’re not weighing me down with debt.

By paying off my SUV in 6 months instead of 5 years, I have 13.5 years of living without a car payment. Yeah… I kept that SUV for 14 years. I would’ve kept it longer but it was a 5-speed manual and my left knee was starting to give me trouble. At the point when I felt I couldn’t safely drive my own SUV, I sold it and bought another one with cold, hard cash.

The fourth smartest move I’ve made is to buy-and-hold. Some of my stocks are the ones that my parents bought for me as a baby. I’ve had those for over half a century. They still pay me dividends every quarter. Maybe $500 per year? Again, my parents weren’t wealthy. The dividend payments aren’t enough to buy more shares, so I re-invest the money rather than spend it.

My other holdings are ones I’ve had for 10+ years. What used to be in a mutual fund with a management expense ratio of 1.76% is now in an ETF with an MER of 0.22%. After all, why would I pay the investment company 1.54% more than I have to for the same product?

In terms of category of investment, I’ve had some for 30 years. Like I said above, my dividend stream is finally enough to support me. That’s the result of my buy-and-hold philosophy.

My fifth best move was to hire an accountant. I’ve owned a few rental properties over the years. She knows tax stuff much better than I do. My accountant has made sure that I don’t get in trouble with Canada Revenue Agency. For that, she is worth every penny. She also answers questions about the tax implications of some of my investing ideas. That information has also saved me from making some big mistakes!

Mistakes? Yeah… I’ve Made A Few!

In terms of mistakes, I made a doozy. Early on, I fell in love with the idea of creating a cashflow of dividends to supplement my pension. Sears went into receivership early in my career and I heard the stories of retirees having their pensions cut. The mess at Nortel also shone a light on how pensioners are at the mercy of their employers’ continued corporate success. I wanted to minimize the chances of my retirement income being disturbed if my pension was cut. So I chose to invest in dividend-paying mutual funds and ETFs.

The smarter play would’ve been to invest in equity-based investment products. Between 2009 and 2022, the stock market was on a tear. That means it was growing and growing, year over year. My dividend products were growing too, but not at the rate of the growth products. I would’ve been far better off investing in equity-products. I finally got smart in October of 2020 and have been investing in VXC ever since.

I didn’t sell my dividend-payers!!! After 12 solid years of investing in dividend products, I’ve got a nice secondary cash flow and it’s growing nicely year over year thanks to my DRIP. It would make no sense to sell those investments just to start from scratch in VXC.

God-willing, I’ve got another 30+ years ahead of me. I’ll continue to invest in equity-based products until I don’t need to invest anymore. Presently, I’m considering the wisdom of using my monthly dividends to bolster my monthly contributions to VXC. I would have to give up the DRIP in order to do so but maybe that’s the smart thing to do since the market is currently low and starting to move back up. Buy low – hold forever. That’s kind of been my plan throughout this self-taught investing journey of mine.

My second biggest mistake with money was being too rigid. I know how that sounds. Sticking to my plan and investing consistently is what has helped me reach the Double Comma Club. That said, I was recently asked if I had any regrets about how I’ve handled money to date. For the most part, I’m good with the choices I’ve made. However, you can’t get to my age and not have atleast one or two regreats.

Looking back, I do miss that I didn’t go to a second cousin’s wedding in Paris. Truthfully, I’m not certain how I got invited since we hadn’t grown up together nor had spent much time together as adults. That said, I had just gotten home from Europe when the invitation arrived. I consulted my budget and there was no way to afford to travel to her wedding without going into debt, so I declined the invitation … (big sigh goes here) … Looking back now, I should’ve gone into debt and gone to the wedding. The debt would’ve been paid off within a few months and I would’ve met some interesting people at the wedding. Did I mention the wedding was in Paris? The City of Lights?

Since then, I’ve been thinking more about what I want my money to do for me today. My portfolio is humming along nicely. My total DRIP almost exceeds what I contribute from my paycheque. I can afford to indulge myself a little bit more when unexpected money shows up. I’m correcting the mistake of being too tight-fisted with my money. In the words of Ramit Sethi, I am learning to craft and build the rich life that I want for myself.

My third biggest mistake is thinking I know better. It’s the sin of hubris. I haven’t always listened when I should, and I certainly haven’t always applied all of the lessons correctly. However, I know this is one of my flaws and I’m working to correct it. No one makes the right choices every single time. That said, I can make better choices for myself if I’m willing to be a little more open-minded and consider viewpoints that are different from my own.

I should have spent less time on Netflix and more time learning from people who’ve done exceedingly well with their portfolios:

Anonymous Dividend Guy (credit to Tawcan for the interview)
The Dividend Dream
Gen Ex Dividend Investor

This is an error that has cost me dearly, but I’m aware of it now. I choose to do better.

My fourth biggest mistake was paying off my house early. When I sold my first two rental properties, I should have lump-sum invested the money into the market via ETFs. Instead, I chose to pay off my mortgage because I wanted to be debt-free as soon as possible.

I realize now that my mortgage would’ve been paid in due course. I got my first mortgage in 2001, and history instructs that mortgage rates continued to fall until 2022. Looking back, I should’ve renewed my mortgage every 5 years. I would’ve gotten a lower rate each time. I could’ve been paying a mortgage while investing, even though my contributions would’ve been smaller due to having to pay for my house.

Shoulda – coulda – woulda… Too late smart and all that jazz. I still did okay. Those former mortgage payments were re-directed to investing for my future. I had to choose between two sacks of gold, so I shouldn’t complain.

Finally, one of my biggest mistakes is thinking that I knew enough to be a successful landlord. If I had to do it all over again, I would’ve learned to crunch the numbers better before buying my rental properties. The first two properties were a cinch to sell – due to the market, not due to my acumen – and they netted me enough money to pay off the mortgage on my home. The third property was not a good investment for me, despite what I thought at the time. I relied on hope… and hope is not a plan. When I finally sold my last property, I did not make money. It wasn’t ideal, but it also wasn’t the end of the world.

And That’s It.

That’s my list of great moves and big mistakes which have gotten me to this point. If I could go back, I would invest in equity-based ETFs from the get-go. Further, I would’ve gone to see a fee-only financial adviser way sooner to set me up on a plan for my money. Having an objective voice and someone to check my progress along the way would’ve been a good idea. In terms of rental property, I would’ve done a lot more research and learned how to crunch the numbers.

Mistakes? Yes – I’ve made a few. They weren’t the end of the world, and my smart choices have balanced them out. Despite a few missteps here and there, I think I’m going to be just fine. Not bad for 30 years of DIY-investing.

Best Time to Invest in the Stock Market

Most investors are interested in a definitive answer to question of when is the best time to invest in the stock market. And for good reason. After all, no one – and I mean no one – ever wants to lose money. We work very hard for our paycheques. It stands to reason that you would want to buy at the very best time in order to ensure that your investment realizes the maximum return.

For my part, I’ve been investing in the stock market since I was 21. My method isn’t perfect, and I’m sure that there are other ways to do things. However, I’m going to share my 3-question strategy with you and let you decide for yourself if it will work.

Question 1 – Is the stock market heading down or dropping?

If the answer is yes, then I invest.

Here’s my reasoning. When the stock market is dropping, that means stocks are on sale. My exchange-traded funds are comprised of stocks, so my the price of each unit in my ETF is lower too. In other words, I can buy more units in my ETFs when the market is down than I can when the stock market is up.

It’s akin when my favourite coffee is on sale at the grocery store for $4.99 instead of its regular price of $8.49. I stock up when the price is lower because I know the price is going to go back up! I need my coffee and it’s best to buy it a lower price.

The same principle can be applied to investing in the stock market. I need the capital gains and dividends that my investments generate each year. Those returns are consistently re-invested for compound growth. When I retire, my portfolio will continue to generate capital gains and dividends. At that point, I can stop re-investing them and use the money to fund my retirement.

To re-cap, if the stock market is down, I invest and take advantage of the sale on stocks.

Question 2 – Is the stock market going up?

If the answer is yes, then I invest.

Let me explain why. Bear markets are when stock markets are going down. Bull markets are when stock markets are going up. If we’re entering a bull market, that means the value of my ETFs unit will be going up and it also means that the value of my overall portfolio is going up. Companies within my ETFs might decide to increase their dividend and capital gain payments, which means my ETFs will pay me more money each month.

In order for me to benefit from those increased dividend and capital gain payments, I will need to own as many units as I can in my ETFs. One of the only ways to own more is to buy more. The other way to own more is allow my dividend re-investment plan to buy more units each month. However, I think you’ll agree that buying more with my monthly contribution + relying on the DRIP-purchase means that I’ll acquire more units more quickly than by relying on the DRIP-purchase alone.

So when the market is on its way up, I want to invest so that the value of my portfolio also benefits from the increase in the stock market value.

Question 3 – Is the market going to go up or is it going to go down?

This is just a trick question. Whether the answer is “yes” or “no”, I invest.

See, I’m not a professional stock trader. I don’t spend my days staring at the stock market screens or doing in-depth stock analysis. I’m just a Blue Lobster who likes spending time in my flower garden, cooking tasty things, playing with my littlest family members, going to theatre & dinner with friends, traveling at home and abroad, reading good books, and getting enough sleep.

I have no inclination to learn about stock market fluctuations, nor to track them day-to-day. I would rather invest monthly into an equity-based, broadly diversified ETF and let time do the rest. (For the record, I still have my dividend ETFs, but I’ve been investing my monthly contributions into VXC since October of 2020.)

My strategy for finding the best time to invest in the stock market is very, very simple. I invest in the stock market every 4 weeks, which works out to 13 transactions in a year. My next step is not sell what I buy. It’s what’s called the buy-and-hold strategy. I buy – I hold – I re-invest – I repeat. This is how my strategy has resulted in very nice, very passive cash-flow that’s equivalent to an entry-level, full-time job. My dividend ETFs continue to pay me a 4-figure amount every single month, and that amount is continuously increasing. My equity-based ETF pays me a 4-figure amount each quarter. All of my ETFs pay me capital gains at the end of the year.

The way I see it, the best time to invest in the stock market is when I have the money in my bank account to do so. Up, down, or sideways – my portfolio is paying me cold, hard cash on a regular basis. When I automatically re-invest that cash and add it to my monthly purchases, I’m effectively giving myself a licence to print money. Each month, I earn a few more dollars in dividends than I earned the month before. It’s a wonderfully passive way to grow my portfolio, without having to worry about picking the “best time to invest”.

There You Have It

This is my 3-step strategy for picking the best time to invest in the stock market. Your mileage may vary. I’m humble enough to admit that there may be better ways than mine to decide when to invest. What I can tell you from personal experience is that my method works. I’m a self-taught amateur investor who has managed to create a portfolio that will comfortably support Future Blue Lobster. I continue to read and learn. Some tips I like. Some, I don’t. The one constant theme in everything that I learn about investing is that you have to invest your money. It’s the absolutely most important step you simply must make to successfully grow your investments.

When someone asks if this is best time to invest in the stock market, the answer is “Yes!”