Increased Savings or Increased Income?

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This is an ever-evolving question that depends on your present situation and goals, those that exist currently and those you aim to achieve in the 1, 2 and 5 or more years. It’s the, “which came first the chicken or the egg”. IF you spend all your time trying to decide which one first, odds are, you will starve to death so start with one. I had periods in my life where I had one job and was solely focused on savings, and other periods where I was working two to three  jobs and trying to combine raising my income and my savings rate as I was intentionally pursuing a goal that I was determined to achieve.

People always ask for tips and tricks on how to progress faster to their goals. My first question to them will always be there same: “Do you know where your money is going?”. If you don’t know where your money is going, how to do you expect to have an idea of what you can save? So people are able to outspend their money issues but that isn’t exactly a repeatable strategy to say the least and is not recommended

First, you will need to break things down to the very beginning and learn if you need a budget in the first place.

When you are talking about the basics, I don’t want to use the “B” word, but creating a budget is a big part of it if you are starting out. You need to see where the holes in your financial boat are and if they can be plugged. Anyone can create a budget, it’s a fairly simple process. From here it is important to find what you are being intentional about and what you are spending on the things in life that give you value. If buying a $4 cup of coffee from Starbucks brings you value and joy then spend away. No one should ever tell you what you value and what you shouldn’t, that’s up to you to decide.

It is the elements that don’t bring you joy and value that you can trim. There are always things in our spending that we can curb and modify and it’s important to be open and flexible with it as we go. Just remember to always pay yourself first.

Once you have the basic budget down, you can shift your focus to looking at increasing your income. It could be simple tasks as small as looking what others in your field are making and determining a game plan as to how to broach that topic with your employer to ask for a raise. (“I will teach you to be rich” by Ramit Sethi is a great book that can help you get the groundwork done to help you broach this topic at work.)

Not comfortable doing that? Look at what you are spending your money on and see if there is an easier or cheaper alternative to those goods and services you can get to replace what you currently have (e.g, switching phone carries, cancelling television and moving to streaming platforms, etc.). These are some small tricks that you can do to lower your expenses and ultimately increase your income.

We live in the age of the gig economy. There are endless ways to market yourself and your skills into a side hustle, adding an additional stream of income. Even during COVID, people are getting incredibly creative by selling custom made masks , creating online courses to teach others new skills, opening a digital printing store for the pictures you’ve taken on your travels around the world, or by providing a service such as food delivery or ride sharing. Don’t let people tell you there’s no way to make money other than your normal 9-5 job. There are millions of ways to make some extra money if you are willing to put in the work.

Not everyone is going to want to try their hand at a side hustle or pick up a second job because it just doesn’t fit them. That’s perfectly fine! This might not work well with everyone as we all have various levels of responsibilities in our life and things that demand different amounts of our time. Some people have kids or are taking care of their parents and it’s not always feasible as a result. But if you say you don’t have time because you are binging Netflix multiple hours a day, then maybe there’s a better use for your time. Why not try and take a skill  you are good at and find a way to see if you might solve someone’s problem! Good at spreadsheets? Market your skills in bookkeeping for a small local business. Enjoy creating collages and building furniture? Create yourself a Pinterest page to show off your creations and maybe turn your passion project into a small business.

Odds are you won’t be able to totally replace your normal income overnight or even after a few months. But if you were able to market your skills and create something that brings values to others you will have a new stream of income you would be able to tap into. From there you can move your passion projects into smaller lines of business for you. From there you can use the extra income to invest in your business to watch it grow, invest for longer term gains, increase your spending or take the trip you always wanted to. This money is free for you to do with at your own choosing.

All it takes is an idea with a little dedication. Rome wasn’t built in a day and neither was any profitable business. What is the worst that can happen? You fail? So, what, people fail every day. You only really fail if you give up and never try again. If it is something important to you, why not stick to it and keep going.  You are trying to improve yourself while learning something new along the way.

Good Debt vs Bad Debt

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Most people do not know the difference between good debt and bad debt. Most do not even know there are different types of debt. One can be a powerful tool that can help you create a lifestyle of your dreams, whereas the other can set you back, hold you down and keep you stuck relying on your job a lot longer than you would have hoped for. Depending how you have grown up, you have probably had the mentality of either always having debt or being told to never have debt unless you must. If you must get it, make sure you pay it off as soon as you can and do not get any more debt.

This logic can be flawed as bad debt does nothing but burn a massive hole in your pocket as well as your spending habits because you are obligated to pay that money back. It will always keep you paying someone back and struggling to ever enjoy your money.

Let us have a closer look at which both debts are quickly with a few examples as to what they are and how they can either improve your situation or destroy it.

Good Debt

Good debt is viewed as borrowing money to buy an appreciating asset. This is used by the financially savvy to purchase investments that will in turn generate income producing assets.  This comes in a few forms, with these being some of the most common:

  • Business Investments
  • Stocks
  • Rental Property
  • Private Lending

Small business investments are great because not only are you the boss, but you are also creating something for yourself that you are in turn selling to make a profit, either through a service or restaurant. You are no longer reliant on someone else for your paycheck as you can create one yourself. Every business starts small and with the right drive and motivation, the more problems you can solve the better your business will become. Amazon was not built in a day, but it easily solves hundreds of thousands of people’s problems every day.

If you are not interested running your own business, you can always invest in other companies through stocks. Stocks allow you to buy small parts of the company without requiring you to sit in on all the board meetings or working for the company. Companies that grow and solve more problems will see their share prices grow and become more valuable. If the company decides to in turn start giving out rewards to shareholders through dividend payments, this is a happy causality.

Warning: this can be good debt but can also lead to a bunch of debt if you are attempting to trade on margins (borrowing money you do not have to invest in a company). If you lose the money that was loaned out to you, not only do you have nothing to show for it, but you have now converted this over to a bad debt that now has recurring interest payments. I cannot stress this enough but taking out student loans or other types of loans to invest is extremely risky and can get you in financial trouble quickly.

Rental properties are another type of debt that, if implemented correctly, can boost your income and net worth through the four wealth builders of real estate. These four wealth builders are:

  • Loan Pay Down
  • Cash Flow
  • Taxes
  • Appreciation

Loan pay down is when you are renting out a house and the mortgage is now being paid by your tenant, meaning you are no longer covering this expense out of your pocket. Cash flow is when the leftover cash after paying the mortgage, property taxes, HOA or Condo fees, insurance, utilities (if you are covering any of them) and reserves funds have been accounted for. The good news here is that some of these expenses are part of running the business and can be deducted for taxes. Therefore, you will not end up paying all of this out of pocket and you will more than likely be paying taxes only on your leftover cash flow. Finally, the last wealth generator of real estate is appreciation. This is when your property goes up in value over time.

There are a few compounding affects that this can have if you are a buy and hold investor. It is a win if your place appreciates in value. Your unit appreciating will allow you to slowly raise the rent a little bit each time, in turn providing you some extra cash flow. After a while, your equity will be growing from the loan pay down and from the appreciation in value of the house. This provides you with more options where you could refinance, pull out your initial investment (if it has appreciated enough) and purchase another property if you choose.

Private Lending can be a tool used to invest in all of the asset classes above but might not always be something that people are comfortable with or get around to. This type of lending tends to be a little more commonly associated with real estate ventures then the others but if you are further along your journey nd have a little extra cash, why not turn around and lend it out on good deals and trying to get a slightly higher return?

The reason this tend to be slightly more common in real estate ventures is if someone with a good record or with the knowledge of looking to expand their portfolio comes along and presents you an outstanding deal, you can choose to create a private loan with them that could let them purchase the property with your loan while agreeing to higher returns for the first 6 months to a year before they go and refinance and move the property to a conventional mortgage. While doing this, you are able to lend out your money for a slightly higher then normal return. Private loans tend to be in the ball park of 10-15% interest per year.

Warning: This is a creative venture that people can pursuit however there are many risks to pursuing this type of venture. Please consult with your financial advisor when considering these types of deals in the future.

Bad Debt

This type of debt is the antithesis of financial freedom. Bad debt is more common and more widely and readily accessible than ever before. Everyone you talk to now has debt and it varies greatly in its type, shape and size. Bad debt is simply borrowing money to purchase a depreciating asset. Bad debt, while not always avoidable, can be avoided and managed better if a sufficient strategy is put in place ahead of time. Sometimes bad debt is necessary as it is the only solution to a particular problem or situation; when that is the case, it should be the #1 priority to be paid off.  A few of the most popular kinds of bad debt are:

  • Payday Loans
  • Car/Boat Loans (Financing or Leasing)
  • Student Loans
  • Mortgages or Home Equity Lines of Credit (sort of)
  • Credit Card Debt (generally ranging between 12 to 25% annual interest)

Very briefly, I have never heard of a good situation that started with “I got a payday loan because of X”. I understand that these services exist to help people out who are in a little bit of a pickle but please plan so that you can avoid them. They are special types of loans because they are paid back all at once instead of over time. This means if you borrowed money once, you would have to pay a fee to renew the loan and if you do this multiple times, you will owe more in the recurring fees than the original amount loaned. These are readily accessible through money marts, online or through banks and private loans. This is essentially robbing Peter to pay Paul because at the end of the day you still owe the money. If you do not overspend and you will be able to avoid this trap. If you build your emergency fund, you should be able to all but eliminate the use for this type of debt.

These types of debt are all bad in their own special ways. Things like cars and boats are depreciating assets (also known as liabilities) right from the second you drive off the dealer’s lot. Immediately they have lost approximately 30% of their value. These can quickly become double whammies when you are leasing them. Leasing vehicles has very few positives as not only are you renting a car for a certain number of years, but there are rules about how far you can drive per year, maintenance agreements that state you need to come to their dealership for servicing, amongst having to secure financing.

The only scenario where leasing a car could make sense is if you are a company’s executive or a contractor working in a new city for a few short years before moving back home. That is the only possible reason I can imagine that leasing a car is justifiable. If anyone has any other scenarios where leasing a car makes financial sense, please leave a comment!

Did you know that in the United States, the average person takes approximately 18 years to pay off their student loans? Here in Canada, it is a little closer to 10 years. I honestly believe that student loans have their place for some people. Here is my big issue with them: you are letting a 17- to 20-year-old decide what they want to do with their life, and they can charge it all to their future self to pay the debt later. Regardless of if they did not finish the degree, switched programs or switched schools entirely, they must pay back the money. That is a massive decision to leave to a young adult without knowing the greater consequences.

The average tuition in Canada for a post-secondary education is approximately $7,000 per year. With on-campus residence you are looking at closer to $18,000 a year. Multiply this number by four and you will get a rough estimate of what a 4-year degree costs on average in Canada. For someone living in locally, this number comes out to around $28,000 a year.

Letting an 18-year-old decide they are going to take on almost $30,000 of student loan debt with an average of 2.75% annual interest when the odds are, they have not even made anything close to that in their life to date is absolute madness. It is not anywhere as close to the absurd numbers that happens in the United States, but it is still a tough pill to swallow. That is a lot of debt to saddle someone with in order to get an education. If it took you the average 10 years to pay off that student loan you would have paid close to $34,500, [DD2] meaning you paid almost an entire extra year of tuition in interest. The world is changing and not all careers require a degree, but for lots of things you still require four years of post-secondary education to even get your foot in the door.

Mortgages are, in many cases, a natural type of debt that people have. I consider mortgages to be the lesser of bad debts here because at the end of the day, we need a place to live. The issue with mortgages comes when you start taking out a Home Equity Line of Credit (HELOC) against your house to go on vacation or buy a new car. As you pay down your mortgage you are gaining equity in your property. The more you pay down the quicker the equity grows. However, some people view this as their savings account and decide to apply for access to these funds and use them to purchase liabilities that will further destroy their financial positions in the forms of trips, boats, cars, etc.

Not only are you paying interest on money you previously paid down, but you are now using your own house as the collateral that this money is borrowed against. Messing around with a HELOC can get you into loads of trouble if you do not stay on top of it. It is much easier for most not to have them.

Credit card debt is easily the most common type of debt yet can be the most destructive in a multitude of ways. The reason is quite simple: credit cards give you the ability to get whatever you want now and pay for it later. It seems straight forward enough; the issue is when the outstanding balance isn’t paid in full and the interest starts to accrue. This starts as a small amount but can add up very quickly if you do not nip it in the bud. On top of the debt there, doing so will allow you to begin tanking your credit score. This can affect all types of debt because instead of getting good interest rates, you are having to pay premium points as you become a risk to anyone who loans money to you.

Figuring out the difference between good debt and bad debt will very quickly open your eyes to the world and show you how in control of your own life you are. We think that we have choices, but when you need to go to work to pay the bills the illusion of choice disappears, and we are only then working to pay off the bad debt.

What To Do With My Raise?

What are my options after a raise?

One of the most popular questions regarding personal finance is what to do when you get a raise at work. Everyone likes being told they are getting a raise and seeing a couple extra bucks in your account every paycheck. This seems like a straightforward math question that shouldn’t be too hard to solve, however, there is emotion tied into it because we sometimes have a hard time looking at money without emotions.

This is a good reason to have yourself an investor policy outlining what happens when new money comes in. You have a few options and depending where you are in your journey, you will more than likely lean more heavily towards one option than the other.

Pay Off Your Debt

If you have debt, you should not be going out to treat yourself with a brand new Mercedes or going on an all-inclusive trip to Mexico. I hate to break it to you but until all your debt disappears, these should not be an option to you. I’m just trying to look out for you and help you get ahead instead of always playing from behind.

If you are already in your debt pay down process, there’s good news! You have just found a little extra every paycheck that you can use to further eliminate the debt. If you have $5,000 worth of debt with a minimum payment of $250 bi-weekly, it would normally take you 10 months to pay it off. Let’s say you now earn an $350 bi-weekly. By adding this money from your raise, in turn it will only take 7 months to pay of that debt.

You managed to save yourself 3 months of time. Now not only was your debt paid off in full earlier, but you now have $350 of income that was servicing debt now freed up that you can invest and start generating yourself more future income.

Increase Your Emergency Fund

Some debt already paid off? Perfect! Now there are a few more options at your disposal. Let’s start with the most basic option that we have. Why not save that money and build up your emergency fund if you don’t already have one? It’s definitely not the sexy choice but it does have the most calming affect for you as it will allow you to sleep better knowing that you have a healthy and sizeable emergency fund saved up. I like to have approximately 4 months’ worth of expenses saved. I’d also recommend keeping it liquid, making it readily available if you need cash fast.  

The further down your journey and the more streams of income you have, the less reliant you will be on your emergency fund. Why? Because if you have other sources of income coming in (Side hustles, Cash Flow from rentals, Dividend payments, etc.) you will have other sources available to you to replenish it quickly or mitigate the need of a larger fund.

Increase Your Mortgage Payments

You have no debt other than your mortgage payments on your house? Why not try to cut that down as quickly as you can. Let’s say you have a house with $300,000 remaining on the mortgage for another 25 years at 2.14%. That monthly payment equates to roughly $1,291 that you are paying towards your principal on your house. That is also the base number required to service your mortgage. Now, if you add the extra money that you have from your raise on top of this, you will be able to accelerate your payments and chop off some time.

Topping up your payments will not only help you in the long run of making your mortgage disappear quicker, but when it comes time to refinance your house down the road and rates go back up (rates will not stay this low forever) you will have more wiggle room because you had already paid off a larger chunk as you were going. Now you will be able to stay closer to your base payment as rates go back up. On top of this, you will be paying less in interest at the same time as having paid off the house faster. This results in less money you are giving to the bank and more money in your pocket.

By increasing your mortgage by $200 a month you can save yourself $15,703 in interest. You also paid off your mortgage 4 years sooner, bringing your total amortization time down to 21 years.

Depending on your stage in life, there are some drawbacks to paying down your mortgage faster. If you are in the younger demographic, making the extra payments on your mortgage are nice because you are freeing yourself up quicker, however you could possibly be missing out on some larger returns in the market if you were to invest it (we will touch on that shortly). If you are in the older demographic, your house is probably your last remaining piece of debt keeping you tied to your job. Having this mortgage taken off your ledger will allow you to live completely debt free, with no major bills due.

Increase Your Investments

For some people that math is quite simple. Let’s say you save that that $100, invest it, and get an annual return of 8%. With a 2.14% mortgage (current rates at the writing of this post), the math would tell you that you have a greater advantage investing it and getting the net positive ~6% annual return rather then paying off the low interest debt.

Looking at it quickly, you will be hard pressed to find people who don’t believe the market will be higher in the next 25 years than it is today. The gap of 6% a year compounded over 25 years can quickly add up to a large sum of money. In this case, it adds up to just shy of $140,000 you would have on its own if it was invested. That’s a lot of money for just topping up your investments by the amount of your raise and letting that ride.

If you are tacking this extra $100 on top of our other investments, you are going to be accelerating your investment growth by consistently adding more money into the market for long term growth.  

Here is the real kicker with this option: it really depends what your relationship is with money. For some people, the math tells them that it’s a better utilization of their money to invest it and get the surplus return, however, there is something magical about watching the amount that you have remaining on your mortgage get chipped away faster than expected.

This almost seems like a trivial issue that would be easy to decide between, but sometimes our emotions get in the way and block our judgement. It’s nice to have a guideline to fall back on that would help us figure out the best way to deploy our money. Both options have their own benefits that can help you further down the road. 

What I Do

Personally, I do a little bit of both. I have my baseline lifestyle that I live at which is very similar to what it was when I started working. I take every raise I receive and I put it towards making extra payments towards my mortgage with the intention of using some of the equity in my property to purchase a rental property. I did this for 4 years prior to refinancing my property.

Now I still pay a little extra towards my mortgage because I like round numbers, but the rest of it has been shifted to going straight into investments. I find this an effective strategy because I’m putting my money to its highest and most effective use. If I were to let that money come into my account every paycheck I would easily find a way to spend it. Money without a job will find its way to spend itself every single time.

This is what I am comfortable doing because I understand the time-value of money and the faster that I deploy it in the market the better chance I have to make it grow faster in index funds. At the same time, I like putting that little bit extra down on my mortgage bi-weekly to see my mortgage shrink even a little quicker.

Do I need a budget?

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The word “budget” is probably one of the words that people hate hearing or using the most. It could be because it gives off the semblance of a contained lifestyle or a mentality of limitation. People don’t like that. No one wants to be told how much they can spend or what they can afford. Some would rather wait until next month or next year to look at their finances.

Here’s the thing, your finances aren’t going anywhere. Just because you don’t look at where your money goes doesn’t mean that everything is taken care of on that front. This could not be further from the truth because your money is like a toddler; if you don’t keep an eye on them they tend to create chaos rather quickly, and in the case of your money it will find a way to spend itself very quickly!

So the main question people have is rather quaint: Do I need a budget?

Unless you have a few million in the bank or won Cash for Life, I hate to break it to you but you need a budget. Here’s the thing though, everyone has a budget, and whether they stick to it or not is a whole other question.

Now you might strongly disagree because it gives a mindset of limitations, but what if you changed the terminology from “budgeting” to “tracking you’re spending”? Think of it as a way to improve yourself rather than the limiting yourself. People want to bring out the best in them and try to make their situation better than the way it was the day before.

Let’s say you wanted to lose some weight, but if you are still eating everything that you see not caring about the caloric intake or your macros, odds are you probably won’t get too far. So why not take a few minutes and track your progress. You aren’t going to lose all of that weight overnight, but if you worked on removing somethings from your routine that were holding you back, you would be more focused on achieving your goal and getting to your targeted weight. It’s the same concept with your finances. If you want to get things under control, you need to know where your money is going.

Spending Breakdown

Why not treat your finances as if you were running a business? Every business has a budget and they have the goal of turning a profit every month. In this case, instead of you turning a profit every month, your goal should be moving towards a position of stronger financial stability and away from a paycheck to paycheck lifestyle.

Let’s have a look at the average Canadian household and see how their money is being spent by category.

Most of the money is tied up in a combination of 4 categories. Those categories are shelter, food, transportation and taxes. Those categories account for roughly 65% of the average Canadian household’s income. Budgeting shouldn’t feel like you can’t enjoy the small things in life like a coffee from your favorite coffee shop or drinks out with friends. The issue with 90% of budgets isn’t the $5 expenses, unless they are recurring, it is often the issues are with the $500+ expenses.

There are ways to contribute to lowering all of these sections. There is always something that can be done if you think you are overspending in certain categories. Here are a few tips and tricks that I have used.

Creative Solutions

Spending too much on your housing expenses? Maybe you have too much living space or you are trying to fill the house for the family you want rather than the family you currently have. Or if you have extra rooms, why not rent some of them out to lower your living expenses and boost your own cash flow.

Spending too much on food? Most people tend to lump their eating out money into this category as well and that is likely the first part of your spending that you should be able to reduce. It has become somewhat normalized to eat out multiple times a week. What if you only ate out once a week instead of 3 or 4 times? You should be able to drop that category by a couple percentage points and free up some money for other areas.

Spending too much on transportation? There are plenty of ways around this! Maybe you have a car payment that comes out every two weeks. What if you didn’t need your car because you lived in an area of town that has good public transit? (If you live in Canada, you might find this funny because it doesn’t seem like any city has good public transit). Instead of having a car, why not bike everywhere or walk? You get the dual benefit of saving money not having to drive everywhere while paying for parking but you are also getting some exercise out of it as well.

An easy way you could do this is by combining some of your categories to try and really pear them down. What if instead of living a 30 minutes from the office, you moved to a place that was near your building, allowing you to sell your car and walk to work. It seems crazy to some to do this, however if you are intentional about minimizing some of these categories there are ways of combining them with creative lifestyles that will allow you to maximize your budget.

Flexibility is a must when you are designing your budget. Make sure that you include things in it that make you happy and that you enjoy. Don’t slash everything to the bone and try to live with a tight wallet or you may end up feeling burnt out. There has to be some flexibility in your budgeting. You have to keep in mind that you need to enjoy life a little too.

What about my Debt?

On the graph above there wasn’t no debt that was listed out on it. It is individually broken up into the categories already. Your car payment is tied to your transportation costs, credit card debt is possibly in miscellaneous, and maybe your student loan debt is in your education portion.

Debt is extremely common and it comes in all shapes and sizes. You should always try to limit and remove your debt as quickly as possible. Doing that will allow you to spend your money how you would like rather than having the obligation to pay off your debts.

If you need a new car but are barely able to scrape by with your bills, you cannot afford to lease or finance a new car. It doesn’t matter if you are offered 0% financing for 48 months, you are still making a monthly payment that will already have you strapped for cash and living paycheck to paycheck with hopes no other unforeseen expenses arise.

If you have debt, you should focus on eliminating it as quickly as possible. Debt hanging over people is what gives them the pit in their stomach, causing them to be unable to look at their finances.

If you have debt, get a piece of paper and list them all out. Include all of the information you think that you need to know including:

  • Who is the debtor?
  • How much is the outstanding balance?
  • What is the interest rate?
  • Is there a time frame on the loan?
  • How much is the minimum monthly payment?

It’s important to have everything listed out so that you can see exactly where you have debt and who you owe money to. It’s going to be scary to list everything and see how much is owing. Once you have this list[BK2] , focus on your debt as fast as you can. Doesn’t matter if you are using the debt snowball technique (making minimum payments on all debt, then paying off the smallest debts first to get them out of the way before moving on to bigger ones.) or the debt avalanche technique (making minimum payments on all debt, then using any remaining money to pay off the debt with the highest interest rate.).

Once you start eliminating your outstanding debts, you will see that your budget begins to get less strenuous and the weight of debt will start to lift off of your shoulders. Once the small battles are out of the way, the game gets a lot easier.

Looking for Help?

There are apps that will help you track your spending as well. If you are looking for budgeting tools, there are plenty out there. Mint or You Need A Budget (YNAB) are two popular apps. If you don’t want to use third party applications, most of the major Canadian banks now offer their own version of tracking apps that will link to your accounts and send an alert when you are spending against your budget . These are handy tools that people use every day. If you are someone who enjoys tracking things yourself, you can always use a cloud-based spreadsheet (e.g. Google Sheets) to track your purchases on the go, a basic Excel sheet, or just a readily accessible journal to write in.

Allocate a little time at the end of each month to review your expenses for the month. Doing this will allow you to get a clear idea as to where your money is going and how it is being spent. If you don’t track it and don’t give your money a purpose, it will find a way to spend itself. This does not have to be long, even 20 minutes of either logging your info or taking a look at possible future expenses will go a long way towards getting your finances in order.

Odds are after a few months of doing this you will start to see patterns in your spending that you might feel you should pay more attention to. Take a look at your subscription services. How many of them have you used in the last month that justify the cost? This is a perfect way that companies have succeeded in getting money from people. Perfect examples are gyms – if you haven’t been to the gym in the last 3 months (possibly more with COVID-19, but this is more in general), why are you still paying for it? Go cancel that right away and stop throwing away your money. There are always categories that people can cut back on. You don’t need to have everything in life. You just need to have the elements that bring you value and happiness.

If you think you are overspending in a category, try reducing or cutting some elements out for a bit. Eating out too much? Try planning out your meals for the week or try making the meal you would typically order-in.

Reviewing my spending

I like to take about 20 minutes on the first of the month to do a brief review of my spending from the previous month. While looking ahead to my next month, I ask myself a couple questions:

  • Are there any special events that I need to be aware of? (Birthdays, holidays, celebrations, etc.)
  • Are there any bills due this month that aren’t normal occurrences? (Property Taxes, License Plate Registration, etc.)
  • If I over spent in a category, is there a reason for it?
  • Were there any outliers or is it the beginning of a new trend possibly?

I like to treat my spending like a game. My goal is always trying to grow my gap between income and spending so that I can invest the difference. The more that you can grow the gap between your spending and your income while investing the difference is the key to a life of abundance. This is the secret equation of the wealthy that has been mastered by millions.

Why parents don’t talk to their kids about money?

Growing up, we openly discussed finances. This was normal to us, as we grew up at a young age learning the value of what a dollar is, what it can give you and how you can transform that dollar into something bigger if you put it to its best and highest use. It took me until I got my first job at 15 to see that this was not normal. A lot of people appear timid talking about their finances. I understand that this can be a deeply personal topic for some people. I like to talk about money and have for a long time.

I’ve been over to friends’ places and their parents have been very engaged with us, talking about a multitude of different things and trying to help their kids and teach them things they have learnt. Other places I’ve been told “we don’t talk about money here”. It’s quite an interesting topic that has some polarizing point of views on each side. Some are valid cases, and some are nonsensical, but here are three reasons why parents likely don’t talk to their kids about money.

Parents don’t know themselves. So how can they teach their kids?

Some parents just don’t know where their money goes. It comes into the account and flows out without any purpose or direction. Some families have one parent that will handle the finances as the other wants nothing to do with it. Some just have no desire to learn it and would rather have someone else handle all of their money. When they were kids it was a taboo topic in their house growing up so they have always had the same sensitivity to it today. No one taught them and they did what they thought was the best or was enough to get by.

The basics weren’t taught to them so they have been flying by at the seams of their pants all of these years. If they don’t look into it themselves and try to understand what’s happening in their own financials, it’s possible that they are one emergency breaking down away from spiraling out of control. They don’t need to be accountants or CFO’s to talk to their kids about money.

Even if you aren’t a genius you can teach them the value of money and what it can do for you. If you didn’t have the best financial standing growing up, wouldn’t you want your kids to be better off than you were? Why not try to help them more than you were helped before. It might seem like a daunting task but even starting with how a credit card works can really be a lifetime of a difference between a pile of debt with a shaky financial standing and confidence in their financial future.

Parents don’t want to tempt their kids with the presence of an inheritance

This can easily kill a kid’s motivation. If they find out they are going to receive a large trust fund at a certain age, will they be motivated to go pursue something or will they just run out the clock doing whatever they want at whatever costs until they get the access to the fund? Giving anyone a large sum of money with no financial knowledge can only lead to disaster.

It’s similar to lottery winners who go broke shortly after they win. They partially go broke because they spent it all but that’s only half of the equation. The other half is that they went broke because they had no knowledge of what to do with the money and how to make it last. It went out almost as fast as it came in. This can get extremely dangerous because if the kid in turn has no motivation and has been taught nothing about finances, what’s preventing them from decimating that account within the first six months and going back to the old habits of no motivation and living in your house until you they are 35? A fool and his money are easily separated if they have no sense of what they value in their life.

Parents are embarrassed about their own situation.

They have spent their entire working careers building up the semblance of wealth. Living the way everyone told them to live. Buying the nicest car, the biggest house on the street and always going to the next best place for vacation. This can come at the expenses of other things. Maybe they have a credit card that hasn’t been fully paid in months or they are a little behind on the bills but don’t want to admit it. They live their live playing the game of never checking their account so they don’t know how much money they have or being spent. Once they look and see massive outstanding numbers they begin to panic and think of quick solutions to get them out of trouble.

So their solution is to go get more money to pay off that debt. That comes in the terms of a second credit card, a line of credit or using some of their homes equity to pay off their debt and destroying their financial position even more. You don’t need to buy the newest IPhone, hottest shoes or brand new Mercedes if you can’t afford to pay your credit card off in full every month. It’s hard to admit our own mistakes if we fail to accept them or even acknowledge them. The fear of knowing how much they owe controls their actions and spending more than the peace of mind of owing nothing.

These can be touchy subjects for parents because as kids we look at them to be the authoritative figure in our lives from an early age and we expect that they know everything. Sometimes parents don’t know everything and possibly have their own bad habits as well. Talk to your parents, ask them to think back to when they were young. I’m sure they have told you a little bit about how they’ve grown up. They have probably followed a similar path to that of their parents and more than likely, taught the same things they were taught.

I’m thankful for the way my parents taught me, but I think that it’s now up to me to do a better job for my kids and them for their kids. I was taught the fundamentals to begin to build my skyscraper. When building a skyscraper, you can’t build it on a foundation that is shaky or not deep enough. You need to build it on solid ground and know that whatever you stack on top of it will hold under any circumstances and still be there in 50 years.

It’s up to us to be open and honest with them about how just like making money and investing compounds your growth, stacking a whole bunch of bad lessons and habits can destroy your financial position.

This is a touchy subject for some people because it’s so easy to spend a dollar then it is to save a dollar. It’s so quick to dig yourself into a hole and spend money fast but it’s a lot harder to get yourself out of it. Maybe soon it wont be as taboo as we all think it is.

My Why of FI

Some of the best moments of life are when we stop and take a deep breath.

My story didn’t start with winning the lottery or by getting a large inheritance. I’ve never been the smartest guy, best looking guy or most innovative guy in the room and honestly I don’t really care if I am. I’m just a normal guy who loves personal finance and has a thirst for learning. I want to constantly improve myself and learn. I want to share my experiences with others and give advice to help people when I can. But, for me to be able to share my experiences and my knowledge, I think I need to tell you a little of my backstory and why I’m striving for Financial Independence.

During high school I worked at a golf course cutting grass watering grass and raking bunkers under blistering heat for 4 years, and for those summers, I’d be at work almost every day. Even on my “days off” my dad would come into my room and would tell me to get up and go to work. Oh how I hated those mornings… I was working 12 days on and 2 days off rotation for the 10 weeks of summer we got and would work on the weekends during the school year. I would only take maybe 3 or 4 days off during the summer to hang out with friends, go out of town or just relax. I didn’t really take too much time then because I knew it was my time to work. I had a job that could basically give me more hours than I would ever want. It was an opportunity that I know a lot of my friends weren’t able to get. They would be satisfied with their 2 or 3 shifts a week. I knew that if I only worked that much, I would just waste a lot of time at that age. It was a seasonal job. We’d start in early spring before Easter and work until the course closed in the fall. The summer was my time to work. I used to be able to save half of my paychecks that would go towards living a bit in the winter, paying for my schooling, my car and my future house.

As I got older, I started working multiple jobs at a time; I saw this as a golden opportunity to take advantage of being able to learn new skills as well as earning a bit of extra income. If there was ever an opportunity to take an extra shift or get some overtime I was always the one that people would ask because they knew that I wanted to work, I would take everything that I made from those extra shifts and put it right into my savings.

Between 15 and 21 years old, this was the easiest money to make. As I got older and started going to university and college, my schedule got a little more flexible with when classes were, I found a job working at a retirement home with some more flexible work hours that allowed me better opportunities at the time. There were days where I would work from 7:00-2:00 go to class from 2:30-4:30 and be back at work from 5:00-8:00.

When you are a teenager, the weekends are your escape from school, work and your parents. Everyone wanted to get their weekends off and I knew that people were always willing to give up their shifts because they wanted to spend time with their friends and family. On weekends for me, it was always easy to find the shifts that people didn’t want and they very quickly became the shifts that I would capitalize on. Saturdays and Sundays I would be able to put in 10+ hour days by taking the shifts that I knew people didn’t want. There were always small jobs around the building too that needed to get done that they would be looking for people to help out with, whether it was setting up events or staying late after work to steam and clean carpets, I was interested because it was easy money to make and if you show people you are willing to hustle as well as know how to get the job done, they will come to you for the next thing and rely on you. This was my bread and butter throughout university and college.

I did this until I got my full time job working for the government; At this point, I changed my strategy a bit where I would work my career job 7:00-3:00, and then go to my second job and work 4:30-8:00 I would do this 3 days a week on top of still keeping my weekend shifts. It was nice at the time and I did it for a while however it seemed like work had consumed my life a little too much. It really started to take a toll on me and I started to have some health issues that were creeping into my life along with some bad habits. It was definitely becoming more challenging trying to accomplish the simplest life task without getting frustrated and giving up. I decided it was time for me to take little bit of a break from working two jobs. After a few months of starting to work on myself and get back to being healthy again I decided to buy a house.

Shortly after the purchase of my house, there was a change in my contract and with that a change in payment. I didn’t get paid for 6 months. It was a mental strain going through this knowing that if I didn’t have an emergency fund to tie me over I would have been screwed. I couldn’t talk about it, didn’t want to talk about it and it was a little bit of a running joke with some people and that was tough to hear. I realized how fragile life could be to have only one stream of income coming in. If that ever disappeared, troubles wouldn’t be far behind. I finally had my case resolved and got my back pay which was nice, except that I needed to finalize the rest of the down payment for my house as well as pay back my parents for borrowing some of their money to get me through this period.

After a few months of living at my place, I had considered the opportunity of possibly renting out some of my rooms and trying my hand at being a landlord. I had always been infatuated with real estate since I read Robert Kiyosaki’s Rich Dad, Poor Dad. I knew that I wanted to expand my knowledge and the best way to learn was with some hands on experience. I found a few buddies that were looking for a place to live and I had a few extra rooms I wasn’t using so it seemed like an easy match.

This was definitely a failed experiment as things went sideways pretty quickly. Between chasing rent payments, running essentially a bed and breakfast for their friends to spend multiple days on the couch, leaving the house looking like a pigsty and a lack of respect towards anything that wasn’t theirs, it was starting to really wane on me mentally. My house was a place that I had worked tirelessly and relentlessly for years to get. It was something I took a lot of pride in ownership of and within a few months it had lost its luster. Looking back, I can see it was my fault as I did a poor job at screening them and setting firm guidelines. However, it was definitely one of the most valuable learning experiences of my life because it taught me the value of doing my due diligence with renters. Don’t get me wrong, collecting rent money was nice but it just didn’t feel good. It was more stressful being home than being at work. After they left, I worked on refining my process for a while before I found another roommate to move in; it has quite literally, been night and day between the two situations.

A few years later, I was out for breakfast with some friends of mine. One of them who worked at a restaurant near my place had mentioned they were looking for some help. They we’re looking for someone to be a host at the front of the restaurant and be the face of the place. The idea at first seemed a little bit out of my comfort zone/ but after thinking about it a little bit, it really seemed like a great opportunity to work on some of my soft people skills. It started as a couple days a week. Then a couple days became a few, after a while I realized I was spending almost all of my spare time there. I didn’t really mind this that much as it was an opportunity to work on some new skills and do a little bit of networking with some of the clients.

While I was working there, I was also looking for ways to get to know the areas I was considering for rental properties. The easiest way to do that was to combine making money while driving around different neighborhoods. So, like any sane person who just loves to work, I decided to pick up a third job driving for Skip the Dishes.

It wasn’t the most lucrative side hustle but at the same time it was taking me right to the neighborhoods where I was considering investing and I was writing down the street addresses for all of the houses for sale I saw to go and research later (also known as driving for dollars in an indirect way). So some days I would work my career job, drive to the restaurant to work for a couple hours and then go drive Skip for a few hours to see what was new in my targeted neighborhoods. At this point I am pretty much a full blown workaholic. This was pre-COVID (ah simpler times…) once COVID happened, well life changed pretty quickly. The restaurant shut down for a while and I figured this would be the best time to stop driving for Skip to avoid my chance at exposure. This has been an extremely tough time for millions of people. I am thankful that I was able to transition to work from home however that comes with its own set of challenges in building a new routine, adapting to the ever evolving world around us as well as trying to stay safe and healthy. This gave me a break and a presence of mind to take a step back and re-evaluate what my plan was and where I plan on going.

I have always wanted to purchase rental property, diversify my portfolio and use some of my refined people skills. I started looking at various properties more seriously until I found something that would suit my criteria. After a few months, multiple offers, and one deal falling through I finally bought an investment property. That was a learning process to not get discouraged if something takes longer than expected.

Over the years my story has been continuously evolving. It’s has its ups and definitely its downs. I’ve made my fair share of mistakes but I will constantly be learning and growing. Life is about pushing your own boundaries, trying new experiences and finding your own personal joys of life.

Being wealthy is really a mindset of having an abundance of joyful things in your life. Like spending time with your friends and family, pursuing your passions and being able to give back to my community. For me, money is nothing more than a means to give me options. I have spent a lot of time working so far in my story and over the years, I’ve managed to save a good chunk of that money. Saving it is nice don’t get me wrong. However I want that money to work harder then I work. It has to be able to work 24/7, 365 so I don’t have to. I want it to work this hard so I can have the opportunity to change my career path if I wanted to, start a business, donate to charity or start a scholarship fund. This is why financial independence is important to me. It gives you options! I don’t want to end up slogging through a career that I love now but I might not love as much in the future because I have to. I want to be able to have options in life to be able to pursue what I want if things change. Financial independence gives you that. To me, the most important part is that I’m constantly growing and constantly learning.

That’s my why of FI.