Tag: financial independence

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Guest Blog Post: Boppy’s Rules of Money and Investing

Welcome back readers! (Yes, both of you.) I know it’s been a while, but life has been… well, life.

Today marks this site’s first ever guest blog, featuring the words of wisdom of my father-in-law, the one and only Boppy.

My father-in-law is a long-time investor. He has been retired now for many years. In his working days he was a teacher, but also a cautious investor and an inherently frugal man who above all else understands the value of a dollar. I always enjoy talking to him about money and investing (among other things) and the teacher in him is always happy to offer advice to those who seek it. Between his teacher’s pension and his assets from a lifetime of investing, he now spends his days doing things he loves, which mostly involves spending time with his grandchildren and enjoying his summers at the cottage. And of course, another thing that he enjoys doing is keeping an eye on the market and his investments.

When Boppy found out I had this little corner of the internet, he was intrigued. He revealed to me that he always wanted the opportunity to share some of the wisdom that he has accumulated over the years with future generations, starting with his grandkids. So I told him I would happily offer him some space on this site to share some of that wisdom. Sure enough, Boppy has come through with his first contribution.

So to my nieces and nephews (and my own children, assuming you are reading this in the future once you have learned to read), mark this page as a bookmark, a favourite, a Pin, or what have you. Without further ado, I give you the words of Boppy.

Boppy’s Rules of Money and Investing

  1. If you take care of the pennies, the dollars will take care of themselves.
  2. No one looks after your money better than you.
  3. A dollar saved is equal to two dollars that you earn. Why?
  4. It’s not how much you make, but what you do with what you make.
  5. Never allow debts to increase. Pay all bills and credit cards when they are due.
  6. Don’t put your money in banks, but buy the shares of banks (preferably in a DRIP plan).
  7. Put your money in a true credit union. I have always been a member of at least two different credit unions so I could play one against the other for the best rates. Remember you are doing them a favour when you lend them your money.
  8. Avoid spending money on depreciating assets. Invest in appreciating assets. Name a few of each.
  9. Understand the difference between needs and wants. People that make a lot of money but have little savings spend their money on wants which are depreciating assets.
  10. Save a given percentage (10% or more) from every pay cheque. Put it in an account that gets the highest rate possible.
  11. Save for important purchases and avoid borrowing money and paying interest. Buying a house is one exception.
  12. As soon as you start becoming taxable, open TFSA accounts and contribute as much money as you are able to avoid paying tax.
  13. Use RSPs to reduce taxes, but do not contribute more than about $100,000 in your lifetime if you also have a pension. You will still have to pay tax on this money when you withdraw it, and you could put yourself above the threshold for Old Age Security benefits.
  14. When saving for your children’s education, do it through yearly contributions to RESP accounts. Familiarize yourself with the different kinds available and benefit from the yearly government contribution.

There are other specific things that require planning and strategies like; buying a used car, selecting and using a credit card, and stock trading rules. You can always ask Boppy.

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Goal Set!

While writing my last post I made up a handy-dandy little spreadsheet to track net worth based on mortgage repayment and investment returns. The whole exercise was meant to prove a point and provide some visual aids for my post because charts are pictures and people like pictures.

After publishing the post, I kept on playing around with my spreadsheet, tweaking parameters and looking at numbers, because I am a data nerd and I like numbers. And while I was doing so, I played a little game of “what if” with myself. For what it’s worth, “what if” can be a dangerous game. “What if” often leads to silly things like the purchase of lottery tickets. If you play the lottery, well hey, good for you, no judgement here. But I think we can all agree that as an investment strategy it’s… um… lacking.

But in this particular game of “what if”, I went with “what if we actually did maximize saving and investment? What would that look like? How much can we afford to save per month and how would that impact prospects for early retirement?”

To answer the question, I went to Mint. If you’re not familiar, Mint is free online budgeting software. You synch it up with you banking, investment, and credit data and it helps categorize all your spending, track your investments, and give you a picture of your overall net worth. There are other budgeting tools out there, but Mint is the one I’ve tried and I’m pretty happy with it so it’s what I use.

Now savings is a function of income and expenses (income – expenses = savings). Income for most people tends to be pretty steady and our family is no different. We earn roughly the same amount of money each month. Expenses can of course be variable. Some months you spend more than others. But at this point, I have a good eight months of data of both my and Mrs. CIQY’s account information to look at our spending. So by looking at the year’s data for income and expenses so far, I can get a pretty clear picture of what we have left over on average during a typical month after doing what we already do.

And the news is good. It turns out we’re actually pretty good already at saving. By increasing our savings rate only slightly, we should be able to have our mortgage paid off in ten years, which is 13 years ahead of schedule!

This of course is based on certain assumptions. First, it assumes that our mortgage rate doesn’t climb too much higher than than it is, which is perhaps an unreasonable assumption. It also assumes no major market events that will significantly impact our average rate of return over the next ten years, which is also maybe too optimistic. And of course, it assumes that neither our income will decrease nor our expenses increase by a significant margin. Which is just way too naive. Did I mention New Baby is due to arrive in about four months? I think I have.

So do all these mitigating factors make this goal unachievable? A pipe dream? Nope! Look, I said that we’re practically at this goal already, without even realizing it, and without much in the way of sacrifice. So if life does throw us some curveballs in the form of a big market crash or a spike in mortgage rates or what have you (and it will, oh it will), it just means we have to work a little harder to hit our target. Just because we’re not sacrificing too much right now, it doesn’t mean we can’t if it turns out we need to.

They say it helps in life to achieve progress if you have a goal. Now we have one: mortgage paid off in ten years. Check back with me on August 31, 2027 to see how we’ve done. We might not get there, but there’s no harm in trying.

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Wait, what is this blog about? Career or early retirement?

It’s about both.

Good talk. Thanks for coming by.

Alright, I’ll elaborate…

It’s a valid question. For anyone who is following along, you would be forgiven for asking. “This guy starts off talking about retiring early, then spends a bunch of time talking work and career… what gives?” Fair point.

Let me clarify: the ultimate goal for me of course is early retirement. In order to consider retiring, one needs enough savings on which to comfortably live. In order to accumulate savings, one needs to maximize income and/or minimize expenses. The only way to save is to spend less than you earn. Retiring early implies you need to save more, or put a different way, to accumulate savings faster. There are only two ways to save faster: make more, or spend less. Or both.

If you don’t have enough saved yet to retire, you still have to work a while longer. This is the boat in which I find myself. I have to continue working for a few years more at least, but of course the hope is to make “a few” as few as possible. So given that I have to work, now I have some choices to make. I could choose to focus on earning as much money as possible right now, so I can ramp up that savings rate. This is the approach employed by J.P. of The Money Habit and it’s how she managed to retire at 28 (she is much better at this early retirement thing than me… or most people even). The other option is to decide that since I have to keep working for now, why not spend all that time doing something I at least enjoy, or find engaging?

I have worked jobs (yes, plural) where I was miserable. I spent most of my working days bored. When I did have work to do, I often felt the work was menial, or tedious, and largely pointless. In short, I regularly felt like I was wasting my life. Not a nice feeling. Because I have spent a lot of my working years not liking my job (and once again, I know I’m not special; I realize how common this is), my tendency is to focus on the second option, finding enjoyable or interesting work.

Don’t get me wrong, option one is great. Make the most money possible? Who wouldn’t sign up for that? But of course if it were that simple everybody would be doing it. It’s not like they’re handing out super high paying jobs on the street corner to whoever wants one. There’s a reason why we don’t all have the same high paying jobs. We have different talents and different interests. Option two is about aligning our talents with our interests. Option two can be hard enough.

What is retirement anyway?

For anyone who is familiar with the growing number of FIRE (financial independence, retire early) blogs out there, you’ll understand that retiring early does not necessarily imply that we spend our days lounging on the beach, drink in hand, and never lifting a finger ever again. If this is how you plan to spend your retirement, then good for you! Sounds fantastic. I just hope you have enough saved to spend the rest of your days living like this, because it sounds like a good way to go through a lot of money fast. We should all be so lucky.

For those not familiar with the concept, who are new to the FIRE approach, let me break it down for you. There’s a great old Simpsons episode where Homer quits his job at the nuclear power plant so he can fulfill his dream of working at a bowling alley. You could make the argument that for all intents and purposes, Homer retired when he did this. (The analogy doesn’t quite fit because in this particular episode Homer was still dependent on the income he earned from the bowling alley, but it’s close enough for illustrative purposes and it lets me incorporate a Simpsons reference.) If you separate your life into your working years and your retirement years, then your working years are spent working because you have to. In our working years, our primary concern is paying the bills and supporting ourselves or our families. If you have enough money saved that you can live off your savings, but you’re doing some kind of work because you want to, then whether or not you’re earning a paycheque doing it, you are effectively retired. In this case, you’re working by choice, presumably because you enjoy the work.

Now, imagine that there is work you can do 1) that will pay well (or well enough), 2)  that you find interesting and engaging, 3) that aligns with your values, and 4) that will give you good experience to do that thing you love during retirement. Sounds like a good idea, right? Maybe you can work toward a career today that could help you pursue a passion during retirement? Now that sounds a lot better than being miserable for 40 hours a week if you ask me.

I would love to be able to retire tomorrow, but it’s going to take me longer than that. In the meantime, I’d rather not dread going into work. I’m not an authority on careers by any stretch of the imagination. But over the years I’ve come across some good advice. And I’m happy to pass it along when I can. I also have made many mistakes, and I’ll tell you about some of those too, so hopefully you don’t have to make the same ones. Ultimately this is meant to be a space to chronicle my efforts in minimizing my remaining working years. Part of that involves making those remaining years bearable, or better yet, enjoyable. I’ll keep you up to speed on how that is working out for me.

 

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Hello world!

 

Every journey begins with a single step, right?

Thanks for stopping by. Nice to meet you.

Who am I? Just a guy, really. A guy who is tired, frustrated, and not sure if he has it in him to wait until 65 to retire from his current day-to-day. But I guess that doesn’t really tell you much.

Here’s a bit more about me. I’m originally from a mid-sized city. I started working when I was about 15. When I finished high school, I went to more school, and then some more again. Then my working life really began in earnest, since that’s what you’re supposed to do. Several years ago, I got a job in the big city, so I moved to the big city. Then I met the love of my life, who actually lived in a neighbouring city about an hour away. So I moved for love, and got married. We compromised, and the end result for us was a house in the ‘burbs. And with it, for me at least, a 90 minute commute. I know… gross, right? Also, a mortgage, like just about everybody else.

Oh, we also have a toddler, and another on the way. The bun is set to pop out of the oven in early January.

I have a job that I don’t like very much (again, like just about everybody else). As I said, it takes me 90 minutes to get to this job I don’t like very much, and then another hour and a half to get home again at the end of the day. So I would like to find a new job, preferably one closer to home in the ‘burbs where I live. Well there are a couple of problems with this. First, there just aren’t as many jobs in the ‘burbs. It’s the main reason why so many people move to the city for work. That’s where the work is. The second problem is that for a number of reasons (increased demand, increased competition, higher cost of living, etc.) jobs in the city tend to pay more. So the reality is that if I manage to find work closer to home, it is likely to come with a pay cut. Did I mention I have a family with a toddler and another baby on the way? Maybe signing on for a pay cut is not the wisest or most responsible thing for me to do. While it is true that finding a job in the ‘burbs will seriously reduce and potentially even eliminate my cost of commuting, I need to find work that pays at least as much as my current job, minus my current cost of commuting, or else I’m no better off. One could argue (and I probably would) that I would gain a lot of value from the time I would get back from not commuting, but that’s a different discussion for another day. The fact remains, at this stage in our lives, we need the money. So I am not happy with my job but because of my current situation, obligations, and preferences I am somewhat trapped. Like golden handcuffs.

So where does that leave me? I have a job that I don’t like very much, but a young and growing family to provide for. I’m awfully close to 40 but not sure I want to carry on like this until I’m 65 and can retire. Well, to stop working earlier, or at least find work more fulfilling or less demanding, I need more savings. Currently I don’t have enough (mortgage, remember?).

There are only two ways to increase one’s savings rate: earn more, or spend less. The former, as I already touched on, is difficult, but I intend to work at it. The latter has a lot more room for improvement for most families, and ours is no different.

This little space on the internets will ultimately be about both. I hope you like it. Please stay a while, and visit often.